Story perspectives

China's Industrial Crisis: 33 Months of Deflation Hits Sectors

7/27/2025

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Summary

China's Industrial Crisis

China's industrial sector is in crisis, experiencing 33 months of deflation with a 3.6% drop in the Producer Price Index as of June 2025.
Overcapacity in industries like EVs and steel, combined with weak domestic demand, is causing profit declines.
The government is cutting capacity and enforcing price controls, which may limit state-owned enterprises' flexibility.
Investors should target sectors aligned with Beijing's green initiatives, such as electric vehicles and renewable energy.
Manufacturers are near-shoring to ASEAN in response to U.S. tariffs and trade barriers, indicating a shift in global supply chains.

Summary

China's Profit Decline

China's major industrial firms experienced a 1.8% profit decline in H1 2025, totaling 3.44 trillion yuan.
Profits in June decreased by 4.3%, an improvement from May's 9.1% drop.
Manufacturing profits rose by 1.4% in June, indicating a recovery.
Equipment manufacturing drove growth, with profits up 9.6%, particularly in the auto sector.
Overall industrial revenue increased by 2.5% year-on-year in the first half.

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China's Industrial Crisis

China's industrial sector is in crisis, experiencing 33 months of deflation with a 3.6% drop in the Producer Price Index as of June 2025.
Overcapacity in industries like EVs and steel, combined with weak domestic demand, is causing profit declines.
The government is cutting capacity and enforcing price controls, which may limit state-owned enterprises' flexibility.
Investors should target sectors aligned with Beijing's green initiatives, such as electric vehicles and renewable energy.
Manufacturers are near-shoring to ASEAN in response to U.S. tariffs and trade barriers, indicating a shift in global supply chains.

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