BEIJING — In a sobering turn for the world’s manufacturing powerhouse, China’s industrial profits tumbled 5.5% year-on-year in October, marking the steepest decline in five months and shattering a fragile two-month recovery streak. The data, released Thursday by the National Bureau of Statistics (NBS), underscores the deepening challenges facing the nation’s $19 trillion economy as weak domestic demand collides with renewed trade frictions and persistent deflationary pressures.
The October slump reverses the double-digit surges of 21.6% in September and 20.4% in August, which had briefly buoyed hopes for a manufacturing rebound. Economists had penciled in modest growth of around 2.8% for the month, making the downturn a sharp disappointment. “This drop highlights the vulnerability of China’s industrial sector to both internal and external shocks,” said Lynn Song, chief economist for Greater China at ING. Mining profits, in particular, continued to weigh heavily, dragging overall figures lower after a year-to-date decline of 14.8%.
A Broader Economic Slowdown in Focus
The profit contraction arrives against a backdrop of faltering growth indicators that paint a picture of an economy struggling to regain momentum. Third-quarter GDP expanded at a sluggish 4.8%, the weakest pace in a year, while October’s retail sales grew just 2.9%—the softest in over 12 months and a fifth consecutive slowdown. Fixed-asset investment, a cornerstone of Beijing’s stimulus playbook, contracted 1.7% over the first 10 months, the sharpest drop since the pandemic-ravaged 2020. Industrial output, meanwhile, eked out a meager 4.9% gain, missing expectations and signaling cooling factory activity.
At the heart of these woes is a deflationary spiral that has eroded corporate pricing power. Producer prices fell 2.9% in October, deeper than the prior month’s 2.8% dip and worse than forecasted. “It will take more time for China to truly escape the deflationary conundrum it currently faces, especially as economic growth has stumbled since mid-2025,” noted one analyst. The official manufacturing Purchasing Managers’ Index (PMI) slumped to 49.0 in October—a six-month low below the 50 threshold indicating expansion—further dimming the outlook.
Cumulatively, industrial profits for the first 10 months of 2025 rose a tepid 1.9%, down from 3.2% through September, covering firms with annual revenues of at least 20 million yuan ($2.82 million). Sectoral disparities are stark: While manufacturing and utilities eked out modest gains earlier in the year, mining has been a persistent anchor, with profits plunging 29% in the first five months alone.
Ownership Breakdown: Private Sector Squeezed, Foreign Firms Hold Steady
The profit data reveals uneven resilience across ownership types, highlighting structural tensions in China’s industrial landscape. State-owned enterprises saw profits flatline over the first 10 months, reflecting their role as stabilizers amid volatility. Private firms, the engine of innovation and employment, managed a slim 1.9% increase—buoyed by niche export successes but hampered by domestic softness. Foreign-invested enterprises, including those from Hong Kong, Macau, and Taiwan, fared best with a 3.5% rise, likely leveraging diversified global supply chains.
This divergence underscores a growing “erosion of the private sector and small businesses,” as one expert described it, with automation displacing workers rather than fostering broad-based recovery. In sectors like automotive manufacturing, profits have cratered 11.9% year-to-date, squeezed by price wars and excess capacity.
Trade Tensions and the Export Lifeline Under Siege
External pressures amplified the October rout. Exports, a traditional bulwark for industrial profits, crumbled unexpectedly in October as firms front-loaded shipments to dodge looming U.S. tariffs under President-elect Donald Trump. Beijing’s campaign to curb overcapacity—particularly in steel, solar panels, and electric vehicles—has also bitten into margins, even as it aims to restore competitiveness. Renewed U.S.-China trade spats in October exacerbated the pain, with manufacturers navigating higher barriers and a high base from stimulus-fueled gains last year.
“Manufacturers find some relief from the trade pact, [but] weak domestic demand and uncertainties in global trade continue to cast a shadow,” analysts observed. Sectors like rail, ships, and aerospace have seen pockets of export strength, yet overall, the data signals a painful pivot away from export reliance.
Policy Response: Calls for Bold Domestic Boost
With growth teetering near Beijing’s ~5% annual target, the profit plunge is fueling urgent demands for policy intervention. The Communist Party’s recent plenum pledged to “significantly” elevate household consumption’s GDP share while fortifying the industrial base. Measures already in play include infrastructure outlays and targeted industry support, but skeptics question their potency amid deflation.
“Policymakers don’t want to miss or over-achieve the target,” said Larry Hu, chief China economist at Macquarie Group, forecasting steady 5% growth into 2026 with calibrated stimulus. Yet, as Li Wei, an economist on Chinese industrial policy, warned: “The October data underscores the need for sustained and comprehensive policy support to bolster domestic demand.”
Looking Ahead: A Fragile Path to Rebalancing
October’s profit nosedive—the worst since a 9.1% plunge in May—serves as a clarion call for China to accelerate its economic rebalancing. While foreign and private sectors show glimmers of adaptability, the mining and overcapacity-plagued heavy industries remain Achilles’ heels. As global commodity prices soften and trade winds shift, Beijing faces a high-stakes balancing act: Ignite domestic vitality without reigniting inflationary ghosts.
For now, the factory floors of Qingdao and Ningbo echo with cautionary tales—of resilience tested, but not yet broken. The road to 2026 may demand more than incremental tweaks; it could require a fundamental rethink of what powers the dragon’s engine.