Employees are working on solar cell modules used in solar panels at a factory in Realyon Gun, East Jiangsu Province, China, which produces modules for export to the US and Europe.
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China’s industrial profits skyrocketed in August as Beijing moved forward in efforts to curb excess supply and reduce the Cutthroat price war, and analysts said streamlining production would ripple into plans for the next five years.
Industrial profits rose 20.4% in August from a year ago, overturning the third consecutive month of decline, according to data released by the National Statistics Bureau on Saturday.
That sharp rebound also marked the biggest jump as profits have skyrocketed 29.5% year-on-year since November 2023, driving post-growth measures.
Chinese authorities attributed it to a strong corporate profitable rebound on macroeconomic policies linked to the impact from the low base last August, just as Beijing unleashed many stimulus packages at the end of September last year.
Beijing’s efforts aimed at reducing fierce price competition across the industrial sector, helping to slow August prices down the slowest in four months, when producer prices deflation took place in its third year.
Tommy Xie, Head of Asian Macro Research at OCBC Bank, said:
The decline in producer prices was the weakest expansion rate of the year, as the country’s industrial production growth slowed to 5.2% in August.
But as the economy struggles with long-term housing slump and the soft labor market, a robust recovery in aggregate demand remains out of reach, according to the economist.
Slates of economic data from China in recent weeks paint a pessimistic picture of the world’s second-largest economy, with retail sales growth slowing for the third consecutive month, and consumer price indexes once again immersed in negative territory, highlighting a decline in domestic demand.
Uneven recovery
The profit recovery in August was uneven throughout the industry. According to economists, appetite for finished products such as electric vehicles and solar panels was curtailed, while demand for raw materials such as steel was resilient.
Hong Hao, managing partner and CIO at Rotus Asset Management, said upstream industries involved in the production of raw materials and non-ferrous metals have benefited from a “strong commodity cycle” with still running legs in the coming months as profit recovery has increased. Iron production was profitable in the first eight months, according to NBS.
“The rise in prices and volume in the raw material production sector suggests a recovery in demand,” Hao said, but certain downstream sectors such as EVs and solar panels experienced price increases but declines in demand.
Goldman Sachs estimates that profits in the upstream industry were up 37.5% from the previous year in August, adding to a 13.5% decline in July as demand and prices rose even if costs fell. Downstream industry profits rose 15.8% last month, Goldman estimates.
“The significant improvement in profitability of raw materials sectors such as steel suggests government “anti-volution” policies in the workplace,” says an economist at Wall Street Bank.
Among industrial enterprises, state-owned enterprises are better with a profit jump of 50% per year compared to a 13.2% increase in profits from private companies, highlighting that state-owned enterprises in upstream industries responded “more powerfully” to government policies.
According to NBS data, profits for automation, chemical manufacturing and textile industry fell by 0.3%, 5.5% and 7%, respectively.
“Without total total demand, upstream profits could come at the expense of the mid- and downstream sectors,” Xie added, earning a total of between 500 billion and 1 trillion yuan yuan, aiming to fund certain strategic industries.
Rebalance of supply demand
Chinese policymakers have doubled their “anti-intrusion” campaign in recent months, balancing over supply and weak demand while pushing businesses against sudden discounts that erode profits.
Industrial companies’ profit margins are under additional pressure this year as US tariffs disrupt China’s export momentum and global trade flows. By mid-2025, the total profit margins for Chinese industrial companies had fallen to levels not seen since the early 2000s, the Economist Intelligence Unit said in a report earlier this month.
“The restructuring of China’s overcapacity sector is already in motion,” the EUI economist said.
Tianchen Xu, senior economist at EUI, said the integration process is likely to be a “permanent theme” of China’s 15th five-year plan. Fixed asset investments saw a sharp slowdown between January and August.
Chinese authorities will hold a closure closure meeting next month to consider economic development plans for the next five years.
With the “successful integration” the industrial capacity utilization will return to 75%, while PPI will return to positive territory and industrial profits growing along nominal GDP growth, Xu added.
China’s industrial capacity utilization fell to 74% in the second quarter, the lowest level since early 2024.
Meanwhile, China is stepping up efforts to increase domestic demand, funding grant programs that encourage consumers to trade old and new products, strengthening childcare support, and encouraging businesses to expand employment.
Beijing is likely to pursue “gradual” integration to limit disruptions amidst the Week corporate trust, EUI analysts said, not “a sudden, massive closure of supply capacity,” despite improvements in industrial profits and prices after the recent supply curb.
In a release on Monday, China’s Ministry of Industry and Information Technology reduced annual production growth targets for major non-ferrous metals, including copper and aluminum, over the next year.
China is scheduled to release the Purchase Manager Index in September on Tuesday ahead of the weekly Golden Week holiday, which runs through October 8th.
