China’s industrial profits slide as deflation weighs on recovery

Saturday 27 December 2025 - 10:50

By: Dakir Madiha

China’s industrial profits slide as deflation weighs on recovery

China’s industrial sector saw a sharp drop in profits in November, reflecting persistent deflationary pressures and weakening domestic demand that continue to challenge the country’s post-pandemic recovery. Official data showed that profits for major industrial firms fell 13.1% year-on-year for the month, deepening October’s 5.5% decline, while cumulative growth from January to November slowed to just 0.1%, down from 1.9% in the previous period.

The latest figures underline the strain facing Chinese manufacturers as falling prices squeeze margins and discourage investment. Producer prices dropped 2.2% in November compared with a year earlier, extending more than three years of deflation at the factory gate. The persistent decline points to fragile consumer confidence, especially as households continue to tighten spending and property market weakness weighs on sentiment.

Industrial output grew by 4.8% in November, marking the slowest pace in over a year, while retail sales expanded by only 1.3%, their weakest performance since pandemic restrictions ended. Analysts suggest that although headline growth data remain positive, the underlying momentum of the recovery is uneven. According to market observers, deflation’s grip highlights the economy’s difficulties in shifting from an export-driven model to one led by domestic consumption.

In response, Chinese policymakers have committed to adopting stronger fiscal and monetary tools to revive demand. During the Central Economic Work Conference held in December, leaders designated boosting consumption as the central policy goal for 2026. Plans include maintaining a proactive fiscal stance and employing interest rate and reserve requirement cuts to support liquidity. Authorities also recognized the growing imbalance between abundant supply and tepid consumer demand, pledging efforts to expand household spending power and stabilize expectations.

International institutions, including the International Monetary Fund, project moderate growth for China over the next two years. The IMF recently lifted its forecast for 2025 to 5% and for 2026 to 4.5%, citing supportive fiscal policies and policy continuity. Still, it emphasized that sustaining long-term stability will depend on China’s ability to transition toward consumption-led growth rather than relying on exports and infrastructure investment.