Margin Squeezes Intensify as Industrial Profits Slow
Chinese industrial profits increased 1.9% from January to October compared with the same period in 2024, down sharply from 3.2% in September. Economists expected industrial profits to accelerate to 3.8%.
Industrial profits rebounded in August and September after falling 1.7% in July, fueling hopes of rising employment and a pickup in domestic consumption. However, October’s pullback in industrial profits suggests the sector remains under pressure.
Industrial Profits and the Demand Landscape
Weakening profits could adversely affect the Chinese labor market, including wage growth. Firms could potentially cut staffing levels or reduce wages to manage profit margins. A deteriorating labor market would likely weigh on household spending, adding to the pressures stemming from the housing crisis.
For context, retail sales growth has slowed sharply in the second half of 2025, reflecting weak consumer sentiment. Chinese retail sales slowed from 3.0% year-on-year in September to 2.9% in October, down sharply from May’s 6.4% increase. China reported slower retail sales growth despite Beijing’s efforts to boost household spending through subsidies and other policy measures.
With Chinese shipments bound for the US subject to a 47% levy, margin squeezes could continue. Falling margins may place greater pressure on Beijing to roll out fresh stimulus to bolster the economy.
Corporate Earnings Reflect Demand and Profit Margin Woes
Chinese car manufacturer Li Auto released third-quarter earnings on Wednesday, November 26, signaling a deteriorating demand environment.