China's Corporate Profits: A Three-Year Slump

As we delve into 2025, the Chinese economy finds itself grappling with a persistent challenge: a third consecutive year of declining corporate profits. This trend, which has been unfolding since 2023, has raised concerns among investors and economists alike. Let's explore the factors driving this slump and the potential remedies the Chinese government can employ to reverse this trend.



The primary factors driving the consecutive declines in Chinese corporate profits can be attributed to multiple challenges at home and abroad. According to Yu Weining, a statistician with the National Bureau of Statistics (NBS), the narrowing trend in profit declines is a positive signal that the Chinese economy is gradually overcoming various difficulties and stabilizing on an improving trend. The NBS data shows that the profits of major industrial enterprises fell 2.3 percent in 2023, continuing a month-on-month narrowing that began in March. This recovery underscores the resilience of the Chinese economy, as the profits of industrial companies whose annual main business revenue exceeded 20 million yuan ($2.82 million) stood at 7.69 trillion yuan, a year-on-year decline of 2.3 percent, narrowing by 2.1 percentage points from the first 11 months of last year.



How have specific sectors, such as technology and energy, contributed to the overall profit trend? Based on the information provided, specific sectors such as technology and energy have contributed to the overall profit trend in China. Here are some key points:

1. Technology Sector: The technology sector, particularly the equipment manufacturing industry, has shown resilience and growth. In 2023, the profit of the equipment manufacturing industry increased by 1.7% in the first seven months, continuing the growth trend. Among the sub-sectors, the electrical machinery industry, driven by demand for lithium-ion batteries and household air conditioners, saw a 33.7% increase in profit (Source: NBS statistician Sun Xiao).
2. Energy Sector: The energy sector, specifically the nonferrous metal smelting and rolling processing industry, has also contributed to the profit trend. In November 2023, this sector posted a 20.2% increase in profits (Source: CGTN calculations based on NBS data). Additionally, the electricity, heat production and supply industries saw a 13.5% rise in profits during the same period (Source: CGTN calculations based on NBS data).
3. High-end and Green Manufacturing: The profitability of high-end, intelligent, and green manufacturing industries has also contributed to the overall profit trend. In November 2023, the high-end equipment manufacturing sector saw rapid profit increases, with opto-electronic device manufacturing growing by 41.1% and aerospace-related equipment manufacturing rising by 14.3% (Source: NBS statistician Yu Weining). The growth in smart and automated products has led to profit gains in related industries, with wearable smart devices, graphics computing seeing a profit increase of 90.3% and measuring instruments growing 31.3% (Source: NBS statistician Yu Weining).

These specific sectors have contributed to the overall profit trend by demonstrating resilience and growth, even as the overall profits of major industrial enterprises have declined. The growth in these sectors is a result of policy measures aimed at stimulating industrial growth, as well as the ongoing recovery in corporate profits.

To reverse the profit decline and stimulate economic growth, the Chinese government can implement several policy measures. Some of these measures include:

1. Fiscal Stimulus: The government can adopt a more proactive fiscal policy by increasing the deficit-to-GDP ratio, intensifying fiscal spending, and optimizing the fiscal expenditure structure. This can help boost domestic demand and support economic growth. (Source: Central Economic Work Conference, 2024)
2. Monetary Easing: Implementing a moderately loose monetary policy can provide a better liquidity environment for economic recovery. This can involve reducing reserve requirement ratios and bank interest rates, as well as innovating financial tools to channel more capital into productive sectors. (Source: Central Economic Work Conference, 2024)
3. Housing Market Stabilization: Measures to revitalize the housing market, such as relaxed mortgage terms, lower down payment requirements, and the removal of home-buying restrictions, can help halt the prolonged downturn in the property market and stimulate economic growth. (Source: Central Economic Work Conference, 2024)
4. Support for Private Enterprises: Reinforcing support for private enterprises, which are considered the backbone of China's economic engine, can help boost economic growth. This can involve easing restrictions on foreign investors and shortening the "negative list" for foreign investment. (Source: Central Economic Work Conference, 2024)
5. Capital Market Interventions: Authorities can introduce measures to stabilize and promote the capital markets, such as a RMB 500 billion facility enabling institutional investors to purchase stocks and mechanisms for banks to provide loans to listed companies for share buybacks and shareholding increases. These interventions can help restore investor confidence and sustain upward momentum in the equity markets. (Source: Central Economic Work Conference, 2024)
6. Industrial Policies: Implementing policies to support high-end, intelligent, and green manufacturing industries can help improve the efficiency of industries and contribute to a steady recovery in corporate profits. (Source: NBS statistician Yu Weining, November 2024)
7. Policy Combination Effect: The combination of policy measures aimed at stimulating industrial growth can help stabilize industrial production and contribute to a steady recovery in corporate profits. (Source: NBS statistician Yu Weining, November 2024)

In conclusion, the consecutive declines in Chinese corporate profits are a cause for concern, but the resilience of specific sectors and the government's commitment to implementing policy measures offer hope for a turnaround. By addressing the root causes and employing targeted policies, China can reverse this trend and stimulate economic growth.