China NBS: Manufacturing sentiment declined from last month due to seasonal slowdown, high temperatures, and flooding in some regions

China NBS: Manufacturing sentiment declined from last month due to seasonal slowdown, high temperatures, and flooding in some regions

China's industrial profits have shown a consistent decline over the past few months, with June marking another significant drop. According to data from the National Bureau of Statistics (NBS), industrial profits fell by 4.3% year-on-year in June, following a 9.1% decline in May. This trend is indicative of the ongoing challenges faced by Beijing's manufacturers, who are grappling with deflationary pressures and intense price competition [1].

The primary factor driving this decline is entrenched producer price deflation, with factory-gate prices falling for months. The situation has worsened in June, reaching levels not seen in nearly two years. Overcapacity and discount wars among companies have exacerbated the issue, leading many businesses to sell below cost to maintain market share. This has resulted in a significant decrease in margins, further straining corporate earnings [1].

The Chinese economy has shown resilience in the second quarter, with a better-than-expected GDP reading. However, the corporate earnings remain vulnerable, especially in key sectors such as autos, solar, and heavy manufacturing. The continued slump in profits underscores the vulnerability of these sectors amidst weak domestic demand and ongoing trade tensions with the United States [1].

In response to the crisis, Chinese authorities have vowed to tighten regulation across industries accused of unsustainable price-cutting, particularly in the autos and solar panel sectors. Lu Zhe, chief economist at Soochow Securities, has suggested that a combination of regulatory tightening and a new "cash-for-clunkers" trade-in scheme could help boost demand and curb the ongoing price war [1].

The official data also reveals a stark contrast in corporate performance. State-owned enterprises recorded a 7.6% decline in profits in the first half of 2025, while private companies saw a 1.7% increase and foreign-invested firms posted a 2.5% rise. However, even major state-run companies like Guangzhou Automobile Group and JAC Group are bracing for record second-quarter losses, highlighting the depth of the crisis in China's industrial sector [1].

While the government is exploring supply-side reforms to stabilize the economy, analysts suggest that this recovery could be slower due to tougher global conditions and rising unemployment risks. The lack of an official timeline for broader stimulus indicates that Beijing is under growing pressure to act decisively ahead of key political events later this year [1].

References:
[1] https://www.wionews.com/business-economy/china-s-industrial-profits-keep-shrinking-in-june-as-price-wars-take-a-toll-1753611669973