China’s once-booming industrial sector is struggling with profits now falling for a third-straight year, official data shows. In the first two months of 2025, industrial profits dropped by 0.3%, indicating continued weakness compared to the prior year. This downturn due to inflation further exacerbates fears over the sputtering economy and underscores a pressing need for state and federal policymakers to strengthen support measures. The profit drop has occurred as the context for global trade grows ever more hostile.
U.S. President Donald Trump countered with his own 20% tariff on China. This was especially surprising given that he made this decision a little more than two months after his swearing in. The tariffs imposed thus far have ramped up overall trade tensions, deepening the adverse effect on China’s economic prospects. Top economists at HSBC and ANZ have downgraded their forecasts for China’s GDP growth this year to 4.8%. During this time, Citi economists are forecasting a more modest growth rate of 4.7%. These updated numbers paint a slightly more rosy picture than earlier predictions of 4.5%, 4.3% and 4.2% respectively.
Billed as a post-COVID-19 super stimulus, Beijing has released an aggressive economic growth target of about 5% this year. Analysts say reaching that target will almost certainly necessitate more aggressive stimulus actions by the Chinese state. Recent figures released on industrial profits paint a stark picture of the situation facing the Chinese economy. This is especially striking in light of the even more weakened export momentum starting off this year. Exports accounted for almost a fifth of China’s GDP last year. They’ve ground to a halt in recent months, adding to the pain felt by the economy.
The deepening trade conflict/dispute has further rallied support for stronger countercyclical policy support stabilizing growth. At the level of political calculus, the Chinese government has very big problems, moving forward. Its ability to hit the ground running with superior measures will determine the country’s economic path for the balance of 2023.