How China’s industrial profits saw a sharp rebound in August

China’s industrial profits soared in August as Beijing pressed ahead with efforts to rein in excess supply and curtail cut-throat price wars, with analysts saying that rationalizing production will spill into the country’s next five-year plan.

Industrial profits rose 20.4% in August from a year earlier, reversing three months of consecutive declines, according to data released by the National Bureau of Statistics on Saturday.

That sharp rebound also marked the biggest jump since November 2023, when profits surged 29.5% year on year as a slew of pro-growth measures helped buttress a post-pandemic recovery and bolster the manufacturing sector.

Chinese authorities attributed the strong rebound in corporate profitability to macroeconomic policies coupled with the impact from last August’s low base — when profitability had declined by double digits — prompting Beijing to unleash a slew of stimulus measures at the end of September last year.

Beijing’s efforts aimed at curtailing fierce price competition across industrial sectors, at a time when deflation in producer prices is in its third year, helped ease price declines in August to their slowest in four months.

“The recovery of PPI thanks to China’s anti-involution push showed that it has led to the marginal improvement of the profit,” said Tommy Xie, head of Asia macro research at OCBC Bank.

The easing declines in producer prices came as industrial output growth in the country slowed to 5.2% in August, its weakest expansion rate in a year.

Yet a solid recovery in aggregate demand still appears out of reach as the economy grapples with a prolonged housing downturn and soft labor market, economists said, reinforcing calls for more forceful policies to boost consumption.

A slate of economic data out of China in recent weeks has painted a gloomy picture of the world’s second-largest economy, with retail sales growth slowing for a third straight month and the consumer price index once again dipping into the negative territory, underscoring sluggish domestic demand.

Profits recovery in August was uneven across industries. Demand for raw materials such as steel remained resilient while appetite for finished goods such as electric vehicles and solar panels remained subdued, economists said.

Upstream industries, such as those involved in the production of raw materials and nonferrous metals, saw greater profit recovery, benefiting from a “strong commodities cycle” which still has legs to run in the coming months, said Hong Hao, managing partner and CIO at Lotus Asset Management. Steel production turned a profit in the first eight months, according to NBS.

“Rising prices and volumes in the raw material production sector suggest demand recovery,” Hao said, while certain downstream sectors, such as EVs and solar panels, experienced rising prices but falling demand.

Upstream industries’ profits surged by 37.5% from a year earlier in August, versus a decline of 13.5% in July, according to estimates by Goldman Sachs, as demand and prices rose while costs fell. Profits in downstream industries climbed 15.8% last month, Goldman estimates.

“The notable improvement of profitability in raw material sectors, such as steel, hints at the government’s ‘anti-involution’ policies at work,” said economists at the Wall Street bank.

Among industrial firms, state-owned enterprises fared better with a 50% profit jump year on year, compared with 13.2% profit increase for private firms, underscoring how state firms in upstream industries have responded “more forcefully” to government policies, OCBC’s Xie noted.

Profits in automaking, chemical products manufacturing and textile industries decreased 0.3%, 5.5% and 7% respectively, according to the NBS data.

“Without stronger aggregate demand, the upstream gains could come at the expense of mid- and downstream sectors,” Xie added, expecting Beijing to unveil additional fiscal support, totaled 500 billion to 1 trillion yuan, aimed at funding certain strategic industries.

Chinese policymakers have doubled down on their “anti-involution” campaign in recent months, seeking to balance excess supply with weak demand while pressing companies to avoid steep discounting that has eroded profits.

Industrial firms’ profit margins have been under added pressure this year as higher U.S. tariffs have weighed on China’s exports momentum and disrupted global trade flows. By mid-2025, the aggregate profit margin of China’s industrial enterprises had fallen to levels not seen since the early 2000s, Economist Intelligence Unit said in a report earlier this month.

A “restructuring of China’s overcapacity sectors is already in motion,” EUI economists said.

The consolidation process will likely become a “lasting theme” for China’s 15th five-year plan, said Tianchen Xu, senior economist at EUI. Fixed asset investment saw a sharp slowdown in the January to August period.

Chinese authorities will convene a closed-door meeting next month to review plans for economic developments for the next five years.

A “successful consolidation” would see the industrial capacity utilization rate back to 75% with the PPI returning to positive territory and industrial profits growing in line with nominal GDP growth, Xu added.

China’s industrial capacity utilization rate fell to 74% in the second quarter, the lowest level since early 2024.

Meanwhile, China has also intensified efforts to boost domestic demand, funding a subsidy program that encourages consumers to trade in old goods for new ones, while ramping up childcare support and incentivizing businesses to expand hiring.

Beijing is likely to pursue a “gradual” consolidation to limit disruption amid already-weak corporate confidence, the EUI analysts said, rather than “an abrupt and large-scale closure of supply capacity” — even though industrial profits and prices did improve after the recent supply curbs.

In a release Monday, China’s Ministry of Industry and Information Technology slashed its annual output growth target for key non-ferrous metals, including copper and aluminum, over the next year.

China is set to release its purchasing managers’ index for September on Tuesday, ahead of a week-long Golden Week holiday that runs through Oct. 8.