China’s industrial profits fell 5.5% in October, worst level in five months

Chinese industrial companies’ profits took a hit in October as trade tensions with the United States intensified in the month, slowing growth momentum across the economy.

Industrial profits fell 5.5% in October compared to the same month last year, the biggest drop since June and a reversal from the double-digit growth seen in August and September, data from the National Bureau of Statistics showed.

Profits at major industrial companies rose 1.9% year-on-year in the first 10 months of this year, slowing from 3.2% growth in the January-September period, official data showed.

In the same month, trade tensions between China and the United States escalated over export controls, with US President Donald Trump threatening to impose 100% tariffs on Chinese imports before the two economic giants reached an agreement on South Korea later that month.

In the January-October period, profits in the mining sector fell by 27.8%, while profits in the manufacturing and utilities sectors, which include electricity, heat, fuel and water suppliers, rose 7.7% and 9.5%, respectively.

The automaker’s profits rose 4.4% in the first 10 months of this year, compared with a 3.4% increase in the first nine months of the year.

Profits of state-owned enterprises were flat, while profits of foreign-owned enterprises, including investments from Hong Kong, Macau and Taiwan, were 3.5%, and profits of private enterprises were 1.9%.

NBS chief statistician Yu Weining said October’s drop was due to the impact of a high base from last year and the rapid expansion of corporate spending.

China’s manufacturing activity contracted more than expected in October, with the official manufacturing purchasing managers index falling to 49.0, the lowest level in six months. A value above the indicator 50 indicates growth, a value below it suggests contraction.

After being in negative territory for most of the year, China’s consumer prices unexpectedly turned higher in October, rising 0.2% from a year earlier. Core inflation, which excludes food and energy prices, rose 1.2%, the highest level since February 2024.

However, the reality is not as optimistic as the core inflation rate suggests, according to Nomura Bank’s chief China economist Ting Lu, who estimated that about a quarter of the 1.2% core inflation rate was “virtually unrelated to domestic consumption” and was mainly caused by soaring gold prices.

“The underestimation of the decline in rents is also contributing to the exaggeration of key inflation statistics,” Lu said, suggesting the country could be in a “moderate recession” starting in the second half of 2022.

“It will take more time for China to truly emerge from the deflationary challenge it currently faces, especially as economic growth has been sluggish since mid-2025,” Lu added.

The economy has slowed significantly, growing by just 4.8% in the third quarter, and recent indicators suggest the economy is losing even more momentum early in the fourth quarter.

Retail sales slowed for the fifth consecutive month to 2.9% in October, the weakest growth in a year. Fixed asset investment fell by 1.7% in the first 10 months of this year, not seen since 2020 during the pandemic. Industrial production also grew by 4.9%, lower than expected.

On the other hand, the unemployment rate in urban areas remained high at 5.1% in October.

Chinese policymakers have signaled a shift toward higher consumption over the next five years, but have yet to offer any new meaningful stimulus. Economists widely expect the Chinese government to refrain from large-scale stimulus measures as the economy remains on track to meet its growth target of “about 5%” this year.

“Policymakers don’t want to under-achieve or over-achieve,” said Larry Hu, chief China economist at Macquarie Group, predicting that China’s economy could continue to grow at 5% in 2026 on strong export growth.

However, Hu added that “deflationary pressures” are likely to continue weighing on the economy as strong external demand reduces the urgency for domestic stimulus.