China industrial profits drop 5.5% in October, worst level in five months

Profits at industrial firms in China declined in October, the National Bureau of Statistics said on Thursday, as manufacturers navigated renewed uncertainty in trade relations with the U.S. and Beijing’s campaign to rein in excess capacity.

Industrial profits dropped 5.5% from a year earlier in October, the biggest decline since June, and reversed the momentum seen in September, when the figure surged 21.6%, the most significant jump since November 2023.

For the first ten months of the year, profits at major industrial firms grew 1.9% from a year ago, the official data showed, decelerating from a 3.2% rise in the January to September period.

Trade tensions between China and the U.S. had escalated that month over export controls, with U.S. President Donald Trump threatening additional 100% tariffs on imports from China, before the two economic superpowers reached a deal in South Korea.

China’s manufacturing activity contracted more than expected in October, with the official manufacturing purchasing managers’ index slumping to a six-month low of 49.0. A reading above the 50 benchmark indicates growth, while one below that suggests contraction.

While manufacturers found some relief from the trade pact struck between Trump and Chinese leader Xi Jinping that reduced tariffs on Chinese products, weak domestic demand and uncertainties in global trade continue to cast a shadow over the trade outlook.

China this month has signaled that it will ban all Japanese seafood imports amid a diplomatic feud over Taiwan.

China’s consumer prices unexpectedly returned to growth in October, rising 0.2% from a year ago, after staying in negative territory for most of the year. Core inflation, stripping out food and energy prices, jumped 1.2%, the highest since February 2024.

The reality, however, was less rosy than the core inflation reading suggested, according to Ting Lu, chief China economist at Nomura Bank, who estimated that about a quarter of the 1.2% core inflation readings had “almost nothing to do with local consumption” but were mainly caused by surging gold prices.

The “underestimated decline of rents also contributed to the overstatement of headline inflation data,” Lu said, suggesting that the country has been mired in a “moderate recession” since late 2022.

“It will take more time for China to truly escape the deflationary conundrum it currently faces, especially as economic growth has stumbled since mid-2025,” Lu added.

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