Analysis: High-Tech Manufacturing Lifts China’s Industrial Sector

Industrial profit growth in China continued to recover during the first nine months of 2025, largely supported by a low comparative base from the previous year[para. 1]. High-tech manufacturing has emerged as a critical driver of quality industrial development, although the lasting impact of recently implemented policies aimed at curbing excessive competition remains uncertain. The effectiveness and sustainability of these policies, particularly their positive influence on the supply side of the industrial sector, will become clear only with time[para. 1].

Efforts to reduce excessive competition are expected to help boost industrial profits modestly, but the extent of this support has not yet fully manifested in measurable ways[para. 2]. The rebound in profits was notably underpinned by low performances in the previous year rather than by a robust and fundamental improvement in industrial conditions[para. 3]. In the first nine months of 2025, profits of industrial enterprises above a designated size rose by 3.2% year-on-year, with September alone seeing a dramatic 21.6% yearly surge. However, when assessed over two- and three-year periods, growth appears limited. The two-year average growth rate dropped to -0.2% in September, while the three-year rate improved only marginally to -3.1%[para. 3].

The persistent weakness in industrial product prices and subdued effective demand are the primary constraints preventing a stronger profit recovery. While the policy to combat excessive competition has improved market expectations, the potential for lasting support in profit growth hinges on adequate policy execution[para. 4]. Producer Price Index (PPI) data indicated a year-on-year drop of 2.3% in September, a narrower decline than the previous month, attributed in part to early positive effects from policies regulating market competition[para. 5].

Revenue growth for industrial enterprises has remained relatively stable compared to profit growth, highlighting the ongoing influence of both price and demand challenges. Operating revenue increased by 2.4% year-on-year during the first nine months, showing only modest acceleration[para. 6]. The profit margin improved to 5.26% over the period, and reached 5.49% in September, both figures reflecting a stronger performance relative to last year’s low base[para. 7]. Third quarter industrial capacity utilization rates rose to 74.6%, up 0.6 percentage points from the previous quarter, with over half of all industrial categories recording gains[para. 8].

High-tech manufacturing has become a standout sector; profits in this field grew by 8.7% year-on-year and surged 26.8% in September alone, making it a significant contributor to overall industrial profit growth. Equipment manufacturing also outperformed, and these two sectors made substantial contributions to overall industrial recovery[para. 9][para. 10].

Policy efforts to counter excessive competition have emphasized limiting the growth of new capacity while optimizing existing capacity, particularly in response to global challenges like the US-China tariff war[para. 11]. July 2025’s Politburo meeting focused on enhancing capacity management and curbing repetitive industrial investment. Sectors such as new-energy vehicles and photovoltaic manufacturing are expected to take the lead in capacity governance[para. 12]. However, a rapid reversal of the supply-demand imbalance is unlikely, so any profit recovery is expected to emerge over the medium to long term[para. 13].

Inventories at industrial enterprises increased slightly, and the inventory-to-sales ratio remains high[para. 14]. The 2025 inventory cycle is predicted to be flat, as weak demand and limited restocking/destocking continue[para. 15]. Some sub-industries have already undergone significant destocking and could see profit growth rebound strongly if demand returns[para. 16].

["The summary interprets each main paragraph as providing one or more points aligned with the indicators."]