2025-12-27
China's Industrial Costs Exceed 118 Trillion RMB in First 11 Months, Growth Slowing to 1.2% Fails to Mask Profit Stagnation
Core Overview: Cost Growth Rate Halved, Efficiency Concerns Persist
According to the latest DataTrack data, the cumulative operating costs of industrial enterprises above designated size in China for Jan-Nov 2025 reached 1,187,524.1 billion RMB (approx. 118.75 trillion). Compared to the same period last year, the year-on-year growth rate was only 1.2%, further declining from 1.7% in Jan-Oct and far below the 3.7% increase in the same period of 2024. This indicates that while inflationary pressure on the industrial input side has cooled, the sharp decline in cost growth mainly reflects a passive contraction in production activities. Market data shows industrial profits remained nearly flat (+0.1%) during the same period, implying that corporate pricing power is suppressed under weak demand, and low costs have not translated into high gross margins.
Key Details: Polarization Between High-Tech and Traditional Industries
Examining the structural differentiation behind the data, high-tech manufacturing and traditional raw material industries present starkly different cost dynamics. According to Trading Economics data, the manufacturing of computers, communications, and other electronic equipment benefited from a global cyclical recovery, with revenue and costs expanding simultaneously, and profits increasing by 15.0% year-on-year. Conversely, upstream industries such as coal mining and washing and metal smelting and pressing were affected by falling commodity prices; although cost pressures eased, profits dropped by as much as 47.3%, becoming the main drag on overall industrial performance. This also explains why the overall operating cost growth rate experienced such a significant decline.
Deep Attribution: Insufficient Demand Dominates De-stocking Cycle
Analysts generally believe that the core driver behind the slowdown in operating cost growth to 1.2% is not supply chain optimization, but rather "demand-side weakness." Market commentary points out that weakening year-end demand forced enterprises to scale back production or cut prices to sell, causing both revenue and costs to maintain low growth. Furthermore, persistent deflation in factory gate prices (PPI) makes it difficult for enterprises to effectively expand gross margins in an environment of limited revenue growth, forming a vicious cycle of "shrinking volume and falling prices."
Outlook and Risks: Short-term Focus on Inventory, Medium-term Focus on Policy
Short-term (1-2 months): As 2025 comes to a close, enterprises may accelerate de-stocking before the annual report settlement. Operating costs are expected to maintain low growth in December, and profit margins are unlikely to rebound significantly. Investors need to be aware of capital turnover risks before the Lunar New Year.
Medium-term (3-6 months): Entering the first quarter of 2026, the key lies in whether official fiscal stimulus can effectively boost domestic demand. If PPI cannot emerge from the deflationary range, industrial enterprises may face the long-term risk of "zombification" characterized by "low costs and low profits." In that scenario, investors should avoid upstream raw material stocks lacking pricing power and instead focus on high-end manufacturing sectors with technical moats.
Web Search References:
https://tradingeconomics.com/china/industrial-profits
https://www.stats.gov.cn/english/PressRelease/202512/t20251227_1957890.html