Editor's note: Warwick Powell is Adjunct Professor at Queensland University of Technology, Australia. The article reflects the author's opinions and not necessarily the views of CGTN.

China's full-year industrial profits data for 2025 mark a clear turning point. After three consecutive years of decline between 2022 and 2024, aggregate profits among major industrial enterprises have returned to growth. On the surface, the headline number is modest — profits rose just 0.6 percent year on year — but this figure conceals a far more consequential transformation underway beneath the aggregate. What the data reveals is not a cyclical rebound driven by cost compression or wage suppression, but a structural reallocation of industrial capital, enabled by sustained liquidity expansion and the progressive retirement of obsolete production coefficients.

In short, profitability has returned not because the system has been squeezed harder, but because it has been recomposed.

Aggregate liquidity and differential outcomes

Any serious interpretation must begin with the macro-financial backdrop. China's industrial recovery has occurred alongside continued liquidity growth, channeled through policy banks, targeted credit facilities, refinancing programs, and rolling support for strategic manufacturing sectors. This liquidity expansion did not distribute profits evenly across the industrial landscape; nor was it intended to. Instead, it acted as an enabling condition for capital rotation — allowing viable firms and sectors to expand, modernise, and absorb resources vacated by declining ones.

This distinction matters. Liquidity expansion does not mechanically translate into uniform profitability. Rather, it widens dispersion. Firms capable of absorbing liquidity productively see margins and volumes rise, while those tied to outdated technologies, saturated markets, or low productivity coefficients are gradually squeezed out. The 2025 profit data exhibit precisely this pattern.

Manufacturing profits grew by 5.0 percent, rebounding sharply from the previous year. Equipment manufacturing profits rose by 7.7 percent and accounted for nearly 40 percent of total industrial profits. High-tech manufacturing profits surged by 13.3 percent. Meanwhile, profits among small and medium-sized enterprises and foreign-invested firms shifted from contraction to modest expansion.

This is not the signature of indiscriminate stimulus. It is the footprint of selective financial accommodation paired with structural exit. Finance continues to be mobilised in the service of the real economy.

Profit distribution as evidence of structural change

One of the most striking features of the 2025 data is the concentration of profit growth in a narrow but expanding set of sectors. Equipment manufacturing alone contributed 2.8 percentage points to overall industrial profit growth, making it the single largest driver. Within this category, railway, shipbuilding, aerospace, transportation equipment, and electronics posted double-digit gains.

High-tech manufacturing tells an even sharper story. Profits in integrated circuit manufacturing rose by more than 170 percent, while semiconductor equipment manufacturing increased by 128 percent, according to official data released by National Bureau of Statistics. Intelligent equipment manufacturing saw profit growth of nearly 50 percent, with unmanned aerial vehicles and in-vehicle intelligence approaching triple-digit gains.

These reflect a re-weighting of the industrial profit base, away from traditional volume-driven manufacturing and toward sectors with higher technological intensity, higher capital productivity, and stronger downstream linkages.

Crucially, the profit share of equipment manufacturing reaching nearly 40 percent of total industrial profits signals a deeper transformation: Capital is increasingly valorised through productive capacity that embeds intelligence, precision, and systems integration, rather than through scale alone.

The retirement of obsolete production coefficients

Profit recoveries are often misread as signs of renewed efficiency within existing structures. The Chinese data suggest something different. The rebound coincides with the exit, consolidation, or devaluation of obsolete production coefficients — plants, processes, and capital goods whose input-output relationships no longer justify their continued operation under prevailing technological and market conditions.

This process has been visible over the past several years in steel, cement, low-end chemicals, and property-linked manufacturing. Capacity closures, mergers, and debt restructurings have enhanced supply efficiencies but also increased the financial drag associated with low-return capital stock. What remains is a leaner industrial base, better aligned with current demand structures and technological frontiers.

This is not simply a rise in surplus value extraction but a recomposition of constant capital; a shift toward machinery, systems, and knowledge-intensive assets that raise output per unit of labour and energy. In other words, we could say that this is the upgrading of production coefficients that improves capital efficiency without suppressing wages. 

Profitability without labour compression

Perhaps the most politically and analytically important feature of the 2025 profit recovery is what hasn't happened. Nominal wages continued to grow, with real wage growth remaining positive. This alone falsifies the claim that the return to profitability has been achieved through labour discipline or income repression.

Instead, profitability has been improved alongside rising household incomes. This coexistence points to productivity-driven margins, not distributive conflict. Higher value-added production, faster inventory turnover in high-tech sectors, and improved capital utilisation can all raise profits even as real wages increase.

This matters because it indicates that China's industrial transformation remains expansionary rather than zero-sum. The system is not restoring profitability by pushing costs downward across the board, but by moving production into activities where higher wages are compatible with higher returns.

In this sense, the profit data also reinforce the broader macro narrative of domestic rotation — rising incomes support consumption, which in turn supports advanced manufacturing demand, particularly for electronics, intelligent equipment, medical products, and transport systems.

Liquidity as a coordination mechanism

Liquidity expansion has played a specific role in this process. It is not simply a stimulus lever but a coordination mechanism, enabling capital to move across sectors and time horizons. Without sufficient liquidity, the retirement of obsolete capital would trigger crisis dynamics — mass defaults, unemployment spikes, and cascading bankruptcies. With liquidity, the same adjustment becomes manageable, even generative.

China's approach has been to tolerate uneven profitability as a feature rather than a failure. Some sectors stagnate or decline; others accelerate sharply. Liquidity ensures that this unevenness does not destabilise the system as a whole.

This also explains why profit growth is strongest in sectors aligned with national industrial strategy. Semiconductor manufacturing, biotech, intelligent systems, and advanced transport are not merely profitable; they are systemically supported because they anchor future accumulation paths.

SMEs, foreign firms and the broadening base

The return to positive profit growth among small and medium-sized enterprises and foreign-invested firms deserves attention. These firms are typically more sensitive to liquidity conditions and demand volatility. Their shift from contraction to modest expansion suggests that the benefits of structural upgrading are beginning to diffuse outward from the core sectors.

This does not mean equalisation. The dispersion remains wide. But it does indicate that the industrial transformation is no longer confined to flagship firms or state-backed champions. As upgraded supply chains stabilise and demand becomes more predictable, second- and third-tier firms regain profitability.

Foreign-invested enterprises' profit recovery is especially telling. It signals that China's industrial upgrading is not crowding out external capital, but reconfiguring the terms under which it operates, toward higher-tech, higher-value integration rather than low-cost assembly.

Transformation with frictions

None of this implies a frictionless process. The NBS itself acknowledges ongoing difficulties: Global uncertainty, external shocks, and adjustment pains within industries undergoing transition. Profit recovery at the aggregate level does not erase firm-level stress or regional disparities.

Yet this is precisely what one would expect during a genuine transformation rather than a cyclical bounce. Structural change is uneven by definition. It creates winners early, laggards later, and only gradually establishes a new normal.

What matters is that the direction of travel is coherent, and that is toward higher capital productivity, greater technological intensity, and compatibility between rising wages and rising profits.

Reading the data correctly

The key analytical mistake would be to treat the 2025 profit rebound as a simple return to business as usual. It is nothing of the sort. The data show an economy actively reshaping its industrial capital base, using liquidity expansion to cushion exit while accelerating entry into new accumulation paths.

Profit concentration in equipment and high-tech manufacturing is not a temporary distortion; rather, it is the statistical expression of structural change. The retirement of obsolete production coefficients is the necessary precondition for renewed profitability. And the coexistence of profit growth with rising real wages demonstrates that China's adjustment remains fundamentally productive rather than extractive.

In this sense, the 2025 profit data are best read not as a conclusion, but as an inflection point. They signal that the long process of industrial transformation — slowed but not derailed by the pandemic and global shocks — has reached a phase where new productive forces are now generating visible financial returns.

The challenge ahead is not whether profitability can be restored, but whether the system can continue to generalize these gains — spatially, sectorally, and socially — without reverting to old growth models. Based on the evidence so far, China's industrial profits are telling us that such a path, although uneven, remains firmly open.