Number of loss-making firms in China surge amid demand slump

New Delhi, Oct 23 (SocialNews.XYZ) While China is flooding world markets with cheap goods, a growing number of Chinese factories have started running into losses, with London-based research firm Capital Economics estimating that the share of Chinese industrial firms that are losing money has doubled since 2018 to 30 per cent this year.

Losses are piling up at Chinese firms even as exports surge. Local governments regularly prop up unprofitable enterprises to preserve employment and meet economic targets, according to an article citing the research firm's findings on The Atlantic news website.

Profitability was never a top priority of the Chinese Communist Party. Economic planners have assumed that a large manufacturing base is essential to China’s national security, technological advancement, political stability, and global influence. China’s leaders therefore value the production, exports, and jobs that factories generate far more than any financial return on their investments. As a result, China’s economy has long been cluttered with "zombie" companies: effectively bankrupt firms that are kept alive by creditors, stated the article by Michael Schuman.

But as the economy has slumped in recent years, the strain on Chinese companies has increased, and their finances have deteriorated. Total net profit at 5,400 Chinese companies listed on local stock exchanges fell for the third consecutive year in 2025, according to data from Japanese business news outlet Nikkei Asia. Excess factory capacity and weak domestic demand have resulted in price wars that have narrowed profit margins, the article pointed out.

In market-based economies, unprofitable companies either fold or reorganise. In China, however, the government tends to sustain uncompetitive companies. Major banks, controlled largely by the state, roll over loans for troubled enterprises that can’t pay. Government officials offer tax breaks, subsidies, and general support to reduce costs. In an analysis of subsidies received by industrial firms in major economies from 2005 to 2024, the Organisation for Economic Cooperation and Development found that Chinese state support was as much as eight times larger than government assistance elsewhere, the article added.

Source: IANS