QINGDAO, CHINA – FEBRUARY 05 2025: Workers assemble cars at a car plant of SAIC-GM-Wuling in Qingdao city in east China’s Shandong province Wednesday, Feb. 05, 2025.
ZHANG JINGANG | Future Publishing | Getty Images
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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A crackdown on risky lending will limit banks’ capacity to extend large mortgages, as the financial regulator launches a pre-emptive strike against the growing excesses of an overheated property market.
The Australian Prudential Regulation Authority announced a 20% cap on the share of new lending banks can do at a debt-to-income ratio above six – a mortgage worth more than six times the borrower’s income. While Jim Chalmers said the move would “help with financial resilience and housing affordability”, the Greens immediately criticised it as insufficient.
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The newly announced restriction lands amid breakneck growth in property prices and credit, with a recent report highlighting that a typical household needs to dedicate nearly half of its pre-tax pay to service the average new mortgage.
An explosion in lending to landlords has been of particular concern to regulators. Property investors account for two in five new loans, and the value of investor lending surged by 18% in the September quarter alone.
Investors returning to 2014-era dominance
The lending restriction will start in February, and Apra’s chair, John Lonsdale, said the regulator was prepared to intervene further.
“We will consider additional limits, including investor-specific limits, if we see macro-financial risks significantly rising or a deterioration in lending standards,” he said.
It has been a decade since the regulator last intervened to put speed limits on runaway lending, dragging down home prices.
Whether the latest move will make a meaningful difference is unclear: Apra data shows only one in 10 new loans to investors are made at debt-to-income ratios of six or more, and one in 25 owner-occupier loans.
Chalmers said the new restrictions were “prudent steps to maintain responsible lending”.
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“These rule changes are an important way for the regulator to reduce risk in our economy, but these efforts will also help when it comes to getting people into homes.”
But Greens senator Barbara Pocock said the move, while a welcome start, did not go far enough and that “first-home buyers are being priced out by investors at weekend auctions”.
“Apra must use all the tools in their toolbox to rein in investor lending that is exacerbating the housing affordability crisis,” Pocock said.
