China’s Economy Has a Huge Weakness

As China’s manufacturers flood the global market with cars, chips, and just about everything else, the country’s economic juggernaut seems unstoppable.

Policy makers in the United States and elsewhere fret that this onslaught will overrun their own industries, destroy jobs, and leave them reliant on a rival for vital products.

But a growing number of Chinese factories are failing to produce at least one crucial thing: a profit.

According to the London-based research firm Capital Economics, the share of Chinese industrial firms that are losing money has doubled since 2018 to 30 percent 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.

This has had a perverse effect throughout the country.

An economic program that was meant to make China stronger and more independent has in fact made it more vulnerable to the policies of other countries.

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. [ Michael Schuman: China is flatlining ] 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 Nikkei Asia , a Japanese business news outlet.

Excess factory capacity and weak domestic demand have created a brutal competition for shoppers, and the resulting price wars have narrowed profit margins.