I told you they were in trouble. But you never listen!
China’s Firms Are Bleeding Cash—and Vulnerable to Trump’s Trade War
Overcapacity and weak demand hit profits at more Chinese companies
By Hannah Miao, WSJ
Feb. 6, 2025 11:02 am ET
Xinte Energy, a Chinese green-energy firm, says on its website that it is “delivering light and warmth to every corner of the world.” It is also losing tons of money.
The maker of polysilicon, a building block for solar panels, recently told shareholders it expects to report losses of around 4 billion yuan, equivalent to more than $500 million, for 2024. Intense pressure by the government to build up key industries has led to fierce competition and price wars while demand has stalled, hitting the company’s bottom line.
Unfortunately for China, it isn’t just the solar power industry. Companies across the country are bleeding cash as they struggle with overcapacity and weak spending in a slumping economy.
Those problems are leaving China unusually vulnerable as President Trump tightens the screws with a new 10% tariff on Chinese goods, and threats of more to come. Exports have been a rare bright spot for China’s economy as companies unload excess supply abroad, but that becomes much harder as tariffs climb and costs rise for U.S. buyers.
Nearly a quarter of companies listed in mainland China reported a net loss for the third quarter, the most recent quarter for which data is available. That share has more than doubled from before the Covid pandemic, according to a Wall Street Journal analysis of Chinese A-share company filings.
Profit margins among public companies in China recently reached their lowest levels since 2009, according to a FactSet index of roughly 5,000 mainland-listed firms. Profits at China’s major industrial firms declined around 3.3% in 2024, a third straight year of lower earnings, according to official data. Many smaller, family-owned firms are also struggling.
With profits squeezed, many Chinese companies are in cost-cutting mode, putting off investments, shedding workers and keeping wages in check. But less spending by companies and consumers leads to more of the same problem for China: weak demand when consumption is sorely needed.
The world’s second-largest economy is reeling from numerous challenges, including an epic property-market bust and rising debt loads. Construction activity has slowed and Chinese people, who largely hold their net worth in real estate, are saving money as worries about their future mount. Protests over unpaid wages and other compensation-related grievances have ticked up, according to social-media posts tracked by Hong Kong-based nonprofit China Labour Bulletin.
China’s leaders have turned to manufacturing and exports as an answer to stimulate growth. But ramped-up capacity, fueled partly by state subsidies, has exacerbated gluts in some industries. Many companies have cut prices to try to unload their products, but that just pinches profits further—which leads to even more cost cutting.
“It’s basically a race to the bottom,” said Khoon Goh, head of Asia research for ANZ bank.
The Trump administration’s new tariffs stand to further squeeze Chinese companies that sell products to the U.S., with some manufacturers saying they will have to lower prices to stay competitive for American customers.
Licking wounds
Angang Steel, based in Liaoning province and one of China’s largest steelmakers, said recently it had “made every effort to mitigate and control losses,” including trying to become more efficient and expanding exports. But steel prices kept falling and demand has remained weak. It expects 2024 losses to more than double from the year before to around 7 billion yuan, equivalent to nearly $1 billion. Angang didn’t respond to a request for comment.
Tianqi Lithium, which sells materials used to make batteries for electric vehicles, also warned investors that it was set to report a net loss equivalent to roughly $1 billion for 2024 after prices for its products fell. The Sichuan province-based company said in a filing that it would stop all work on a plant in Australia, a project under way since 2017, because it was no longer economically viable. When asked for comment, Tianqi referred the Journal to its official announcements.
Other companies warning of net losses or shrinking profits include solar power glassmakers Flat Glass and Irico Group New Energy; building-materials company Tianshan Material; and chip maker Shanghai Fudan Microelectronics. Those companies didn’t respond to comment requests.
The ups and downs of the solar power market help illustrate why it is so hard for some Chinese companies to stay profitable. Beijing identified solar energy as a key sector, spurring local governments and financial institutions to offer subsidies and loans to companies. With new entrants jumping in, supply ballooned and companies slashed prices to fight for customers. Companies risked losing market share to others if they resisted price cuts or curbed production.
Xinte, the green-energy manufacturer, said its polysilicon prices were about 60% lower on average in 2024 than the year before, and at times were below the cost of production. Yet the company, based in the Xinjiang region in western China, said it produced slightly more polysilicon in 2024 than the year before.
“The price of polysilicon has dropped irrationally,” Xinte said in a filing, noting an imbalance between demand and supply. The company didn’t respond to a request for comment.
A group of 33 solar companies, including Xinte, convened in December to discuss how to prevent “vicious competition,” according to a statement from the China Photovoltaic Industry Association. Two of China’s largest polysilicon makers announced at the end of the year that they would cut production.
Some Chinese companies remain highly profitable. Social-media and videogame giant Tencent Holdings recently reported a 47% rise in profits for the third quarter, in part due to the strong performance of some of its gaming titles. E-commerce giant JD.com recorded its own jump in profits, boosting hopes that consumer sentiment in China might be improving.
It is also true that many U.S. and European companies lose money. Still, the outlook for China is especially cloudy as it deals with an aging population, ballooning local-government debt and persistent deflation.
In the past, China has taken painful measures to rein in overcapacity, such as reforms in the 1990s that closed companies and put millions of people out of work. That hasn’t happened this time.
Slow-motion response
Measures introduced last year by Chinese leaders have mostly focused on fending off immediate financial risks, letting down investors who hoped for more stimulus to spark spending. Investors pulled a net $4.4 billion out of Chinese A-share equity funds in 2024, after a net $2.6 billion of outflows in 2023, according to Morningstar.
Some companies are hoping Chinese leaders will roll out more consumption-focused stimulus this year, with the National People’s Congress, China’s top legislative body, set to convene in March.
Red Star Macalline, a Shanghai-based furniture and home decor retailer, said it expects to post a loss equivalent to around $400 million in 2024. But it expects policy measures supporting consumption to lead to a rebound in demand, according to a filing. The company didn’t respond to a request for comment.
The State Council Information Office, which handles inquiries for China’s leadership, didn’t respond to questions.
While new U.S. tariffs add to the headaches for China, some investors and analysts say problems at home are more pressing. Most of the revenue of public companies listed in mainland China is derived domestically.
“People might be overly worried about tariffs,” said Nicholas Yeo, head of China equities at abrdn, a U.K.-based investment company. “It is the domestic economy that needs to be fired up.”
—Rebecca Feng contributed to this article.
Write to Hannah Miao at hannah.miao@wsj.com
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