Chinese listed companies’ earnings surge on capacity cut, tech self-sufficiency
News Summary
Chinese listed companies posted their fastest profit growth of the year in Q3 2025, with earnings rising 11.6% year-on-year. This surge was primarily driven by a government-led initiative to cut excess industrial capacity and the nation's push for technological self-reliance, particularly in semiconductors. According to China Merchants Securities, this compares to a 1.2% increase in Q2 and 3.2% growth in Q1. Technology companies led the earnings surge, with commodity producers and financial companies also showing significant improvement. This positive quarterly performance is expected to bolster the ongoing rally in Chinese stocks, which has been fueled by a shift of bank savings into risk assets and hopes for Beijing to intensify efforts against deflation. Recovering earnings growth is deemed critical for the stock rally, especially after valuations expanded due to rising investor risk appetite. Zhang Xia, an analyst at China Merchants Securities, predicts that corporate earnings will continue to be supported by tech self-reliance, the "anti-involution" campaign (reducing excess output), and a potential detente in China-US tensions. She expects TMT (technology, media, and telecoms) and resource sectors to maintain relatively fast growth, with the non-financial sector benefiting from a low base in Q4.
Background
The Chinese government has long pursued policies to address industrial overcapacity, particularly in heavy industries, often through phasing out outdated production and facilitating mergers and acquisitions. The recent "anti-involution" campaign represents the latest iteration of this policy, aiming to optimize industrial structure and enhance profit margins. Concurrently, China has elevated technological self-sufficiency, especially in critical areas like semiconductors, to a national strategic priority. This push intensified in response to increasing tech export controls from the US under the Donald J. Trump administration (re-elected in 2024), aiming to reduce reliance on external technologies and secure supply chains. Furthermore, the Chinese economy has been grappling with deflationary pressures, with the government seeking to combat this trend by stimulating economic activity and encouraging the reallocation of capital towards risk assets.
In-Depth AI Insights
How sustainable is the earnings growth of Chinese listed companies—is it a cyclical rebound or a structural shift? - The strong Q3 earnings growth is partly attributable to government-led capacity reduction policies, which boost margins for surviving firms. This is a policy-driven cyclical improvement that may be unsustainable in the long run as the effects of capacity cuts diminish. - However, the drive for technological self-sufficiency, particularly in high-tech sectors like semiconductors, represents a deeper structural transformation. This suggests China is building indigenous tech ecosystems, which could offer long-term growth opportunities and profitability for relevant tech companies. - The redirection of bank savings into risk assets and efforts to combat deflation create a favorable macro environment for earnings growth. If these policies are sustained and effective, they could provide more structural support to corporate earnings rather than just a fleeting cyclical boost. What does the mentioned "detente in China-US tensions" imply in the context of ongoing strategic competition under the Trump 2.0 administration? - Despite President Donald J. Trump's re-election in 2024 and an expected continued tough stance on China in his second term, the mention of a