China Growth Risks Mount as Property Stress Meets Weak Profits

Chinese industrial profits flashed red early in the Asian market session on Thursday, November 27, as weakening demand squeezed margins. Market focus remains on US-China trade developments and China’s economic outlook. US-China relations are more likely to influence global trade and economic momentum. President Trump and Chinese President Xi Jinping have potentially set the stage for calmer waters as the year-end approaches, lifting sentiment.

While the US and China made further progress toward removing restrictions on key exports, Chinese economic data continued to face scrutiny. Waning external demand and the housing crisis have raised concerns about Beijing achieving its 5% GDP growth target.

Margin Squeezes Intensify as Industrial Profits Slow

Chinese industrial profits increased 1.9% from January to October compared with the same period in 2024, down sharply from 3.2% in September. Economists expected industrial profits to accelerate to 3.8%.

Industrial profits rebounded in August and September after falling 1.7% in July, fueling hopes of rising employment and a pickup in domestic consumption. However, October’s pullback in industrial profits suggests the sector remains under pressure.

Industrial Profits and the Demand Landscape

Weakening profits could adversely affect the Chinese labor market, including wage growth. Firms could potentially cut staffing levels or reduce wages to manage profit margins. A deteriorating labor market would likely weigh on household spending, adding to the pressures stemming from the housing crisis.

For context, retail sales growth has slowed sharply in the second half of 2025, reflecting weak consumer sentiment. Chinese retail sales slowed from 3.0% year-on-year in September to 2.9% in October, down sharply from May’s 6.4% increase. China reported slower retail sales growth despite Beijing’s efforts to boost household spending through subsidies and other policy measures.

With Chinese shipments bound for the US subject to a 47% levy, margin squeezes could continue. Falling margins may place greater pressure on Beijing to roll out fresh stimulus to bolster the economy.

Corporate Earnings Reflect Demand and Profit Margin Woes

Chinese car manufacturer Li Auto released third-quarter earnings on Wednesday, November 26, signaling a deteriorating demand environment.

According to CN Wire, Li Auto’s Q3 revenue fell 36.2% year-on-year on weaker deliveries, leading to a third-quarter net loss. Vehicle deliveries plunged 39% YoY to 93,211 units. The car manufacturer expects Q4 vehicle deliveries between 100,000 and 110,000, yielding quarterly revenue of RMB26.5 billion and RMB29.2 billion.

Profit Margin Squeezes Collide with Renewed Housing Sector Troubles

Concerns over demand and profit margins coincided with renewed housing sector stress, another challenge for policymakers.

CN Wire reported:

“Chinese state-backed property developer Vanke saw its bonds plunge over 20% on Wednesday, triggering trading suspension on five exchange-traded bonds, according to the Shenzhen Stock Exchange. Markets are replaying a pattern from earlier this year, said Yao Yu, founder of Shenzhen-based credit research firm RatingDog. He said markets had priced for Vanke not to be able to meet debt obligations, sparing a steep sell-off before rebounding on signs of state support.”

Yao reportedly highlighted two potential outcomes, stating:

“Now, market rumors suggest Shenzhen has sought help from Beijing, leaving two scenarios – no rescue or central backing.”

Vanke was reportedly China’s largest developer and a bellwether for broader property troubles.

The Hang Seng Mainland Properties Index fell 0.21% on Wednesday, November 26, and by a further 0.48% in early trading on Thursday, November 27. The Index avoided heavier losses, supported by reports of fresh policy measures to bolster the housing market.

Policymakers are reportedly considering mortgage subsidies for first-time buyers, higher income tax rebates for mortgage borrowers, and lower home transaction costs.

Recent economic data and property sector-related news leave China’s economy in a precarious position. Property investment remained the biggest drag on broader fixed asset investment in October, falling 14.7% YoY in the first 10 months of the year.

For context, the property sector accounted for around 25% of China’s GDP in 2023-2024, down from around 30% in the sector’s peak expansion phase during the 2010s.

Mainland and Hong Kong Equity Markets Extend Gains on Trade Developments

Mainland China’s equity markets opened higher on Thursday, November 27, with the CSI 300 advancing 0.72% to 4,550. Notably, the CSI 300 eyed a three-day winning streak on easing US-China trade tensions and fresh policy support signals from Beijing.

The prospect of new stimulus and easing trade tensions could send the CSI 300 toward its 2025 high of 4,762. The Hang Seng Index has followed a similar trend, rising 0.38% to 26,030, currently on a four-day winning streak. The Hang Seng Index climbed to a 2025 high of 27,382 on October 2 before sliding below 25,200 levels.

Outlook: China Data and Beijing Take Center Stage

The latest industrial profit figures and housing market crisis will put Beijing under the spotlight. Fresh measures to support the real estate sector would likely lift sentiment.

However, incoming Chinese economic indicators will also influence demand for Mainland and Hong Kong-listed stocks.

NBS private sector PMI data will come under intense scrutiny this week. Weaker private sector PMI numbers could revive doubts about Beijing achieving its GDP growth target. Stimulus measures from Beijing may be crucial for Mainland-listed stocks to target their 2025 highs.

Discover strategies to navigate this week’s market trends here.