The CCP Is Crushing China's Industrial Output

Epoch Times

17 hours ago

China's economy is suffering from hidden debt, industrial overcapacity, and a renewed expansion of the same central planning policies that created these problems in the first place.
Decades of state-driven growth have left the country dangerously overleveraged, with mounting liabilities and shrinking returns on innovation. Behind the impressive record of rapid industrialization lies a system distorted by state subsidies, overregulation, and artificial incentives.
The Chinese Communist Party's (CCP's) refusal to relinquish control to market forces has triggered a decline in industrial output, stifled innovation, and pushed the nation toward a severe debt crisis.
China's real debt burden is far higher than official figures suggest, with total debt exceeding 300 percent of GDP, and the once hidden liabilities—such as local government financing vehicles (LGFVs), shadow banking, and real estate loans —are included. The International Monetary Fund (IMF) estimates $8.4 trillion (58 trillion yuan) in off-balance-sheet LGFV debt, nearly 400 percent higher than China's officially reported $2 trillion. And the debts continue to mount, as many LGFVs are unable to service existing obligations without taking on new loans. Taken together, these liabilities reveal a dangerously overleveraged economy, where CCP-led fiscal controls and overcapacity have pushed China toward mounting financial instability.
This mounting debt crisis coincides with growing signs of industrial decline. China's manufacturing sector—once the engine of its economic rise—is now buckling under the combined weight of overcapacity, falling demand, and eroding profitability. Production declined in July for only the second time since October 2023, driven by weakening new orders and shrinking export demand, which fell for the fourth consecutive month.
China's official manufacturing employment index rose slightly to 48.0 in July 2025 from 47.9 in June. Still, it remains below 50, the level that separates growth from contraction, indicating continued job losses in the sector. The private Caixin Manufacturing PMI confirmed the trend, reporting that factories are cutting staff in response to weak demand and rising cost pressures.
Sub-indexes for new orders and raw materials inventory both declined in July, with the new orders index falling to 49.4 from 50.2 in June. This drop is a key leading indicator, reflecting a weaker pipeline of future production. At the same time, manufacturers are drawing down raw material inventories, signaling lowered expectations for third-quarter output.
With fewer orders and shrinking stockpiles, factories are likely to scale back production further in the coming months. Industrial profits reflect this downturn, falling to 4.3 percent year on year in June after a 9.1 percent decline in May. For the first half of 2025, profits decreased by 1.8 percent, highlighting deepening weakness across the manufacturing sector.
In an effort to stay afloat, manufacturers in key sectors, such as electric vehicles (EVs), lithium batteries, solar panels, and e-commerce, are locked in intense competition, often sacrificing quality and slashing research and development. This has led to market saturation with substandard goods and stifled innovation.
The automotive sector exemplifies the broader collapse. Fueled by state subsidies and local government investment, China ramped up EV production to achieve global dominance, but the result was massive overcapacity. A price war, triggered by Tesla's 2023 cuts, has since devastated industry profits and strained the supply chain. Despite selling 15.65 million vehicles in the first half of 2025, automakers saw profits decrease by 12 percent, with even state-backed firms reporting major losses.
Nearly identical EV models now compete almost exclusively on price. This has forced manufacturers to cut corners, downgrade product quality, and slash innovation budgets, which Chinese analysts have dubbed 'involution.' Suppliers face delayed payments and steep discount demands, while 73 percent of dealerships failed to meet sales targets in the first half of the year, according to the China Automobile Dealers Association. The crisis in the auto industry reflects deeper structural flaws that threaten China's entire economic model.
As with any market crisis, the CCP's response is more control and regulation, failing to recognize that it was Beijing's interference in what should be free and open markets that caused the crisis in the first place. Central authorities are now enforcing faster supplier payments, a heavy-handed measure that treats a symptom while ignoring the underlying disease.
They are also introducing a revised ' unfair competition ' law, a move steeped in irony, given that state subsidies and incentives are what created the overcapacity and triggered the price wars. Additionally, the CCP is pushing for the consolidation of weaker brands, a strategy that will ultimately reduce competition and stifle innovation even further.
As with any centrally planned economy, serious questions arise: How will the CCP define a 'weaker brand,' and will companies be forced to merge or shut down even if they refuse?
In a true free market, weaker brands can survive for decades with smaller market shares, as long as their owners choose to keep operating.
The CCP's push to eliminate struggling companies is yet another attempt to control the economy—an intervention that mirrors the very policies that created China's current crises of debt, overproduction, declining profits, and stalled innovation.