In recent years, the Chinese officialdom has been emphasizing its economic strength by showcasing its GDP growth rate and industrial scale, while engaging in multifaceted competition with the United States. However, various international studies and expert analyses indicate that the disparity between China and the U.S. is stark when viewed through the lens of corporate profitability and actual economic benefits, leading to a reevaluation of China’s economic “substance”.
China is set to release its 2025 GDP growth data next Monday (19th). Regarding this data, Chinese leader Xi Jinping stated at the end of last year during the CPPCC New Year tea party that the economic growth rate is expected to reach around 5%, positioning China at the forefront of major world economies.
Last year, China’s trade surplus – the difference between the value of goods and services exported and imported – reached $1.19 trillion, a 20% increase from 2024 and the highest level in global history, as reported by the General Administration of Customs on Wednesday (14th).
By contrast, the GDP growth in the U.S. for the whole of 2025 was forecasted at 2.1% by Fitch Ratings, while the trade deficit, although significantly reduced in October last year, saw a year-on-year increase of around $56 billion (about 7.7%) over the first 10 months.
However, it has caught the attention of observers that there is a stark contrast in the performance of enterprises between China and the U.S.
“If we put aside macro indicators like GDP and trade volume and instead measure economic strength through corporate profitability and ownership structure, the disparity between China and the U.S. will appear extremely pronounced,” as mentioned in a Wall Street Journal article on January 14 titled “Analyzing China’s Economic Strength from the Profitability Perspective”, which highlighted the long-overlooked “profitability” factor.
According to data from the Wind and Capital IQ, the total profits of Chinese companies in the first half of 2025 increased by only about 2.6% for A-share listed companies and 5% for Hong Kong stocks. Even for the high-quality companies that are part of the SSE 300 Index, a report released by Goldman Sachs at the beginning of this year estimated a modest annual average profit growth rate of around 8%.
In comparison, the profit performance of U.S. enterprises stands out significantly. Reuters reported that despite sales growth of only 7% among companies in the S&P 500 index, overall profits continued to grow at a double-digit rate.
Latest forecasts by FactSet have shown that the overall profit growth of companies in the S&P 500 for 2025 reached 12%, with an average net profit margin of 12.9%, marking the highest figure since the institution began tracking in 2008.
For example, using the iPhone, even though the product assembly takes place in China, the design, core technology, and profits ultimately belong to U.S. companies. An author in “Command of Commerce” emphasized, “Profit is the best indicator of economic influence because it reflects the difficulty of being replaced.”
Research indicates that U.S. companies generate 55% of the profits in the global high-tech industry, while Chinese companies account for only 6%.
Why do Chinese companies, with such low profits, manage to survive in the long term?
A host from the YouTube channel “Financial Observer” told DA JIYUAN that many Chinese companies heavily rely on export tax rebates and government subsidies. If operating according to market rules, most companies would find it difficult to remain profitable. In contrast, U.S. companies are mainly self-sufficient financially, with their profitability serving as a true reflection of the nation’s economic strength.
InvestmentMarkets.com recently reported on the issue of the efficiency of innovativeness being transformed into profitability for U.S. and Chinese companies, pointing out that the system and the ecological environment have a significant impact on the transformation rates of the two countries.
The U.S. combines a market-driven innovation model with protection of intellectual property rights and support from the capital market, which is a core factor contributing to its high profitability conversion efficiency. On the other hand, China’s rapid expansion driven by government policies still struggles to align with profitable market structures.
It was noted that the Central Committee of the CPC promotes a large number of research and development activities, but government subsidies might lead to an imbalance between innovation input and actual financial returns, especially in state-owned enterprises or specific strategic industries exhibiting low structural efficiency.
Chinese capital market expert Xu Zhen supplemented from an institutional and innovation perspective, telling DA JIYUAN that high-profit margins of high-tech companies stem from innovation capability, entrepreneurial spirit, and a free institutional environment, areas where China lags. He described the Chinese economy as a “paper tiger, externally strong but internally weak”, indicating that regardless of rare earths or the “new three products” industries, original and key technologies remain in Western hands.
Taking the automotive industry, one of China’s most representative industries, as an example. In 2025, global sales of Chinese vehicles reached 27 million, a 17% annual increase surpassing Japan for the first time, making China the world’s largest automotive market. However, data showed that in the first three quarters of last year, half of the 14 major Chinese auto companies, led by BYD, saw a decrease in annual net profits, with six even falling into losses.
In sharp contrast, Toyota of Japan recorded a net profit of a staggering ¥4.1 trillion during the same period, approximately ¥183 billion, exceeding the total profits of the entire Chinese automotive industry.
Analysis shows that under the vicious competition within the industry in China, most automakers have fallen into the dilemma of “revenue growth without profit growth”.
An article in the South China Morning Post cited reports from Deutsche Bank and JPMorgan Chase on January 28, stating that around 50 unprofitable electric vehicle companies might face downsizing or closure around 2026 due to overcapacity and reduced subsidies.
Profit-driven challenges have become a common occurrence for Chinese companies, not limited to just the automotive sector. Bloomberg Economics confirmed this trend in Chinese enterprises in September last year, highlighting that U.S. listed companies in the trading goods sector had an average net profit margin of around 12% in 2024, more than twice the 4.9% of their Chinese counterparts. Nearly 30% of industries in the U.S. had profit margins over 10 percentage points higher than their Chinese competitors.
Research demonstrates that in the communications and technology hardware sectors, U.S. companies generally achieve profit margins exceeding 20%, while related Chinese companies are only at about 3%. Significant profit gaps between the two countries also exist in the construction and household goods manufacturing industries.
Facing weak domestic demand, Chinese companies have resorted to lowering prices and increasing exports, but this strategy is unlikely to substantially enhance overall profitability levels.
According to Bloomberg’s analysis of official data, as of July 2025, 29% of large-scale industrial enterprises in China were in a state of loss, equivalent to the previous year’s historical peak; with a profit margin of around 5.2% for large-scale industrial companies. In the short term, Chinese companies are struggling to maintain an “extremely thin profit margin” solely due to their scale and volume.
In response to the weak profit capabilities of Chinese enterprises, political expert Wang He pointed out that the fundamental problem with the Chinese economy lies in “politics taking precedence over economics.” He analyzed that while the West practices a market economy and a free economy, with limited government roles, decisions must be based on economic rationality.
Wang further explained that many decisions made by the CCP are driven by political purposes, regardless of economic feasibility or financial support; as long as there is a political need, they are forcefully implemented. This approach has led to massive wastage of national wealth due to numerous unfinished projects, image-building projects, and accomplishments-oriented projects over the decades.
Moreover, he mentioned that the degree of intervention in the economy by the CCP far exceeds that of Western countries. There are two main methods: by relying on a large number of state-owned enterprises, currently about half of China’s listed companies are state-owned, and they dominate the vast majority of social resources, surpassing private and foreign enterprises. The second method is the adoption of a nationwide system while retaining some residual practices of planned economy, such as the five-year plan, and imposing strong macroeconomic controls on the economy.
Wang bluntly stated that the CCP selectively emphasizes GDP and output in its data releases while downplaying profit margins and actual benefits, leading to widespread international skepticism regarding official figures.
Taking into consideration various data and expert opinions, when China’s economy is no longer measured solely by production and scale but shifts focus to corporate profits and long-term competitiveness, its overall economic strength will face severe scrutiny from the international community.