China’s Ministry of Finance reported that state-owned and state-controlled enterprises recorded a 6.3% decline in aggregate profits for 2025 even as their combined revenue edged up by 0.5% over the year. Total operating revenue for the sector reached about ¥84.9 trillion, while total profits fell to roughly ¥4.04 trillion. Taxes and fees paid by these firms rose slightly, and leverage ticked up by 0.4 percentage points.
The headline numbers mask an important squeeze. Revenue growth of 0.5% suggests that top-line activity was broadly flat, but falling profits point to margin pressure: higher costs, weaker end demand, or a shift in business mix toward lower-margin public services and strategic investments. State firms still paid substantial taxes—about ¥5.88 trillion—underscoring their continued role as a fiscal backstop for central and local finances.
The sample covered in the ministry’s release is wide: enterprises under the State-owned Assets Supervision and Administration Commission (SASAC), those where the Ministry of Finance acts as investor, and major provincially controlled firms in 36 provinces and the Xinjiang Production and Construction Corps. The data exclude primary-state financial firms and their subsidiaries, and the ministry notes that changes in the composition of reporting firms can affect year‑on‑year comparisons.
A rise in the sector’s asset‑liability ratio to 65.1% at the end of December signals modestly higher leverage across state-controlled companies. That uptick — while not dramatic — matters because many SOEs underpin local employment and large capital projects; any sustained profitability pressure would complicate efforts to reduce debt without harming growth or public services.
For Beijing, the figures present a policy dilemma. State firms are expected to lead strategic sectors, deliver public services and contribute taxes and dividends; yet weaker profitability reduces their capacity to do so without fresh injections, debt relief, or operational reform. The authorities have several levers—ranging from targeted fiscal relief and tax measures to accelerated consolidation, M&A and governance reforms—but each comes with trade-offs for market competition and fiscal risk.
International investors and trading partners should read the snapshot as a sign that China’s coordinated growth model faces renewed strain. Slower corporate margins in the state sector could damp commodity demand and weigh on global supply chains where state firms are major players, while policy responses could shape opportunities in infrastructure, energy and strategic technology sectors.
The ministry’s figures are not a signal of immediate systemic distress, but they are a clear indicator that the state-owned sector’s performance no longer provides the same stabilising cushion for the economy that it once did. Expect Beijing to balance short-term support with renewed pressure for operational reforms as it seeks to reconcile growth, fiscal stability and strategic priorities in 2026.