A container terminal in Qingdao, Shandong Province, China. The United States and China have agreed to extend the partial suspension of tariffs but concerns about worsening trade friction linger. (©AP via Kyodo)
It has now been over four months since the second round of the United States-China trade war began. Both countries have released much of their economic data for the first half of 2025, giving a clearer view of the battle.
The overall conclusion is sobering. President Donald Trump's return and the renewed trade war have disrupted Beijing's long-term plan. That plan aimed to transform China into a "super-sized North Korea" through prolonged social and economic suppression — what some have called a policy of "intentional depression."
And this disruption could trigger a brittle economic fracture beyond the Chinese Communist Party's control. Simultaneously, however, it could create opportunities for ordinary Chinese. Those who previously saw little hope of organized resistance might now find ways to push back against the system.
Industrial Red Flags
According to official data, China's GDP grew 5.3% in the first half of 2025, reaching about 62% of the US economy. But few believe Beijing's numbers. The truth lies elsewhere, in data that is harder for the regime to manipulate.
One such metric comes from China's National Bureau of Statistics, showing the percentage of "industrial enterprises above designated size" that are operating at a loss.
In China, this category refers to industrial legal entities with annual main business revenue of 20 million yuan ($2.8 million USD) or more. It covers sectors from manufacturing to energy supply.
A Surge in Loss‑Making Firms
While Beijing does not directly publish a "loss rate," it does report the total number of above‑scale firms and the number that are loss‑making. Dividing the latter by the former yields the percentage of above‑scale industrial enterprises that are losing money. It's a relatively reliable indicator.
From the above chart, the percentage of loss‑making firms among above‑scale industrial enterprises remained around 11.9% through 2017. In 2018, when the first US-China trade war began, that percentage started to rise sharply. By 2024, it had doubled to 22.8%.
After the second trade war erupted in April 2025, economic pressure intensified. By May, the percentage of loss‑making firms jumped to 30.4%. On this trajectory, it could approach 40% by year's end. It's a level economists consider macroeconomically unsustainable, where nationwide cash flow breakdowns and disruptions to production are a real risk. A brittle fracture now seems close at hand.
Plunging Capacity Utilization
A parallel warning signal comes from industrial capacity utilization rates. In 2016, this rate hit a historic low of 73.8%, prompting Beijing to inflate a property bubble to prop up related industries. From 2017 to 2021, utilization stabilized around 78%.
But after the property market collapsed in 2021, utilization dropped again, holding around 76% from 2022 to 2024. In the second quarter of 2025, under escalating tariffs, it slipped to 74%. That put it back near the historic low of 2016.
This means more than a quarter of China's industrial enterprises have no work to do, and over a third are losing money. The picture is bleaker than the Great Depression of the 1930s. Even fixed asset investment, the last pillar of economic stability, has begun to shrink.
Fixed Asset Investment Collapse
Official investment data in China is notoriously unreliable, but even manipulated figures are now grim. China's National Bureau of Statistics claims a 2.8% year-on-year rise in fixed asset investment for the first half of 2025. However, simple division of their own published numbers shows the real increase was just 1.3%.
Monthly trends are worse. Growth fell from 3.5% in January to February to –1.2% by June. This suggests local statistics offices can no longer fully falsify figures as the real Chinese economy deteriorates.
More trustworthy indicators confirm the decline. Ministry of Transport data show road and waterway investment fell 7.7% year-on-year in the first five months.
Cement production, an indirect gauge of construction activity, fell 4.1%. This came even after a massive $320 billion USD special bond issuance, which temporarily blunted what could have been a 15% drop.
Debt-Fueled Financial System
With the real economy in decline, China's financial system has increasingly funneled funds toward government debt. In the first half of 2019, government bonds made up 16.8% of total social financing growth. By the same period in 2024, that share had risen to 18.4%.
The real shift came in 2025. With restrictions on bond purchases lifted, local governments unleashed unprecedented issuance. In the first half of 2025, government bond growth hit $1 trillion, up 129% from 2024. It accounted for 33.5% of total new financing.
This excludes the "rollover" of existing debt. Total bond issuance in the first half reached $1.89 trillion, meaning $890 billion was simply borrowed to repay old loans.
Economists now warn the Chinese financial system could lose liquidity entirely by early 2026, triggering a second "cash crunch" far worse than the one in 2013.
Control Over Recovery
Faced with looming collapse, Beijing has done little to revive the economy. Its only real move has been to scrap all real estate restrictions, encouraging citizens to buy homes in a last-ditch effort to extract funds from the public.
Most government energy has instead been put into tightening social control and extracting money by force. In one shocking case, police in Zigong, Sichuan province, froze 14 million yuan ($1.5 million USD) in bank deposits belonging to 79 people, most of whom had no connection to the city.
No evidence was presented, and no charges were filed. Victims were told to "prove the legitimacy" of every deposit to have their accounts unfrozen. Many only learned of the freeze when trying to make withdrawals, including some elderly pensioners. Police renewed the freeze after six months without notifying them.
This "long-distance fishing," a term once used to describe police targeting private entrepreneurs' assets, has now expanded to ordinary citizens.
Brink of Meltdown and Hope
From macroeconomic indicators to this disturbing case in Zigong, the picture is clear. China's economy is accelerating toward systemic collapse.
Unfortunately, this trajectory would drive countless ordinary people into hardship. Yet, paradoxically, it could also open a rare window for resistance in a society long stifled by the Chinese Communist Party's security apparatus.
When the brittle fracture comes, it may be sudden. But its impact will be felt far beyond China's borders.
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Author: Jennifer Zeng
Find Jennifer Zeng's articles on JAPAN Forward. Follow her on X (formerly Twitter) and on her blog page, Jennifer's World.
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