INTERNAL MEMO: Beijing Just Blinked

TO: All Portfolio Managers
FROM: Trading Desk
RE: China Industrial Profits & What They're Not Telling You
DATE: October 1, 2025

Look, I know what you're thinking. You saw the headline—China's industrial profits surged 20.4% in August after three consecutive months of decline—and you're wondering if this is the confirmation signal for those beaten-down China positions you've been nursing since September. Let me save you the trouble: it's not.

Strip away the celebration and here's what actually happened. Beijing goosed the numbers just enough to stop the bleeding before the Golden Week holiday. Convenient timing. The National Bureau of Statistics drops a bombshell figure, markets rally into the break, everyone goes home feeling less awful about their portfolios. Classic Beijing playbook: manage expectations, control the narrative, buy time.

But dig into the mechanics and the story falls apart. The 20.4% bounce comes after months where profits were hemorrhaging. We're talking base effects on steroids. When you've spent Q2 and early Q3 watching margins evaporate, even a modest rebound looks spectacular in percentage terms. It's like celebrating because your house only lost half its value this month instead of all of it.

And here's the kicker: this happens to drop right as Western analysts are forecasting emerging market growth to slow to 2.3% annualized in the second half of 2025, down from 3.9% in the first half. China's not decoupling from global deceleration. They're just papering over it with better optics.

Remember September's stimulus carnival? The MSCI China ripped 21% higher from September 24th through the 30th after Beijing announced RMB 800 billion in liquidity support—half for brokers and funds to prop up equities, the rest for buybacks. Markets went vertical. Everyone forgot that stimulus without structural reform is just expensive theater. You can't swap-facility your way out of a consumption crisis and a property sector that's structurally impaired.

The real tell is what they're not fixing. Industrial profits rebounding means exporters and manufacturers caught a break, probably from front-running tariff fears or seasonal inventory builds. But domestic consumption? Still underwater. Property? Still a disaster. Local government debt? Still metastasizing. Beijing's throwing money at the stock market because it's the easiest variable to manipulate, not because it's the most important one to fix.

Meanwhile, on this side of the Pacific, we've got our own circus. The government shuts down at midnight because Congress can't pass a continuing resolution. Markets shrugged—S&P futures down 0.2%, which is basically a rounding error. We've normalized dysfunction to the point where actual chaos registers as background noise. The machinery of governance collapses and capital keeps humming along like nothing happened.

Bitcoin's sitting at $114K this morning, stuck between a floor around $110K and resistance at $115K-$116K. It's up 2% in 24 hours, which crypto bulls are treating like a breakout signal. It's not. It's range-bound chop in an environment where macro clarity is nonexistent. Powell won't build a CBDC, but he's fine with banks touching crypto. Regulatory clarity by way of benign neglect. Not exactly a ringing endorsement.

Here's the trade: fade the China industrial profit rally. It's noise masquerading as signal. The structural problems haven't changed. Beijing's buying time with liquidity injections and convenient data releases, but they're not addressing the underlying rot. Exports can only carry you so far when your consumer base is tapped out and your property sector is a black hole.

If you're long China equities because of September's stimulus pump, take some off the table. The easy money's been made. What's left is hope that Beijing follows through with fiscal support that actually moves the needle on consumption and housing. I'll believe it when I see it. Until then, this is a trade, not an investment.

And if you're sitting in cash waiting for the government shutdown to crater markets, you're going to be waiting a long time. Dysfunction is priced in. Chaos is the baseline. The only surprise would be if something actually worked.

Action Items:

• Trim China exposure on any strength this week
• Watch Friday's jobs report for shutdown-related distortions
• Don't chase Bitcoin above $115K without macro confirmation
• Remember: industrial profit bounces mean nothing if consumers stay broke

That's all. Happy October.