China’s industrial profits experienced a significant decline in May compared to the previous year, driven by weakening factory activity amid broader economic challenges and a fragile trade relationship with the United States. This downturn marked a notable reversal from two months of growth, as deepening deflationary pressures and a persistent property market crisis continued to stifle demand in the world’s second-largest economy. The National Bureau of Statistics (NBS) reported that industrial profits fell by 9.1% in May, attributing this decline to insufficient effective demand, decreasing prices of industrial products, and fluctuations in temporary factors. For the first five months of 2025, industrial profits have decreased by 1.1% compared to the same period last year, contrasting with a modest 1.4% gain noted in January-April.
The deepening of factory-gate deflation to the worst level in nearly two years last month, along with extending declines in consumer prices, highlights ongoing economic struggles. Experts point to U.S. tariffs imposed under President Donald Trump, which have affected commodity prices and led to competitive price wars domestically that have strained profits. In particular, the auto industry has been hit hard, prompting local dealers to urge manufacturers to cease aggressive pricing strategies that harm their cash flow and profitability. State-owned enterprises reported a 7.4% drop in profits in the first five months of 2025, while private firms saw a marginal 0.3% increase and foreign companies enjoyed a 3.4% rise.
Overall, the industrial profit data reflects the financial health of companies with annual revenues exceeding 20 million yuan ($2.78 million) from their primary operations. The situation underscores the pressing need for policy support to stabilize the economy and encourage a fragile recovery.