Industrial profits in China fell sharply in May, reversing a brief recovery and highlighting growing challenges in the world’s second-largest economy. The decline reflects a slowdown in factory activity, mounting deflationary pressures, and persistent instability in trade relations with the United States. According to data released by the National Bureau of Statistics (NBS) on Friday, quoted by Reuters, industrial profits dropped 9.1 per cent year-on-year in May, ending two consecutive months of growth. The slide comes amid weak domestic demand and continued stress in the property sector. NBS statistician Yu Weining attributed the contraction to “insufficient effective demand, declining prices of industrial products and fluctuations in short-term factors.” In the first five months of 2025, industrial profits fell 1.1 per cent from a year earlier, following a 1.4 per cent rise recorded in the January-April period. The downturn coincides with the steepest factory-gate deflation China has experienced in nearly two years, as well as continued declines in consumer prices. Despite isolated signs of resilience, such as an unexpected uptick in retail sales in April, economists suggest more policy support is needed to strengthen what remains a fragile recovery. ANZ senior China strategist Xing Zhaopeng noted that commodity tariffs imposed by US President Donald Trump have affected prices, while fierce domestic price competition has compressed manufacturers’ margins. The automotive sector, in particular, has come under strain. Sustained high US tariffs and aggressive pricing strategies have led Chinese authorities to intervene, urging manufacturers to halt price wars. Automotive dealers have complained about excessive inventory pressure, stating that manufacturers are oversupplying dealerships, which is eroding profitability and forcing some outlets to shut down. Feng Jianlin, chief economist at Beijing FOST Economic Consulting, said, “The impact of overcapacity and falling prices on enterprises is still emerging, and efforts need to be made to adjust supply and stabilise demand.” A sectoral breakdown of the data revealed that state-owned enterprises saw profits decline by 7.4 per cent in the January-May period, while private sector firms posted a slight increase of 0.3 per cent. Foreign enterprises registered profit growth of 3.4 per cent.
