China's industrial profits plummeted by 9.1% in May compared to the previous year, marking the most significant monthly decline in seven months. This downturn underscores the difficulties faced by Chinese factories, which are grappling with subdued demand and the persistent effects of trade tariffs imposed by the United States.
The sharp decline reported by China's National Bureau of Statistics on Friday represents a dramatic shift from April's 3.0% profit growth. For the first five months of 2025, cumulative profits at major industrial firms, defined as those with annual revenue of at least 20 million yuan ($2.78 million) from their main operations, fell by 1.1% compared to the same period last year. This reverses a 1.4% increase recorded through April, indicating a deteriorating trend in recent months.
The collapse in profits coincided with heightened trade tensions between Beijing and Washington. Heavy tariffs imposed by the U.S. on Chinese goods since April led to suspended factory production until late May, when the two countries reached a temporary truce. Yu Weining, a statistician with the National Bureau of Statistics, attributed the decline to "insufficient effective demand, declining prices of industrial products and fluctuations in short-term factors." Despite the overall downturn, China's exports showed some resilience, thanks to surging shipments to Southeast Asia and European Union countries, even as U.S.-bound exports plunged by 34.5% in May.
The profit decline was not uniform across all sectors and ownership types. State-owned firms saw their profits drop by 7.4% in the first five months of the year. In contrast, private companies managed a modest 0.3% increase, and foreign firms posted a more robust 3.4% rise, suggesting varying levels of adaptability and market access.
Despite the broader downward trend, some industries experienced significant growth. Profits in China's aerospace, aviation, and marine industries soared by 56% year-over-year. This growth was largely driven by the country's ambitious manned lunar exploration program and the rollout of domestically produced commercial aircraft. Additionally, industries benefiting from Beijing's consumer goods trade-in program, such as home appliances and kitchenware, also performed well.
These industrial profit figures are being closely watched by economists, who are debating whether Beijing will deploy additional stimulus measures to bolster the economy. Robin Xing, chief China economist at Morgan Stanley, noted that China's GDP growth is currently tracking at 5%, which might reduce the urgency for more aggressive intervention at the upcoming Politburo meeting in July.
However, certain sectors remain under considerable strain. The auto sector, in particular, faces significant challenges, with local dealers appealing to manufacturers to end destructive price wars. These aggressive pricing strategies are damaging cash flow and forcing some dealerships to close, contributing to the overall pressure on industrial profitability.
