China's industrial profits fell by 9.1 percent in May compared to a year earlier, marking the steepest decline in seven months and raising fresh concerns over the effectiveness of ongoing stimulus measures. The drop is the largest since October last year, when industrial profits declined by 10 percent.
Industrial profits, a key measure of the financial health of China's factories, utilities, and mining enterprises, have continued to face pressure despite government efforts to support the sector. Data from the National Bureau of Statistics shows that profits at large industrial firms fell by 1.1 percent in the first five months of the year compared to the same period in 2024.
The sharp decline in May was attributed to weak domestic demand and lower prices for industrial goods, the statistics bureau said.
Last September, industrial profits recorded a staggering 27.1 percent year-on-year plunge, prompting Beijing to intensify stimulus efforts in an attempt to stabilize earnings. However, results have been mixed.
Between January and May, profits in the mining sector dropped 29 percent, while the manufacturing and utility sectors reported modest gains. Automotive manufacturing profits fell 11.9 percent over the same period.
State-owned enterprises saw a 7.4 percent decline in profits, while non-state firms reported a smaller drop of 1.5 percent. In contrast, foreign firms—including those backed by capital from Hong Kong, Macau, and Taiwan—saw a modest 0.3 percent increase in profits.
The latest figures come after a mixed batch of economic data last month. Retail sales rose 6.4 percent in May, their fastest pace since late 2023, supported by government subsidies that helped boost consumer spending. However, industrial output and fixed asset investment both came in below expectations.
Despite the improvement in consumer activity, companies have not seen a corresponding increase in profits. Analysts noted that prices remain subdued, and many firms continue to offer promotions and discounts, cutting into margins.
On the supply side, intense price competition continues to weigh on earnings, as firms prioritize market share over profitability.
Some economists suggest that authorities in Beijing may delay further stimulus measures unless more severe signs of economic distress emerge. With China’s GDP growth currently tracking at 5.2 percent for the first half of the year, slightly above the government's full-year target, pressure to inject new support may be limited heading into the Politburo’s July meeting.
China's export performance has remained relatively resilient. In May, exports rose 4.8 percent year-on-year, driven by strong demand from Southeast Asia and European Union countries, even as shipments to the United States plunged 34.5 percent.
U.S. President Donald Trump announced Wednesday that a trade deal with China had been signed, although details remain vague. A White House official later clarified that the two sides had reached a new understanding on implementing the Geneva agreement, which includes a 90 day pause involving partial tariff rollbacks and easing of Chinese export restrictions on critical minerals.
Despite this progress, tensions linger. The Geneva framework has since faced setbacks due to continued U.S. restrictions on technology exports and student visas, along with China’s curbs on critical mineral shipments.
Looking ahead, analysts warn that economic growth could moderate in the second half of the year due to persistent deflationary pressures, the unwinding of front-loaded exports, and the delayed impact of tariffs on direct shipments to the United States.
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