Employees work on the production line of hydrogen fuel cells at a workshop of Panxing Technology (Zhejiang) Co., Ltd. on June 23, 2025 in Jinhua, Zhejiang Province of China.
Vcg | Visual China Group | Getty Images
China’s industrial profits plunged 9.1% in May from a year earlier, in the latest sign that Beijing’s stimulus efforts are falling short in boosting enterprises’ profitability.
That marked the largest monthly decline since October last year, when the industrial profits dropped 10%. Industrial profits are a key measure of the financial health of factories, mines and utilities in China.
Cumulative profits at major industrial firms fell 1.1% in the first five months of 2025, compared to a year earlier, the data showed.
The statistics bureau attributed the sharp decline in May to insufficient domestic demand and lower prices for industrial products.
In September last year, industrial profits recorded an eye-watering 27.1% year-on-year drop, leading Beijing to ramp up stimulus in its bid to reverse the slump in corporate earnings.
During the five-month period, the mining industry saw profits decline 29%, while manufacturing and utility industries saw modest profit gains.
Profits in the automotive manufacturing sector dropped 11.9% from a year earlier.
State-owned firms recorded a 7.4% drop in profits in the first five months, while non-state-owned businesses saw profits fall 1.5%.
Foreign industrial firms, including those with investments from Hong Kong, Macau and Taiwan, saw a modest profit rise of 0.3% in the January to May period from a year ago.
The data followed a mixed bag of economic data out of China last month. China’s retail sales grew at their fastest rate since late 2023 in May, rising 6.4% from a year ago, as government subsidies helped boost consumption, while industrial output and fixed-asset investment both missed expectations.
The recovery in retail sales did not translate into greater profits for businesses due to depressed price levels, said Alfredo Montufar-Helu, senior advisor for China Center at think tank The Conference Board.
“Foot traffic in stores, restaurants, and hotels has improved … [partly because] prices are lower than pre-Covid levels, coupled with an increase in promotions and discounts,” he said.
On the supply side, a deepening price war is ripping through industries, Montufar-Helu added, as companies are “fiercely vying for market share” at the expense of profit margins.
Economists had suggested that Chinese authorities may withhold additional stimulus firepower until signs of deeper economic stress emerge.
With most economic indicators pointing to robust performance in the economy, the latest decline in industrial profits is unlikely to “serve as a counterbalancing factor that will spur government actions,” said Tianchen Xu, senior economist at Economist Intelligence Unit.
“The worst might be over” for the manufacturers’ profit margins, Xu added, while pointing to the recent drop in global commodity prices as the main reason weighing on Chinese industrial firms’ profitability.
Robin Xing, chief China economist at Morgan Stanley, said in a note Friday that China’s GDP growth is tracking at 5%, taking the first half-year growth to 5.2%, above Beijing’s official target of 5%.
That could reduce the urgency for Beijing to step up stimulus at the upcoming Politburo meeting in July, Xing added.
Echoing that view, Neo Wang, lead China economist and strategist at Evercore ISI said in a note that “there is no guarantee of more stimulus” from next month’s meeting of the Politburo — the second most powerful political body in the country — citing the recovery in consumer sentiment and rebound in retail growth last month.
“Stimulus or not will depend on Beijing’s assessment of the U.S.-China trade talks in late July and the expected tariff direction,” Wang added.
China’s exports this year have held up despite the erratic U.S. tariff policy, thanks to a surge in shipments to Southeast Asia and European Union countries. In May, the country’s exports rose 4.8% from a year earlier, even as the U.S.-bound shipment plunged 34.5% from a year ago.
Citi Bank expects the country’s overall exports to grow a decent 2.3%, while factoring in an estimated 10% decline in shipments to the U.S.
Subscribe now
U.S. President Donald Trump said Wednesday that a deal with China had been signed, without providing additional details. A White House official later clarified that “the administration and China agreed to an additional understanding of a framework to implement the Geneva agreement.”
Both sides agreed to a 90‑day pause on May 12, which entailed rolling back some U.S. tariffs and China’s export restraints on critical minerals.
The Geneva deal later faltered over China’s curbs on critical mineral exports and the U.S. tightening restrictions on tech and Chinese student visas.
For the second half of this year, Morgan Stanley’s Xing cautioned that the economic growth is likely to soften, in view of persistent deflationary pressure, payback of front-loaded exports and tariff impacts on its direct exports to the U.S.
