• China's industrial profits dropped 9.1% year-on-year in May, marking a reversal after two months of growth.
• The decline reflects weak domestic demand and the impact of US tariffs on various sectors.
• State-owned firms saw a 7.4% profit drop, while private and foreign enterprises recorded slight increases.
• The automotive sector has been particularly strained, facing inventory oversupply and aggressive pricing wars.
• Economists suggest further policy support is needed to stabilize the fragile economic recovery.

China's industrial profits experienced a significant decline of 9.1% year-on-year in May, disrupting a brief recovery following two consecutive months of profit increases. This downturn is attributed largely to a slowdown in factory activity, strained by ongoing trade disputes with the United States and broader economic challenges such as deflationary pressures and a stagnant property sector, as reported by the National Bureau of Statistics (NBS) and analyzed by various economists Channel News Asia, Reuters, India Times, and South China Morning Post.

Further analysis stipulates that this decline in profits is partly driven by insufficient effective demand and decreasing prices of industrial products. For the first five months of 2025, industrial profits fell 1.1% overall, a stark contrast to a modest increase observed in the early months of the year Channel News Asia and Reuters. This ongoing profit decline has triggered calls from local auto dealers for manufacturers to stop aggressive pricing strategies that have been damaging to their profits and operational stability India Times and South China Morning Post.

State-owned firms experienced a 7.4% decline in profits, while the private sector saw a slight increase of 0.3%, and foreign enterprises enjoyed a more favorable 3.4% rise in profits during the same period. These disparities underscore the varying impacts of the economic climate on different ownership structures within the industry, with notable distress in sectors heavily reliant on stable consumer demand, particularly automotive and manufacturing Reuters, India Times, and South China Morning Post.

Economists highlight that the persistent strains from U.S. tariffs and the declining prices in key sectors necessitate proactive policy measures to stabilize the economy. While retail sales showed some resilience, there is a consensus that more robust policy support is essential to navigate the fragile recovery in industrial profits moving forward Channel News Asia, Reuters, India Times, and South China Morning Post.