China's May industrial profits slip back into sharp decline

BEIJING (Reuters) -China's industrial profits swung back into sharp decline in May from a year earlier, as factory activity slowed in the face of broader economic stress and a fragile trade truce with the United States.

Deepening deflationary pressures and a persistent property crisis continued to undercut demand and growth in the world's second-largest economy.

A few signs, including an unexpected pickup in retail sales growth last month, suggested some resilience among households even though market consensus is that more policy support is required to bolster a fragile economic recovery.

Profits at China's industrial firms fell 9.1% in May from a year earlier, snapping a two-month growth streak, National Bureau of Statistics data showed on Friday.

The profit decline was due to "insufficient effective demand, declining prices of industrial products and fluctuations in short-term factors," said NBS statistician Yu Weining in a statement.

Industrial profits slid 1.1% in the first five months of 2025 from the same period last year. This compares with a 1.4% increase in the January-April period.

China's factory-gate deflation deepened to its worst level in almost two years last month while consumer prices extended declines.

Prices took a hit from U.S. President Donald Trump's tariffs on commodities, while domestic price wars hit gross margins, said Xing Zhaopeng, senior China strategist at ANZ.

With U.S. tariffs set to remain high, factories are facing immense strains, particularly in sectors such as autos where excessive competition has prompted an official call to end bruising price wars.

Local auto dealers have appealed for automakers to stop dumping cars on dealerships, saying the intense price war was damaging their cash flow, driving down their profitability and forcing some to shut.

"The impact of overcapacity and falling prices on enterprises is still emerging, and efforts need to be made to adjust supply and stabilise demand," said Feng Jianlin, chief economist at Beijing FOST Economic Consulting.

Profits at state-owned firms dropped 7.4% in the first five months. Private-sector companies recorded a 0.3% increase and foreign firms saw a 3.4% rise, according to a breakdown of the official data.

Industrial profit numbers cover firms with annual revenue of at least 20 million yuan ($2.78 million) from their main operations.

($1 = 7.1708 Chinese yuan renminbi)

(Reporting by Qiaoyi Li, Tina Qiao and Ryan Woo; Editing by Jacqueline Wong & Shri Navaratnam)