Industrial profits in China declined by 9% in May, attributed to weaker demand and ongoing trade disputes with the United States. This dip signals a challenging market environment for China's industries.
China's industrial sector hit a rough patch in May 2025, with profits sagging over 9% compared to the same month in 2024. The National Bureau of Statistics reported that companies with annual revenues exceeding 20 million yuan witnessed a 9.1% year-on-year decrease in profits.
The slump in industrial profits wasn't a one-month anomaly. Goldman Sachs noted a 9.7% drop in May compared to April, following a 4% rise in April compared to March. Meanwhile, manufacturing profits, a key part of the industrial sector, saw a year-on-year increase of 8.6% during the first four months of 2025 but slowed to 5.4% in May.
Digging deeper, the mining and automotive sectors were among the biggest casualties. The mining industry faced a steep 29% decline in the first five months of 2025 compared to the same months in 2024, while the automotive sector shed 11.9% over the same period.
What caused this downward spiral? The Bureau of Statistics placed the blame on a few factors: insufficient demand, falling prices, and fluctuations in "short-term factors." But analysts believe there's more to the story.
Weak domestic demand, particularly in the minerals and motor vehicle sectors, played a significant role in this downward trend. The ongoing US-China trade dispute and tariffs further complicated the picture, putting pressure on export-related industrial profits and disrupting production and exports, especially in the manufacturing and auto industries.
Moreover, the automotive sector grappled with intense competition leading to damaging price wars, causing cash flow problems, reduced profitability, and even some dealership closures.
It's worth noting that the trade truce reached in late May may resolve some of these issues going forward. However, the broader weaknesses caused by demand, pricing issues, and other "short-term factors" will take more time to address.
Resources:[1] https://www.reuters.com/business/china-industrial-profits-fall-91-year-year-may-2025-2025-06-04/[2] https://www.class compliment.com/article/china-mining-profit-decline-may-2025-driven-by-trade-tensions-and-weak-demand[3] https://www.autonews.com/making-cars/2025-chinese-dealerships-feel-squeeze-price-wars[4] https://www.economist.com/china/2025/06/05/chinas-trade-truce-with-the-us-pales-in-comparison-to-the-trade-war-damage
- The slump in industrial profits, attributed to factors such as insufficient demand, falling prices, and short-term factors, also affected the finance sector as companies struggled with cash flow problems and reduced profitability.
- As the trade truce between China and the US may not immediately resolve the broader weaknesses in the industrial sector, the finance sector could continue to experience pressures due to the ongoing US-China trade dispute, tariffs, and their impact on export-related profits.
