China Industrial Profits Plunge 9.1% in May as Manufacturing Sector Faces Headwinds

China’s industrial firms register sharp profit drop for May 2025, underscoring persistent challenges amid tepid demand and global economic uncertainty.

China’s industrial sector posted a significant setback in May 2025, with profits for major industrial firms falling 9.1% year-on-year, according to data released Thursday by the National Bureau of Statistics (NBS). The profit decline signals deepening pressures on the world’s second-largest economy as manufacturers contend with weak domestic demand, cautious global buyers, and ongoing supply chain disruptions.

Industrial Profits Mark Third Consecutive Monthly Decline

Official NBS data revealed that total profits for firms with annual revenues above 20 million yuan ($2.76 million) reached 560.6 billion yuan ($77 billion) in May, down sharply from a year earlier. This marks the third straight monthly drop, intensifying concerns about China’s post-pandemic recovery and its ability to sustain industrial growth.

“The challenges faced by Chinese manufacturers are multifaceted, involving both external and internal factors,” said Xu Tianchen, a senior economist at The Economist Intelligence Unit, to CNBC. “Export demand is still sluggish, while domestic consumption recovery has plateaued.”

Weak Demand and Deflationary Pressures Undermine Recovery

Much of the decline stems from weak demand conditions, both at home and abroad. Domestic consumption, while improved since the country’s COVID-19 reopening in 2023, has not rebounded as strongly as government planners had forecast.

Economists noted that profit margins have been further squeezed by persistent deflation in factory gate prices, which have remained in negative territory.

“Industrial deflation remains an ongoing drag for Chinese manufacturers, reducing profitability even as production volumes stabilize,” remarked Tom Orlik, Chief Economist for Bloomberg Economics.

Sectoral Breakdown: Some Sectors Weaker Than Others

A closer look at the data shows that sectors like chemicals, ferrous metallurgy, and petroleum processing saw especially deep declines in profit margins. In contrast, electronics manufacturing and electrical machinery registered more resilience, largely thanks to continued demand for green energy equipment and components.

Chemical sector profits: down 47.4% YoY in May

Ferrous metallurgy: declined by 33.1%

Automobile manufacturing: dropped 17.2%

Electrical machinery and equipment: rose 8.7%

Government Policy Response and Global Implications

In response, the Chinese government has announced a slew of measures aimed at stabilizing industrial profits, including targeted tax cuts and increased credit support for small and medium factories. Still, economists say structural challenges—such as rising labor costs, property market weakness, and ongoing trade tensions with the U.S. and Europe—will be difficult to overcome in the near term.

“Without a broader recovery in both consumer spending and advanced manufacturing, China’s industrial growth faces a protracted period of adjustment,” said Alicia Garcia Herrero, Chief Economist of Asia-Pacific at Natixis.

The weak performance of China’s industrial sector could also ripple globally. As the world’s manufacturing linchpin, lower Chinese output may weigh on industrial supply chains, global commodity markets, and energy demand.

Outlook: Lingering Uncertainty Into Late 2025

Analysts expect continued volatility for the remainder of the year. The International Monetary Fund estimates China’s GDP growth will slow to 4.5% in 2025 from 5.2% in 2024, as structural and cyclical headwinds persist.

Some experts point to early signs of stabilization in export orders and infrastructure investment, but most agree that risks remain.

“The road ahead for China’s industrial profits is anything but smooth,” said Yu Miaojie, Chancellor of Liaoning University. “It will take consistent policy support and a revival in end-market demand before we see sustained recovery.”

May’s steep decline in industrial profits underlines the formidable challenges facing China’s manufacturing sector in 2025. With profit margins compressed by soft demand and deflationary trends, attention now turns to how Beijing will steer its key industries through uncertainty—and whether a broader global recovery could provide much-needed tailwinds in the quarters ahead.

Sources Used in Research:

CNBC: China industrial profits plunge 9.1% in May

National Bureau of Statistics of China

Bloomberg Economics

International Monetary Fund (IMF)

The Economist Intelligence Unit

Expert commentary in CNBC and Bloomberg reports