China’s Industrial Profit Plunged in May Amid Weak Demand, US Tariffs

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Jun 30, 2025 - 09:53 Updated: Jun 29, 2025 - 22:48
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China’s Industrial Profit Plunged in May Amid Weak Demand, US Tariffs
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Industrial profits at large Chinese companies fell in May compared to a year earlier, reversing the modest gain recorded in previous months, as weak domestic demand and the tariff war with the United States weighed on manufacturers.

Data released on June 27 by China’s National Bureau of Statistics shows that profits declined 9.1 percent year-over-year in May. The drop erased the 1.4 percent cumulative gain seen in the first four months of 2025, and pulled overall profits for the January–May period down to a 1.1 percent decline.

Yu Weining, a statistician with the bureau, attributed the decline to multiple factors, including “insufficient effective demand, falling prices of industrial products, and short-term fluctuations.”

Yu did not clarify what he meant by “short-term fluctuations” and whether they were related to the ongoing U.S.–China trade tensions that recently reached a truce.

In recent months, Washington and Beijing have exchanged a volley of escalating tariffs, with duties on certain Chinese goods shooting up as high as 145 percent—part of the Trump administration’s effort to balance trade deficits and bring back manufacturing from overseas. The uncertainty and increased costs has prompted many Chinese factories to cut or halt production through April and into May, when the two countries held talks aimed at easing the spiraling trade restrictions.

By sector, the mining industry recorded a sharp 29 percent drop in profits during the January–May period. The automotive manufacturing sector also posted an 11.9 percent year-over-year decline, the steepest since the first quarter of 2023. The downturn has been exacerbated by an aggressive price war, as carmakers compete for domestic market share amid rising trade barriers abroad.

Some industries, however, benefited from Beijing’s stimulus efforts, such as the trade-in program that offers cash subsidies for consumers who replace old home appliances. Boosted by government subsidies, profits of smart home device manufacturers surged by 101.5 percent, while makers of general machinery and household kitchen appliances also posted double-digit growth.

China’s aerospace, aviation, and marine sectors also stood their ground, registering a 56 percent profit increase. The surge was linked to the country’s manned lunar exploration program and the rollout of its domestically built large commercial aircraft, according to Yu.

State-owned enterprises saw profits drop 7.4 percent over the five-month span, while private businesses reported a smaller decline of 1.5 percent. Foreign-invested industrial firms, including those backed by investors from Hong Kong, Macau, and Taiwan, posted a modest 0.3 percent increase.

Industrial profits are a key barometer of the financial health of China’s factories, mines, and utilities; and often affect investment decisions in the coming months. The latest figures highlight the challenges Beijing faces in achieving its politically mandated economic goals.

In March, China’s rubber-stamp legislature, the National People’s Congress, held its annual meeting and set the country’s GDP growth target for 2025 at “around 5 percent.” The Chinese statistical bureau reported a 5 percent real GDP growth rate for 2024 after adjusting for inflation, though many independent economists dispute the accuracy of that number.
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Analysts at the Rhodium Group estimate that China’s actual real growth in 2024 was below 3 percent. Meanwhile, a model developed by the Bank of Finland—which mostly disagrees with Beijing’s inflation adjustments—puts growth at just under 4 percent.

Excluding the COVID-19 pandemic years, China’s official 5 percent figure for 2024 already marked the country’s slowest pace of growth since 1990.

At the same March meeting, in an implicit acknowledgement of sluggish domestic demand, Beijing revised its annual consumer price inflation target to “around 2 percent,” down from the 3 percent target in previous years. That represents the lowest target in more than two decades.

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