China’s industrial profits rise 21% in May but growth slows amid weak demand

China’s industrial profits increased 21.1% year‑on‑year in May, slowing from the 24.7% gain recorded in April. Over the January‑May period, profits were up 18.8% and the operating margin reached 5.56%, the highest since 2024. The surge was driven by upstream sectors: manufacturers of computers, communications and electronic equipment posted a 103.9% profit jump, accounting for 43.1% of total profit growth, while non‑ferrous metal mining and processing rose 93.9%. By contrast, downstream industries remained weak – automakers’ profits fell 19.8% and furniture makers’ profits dropped 58.4%, reflecting persistent domestic consumption slumps and a prolonged property‑market downturn.

Export demand for high‑tech AI‑related products helped offset the broader slowdown. Shipments of automated data‑processing equipment rose more than 60% year‑on‑year, and global AI investment is fueling demand for Chinese chips and electronic components. The People’s Bank of China has asked commercial banks to increase lending, but credit demand stays muted as households and firms remain cautious.

A Reuters poll of 23 economists expects the official manufacturing Purchasing Managers’ Index to edge up to 50.1 in June, just above the 50‑point growth threshold, indicating only marginal expansion. Analysts note trade front‑loading ahead of new U.S. Section 301 tariffs and a tentative easing of Strait of Hormuz tensions as short‑term supports, while weak domestic demand and the property crisis continue to constrain broader recovery.