China's industrial profits experienced a sharp decline in May 2025, falling 9.1% year-on-year, marking the steepest drop since October 2024. This decline followed a 3.0% rise in April and brought the cumulative profit for the first five months of 2025 to a 1.1% decrease compared to the previous year. The drop in profits is attributed to weak demand, persistent deflationary pressures, and the impact of elevated U.S. tariffs, which have particularly affected sectors such as automakers, whose profits fell by 11.9%. The economic strain has prompted Chinese authorities to intensify efforts to curb excessive competition that is driving down prices and exacerbating the negative effects of tariffs. In June 2025, industrial profits continued to fall, albeit at a slower pace, declining 4.3% year-on-year. For the first half of 2025, profits were down 1.8% year-on-year, totaling 3.437 trillion yuan. State-owned enterprises (SOEs) led the profit decline with a 7.6% drop, while private-sector companies saw a 1.7% increase in profits. Despite rising revenues of 2.5% in the first half, the overall industrial profit contraction highlights ongoing economic challenges in China, including a fragile trade truce with the United States and deflationary trends. The situation underscores the urgency for additional stimulus measures to support industrial profitability and meet growth targets.