Profits from China’s industrial sector fell sharply in May, raising fresh questions about the effectiveness of Beijing’s economic recovery efforts. New data from the National Bureau of Statistics showed a 9.1% drop in industrial earnings compared to the same period last year, ending a short-lived rebound and signaling persistent strain on the country’s producers.

Despite a recent uptick in retail sales, many Chinese businesses continue to suffer from weak market demand, falling prices, and growing competition. Analysts say government stimulus measures are failing to translate into meaningful improvements for enterprise earnings, particularly in key sectors like automotive manufacturing, which saw profits plunge by nearly 12%.

“Insufficient effective demand, declining prices of industrial products, and fluctuations in short-term factors” were among the reasons cited by the NBS for the profit decline.

From January to May, total industrial profits fell by 1.1%, slipping from the slight growth recorded in the first four months of the year. The mining industry saw the steepest decline, with profits down by 29%. Meanwhile, state-owned enterprises recorded a 7.4% fall in earnings. Private firms and foreign-invested companies showed smaller changes, with profits down 1.5% and up just 0.3% respectively.

Retail sales in May climbed 6.4%, their fastest pace since 2023, helped by subsidies and short-term incentives. But those gains failed to ease the financial pressures on manufacturers and suppliers.

Economists say low prices remain a critical problem, driven by intense domestic price competition and the ongoing effects of foreign trade restrictions. The auto sector is particularly vulnerable, with local dealers asking automakers to stop oversupplying vehicles. Some smaller firms have already been forced to shut down due to poor cash flow.

For now, officials appear reluctant to roll out additional stimulus. According to Tianchen Xu of the Economist Intelligence Unit, Beijing is unlikely to act unless the broader economy shows more severe signs of stress.

The May data adds to growing concern that China’s recovery remains uneven, with the country’s industrial backbone still struggling to regain footing. While consumption has picked up slightly, producers face a different reality: low margins, weak demand, and policy support that, for now, falls short of what is needed to turn the tide.