The closely watched index of economic activity was released following a string of generally weak economic indicators in May.
 "China's industrial profit growth slows sharply in May amid fragile recovery")
The association said that amid fierce competition at home, automakers rely on exports and premium models for most of their profits and many of them have seen their revenues fall sharply. Image: ShutterstockReuters
China's industrial profit growth slowed sharply in May, official data released on Thursday showed, highlighting the struggles facing the world's second-largest economy as weak domestic demand weighs on overall growth.
Data from China's National Bureau of Statistics (NBS) showed corporate profits rose 0.7% last month from a year earlier, following a 4% increase in April, but the growth rate in the first five months also slowed to 3.4% from 4.3% in the January-April period.
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The highly-watched economic indicators were released following a series of generally weak economic data in May.
Exports have been strong but China's vast property sector has failed to respond to the “historic” rescue package announced last month, weighing on other sectors from makers of construction materials to household goods and undermining overall consumer confidence.
“Domestic effective demand is still insufficient and the foundation for a recovery in industrial profits is not yet solid,” Yu Weining, a statistician at the National Bureau of Statistics, said in an accompanying statement.
Yu attributed the slowdown in growth to “short-term factors, including slower growth in investment income.”The auto industry, a major contributor to consumer discretionary spending growth, posted a profit margin of 4.6% in the first four months, below the 5% average for the entire factory sector, according to data released in early June by the China Passenger Car Association.
The association said that amid fierce competition at home, automakers rely on exports and luxury cars for most of their profits, and many have seen their revenues fall sharply.
“The slowdown in profit growth is mainly due to the weaker recovery in market demand compared with supply, while overall prices of industrial products are still on a downward trend, while production and operating costs have risen slightly,” said Zhou Maohua, a macroeconomic researcher at China Everbright Bank.
He said fierce competition among some industrial companies had driven down prices, hurting profit growth across the industry.
China's national planners on Monday urged local governments to ease restrictions on car purchasing.
Measures to shore up weak domestic demand, coupled with rising tensions with the West, are putting pressure on companies.
A breakdown of the National Statistics Bureau data showed state-owned enterprises saw their profits fall 2.4 percent in the first five months and foreign companies saw a 12.6 percent increase, while private companies recorded a 7.6 percent profit increase.
The industry profit figure covers companies with annual revenue of at least 20 million yuan ($2.76 million) from their main operations.
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