Commerzbank analysts Charlie Lay and Dr. Henry Hao highlight that China’s industrial profit growth slowed to 21.1% year-on-year in May, with weaker consumption and investment pointing to easing momentum. They expect official manufacturing and non-manufacturing PMIs to slip into contraction, even as Bloomberg consensus keeps them slightly above 50. Despite fading rate-cut expectations, they still see scope for a 10bp PBoC cut in H2.

Profit slowdown and PMI risks

"China’s industrial profit growth moderated in May for the first time since November 2025. Profits rose 21.1% yoy, down from 24.7% in April, bringing growth in the January–May period to 18.8% compared to 18.2% for January-April."

"Although the headline remains solid, the moderation suggests momentum is easing and that strong exports and higher producer prices are no longer fully offsetting weak domestic consumption and investment."

"Looking ahead, the NBS official manufacturing and non-manufacturing PMI readings for June are due Tuesday. Bloomberg consensus sees both PMIs barely in expansion territory, at 50.1 for manufacturing and 50.0 for non-manufacturing, while we expect both to slip into contraction. Slower profit growth, weak consumption, and falling investment continue to put pressure on policymakers to support activity."

"However, rate-cut expectations have faded, with just over half of Bloomberg-surveyed economists now expect the PBoC to stay on hold through end-2026. We still see room for a 10bp cut in H2."

"On the policy front, Vice Premier He Lifeng used a visit to Sichuan province to urge faster breakthroughs in core technologies, greater technological self-reliance, and stronger industrial and supply-chain resilience. His remarks reinforce Beijing’s emphasis on advanced manufacturing as a structural growth engine, even as domestic consumption remains subdued."

"In FX, USD/CNY rose 30 pips to 6.80 last Friday and 320 pips for the week. Offshore USD/CNH rose 30 pips to 6.80 last Friday and 210 pips for the week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)