China factory
Employees assemble washing machines on the production line inside a factory of Hefei Rongshida Sanyo Electric in Hefei, Anhui province on Aug. 13, 2013. Reuters

(Reuters) - Annual growth in China's industrial profits slowed to 8.9 percent in May, the weakest pace this year, signaling challenges facing Chinese firms despite signs of stabilization in the economy.

Profits earned by Chinese industrial firms rose 8.9 percent in May to 512.7 billion yuan ($82.6 billion) from a year earlier, slowing from a 9.6 percent rise in April, the National Bureau of Statistics said on Friday.
The rise in profits was the slowest since December 2013.
The bureau only published combined profits for the first two months of this year, which rose 9.4 percent from a year earlier.
For the first five months of 2014, profits rose 9.8 percent from the same period of last year to 2.28 trillion yuan, the bureau said. The pace was slower than the 10 percent expansion in the first four months.
Recent data reinforced market expectations that the world's second-largest economy is powering through its recent soft patch as the government uses targeted stimulus measures to support growth, even if the recovery may be patchy.
But Chinese manufacturers, especially smaller ones, are struggling to cope with falling factory-gate prices, which have eroded their profit margins.
China's producer price index (PPI) fell 1.4 percent in May from a year earlier - the 27th consecutive month of decline, earlier data showed.
Among 41 sectors surveyed by the NBS, 32 reported rising profits in the first five months, led by a 49 percent jump in profits for petroleum refiners, coking firms and nuclear processors.
Power and heating producers and suppliers saw a 27 percent rise in profits during the first five months.
On the downside, profits of the coal mining and processing industry fell 44 percent from the same period of last year.
($1 = 6.2090 Chinese yuan)
(Reporting by China economics team; Editing by Shri Navaratnam & Kim Coghill)