China’s industrial profit growth slowed to 15.1% year-on-year in June, down from 21.1% in May, marking the weakest increase this year. This slowdown highlights an uneven recovery across the economy, with some sectors benefiting from a tech boom while others face subdued demand.
For the first half of 2026, industrial earnings were up 18.7%. However, integrated circuit manufacturing saw profits surge by almost 2,580%, and the electronics industry overall increased earnings by nearly 97% compared to the same period in 2025. This tech-driven windfall, fueled by global AI infrastructure demand and rising commodity costs due to Middle East energy market disruptions, contributed 8.5 percentage points to the overall growth. In contrast, sectors like furniture manufacturing experienced a nearly 53% drop in earnings, and car manufacturers saw a decline of almost 20%.
Analysts like Kelvin Lam of Pantheon Macroeconomics describe this as a "K-shaped" recovery, where IT and energy-related sectors prosper while consumer goods industries struggle. Despite China ending its deflationary run, price increases are largely concentrated in oil and AI-linked sectors. Yu Weining, an NBS analyst, noted that while first-half profits grew relatively rapidly, challenges remain due to a complex external environment, fluctuating international commodity prices, weak market demand, and tight cash flow. Adam Wolfe of Absolute Strategy Research cautioned that the improvement in corporate profits might be short-lived, with AI-linked sectors potentially continuing to benefit while other parts of the economy face stronger headwinds.
Subdued consumer demand, particularly in areas like car sales which declined for a ninth consecutive month in June, and slumping domestic investment are significant hurdles. The government plans to cultivate emerging and future industries while upgrading traditional ones to transition growth drivers. The slowdown in profit growth, coupled with a deceleration in second-quarter GDP, suggests that further governmental support through fiscal spending and monetary easing may be necessary to bolster demand and address the economy's underlying weaknesses.
