China's industrial profits expanded at a double-digit pace for a seventh straight month in May, though the pace of growth eased as a widening divide between high-tech winners and downstream laggards underscored the uneven nature of the country's factory-led recovery.
China's industrial profits expanded at a double-digit pace for a seventh straight month in May, though the pace of growth eased as a widening divide between high-tech winners and downstream laggards underscored the uneven nature of the country's factory-led recovery.
Profits at China's industrial firms rose 21.1% in May from a year earlier, easing from 24.7% in April, as robust factory output and exports continued to offset persistent weakness in domestic demand.
"Upstream sectors and the computer industry saw sharp rises, while downstream manufacturing remained under pressure, in line with the producer price index, suggesting that price improvement was the main driver of corporate profit growth," said Zhaopeng Xing, senior China strategist at ANZ.
For the January-May period, industrial profits climbed 18.8% from a year earlier, accelerating from 18.2% in the first four months, data from the National Bureau of Statistics showed Saturday. The operating profit margin of major industrial firms reached 5.56%, its highest cumulative reading since 2024, as sustained month-on-month declines in unit costs boosted profitability, according to NBS senior statistician Yu Weining.
The divergence between sectors highlights the structural challenge facing Chinese policymakers: how to sustain growth as the property downturn and weak consumer confidence weigh on domestic activity, even as exports and AI-related manufacturing boom. Analysts expect Beijing to step up targeted support for struggling industries, particularly as consolidation accelerates in sectors grappling with overcapacity.
AI Boom Lifts Electronics, While Autos and Furniture Struggle
Earnings trends diverged sharply across industries. Profits at manufacturers of computers, communication and electronic equipment surged 103.9% in the first five months, accounting for 43.1% of total industrial profit growth, buoyed by a global AI investment boom. Within the semiconductor supply chain, companies producing specialized electronic materials posted a 665.4% profit surge.
The non-ferrous metal ore mining and processing sector saw profits rise 93.9%, benefiting from strong commodity prices and supply constraints.
By contrast, profits at automakers dropped 19.8% despite robust vehicle exports, while furniture makers' profits plunged 58.4%, reflecting the drag from a prolonged property downturn that has curbed demand for home-related goods.
Geopolitical Uncertainty Adds to Headwinds
Companies now face fresh uncertainty from the protracted Iran conflict, which threatens global trade and supply chains. The U.S. military attacked Iran on Friday in response to an Iranian drone strike on a cargo ship in the Strait of Hormuz, with each country accusing the other of violating a ceasefire agreed last week.
"As shipping through the Strait of Hormuz resumes and international oil prices fall, we should see a gradual recovery in downstream profits," said Tianchen Xu, senior economist at the Economist Intelligence Unit.
China's factory-gate inflation accelerated to nearly a four-year high in May, squeezing margins for downstream manufacturers already facing weak domestic demand. The People's Bank of China instructed some commercial banks to increase lending this month, people familiar with the matter said Friday, the latest sign that credit demand remains weak as the economy grapples with sluggish consumption.
The core contradiction of strong supply versus weak domestic demand remains highly prominent, leaving many companies and subsectors struggling to survive, Yu said. Industrial profit figures cover firms with annual revenue of at least 20 million yuan ($2.95 million) from their main operations.
This article is for informational purposes only and does not constitute investment advice.
