Source Credit : Portfolio Prints
China’s industrial profits rose 15.1% year-on-year in June, according to data released on Monday by the National Bureau of Statistics, extending a second consecutive month of slower growth as falling energy prices tempered the price gains that had underpinned this year’s recovery.
The June reading followed a 21.1% increase in May, marking the second straight month of deceleration after profits had accelerated steadily through the early part of the year.
For the first six months of 2026, industrial profits increased 18.7%, slightly below the 18.8% growth recorded during the January–May period.
Despite the recent moderation, industrial earnings have staged a sharp turnaround this year, shifting from near-stagnant growth in 2025 to robust double-digit gains. The recovery has been driven by an artificial intelligence-led surge in semiconductor and equipment manufacturing, alongside the end of nearly three years of factory-gate deflation.
Profit growth has also benefited from favourable base effects. Industrial earnings fell 3.6% in June 2025 and declined 2.8% during the first half of last year, creating a lower comparison point for this year’s gains.
Producer prices rose 3.6% year-on-year in the second quarter, marking their first sustained increase since late 2022 and providing an important boost to corporate profitability.
However, economists warn that the reflationary momentum may be losing strength. Much of the recent improvement in producer prices was driven by higher global energy costs rather than a broad-based recovery in domestic demand, which remains subdued.
Producer prices fell 0.3% month-on-month in June, the first decline since July 2025, according to LSEG data. The drop reflected lower oil, refined-fuel, and petrochemical prices as tanker traffic through the Strait of Hormuz normalised, easing supply concerns that had previously pushed energy costs higher.
Attention is now turning to the Communist Party’s Politburo meeting, typically held in late July, where senior leaders will assess first-half economic performance and outline policy priorities for the remainder of the year.
While economists expect policymakers to adopt a more supportive tone following the second-quarter slowdown, expectations for a large-scale stimulus package remain limited. Beijing has so far avoided aggressive intervention, supported by resilient exports and its broader objective of reducing excess industrial capacity.
“The Politburo is likely to make policy support mildly more urgent, prioritising faster fiscal rollout,” said Robin Xing, Chief China Economist at Morgan Stanley, describing the bank’s baseline outlook as a “gradual policy ramp-up rather than a one-off stimulus push.”
“Growth should remain resilient thanks to exports, even as domestic demand lags,” Xing added, pointing to the AI-driven investment cycle—where China plays a critical role as a hardware supplier—and a broader industrial capital-expenditure super-cycle emerging across Asia.
