China’s industrial profits increased 15.1% year-on-year in June 2026, the slowest monthly gain so far this year and a sharp decline from May’s 21.1% growth, official data showed on July 27 [1, 2, 3, 4]. For the first half of 2026, industrial profits rose 18.7% year-on-year, slightly below forecasts near 19% and reaching a total of 4 trillion yuan for large enterprises earning over 20 million yuan annually [1, 2, 3, 5, 4].

The slower profit growth in June reflects a patchy economic recovery. While sectors tied to artificial intelligence and technology posted exceptional gains, consumer-related industries such as furniture and car manufacturing suffered steep profit declines. Integrated circuit manufacturing profits skyrocketed over 2,500% in the first half, fueled by AI-driven demand for computing power, while electronics industry profits nearly doubled by 97% [2, 5]. Yu Weining, chief statistician at the National Bureau of Statistics, said the chipmaking surge is “due to accelerated integration of AI across various fields, which in turn generated massive demand for computing power” [5]. Meanwhile, furniture makers’ profits dropped nearly 53%, and car manufacturers’ profits fell about 20% during the same period [2].

The mixed performance points to a K-shaped recovery. Economist Adam Wolfe at Absolute Strategy Research noted, "The improvement in corporate profits may prove short-lived. The tailwinds for AI-linked sectors may persist, but the rest of the economy seems likely to face stronger headwinds. If so, corporate profits could become increasingly K-shaped," underscoring the disparity between booming tech and struggling consumer industries [1]. Kelvin Lam of Pantheon Macroeconomics remarked that the profit recovery so far is “uneven, or K-shaped, with IT and energy-related sectors enjoying significant profit gains... In contrast, downstream consumer goods industries continue to register falling profits” [2].

China ended a record deflationary period last quarter, with producer prices rising year-on-year but dropping 0.3% month-on-month in June, the first monthly decline since July 2025 [1, 2, 3, 4]. Strong export demand and AI infrastructure buildout helped sustain profit growth despite weak domestic consumption and investment [1, 3, 4]. Production of integrated circuits rose 23% year-on-year in the first half, averaging more than 1.5 billion chips produced daily [5].

According to Yu Weining, industrial enterprises also face challenges including weak market demand and capital turnover pressures amid complex external conditions and volatile commodity prices [3]. Robin Xing, chief China economist at Morgan Stanley, said the Communist Party Politburo is expected to review the first half economic performance at its late July meeting and likely consider "mild fiscal stimulus without large-scale packages," aiming to prioritize faster fiscal rollout while relying on export strength to keep growth resilient amid lagging domestic demand [3, 4].