According to the National Bureau of Statistics, industrial profits in China rose 15.1% in June compared to the previous year, marking a slowdown from May's 21.1% increase. This deceleration is notable as it follows a two-month trend of reduced growth rates, with profits for the first half of the year climbing 18.7%, slightly down from 18.8% in the January-May period.
The rebound in industrial earnings this year has been attributed to a recovery from previous deflationary pressures and a boom in AI-driven chip and equipment manufacturing. However, the recent profit growth is juxtaposed against last year's declines, where earnings fell 3.6% in June and 2.8% in the first half of 2025.
Despite a year-on-year increase in factory-gate prices of 3.6% in the second quarter, the sustainability of this price recovery is questioned due to a reliance on rising global energy costs and weak domestic demand. Producer prices also saw a month-on-month decline of 0.3% in June, the first drop since July 2025, influenced by lower oil and petrochemical prices.
Investors are now looking ahead to the upcoming Politburo meeting, where economic policy direction will be discussed. Economists, including Robin Xing from Morgan Stanley, expect a shift towards more urgent policy support, although a large stimulus package is not anticipated.
They predict that growth will remain resilient, driven by exports and an ongoing investment cycle in AI and broader industrial capital expenditures across Asia