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Profit growth at China’s industrial companies slowed to its lowest pace this year in June, according to official data that underlined an uneven rebound in earnings across the world’s second-largest economy.
Industrial profits increased 15.1 per cent year-on-year last month, according to data from the National Bureau of Statistics, below May’s rise of 21.1 per cent.
The figures cover firms with annual revenues of more than Rmb20mn ($2.95mn).
Industrial profits in China — which edged up just 0.6 per cent last year — have rebounded sharply this year after the war in Iran helped reverse years of factory-gate price deflation and a global AI boom drove demand for electronics.
An 18.7 per cent increase in first-half profits also came alongside a jump in China’s exports, contrasting with signs of weak domestic demand in an economy seen to be heavily reliant on trade to drive activity.
“This strong rebound is not driven by an organic recovery in domestic demand,” said Larry Hu, chief China economist at Macquarie. “How long it could last largely depends on export strength.”
“Other industries besides tech and commodities are under pressure from rising input costs and weak demand,” he added.
Monday’s data showed signs of such challenges, with vehicle manufacturing profits falling 20 per cent in the first half against a backdrop of slumping domestic sales. Exports of cars, meanwhile, surpassed 1mn for the first time ever in June.
Zhaopeng Xing, senior China strategist at ANZ Research, said 80 per cent of profit increases in the first half came from electronics and raw materials, an “imbalance” which he said meant their growth, along with that of producer prices, “will not be sustainable”.
China’s producer price index returned to growth in March for the first time since 2022, and in June added 4.1 per cent after several consecutive months of increases.
Xing said he expected input costs to rise gradually and profit growth would be likely to wane.
Adam Wolfe, an economist at Absolute Strategy Research, noted in a report last week that industrial profits had recovered following the launch last year of a campaign against involution — a term which refers to excessive competition.
But he added that “developments abroad”, from the war in Iran to AI investment, “deserved most of the credit for the turnaround in prices and profits”.
