(July 27): China’s industry saw profit gains slow for a second month even as sectors benefiting from the tech boom enjoy a windfall, adding to evidence of an uneven recovery for companies across parts of the world’s second-biggest economy.

Industrial profits rose 15.1% last month from a year earlier, the weakest increase this year and down from 21.1% in May, according to data published by the National Bureau of Statistics on Monday. 

For the first half of the year, earnings were up 18.7%, compared with a Bloomberg Economics forecast of 19.2%. But tech sectors stood out for their outsized gains, with the profits of integrated circuit manufacturing surging almost 2,580% and the electronics industry overall making nearly 97% more money than in January-June 2025.

And in a sign that subdued consumer demand remains a huge drag on the bottom line of many companies, furniture makers were the worst performers in the first six months, with their earnings slumping nearly 53% on year. Car manufacturers also saw a drop of almost 20% in the same period. 

“China’s profit recovery has so far been uneven, or K-shaped, with IT and energy-related sectors enjoying significant profit gains, supported by AI, digitisation demand and higher global energy prices,” said Kelvin Lam, senior China economist at Pantheon Macroeconomics. “In contrast, downstream consumer goods industries continue to register falling profits.”

Although China ended its record deflationary run last quarter, price increases remain largely confined to oil and sectors linked to artificial intelligence. And while the cost of goods at the factory gate surged in June at the fastest in almost four years, producer prices had their first drop since July 2025 on a month-on-month basis, in a sign inflationary momentum has waned.

The global buildout of AI infrastructure has fuelled demand for China’s advanced manufactured goods while disruptions to energy markets caused by the conflict in the Middle East have lifted commodity costs.

But slumping domestic investment and sluggish household spending could be more of a hurdle for profitability in the months ahead, especially in the absence of stronger stimulus to boost demand.

While industrial profits rose “relatively rapidly” in the first half, “the external environment remains complex and uncertain, international commodity prices continue to fluctuate unpredictably, and industrial enterprises still face challenges including weak market demand and tight cash flow,” Yu Weining, an NBS analyst, said in a statement published alongside the data release.

Looking ahead, the government will continue to “cultivate and strengthen” emerging and future industries while “upgrading and transforming” traditional sectors to enable a smooth transition between the old and new growth drivers, Yu said.

With demand for computing booming as AI makes inroads in more sectors, profits earned by electronics companies contributed 8.5 percentage points to the overall growth in the first half, Yu said.

Earnings growth was stable for miners and manufacturers but utilities saw their profits drop 4.2% in the first half from 2.7% in January-May. Gains at state-owned enterprises and foreign firms eased while the increase at private companies rebounded.

Earnings for ferrous metal smelters and refiners, which include steelmaking, plunged 25%, reflecting persistent weakness in demand for construction products with housing prices still under pressure and infrastructure investment in decline.

“The improvement in corporate profits may prove short-lived,” Adam Wolfe, an economist at Absolute Strategy Research, said in a report last week. “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.”

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