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China’s industrial profit growth moderated in June, reflecting an uneven economic recovery where robust overseas demand continues to support manufacturers even as domestic consumption and the property market remain under pressure.
According to data released by China’s National Bureau of Statistics (NBS), industrial profits increased 15.1 per cent year-on-year in June, slowing from 21.1 per cent in May. For the first half of 2026, profits rose 18.7 per cent, marginally lower than the 18.8 per cent growth recorded during January-May.
While the headline numbers point to resilient manufacturing activity, the bigger story lies in China’s rapidly expanding role in the global artificial intelligence supply chain.
China’s AI-linked exports have climbed to an estimated $720 billion over the last 12 months, driven by surging global demand for AI infrastructure. Chip exports have reached a record around $290 billion, more than doubling over the past three years. Exports of computers and related components have surged to about $240 billion, the highest level since 2022, while power equipment shipments have touched a record roughly $190 billion, reflecting accelerating investments in AI data centres and digital infrastructure worldwide.
The strong export performance has helped cushion China’s manufacturing sector against sluggish domestic demand, making overseas markets the primary engine of industrial growth.
“The external environment remains complex and international commodity prices remain uncertain. Industrial firms also continue to face weak demand and cash-flow pressures,” NBS statistician Yu Weining said in conversation with Reuters.
Economists say sustained improvement in industrial profitability could eventually spill over into wages and broader economic activity.
“If this recovery can be sustained, it will be a good sign for the rest of the economy, as a return of profits growth could give companies room to resume wage growth,” said Lynn Song, Chief Economist for Greater China at ING told Reuters.
However, the recovery remains highly uneven.
The automobile industry continues to face intense pressure, with first-half profits plunging 19.5 per cent as vehicle sales declined for a ninth consecutive month in June. Persistent weakness in household spending and the real estate sector also continues to weigh on domestic demand.
Investors are now looking ahead to the Communist Party’s Politburo meeting later this month for clues on additional policy support. However, expectations for a broad-based stimulus package remain limited, as resilient exports have allowed Beijing to rely on targeted easing rather than aggressive fiscal intervention.
For now, China’s manufacturing sector is increasingly being powered by the global AI boom, with exports of chips, computing hardware and electrical equipment emerging as a crucial pillar supporting the world’s second-largest economy despite weakness at home.
