China’s industrial profits continued to post strong double-digit growth in May, but the pace slowed from the previous month, highlighting an increasingly uneven recovery in the world’s second-largest economy as artificial intelligence-driven manufacturing booms while large parts of the domestic economy remain under pressure.

Data released by the National Bureau of Statistics (NBS) on Saturday showed industrial profits rose 21.1% in May from a year earlier, slowing from April’s 24.7% increase. On a year-to-date basis, industrial profits climbed 18.8% in the January-May period, slightly faster than the 18.2% growth recorded during the first four months of the year.

Although the figures suggest China’s manufacturing sector continues to generate earnings, economists say the headline numbers mask deep structural weaknesses. The recovery remains heavily dependent on a handful of high-growth industries linked to artificial intelligence, advanced manufacturing, and exports, while sectors tied to domestic consumption continue to struggle with weak demand, persistent deflationary pressures, and intense price competition.

The latest figures support a pattern that has increasingly defined China’s post-pandemic economy. Manufacturing and exports have become the principal engines of growth, compensating for sluggish household spending, a prolonged property market downturn, and subdued private-sector confidence.

Beijing has relied heavily on industrial production and overseas demand to sustain overall economic growth. However, that strategy is becoming more vulnerable as global trade uncertainties mount and geopolitical tensions threaten international supply chains.

The slowdown in May profit growth also comes as Chinese exporters face fresh uncertainty following renewed conflict involving Iran and the United States. Disruption to shipping routes and energy markets has increased costs for manufacturers and weighs further on already fragile downstream industries.

According to Zhaopeng Xing, senior China strategist at ANZ, the latest profit gains were driven primarily by improvements in upstream industries rather than broad-based demand.

“Upstream sectors and the computer industry saw sharp rises, while downstream manufacturing remained under pressure, in line with the producer price index, suggesting that price improvement was the main driver of corporate profit growth,” Xing said.

The data reveal an increasingly pronounced divergence between sectors benefiting from the global AI investment cycle and those serving China’s domestic economy.

Manufacturers of computers, communications equipment, and electronic products recorded an extraordinary 103.9% increase in profits during the first five months of the year. According to the statistics bureau, that single industry accounted for 43.1% of the total increase in profits across all industrial enterprises.

The surge reflects the worldwide race to build artificial intelligence infrastructure, including data centers, advanced semiconductors, and networking equipment, which has boosted demand for Chinese electronics manufacturers despite ongoing technology restrictions imposed by the United States and its allies.

Mining and processing companies also benefited from stronger commodity prices. Profits in the non-ferrous metal ore mining and processing sector jumped 93.9%, supported by robust demand for copper, aluminum, lithium, and other metals used in electric vehicles, renewable energy systems, and AI infrastructure.

By contrast, industries more closely tied to household spending continued to deteriorate.

Automakers, despite achieving record export volumes in recent months, saw profits fall 19.8% as an aggressive domestic price war continued to erode margins. China’s electric vehicle market has become one of the most competitive globally, forcing manufacturers to offer repeated discounts while absorbing rising production costs.

Furniture manufacturers, another barometer of domestic consumption and housing activity, experienced an even steeper decline, with profits plunging 58.4%. The collapse underscores the continuing drag from China’s property downturn, which has weakened demand for home furnishings and construction-related products.

Economists say the growing gap between export-oriented high-tech industries and consumer-facing manufacturers illustrates the structural imbalance confronting policymakers.

Tianchen Xu, senior economist at the Economist Intelligence Unit, said developments in the Middle East could play an important role in determining whether downstream industries recover in the coming months.

“As shipping through the Strait of Hormuz resumes and international oil prices fall, we should see a gradual recovery in downstream profits,” Xu said.

Lower energy prices would ease production costs for manufacturers already struggling with thin margins, particularly in chemicals, transportation, logistics, and consumer goods.

However, geopolitical risks remain elevated after the United States launched military strikes against Iran on Friday following an Iranian drone attack on a commercial vessel in the Strait of Hormuz. Both countries have accused each other of violating the ceasefire reached last week, renewing concerns about energy supplies through one of the world’s most important shipping corridors.

At home, policymakers continue to grapple with weakening domestic demand.

China’s property sector remains mired in a prolonged downturn, suppressing household wealth and consumer confidence. At the same time, manufacturers across several industries continue to face chronic overcapacity, leading to fierce price competition that has compressed profit margins even as production volumes remain high.

The situation has prompted expectations that Beijing will introduce additional targeted support measures in the second half of the year.

Analysts believe policymakers are likely to increase assistance for industries facing severe overcapacity while encouraging consolidation among weaker manufacturers to improve pricing power and restore profitability. Those expectations gained further support after reports on Friday indicated that China’s central bank had instructed several commercial banks to increase lending this month, signaling official concern that credit demand remains subdued as businesses and households remain cautious about borrowing and investment.

The financing push suggests authorities remain worried that private-sector confidence has yet to recover sufficiently to generate self-sustaining economic momentum.

Meanwhile, inflation dynamics present another challenge.

China’s factory-gate inflation accelerated in May to its highest level in nearly four years, increasing input costs for manufacturers even as many downstream producers remain unable to pass those higher costs on to consumers because of weak domestic demand. The combination of rising production costs and sluggish consumer spending threatens to squeeze corporate margins further unless domestic demand strengthens.

Industrial profit data cover companies with annual revenue of at least 20 million yuan (about $2.95 million) from their principal business activities and are widely viewed as one of the clearest indicators of the health of China’s manufacturing sector.

The latest figures suggest that while China’s industrial economy continues to benefit from the global artificial intelligence investment boom and resilient export demand, the broader recovery remains unbalanced.

Apple is lobbying the Trump administration for permission to source memory chips from Chinese manufacturer ChangXin Memory Technologies (CXMT), highlighting the growing tension between Washington’s national security policies and the soaring cost of components powering the artificial intelligence boom.

According to a Financial Times report, the iPhone maker has been pressing U.S. officials to grant it clearance to purchase memory chips from the Chinese supplier, arguing that rapidly rising memory prices are increasing manufacturing costs across its product lineup.

The effort exposes the difficult position facing major American technology companies, which are trying to secure enough advanced components to remain competitive while complying with increasingly stringent U.S. restrictions on China’s semiconductor industry.

The Financial Times reported that Apple first approached the U.S. Commerce Department more than a month ago and has since broadened its lobbying effort by engaging other administration officials and allies in Washington. The objective is to obtain approval that would allow Apple to purchase memory chips from CXMT despite U.S. restrictions on the company.

The request comes as memory prices have surged amid an unprecedented buildout of AI infrastructure. Demand from hyperscale cloud providers and AI developers has tightened supplies of advanced memory chips, pushing costs sharply higher for electronics manufacturers worldwide.

Apple acknowledged the pressure earlier this week when it announced price increases for several products, saying it could no longer absorb the rising costs of memory and storage components. The company raised prices on iPads and MacBooks on Thursday, marking one of its clearest acknowledgements that AI-driven semiconductor demand is beginning to affect consumer electronics pricing.

CXMT Caught In U.S.-China Technology Rivalry

ChangXin Memory Technologies has become China’s leading domestic memory chip producer and is central to Beijing’s efforts to reduce reliance on foreign semiconductor suppliers.

However, the company has increasingly come under scrutiny from Washington. During the Biden administration, the U.S. Department of Defense designated CXMT as a Chinese military company, alleging links between the firm’s activities and China’s military-industrial base.

The company was also approved by an interagency committee last year for inclusion on the Commerce Department’s Entity List, one of Washington’s most powerful export control mechanisms.

Companies placed on the Entity List face strict restrictions on access to U.S. technology. American firms cannot export goods, software, or technology to listed entities without obtaining a government license, and such license applications are generally presumed to be denied.

While the Pentagon blacklist does not automatically prohibit commercial transactions, it adds another layer of political and regulatory scrutiny around dealings with the company.

Additionally, Apple’s lobbying campaign underpins broader strains across the global semiconductor industry as artificial intelligence reshapes supply chains. The explosive demand for AI infrastructure has driven record orders for high-bandwidth memory (HBM), DRAM, and NAND flash chips used in data centers, reducing available supply for consumer electronics manufacturers.

Memory producers, including Micron Technology, SK Hynix, and Samsung Electronics, have prioritized higher-margin AI-related products, contributing to tighter inventories and higher prices for smartphones, tablets, and personal computers.

Those dynamics have benefited memory manufacturers financially. Micron recently forecast record quarterly revenue and disclosed that customers have committed $22 billion under long-term supply agreements, while SK Hynix has emerged as one of the world’s most valuable semiconductor companies on the strength of AI-related demand.

For hardware manufacturers such as Apple, however, the surge in component prices threatens profit margins unless higher costs can be passed on to consumers.

Apple’s request also illustrates the increasingly complex balancing act confronting U.S. technology companies operating amid escalating geopolitical tensions between Washington and Beijing.

Successive U.S. administrations have expanded export controls and investment restrictions targeting China’s semiconductor sector, arguing that advanced chip technologies could strengthen Beijing’s military capabilities and national security apparatus.

At the same time, many American companies continue to depend on China’s manufacturing ecosystem and supply chains for critical components.

Should the Trump administration grant Apple an exemption, it could provide temporary relief from elevated memory costs while signaling a degree of flexibility for commercially significant transactions. Conversely, a rejection would reinforce Washington’s commitment to restricting Chinese semiconductor firms, even as American companies face rising production costs driven by the global AI race.