Profits at China’s industrial firms continued to grow in June, although at a slower pace than the previous month, as resilient exports and factory activity helped offset persistent weakness in domestic demand, underscoring the uneven nature of the country’s economic recovery.
Data released Monday by the National Bureau of Statistics (NBS) showed industrial profits rose 15.1% year over year in June, slowing from a 21.1% increase in May. For the first six months of the year, industrial profits climbed 18.7% from a year earlier, only slightly below the 18.8% growth recorded during the January-May period.
The figures suggest that while China’s manufacturing sector continues to benefit from strong overseas demand, domestic-oriented industries remain under pressure from subdued consumer spending, a prolonged property downturn and cautious business investment.
The latest data amplifies the picture of a two-speed economy, with export-driven manufacturers outperforming businesses dependent on China’s domestic market. Exports and industrial production have remained the primary engines of growth this year, helping stabilize the world’s second-largest economy as policymakers attempt to rebalance growth toward stronger household consumption.
However, persistent weakness in consumer demand and the real estate sector contributed to China’s second-quarter economic growth slowing to its weakest pace in more than three years, renewing calls for additional policy measures to support domestic 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, ING’s Chief Economist for Greater China.
Higher corporate profits could eventually support broader economic activity by encouraging businesses to increase hiring, wages and capital investment. However, economists caution that stronger manufacturing earnings alone are unlikely to generate a broad-based recovery unless household demand also improves.
The statistics bureau acknowledged that manufacturers continue to face significant headwinds.
“The external environment remains complex and international commodity prices uncertain,” NBS statistician Yu Weining said.
“Industrial firms also face weak demand and cash flow pressures.”
The comments mean that Chinese policymakers still face delicate balance decisions. Although exports have remained surprisingly resilient, growing trade uncertainties, geopolitical tensions and fluctuating commodity prices continue to cloud the outlook for manufacturers.
Meanwhile, domestic demand remains fragile.
The automobile sector, one of China’s largest manufacturing industries and an important barometer of consumer spending, illustrated those pressures. NBS data showed profits at automobile manufacturers fell 19.5% during the first half of the year as vehicle sales declined for a ninth consecutive month in June.
The prolonged downturn reflects slowing household demand, intense price competition among automakers and excess production capacity, particularly in the electric vehicle market, where manufacturers continue to engage in aggressive discounting to stimulate sales.
Weakness in the auto sector is significant because it has historically been one of the largest contributors to China’s industrial output, employment and consumer spending.
Financial markets showed little reaction to the latest figures, with China’s CSI 300 equity index and the yuan both edging modestly higher following the release, suggesting investors largely viewed the data as consistent with expectations.
Attention is now shifting to the Chinese Communist Party’s Politburo meeting at the end of July, one of Beijing’s most important economic policy gatherings. Investors will closely monitor the meeting for signals on whether authorities intend to introduce additional measures to strengthen domestic demand, stabilize the property market and support business confidence during the second half of the year.
Expectations for a broad fiscal stimulus have moderated in recent months, however.
The resilience of exports and industrial production has reduced the urgency for sweeping economic intervention, while Beijing has continued to favor targeted policy support over large-scale stimulus. Recent measures have focused on selective monetary easing, support for strategic industries, infrastructure investment and policies aimed at encouraging household consumption rather than broad credit expansion.
Economists nevertheless note that achieving more balanced and sustainable growth will likely require stronger domestic demand. While exports have insulated the economy from a sharper slowdown, external demand could become less reliable if global growth weakens or trade tensions intensify.
The industrial profit data therefore exposes a broader challenge confronting Chinese policymakers: sustaining manufacturing momentum while reviving consumer confidence and stabilizing the property sector, which together account for a significant share of domestic economic activity.
The industrial profit survey covers companies with annual revenue of at least 20 million yuan ($2.95 million) from their principal business operations and is widely regarded as a key indicator of the health of China’s manufacturing sector and broader corporate earnings.
