China's factory profits slow as exports offset weak demand
What's the story
China's industrial profits saw a 15.1% year-on-year increase in June, data from the National Bureau of Statistics showed on Monday. The growth rate has slowed for the second consecutive month as falling energy prices have moderated this year's recovery. The June figure follows May's 21.1% gain, marking the first slowdown since November last year.
Profit slowdown
Industrial profits surge by 18.7% in H1
For the first half of this year, industrial profits grew by 18.7%, a slight deceleration from the 18.8% growth rate observed in the January-May period.
This slowdown comes despite a strong recovery in industrial corporate earnings this year, which have jumped from barely positive growth in 2025 to double-digit gains.
The turnaround has been driven by an AI-led boom in chip and equipment manufacturing and an end to nearly three years of factory-gate deflation.
Year-on-year comparison
Comparison with last year's performance aiding this year's gains
The profit recovery this year has also been aided by a favorable comparison with last year's performance.
Earnings fell 3.6% in June 2025 and declined 2.8% in the first half of that year.
Factory-gate prices also rose by 3.6% year-on-year in Q2, marking the first positive reading since late 2022.
Economic concerns
Economists warn of shaky price recovery
Economists have warned that the price recovery is shaky as it is largely driven by surging global energy costs. They also noted that domestic demand lags behind.
Producer prices fell by 0.3% month-on-month in June, marking the first decline since July 2025, according to LSEG data.
This was mainly due to normalizing tanker flows through the Strait of Hormuz which pulled oil, refined-fuel, and petrochemical prices lower.
Policy anticipation
Investors await Communist Party's Politburo meeting for policy direction
Investors are now looking forward to the Communist Party's Politburo meeting, usually held in late July.
During this meeting, top leaders will review first-half performance and set policy direction for the rest of the year.
Economists expect a more aggressive easing stance after the second-quarter slowdown but don't anticipate a major stimulus package as Beijing is holding back on aggressive moves due to resilient exports and its focus on reducing excess factory capacity.