Article Content
MarketFlick Insights
China's Industrial Profit Growth Slows in June as Falling Oil Prices Cut Into Gains
At a glance
- Industrial profits rose 15.1% year on year in June, down from May's 21.1% increase.
- First-half profits climbed 18.7%, slightly below the JanuaryMay pace of 18.8%.
- AI-driven growth in chip and equipment manufacturing has been a major contributor to the rebound.
- Producer prices rose 3.6% year on year in Q2 the first positive reading since late 2022 but fell 0.3% month-on-month in June.
- Normalizing tanker flows through the Strait of Hormuz helped pull down crude oil, refined fuel and petrochemical prices.
- Economists expect mild policy easing at the Politburo meeting, favoring a gradual fiscal ramp-up over a one-off stimulus.
- Resilient exports and an Asian industrial capex cycle are likely to support growth even as domestic demand lags.
Market Analysis
China's industrial profits rose 15.1% year on year in June, the National Bureau of Statistics reported Monday, marking a second consecutive month of deceleration as easing energy costs trimmed the price-driven boost that powered this year's recovery.
The June result followed May's 21.1% gain and brought first-half profits up 18.7% compared with the same period a year earlier, marginally below the 18.8% pace recorded for January to May. The rebound represents a sharp swing from 2025, when industrial earnings were barely positive for much of the year and fell 3.6% in June 2025 and 2.8% across the first half of that year.
A significant portion of this year's performance has been driven by an AI-fuelled surge in chip and equipment manufacturing, which coincided with the end of nearly three years of factory-gate deflation. Producer prices rose 3.6% year on year in the second quarter the first positive reading since late 2022 helping corporate margins. But economists warn that the reflation looks fragile because much of the price recovery was tied to global energy costs rather than a broad-based pickup in domestic demand.
LSEG data showed producer prices dipped 0.3% month on month in June, the first monthly decline since July 2025. Market participants attributed the drop to normalizing tanker flows through the Strait of Hormuz, which pulled down crude oil, refined fuel and petrochemical prices and, in turn, eased input-cost pressures for manufacturers.
Investors and policymakers are now focused on the Communist Party's Politburo meeting, typically held in late July, where leaders will review first-half performance and set policy priorities for the remainder of the year. Economists expect the meeting to signal a modest shift toward easier policy and faster fiscal rollout, but many see the likely outcome as a gradual policy ramp-up rather than a large, one-off stimulus package. That cautious approach reflects Beijing's confidence in resilient exports and a desire to rein in excess factory capacity.
"The Politburo is likely to make policy support mildly more urgent, prioritizing faster fiscal rollout," said Robin Xing, chief China economist at Morgan Stanley, describing the baseline as a gradual policy ramp-up rather than a one-off stimulus push. He added that growth should remain broadly resilient thanks to exports and an ongoing Asian industrial capex cycle in which China plays a key role as a hardware supplier.
Looking ahead, Chinas industrial fortunes will depend on whether domestic demand strengthens and whether global energy prices remain subdued. If oil and related commodity prices stay lower, the short-term boost to producer-price-driven profit growth may fade further, leaving policymakers to weigh targeted fiscal measures to support lagging domestic demand.
