China industrial profits May rose 21.1% from a year earlier, but growth slowed from April as gains stayed concentrated in technology and upstream sectors.
Data from the National Bureau of Statistics showed profit growth eased from 24.7% in April. Still, major industrial firms posted double-digit growth for a fifth straight month. For January through May, profits increased 18.8%, up from 18.2% in the first four months.
The operating profit margin for major firms reached 5.56% in the first five months. That was the highest level since 2024. However, the source said lower unit costs drove the improvement more than any broad recovery in demand.
China Industrial Profits May Show Wide Gaps
The data showed a sharp split across sectors. Profits at makers of computers, communications equipment and electronic products jumped 103.9% in January-May. That group made up 43.1% of total industrial profit growth.
Within that chain, makers of specialised electronic materials posted profit growth of 665.4%. Meanwhile, non-ferrous metal ore mining and processing profits rose 93.9%. An ANZ senior China strategist said price gains in upstream and technology sectors drove much of the profit growth, while downstream manufacturing stayed under pressure.
At the weaker end, automaker profits fell 19.8% despite strong export volumes. The source linked that drop to fierce domestic price competition and tighter margins. Furniture makers did even worse, with profits down 58.4% as weak household spending and overcapacity hurt the sector.
Energy Costs Weigh on Downstream Firms
The source said the Iran conflict added pressure through higher shipping and energy costs. Those costs hit downstream manufacturers most directly. An Economist Intelligence Unit economist said a gradual return of Strait of Hormuz traffic and lower oil prices would be the main trigger for a downstream profit recovery.
A ceasefire announced over the weekend raised the prospect of some relief. However, analysts stayed cautious on how fast better conditions could reach factory margins. The source also said Beijing told some commercial banks to increase lending this month.
That move aimed to support company profits and credit supply. However, weak credit demand pointed to low confidence among firms and consumers. Analysts expect more targeted support for sectors facing overcapacity and intense competition.
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