China's industrial profits ride on robust innovation

China's industrial sector maintained robust growth momentum in the first half of 2026 despite strong external headwinds, which experts said indicates significant innovation-driven improvements in the world's second-largest economy.

The electronics sector has stood out as a major growth driver, with profits nearly doubling between January and June, they said, adding that resilient industrial output and the rapid expansion of new growth drivers are expected to maintain the momentum for solid returns in the second half of the year.

Data released on Monday by the National Bureau of Statistics showed that industrial enterprises with annual main business revenue of at least 20 million yuan ($2.9 million) reported combined profits of 3.95 trillion yuan in the first half, up 18.7 percent year-on-year.

The growth rate is 3.2 percentage points higher than in the first quarter, and in June alone, industrial profits rose 15.1 percent year-on-year, the data showed.

In an analysis published ahead of the NBS data, Lynn Song, chief economist for China at Dutch bank ING, said, "Profits have been on a recovery trend so far this year, buoyed by high-tech and export-oriented industries."

Tang Guanghua, an analyst at Shenyin & Wanguo Futures, a leading Chinese futures broker, said in a published analysis that the recovery has been largely driven by surging demand for computing power, stemming from the rapid expansion of the artificial intelligence industry, with the electronics sector emerging as a key driver of overall industrial profit growth.

According to the NBS, profits in the electronics sector in the first half surged 96.9 percent year-on-year, contributing 8.5 percentage points to overall profit growth among major industrial enterprises. Within the sector, profits in integrated circuit manufacturing soared 2,579.5 percent.

Speaking at a seminar in Beijing earlier this month, Yin Yanlin, deputy director of the Committee on Economic Affairs of the 14th National Committee of the Chinese People's Political Consultative Conference, China's top political advisory body, said the growing prominence of new growth drivers, together with a clear improvement in the quality and structure of the economy, represents one of the most significant shifts taking place in the country.

Upward trajectory

Looking ahead, Zhang Di, chief macroeconomic analyst at China Galaxy Securities, said in a published analysis that industrial profits are likely to remain on an upward trajectory, with growth increasingly driven by higher output and improving demand, rather than price gains.

"AI computing infrastructure, electronic information manufacturing and high-end equipment offer the clearest growth prospects, underpinned by expanding demand, rising output and continued technological upgrading," Zhang said.

Upbeat growth forecasts made by global financial institutions also reflect the improving sentiment.

Zhu Feng, chief China economist and head of Greater China Economic Research at JPMorgan, told China Daily that he expects the Chinese economy to grow around 4.6 percent this year and meet the official growth target.

"High-tech and advanced manufacturing, AI-related exports, renewable energy and public investment would remain key sources of manufacturing resilience, while exports continue to support growth," Zhu added.

The rise of high-tech and advanced manufacturing is also yielding innovation dividends for multinational corporations.

"China's market not only absorbs innovation but accelerates it," Rogier Janssens, president of Merck China, told China Daily.

Janssens highlighted that greater opportunities lie in industrial upgrading, as China's move toward higher-value-added manufacturing allows multinational companies to jointly develop solutions in the country that meet global standards.

That capacity for co-innovation underpins Germany-based science and technology giant Merck's long-term confidence in China, where it has invested nearly 7 billion yuan over the past decade, Janssens added.

Experts cautioned that the recovery in industrial profits has yet to become broad-based. Profit gains remain concentrated in the high-end electronics value chain, while traditional midstream and downstream sectors are seeing only modest improvements, they said.

"Ensuring a smooth transition from old to new growth drivers is essential," said Yin, from the CPPCC National Committee, noting that new quality productive forces are becoming a core engine of economic growth.

Yin urged the establishment of a long-term mechanism for equipment renewal and better use of relending facilities and interest subsidies for technological upgrading, which he said would help accelerate the transformation of traditional industries and inject fresh momentum into growth.

Tang, from Shenyin & Wanguo Futures, said: "A more balanced recovery in industrial profits will depend on new growth drivers generating demand across more links in industrial chains. This will allow the gains to spread more widely."