Data released by the National Bureau of Statistics on August 27 shows that from January to July this year, the profits of industrial enterprises above the designated size in China increased by 17.6% year-on-year, maintaining double-digit growth for six consecutive months.
The operating revenue of industrial enterprises grew by 6.5% year-on-year, laying the foundation for the profit increase, while unit costs continued to decline, and corporate profitability steadily improved.
The standout performer in this 'report card' is the electronics industry.
Benefiting from the accelerated promotion of 'AI+' and the explosion in computing power demand, the profits of the AI-related electronics industry surged by 1.1 times year-on-year, becoming the biggest driver of total industrial profit growth.
In particular, the integrated circuit industry, which includes computing power chips and memory chips, saw its profit grow at an astonishing rate of 18.5 times, contributing over 80% to the overall profit growth of the electronics industry.
Upstream and downstream sectors such as computer manufacturing, peripherals, and specialized electronic materials also generally achieved growth of several times or even doubled.
At first glance, these numbers suggest that the industrial economy delivered a quite impressive performance in the summer of 2026.
However, digging deeper into the data reveals that very few industries are truly driving the profit growth, with the concentration of growth momentum being extremely high, and this concentration is precisely in the chip sector driven by AI computing power.
The warmth of the aggregate numbers has not reached most industrial sectors.
Many people are accustomed to judging the economic temperature by a single overall growth rate.
17.6% is indeed not low, but the growth rate is just an average. The biggest problem with averages is that they spread the glow of a few high-growth sectors across all sectors, making everyone feel they have benefited.
What truly illustrates the situation is where the growth comes from and where it goes.
Who is Really Carrying the Total Pie?
In the NBS data, several figures need to be viewed together. From January to July, manufacturing profits grew 50.1% year-on-year, contributing 9.6 percentage points to the profit growth of all industrial enterprises above the designated size.
The electronics industry's profits grew 1.1 times year-on-year, contributing 9.3 percentage points to the profit growth of all industrial enterprises above the designated size.
The integrated circuit industry's profits grew 18.5 times year-on-year, contributing over 80% to the profit growth of the electronics industry.
Connecting these three figures, manufacturing profit growth of 50.1% looks very impressive, but of the 9.6 percentage point contribution, the electronics industry accounts for 9.3.
Within the electronics industry, integrated circuits contribute over 80%.
If the electronics industry is removed from manufacturing, the remaining manufacturing sectors contribute only 0.3 percentage points to the profit growth of all industrial enterprises above the designated size.
In other words, if this single integrated circuit subsector were taken out of the statistics, the national industrial profit growth rate would drop from 17.6% to a rather mediocre level, with most other manufacturing sectors showing little to no profit expansion.
This is an extremely rare pattern of profit concentration.
Roughly calculated based on contribution points, this single integrated circuit subsector likely contributes over 40% to the national industrial profit growth.
An industry focused on chips the size of a fingernail is supporting 40% of the national industrial profit growth.
This structure is almost unprecedented in the history of China's industrialization.
Furthermore, from January to July, the operating revenue of industrial enterprises above the designated size grew 6.5% year-on-year, while profits grew 17.6% year-on-year. The profit growth rate is 2.7 times the revenue growth rate. This indicates that the high profit growth is not mainly driven by selling more products, but by changes in price and gross margin.
The benefits of rising industrial product prices have concentrated in the upstream chip segment with the strongest bargaining power and have not flowed evenly to midstream and downstream sectors.
Looking at the detailed data makes this even clearer.
Profits in computer manufacturing related to computers and servers grew 3.3 times, computer peripheral equipment manufacturing grew 2.5 times, and industrial control computer and system manufacturing grew 1.6 times.
Specialized electronic material manufacturing grew 226.8%, semiconductor discrete device manufacturing grew 45.8%, and electronic circuit manufacturing grew 37.1%. Behind these numbers is a highly concentrated, highly interconnected industrial chain experiencing simultaneous explosive growth.
The fact that the electronics industry has become the core growth engine for industrial enterprise profits is also explicitly acknowledged by the NBS.
Chief Statistician Yu Weining of the Department of Industry stated clearly that the electronics industry is the main support for the rapid profit growth of industrial enterprises above the designated size.
The problem is, if the support from one industry becomes overly concentrated, the endogenous momentum of the industrial economy deserves a question mark.
How Much Water is in the Profit Growth Rate?
We know that profit is the residual item for a company, equal to revenue minus costs and expenses. When product prices rise significantly while fixed costs change little, the year-on-year profit growth rate will far exceed the year-on-year revenue growth rate.
This is profit's natural elasticity to price and capacity utilization, which presents both opportunities and hidden risks.
What is the real substance of the 18.5-fold growth? We need to examine it from at least three aspects.
The first is the base effect. In the same period last year, memory chips and computing power chips were at the bottom of the cycle, with many companies' profits near zero or even losses. When the base is close to zero, any recovery will create astronomical numbers in the year-on-year growth rate. Part of the 18.5-fold growth is a mathematical effect, not necessarily related to a substantial improvement in corporate operating capabilities.
The second is price increases. The profit growth from January to July far exceeding revenue growth indicates rising prices. The chip industry experienced a clear price increase cycle from the second half of 2025 to the first half of 2026. Global AI capital expenditure expansion, consumer electronics restocking, and demand for import substitution overlapped, while the supply side did not see large-scale capacity release, naturally pushing prices up. Profits driven by price increases come quickly and can also disappear quickly.
The third is the cycle. The semiconductor industry has never been one of linear growth; it has very obvious cyclicality. Memory chips are especially typical, having gone through multiple cycles of 'shortage—price increase—capacity expansion—oversupply—price crash' over the past two decades. There was also a chip price surge from 2020 to 2021, when profits of related companies similarly soared. But then, from the second half of 2022 to 2023, industry profits plummeted. The 18.5-fold growth rate cannot be extrapolated linearly, a point clear to anyone studying the industrial economy.
Some interpret the explosive profit growth in electronics as a victory for new quality productive forces, which holds some truth, as AI has indeed driven real demand expansion.
However, mistaking cyclical elasticity for a manifestation of new momentum would overestimate the actual progress of economic transformation.
The core of new quality productive forces lies in changes to the production function, in efficiency gains and technological breakthroughs, not merely profit pulses driven by price cycles.
There is real gold in the 18.5-fold figure, but it is also mixed with cyclical water.
This issue is not widely discussed now because the data looks too good, making people reluctant to squeeze out the water.
But if the cyclical peak is mistaken for a new normal, when chip prices eventually fall and the year-on-year profit growth rate turns from positive 1.1 times to negative, the overall industrial profit pie will face the risk of a sudden slowdown.
Chips Feast, Automobiles Suffer
There is another set of particularly noteworthy figures in the NBS data. From January to July, automotive manufacturing profits fell 20.4%, ferrous metal smelting fell 51.2%, non-metallic mineral products fell 48.2%, and power and heat supply profits fell around 8%.
Between the profit declines in these sectors and the profit surge in the chip industry, there is a clear chain of profit transfer.
Chip prices rise, and profits of chip design companies and manufacturers surge.
Automobile manufacturers need to purchase chips, and electronic component manufacturers also need to purchase semiconductors, leading to rising costs. The automotive industry is already facing a price war, with terminal selling prices unable to rise and upstream costs unable to come down, squeezing profit margins from both sides.
Ferrous metals and non-metallic mineral products are constrained by the downturn in real estate, weak demand, and low prices, leading to continued significant profit contraction.
So, on the surface, the overall industry profit margin is improving, and cost per 100 yuan of revenue is declining, showing clear results in cost reduction and efficiency gains.
A closer look reveals that the distribution of this improvement is extremely uneven.
The profit margins of upstream chip enterprises have risen sharply, pulling up the average profit margin for the entire industry; the profit margins of midstream and downstream manufacturing enterprises are actually being squeezed. The statistical average once again creates a sense of widespread prosperity that most sectors do not actually feel.
The long-term impact of this profit distribution pattern on the industrial economy deserves deep thought.
In a healthy industrial system, profits should be distributed relatively reasonably among various links in the industrial chain.
Reasonable profits upstream provide motivation for R&D investment and capacity expansion; reasonable profits midstream maintain employment and investment; reasonable profits downstream help absorb cost fluctuations and stabilize terminal prices.
If profits are excessively concentrated upstream, leading to prolonged blood loss in midstream and downstream sectors, upstream will eventually lose demand support.
A similar situation occurred in 2021. That year, chip shortages led to surging profits for upstream chip factories, while midstream and downstream automakers, home appliance manufacturers, and equipment factories collectively faced pressure.
By the end of 2022, chip demand weakened, prices fell rapidly, upstream profits plummeted, and the overall industrial profit growth rate simultaneously slumped. History reminds us that high profit concentration upstream is both a feature of the cycle's peak and foreshadows the chain reaction after the cycle reverses.
Judging whether the industrial economy is truly recovering cannot rely solely on the total profit growth rate; one must also look at the degree of profit diffusion.
Perhaps we can construct an indicator similar to a 'profit diffusion index,' counting how many industrial sectors have positive profit growth rates and improving profit margins.
If most sectors' profits are still contracting, with only electronics and upstream raw materials growing, such a recovery is inevitably fragile.
True recovery is the process where profits flow from upstream to midstream and downstream, from computing power to the real economy, from a few sectors to many sectors.
Currently, the industrial economy is still in a transition phase where old momentum adjusts and new momentum expands.
The high growth in the chip industry is good news, indicating that China is indeed building strength in computing infrastructure and semiconductor manufacturing. But good news cannot remain confined to one sector.
If efforts to expand domestic demand, repair the real estate chain, and help midstream and downstream manufacturing restore profits do not keep pace, when the chip cycle peaks and total profit growth turns downward, it will be too late to play catch-up.
A 17.6% profit growth means the book performance of industrial enterprises is improving. A 5.66% revenue profit margin means profitability is indeed rising.
There is nothing wrong with these two figures in themselves, but that doesn't mean they tell the whole story.
The weight of statistical data lies not in how big the total pie is, but in what is inside that total pie.
Breaking down the 17.6%, the electronics industry takes the lion's share of the growth, and integrated circuits take the lion's share of the electronics industry's growth. Most of the remaining traditional manufacturing and supply service sectors are still struggling to preserve their profits.
A chip the size of a fingernail can illuminate the computing power revolution of artificial intelligence, but it can also obscure the structural problems of the industrial economy.
Seeing clearly the true nature of the 17.6% figure is crucial.
This article is from the WeChat public account "Dongzhen Shanglue," author: Dongzhen Shanglue
