(Bloomberg) — China’s industry saw profit gains concentrated in a handful of sectors swept up in the global artificial intelligence boom or benefiting from higher oil prices, masking fragility in the economy as overall earnings soared at the fastest in more than two years.
Profits surged 24.7% in April from a year ago, accelerating from a 15.8% jump in the previous month, far more than expected by Bloomberg Economics. For the first four months, they increased more than 18%, according to data released on Wednesday by the National Bureau of Statistics.
“Despite the strong headline figure, the recovery is still narrow and sector‑driven, not broad‑based,” Lynn Song, chief economist for Greater China at ING Bank NV. “Yet after three straight years of negative profit growth, the strength of the data so far this year is welcome news.”
The data adds to a picture of an increasingly bifurcated economy. China already faces a K-shaped divergence in which domestic consumers lag behind production, turbocharged by booming exports as the spoils of the global AI buildout flood in.
The tech boom — stoked largely by massive investments from big U.S. firms known as hyperscalers — is driving rapid growth in Chinese exports and imports, lifting demand for an array of electronics products from chips to printed circuit boards. The energy crisis triggered by the war in Iran also fed into improved earnings for raw material producers such as oil and gas companies.
But a large swathe of the Chinese economy is weakening, as household spending and private investment languish. Consumer-facing factories are struggling to pass on higher raw material costs to clients, resulting in a squeeze on profits.
Without a rebound in demand from shoppers, higher oil prices and faster factory inflation are unlikely to translate into a strong pickup of consumer inflation. That will in turn limit the improvement in corporate profits and wages in the broader economy, even if a few sectors are outperforming.
China is set to rely on external demand to drive growth, as the windfall from AI provides a welcome relief from domestic frailty and war disruptions. Economists surveyed by Bloomberg earlier this month upgraded their forecasts of full-year export growth to 6.4%, from 4.9% in April. Expectations for imports were also raised, to 8% from 5% previously.
What Bloomberg Economics Say…
“Outside of material and tech-related sectors, the recovery in corporate profits lacks durable domestic support. April’s deterioration in consumption and investment were a stark reminder that demand remains anemic. — Eric Zhu.
The latest industrial figures show a widening divergence in profit growth between upstream and downstream sectors, revealing a split between those benefiting from higher oil prices and the AI boom and others like makers of apparel, shoes and furniture.
Earnings by the oil and gas extraction industry expanded 8% in the first four months of 2026 from a year ago, reversing from a decline of 19% for the whole of 2025.
Other raw material producers that rely on oil also benefited from higher prices. The chemicals sector, for example, had profits soar over 70% in the first four months this year.
The electronics industry, buoyed by higher AI demand and surging chip prices, saw profits climb 108% in the first four months. It contributed to nearly half of the overall expansion in industrial profit during the period, according to the NBS.
As a result of the chip boom, profits among producers of specialized electronic materials and optical fibers soared over 600% and 340%, respectively, according to the statistics service. Non-ferrous metals such as aluminum and copper also saw greater demand thanks to AI, driving higher profits for companies that process such metals.
In contrast, a slew of downstream sectors suffered from double-digit declines in profits that are only getting worse.
Furniture makers saw their earnings plunge 54% in the first four months, accelerating from the first quarter’s drop of 45%. Textile and apparel firms recorded a 14% decrease in profits in the first four months. Carmakers’ profits declined 17%, as sales contracted at the worst pace since mid-2022 in April.
Years of weak demand and excessive supply resulted in intense price competition among Chinese industrial firms, driving their profit margin to 5.3% at the end of last year, the lowest in data dating back to 2014. Their profits have fallen or stagnated for four straight years, before recovering strongly from early this year.
“The rebound in industrial product prices led to faster growth in profits among industrial companies, with new sectors like equipment and high-tech manufacturing leading them,” Yu Weining, a statistician at the NBS, said in a statement accompanying the data release.
The AI-driven growth in trade and profits has reduced the urgency for policymakers to step up support for the economy. Accelerating inflation is also delaying expectations for monetary easing, even at the risk that domestic demand worsens further.
Economists surveyed by Bloomberg pushed back their forecasts for the next policy interest rate cut to the final three months of 2026, from the third quarter previously. And they now see a reduction in banks’ required reserves in the fourth quarter, compared with the second quarter previously.
The latest data “does not signal a broad-based recovery,” said Hao Zhou, chief economist at Guotai Junan International Holdings. “Without a meaningful rebound in domestic demand, the current momentum is likely to remain uneven and vulnerable.”
–With assistance from Iris Ouyang.
(Updates with additional details throughout.)
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