Industrial enterprise profits increased by 15.5% year-on-year in the first quarter, a result driven by simultaneous improvements in volume, price, and profit margins. High-tech manufacturing and equipment manufacturing were the primary drivers of profit growth, with private enterprises showing even stronger profit growth, indicating a clear enhancement in economic vitality.
Data released on April 28 by the National Bureau of Statistics showed that in the first quarter of 2026, industrial enterprises above the designated size achieved a total profit of 1,696.04 billion yuan, a year-on-year increase of 15.5%. This growth rate is 14.4 percentage points higher than the full-year growth rate of the previous year.
It was noted that facing a complex economic environment in the first quarter, timely and strengthened macro-control measures were implemented, leading to a steady recovery in the industrial economy. Profits of industrial enterprises above the designated size grew at an accelerated pace, with equipment manufacturing and high-tech manufacturing seeing rapid profit growth. The raw materials manufacturing sector achieved double-digit profit growth, indicating a continuous improvement in the performance of industrial enterprises.
The effect of economic recovery on boosting corporate profits is becoming evident and is expected to further increase household incomes, forming a virtuous cycle of "economic recovery → corporate profit growth → rising household incomes."
The combined improvement in volume, price, and profit margins suggests the economy may have entered a phase of active inventory replenishment. While there were doubts about the sustainability of the significant 15.2% profit growth in January-February, potentially attributed to Lunar New Year holiday distortions, the further acceleration of industrial profit growth to 15.8% in March has largely alleviated market concerns.
Although China's real economic growth in the first quarter was roughly similar to that of 2025, why were industrial profits significantly better? This is attributed to gains in volume, price, and profit margins.
From a volume perspective, the value-added of industrial enterprises above the designated size increased by 6.1% year-on-year in the first quarter, accelerating by 1.1 percentage points from the fourth quarter of the previous year. A strong start to the year, especially rapid export growth, provided volume support for the recovery of industrial profits.
From a price perspective, influenced by international input factors and improved supply-demand dynamics in certain domestic industries, the Industrial Producer Price Index turned positive year-on-year for the first time in 41 months. The GDP deflator for the quarter was nearly positive, providing price support for industrial profits, particularly leading to substantial profit growth in upstream raw materials manufacturing. Profits in the raw materials manufacturing sector above the designated size surged by 77.9% year-on-year in the first quarter, with non-ferrous metals profits up 116.7% and chemical industry profits rising 54.5%.
Regarding profit margins, the profit rate of operating revenue for industrial enterprises was 5.11% in the first quarter, up 0.46 percentage points year-on-year, reaching the highest level for the same period since 2023. The mining sector recorded the highest profit rate at 19.92%, an increase of 2.51 percentage points year-on-year. A key factor in the margin improvement was cost reduction. The cost per 100 yuan of operating revenue for industrial enterprises above the designated size was 84.93 yuan, a decrease of 0.40 yuan year-on-year; expenses per 100 yuan of operating revenue were 8.50 yuan, a slight decrease of 0.01 yuan.
From the perspective of the inventory cycle, industrial enterprises have begun shifting towards active inventory replenishment. Finished goods inventory at the end of the first quarter stood at 6.78 trillion yuan, an increase of 5.2%. Combined with growth in operating revenue and profits, this inventory rise likely represents active restocking. The inventory cycle, characterized by periodic fluctuations due to lagging supply-demand adjustments, typically lasts 3-5 years, cycling through phases of passive destocking, active restocking, passive restocking, and active destocking. This cycle is widely used in macroeconomic analysis, often lagging the economic cycle by 1-2 quarters. The current phase of active restocking suggests the Chinese economy is in an expansionary period.
Despite a highly uncertain external environment, China's stable industrial chain has allowed it to capture substitute demand, with strong exports supporting inventory rebuilding. Accelerated investment in infrastructure and emerging industries is driving demand recovery in related industrial chains, which, coupled with a relatively accommodative policy environment, strengthens support for the inventory replenishment cycle.
The profit structure continues to optimize, with new growth drivers and high-end manufacturing becoming the main supports. High-tech manufacturing and equipment manufacturing are the primary contributors to industrial profit growth. Furthermore, private enterprises and share-holding enterprises are showing superior profit growth rates, reflecting high-quality economic development and indicating不断增强的经济活力.
High-tech manufacturing profits grew rapidly. In the first quarter, profits of high-tech manufacturing enterprises above the designated size increased by 47.4% year-on-year, contributing 7.9 percentage points to the profit growth of all industrial enterprises above the designated size. Specific sectors saw significant gains: the rapid development of AI and semiconductor-related industries drove profit growth of 336.8% in optical fiber manufacturing, 43.0% in optoelectronic device manufacturing, and 36.3% in display device manufacturing. Increased demand for smart products led to profit growth of 53.8% in smart unmanned aerial vehicle manufacturing and 67.3% in other smart consumer device manufacturing. Green manufacturing sectors also improved, with profits in environmental monitoring instrument manufacturing up 100.0% and lithium-ion battery manufacturing up 25.0%.
The supporting role of equipment manufacturing is evident. Profits in this sector grew 21.0% year-on-year in the first quarter, contributing 6.8 percentage points to overall industrial profit growth. Its share of total industrial profits reached 33.7%, an increase of 1.7 percentage points year-on-year. Within the sector, the electronics industry, driven by strong production and price recovery, saw profits surge 124.5%, making it the main force behind the rapid profit growth in equipment manufacturing. Profits in the railway, shipbuilding, aerospace, and transportation equipment industries grew by 16.7%, accelerating by 5.3 percentage points from the January-February period.
Analyzing by ownership type, private enterprises and share-holding enterprises recorded the fastest profit growth, indicating strengthening vitality in the economic recovery. Profits of private industrial enterprises grew by 25.4% year-on-year in the first quarter, a dramatic increase of 25.7 percentage points compared to the same period last year. Profits of share-holding industrial enterprises grew by 20.9%, up 21.0 percentage points year-on-year.
Looking ahead, it is believed that against the backdrop of the PPI entering a rapid recovery channel, industrial profits have a price foundation for sustained improvement. However, under the baseline scenario of "rapid PPI recovery and relatively stable CPI," the pressure on profit growth will mainly manifest as a divergence in the pace of profit recovery between upstream, midstream, and downstream industries.
It is suggested that the next steps should focus on observing two main aspects. First, the pace of domestic demand expansion policies. Policies supporting physical consumption are expected to be enhanced and expanded, while the potential for service consumption remains to be unleashed. Policy relaxations and supply optimizations in areas like transportation, domestic services, and entertainment could become important supports for subsequent demand recovery and industrial profit improvement. Second, external demand and geopolitical risks. While external demand remains resilient, supported by global supply disruptions and export substitution effects, attention must be paid to the pace at which cost pressures from potential超预期 oil price increases transmit to midstream and downstream sectors. Enterprises' ability to absorb rising costs will be a key variable affecting the sustainability of profit recovery.
In terms of investment implications, it is pointed out that short-term economic characteristics remain relatively structural. High-end manufacturing sectors supported by policies, along with related raw material industries and tech sectors bolstered by external demand, are still the main themes of prosperity. However, as the reflation process advances and the price level gradually rises, midstream and downstream industries with cost-pass-through capabilities and supported by demand improvement may exhibit greater recovery elasticity.
Overall, after weathering disturbances from geopolitical conflicts, the A-share market style is expected to shift from structural themes towards broader pro-cyclical directions. Investment opportunities arising from the transmission of profit improvements from upstream to midstream and downstream sectors warrant attention.
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