China's industrial profits surge 24.7% as AI boom masks K-shaped divide

China's industrial profits surged 24.7% in April from a year earlier, the fastest growth in over two years, driven by soaring energy prices and booming demand for artificial-intelligence products — yet the gains masked deepening weakness across consumer-oriented industries.

"The recovery is sector-driven rather than broad-based, but it's an encouraging sign after three years of largely negative industrial profit growth," said Lynn Song, economist at ING.

For the first four months, profits rose 18.2% from a year earlier, accelerating from 15.5% in the first quarter, the National Bureau of Statistics said Wednesday. The headline figure far exceeded expectations tracked by Bloomberg Economics. Profits in the nonferrous metals sector — which includes aluminum, copper, gold and lithium used in AI and green-energy supply chains — jumped 117.8% in the January-April period. The chemical industry posted a 73.4% gain, accelerating by 18.9 percentage points from the first quarter, as high crude-oil prices pushed up prices across related supply chains and enabled petroleum processing to return to profitability.

Beneath the strong headline numbers, a widening K-shaped divide threatens the sustainability of the recovery. While upstream energy and technology-linked sectors boom, consumer-oriented industries including furniture and textile-and-apparel makers saw profits slump as weak domestic demand weighed on spending. The NBS said China's external environment remains complex and volatile, while the imbalance between strong supply and weak demand remains pronounced.

The data shows the uneven nature of China's economic recovery as it enters the second quarter. Factory-gate inflation rose to its highest level since July 2022 in April, boosting margins for upstream oil and gas producers but squeezing downstream manufacturers that cannot pass on higher input costs. The last time producer price inflation reached these levels, in mid-2022, the divergence between upstream and downstream profits persisted for three consecutive quarters before moderating as commodity prices cooled.

"If energy prices remain consistently elevated, costs could rise more broadly and start to impact profit growth," ING's Song cautioned.

The divergence extends beyond industrial profits. Data released earlier this month showed China's economic momentum weakened broadly in April. Consumer-spending growth slowed to its weakest pace since 2022, while industrial output, investment and the property sector all deteriorated and fell short of economists' expectations. The CSI 300 Index of A-shares has traded in a narrow range this month as investors weigh the strong export and industrial data against persistent weakness in domestic demand.

The Middle East conflict has been a key driver of the divergence, disrupting global supply chains and sending energy prices higher. Brent crude has averaged above $80 a barrel in 2026, benefiting China's state-owned oil giants while raising costs for manufacturers reliant on petroleum-based inputs. The offshore yuan has remained under pressure, with USD/CNH trading near 7.25, as the divergence between China's export-driven industrial strength and its faltering domestic consumption keeps foreign investors cautious.

For global investors, the data presents a mixed picture. The strong headline profit growth supports bullish positioning in Chinese industrial and commodity stocks, particularly upstream energy, chemicals and nonferrous metals producers. However, the weakness in downstream consumer sectors suggests any recovery in Chinese equities will remain selective, favoring materials and energy over consumer discretionary and retail. Materials exchange-traded funds focused on China have attracted net inflows of more than $1 billion this quarter, according to data compiled by Bloomberg, while consumer-focused funds have seen outflows.

The next key data point for China's economy will be the Caixin manufacturing PMI for May, due early next month, which will provide a more current snapshot of factory activity across both large and small enterprises.

This article is for informational purposes only and does not constitute investment advice.