July Industrial Profits Up 11.2%, K-Shaped Divergence Continues to Widen
Nashnova编辑部
China's above-scale industrial profits rose 11.2% year-on-year in July, the third straight month of deceleration from April's 24.7% peak; AI + nonferrous metals profits doubled while the rest of industry fell 13%, pushing K-shaped divergence to its widest point yet.
Profit growth has slowed three months running — what happened?
July profits grew 11.2% YoY, down from April's 24.7% peak. The January–July cumulative figure was 17.6%, retreating 1.1 percentage points from the prior reading.
Revenue, industrial value-added, and PPI all pulled back in tandem — revenue growth fell from 11.2% in June to 6.5%, value-added from 5.3% to 4.5%, and PPI from 4.1% to 3.5%.
This means → no single drag; output, prices, and revenue are decelerating together, and the corporate sector is mirroring the broader macro slowdown.
Margins are still improving — so why are profits slowing?
The January–July revenue-to-profit margin stood at 5.66%, up 0.54 pp YoY. Cost per 100 yuan of revenue fell 0.47 yuan to 85.00 yuan — the cost side is still getting better.
But the margin's YoY peak came in April–May, ahead of PPI's June peak. This means → international oil prices topped out in April–May, pulling petrochemical-chain product prices and margins to their highs at the same time. Margins had already begun to roll over before the headline price index did.
In plain terms = costs are falling, but the fattest windfall from upstream commodity inflation is behind us. The slowdown is the margin turning point working its way through.
What does "K-shaped divergence" actually look like?
"AI + nonferrous metals" (computers, communications, electronics; nonferrous mining and smelting): January–July profits up 97.4% YoY; July alone up 107%, back to triple digits.
"Energy and petrochemical chain" (coal, oil & gas, refining, chemicals, etc.): January–July profits up 44.7%; but July alone slowed to 19.4%, down from 36.6%.
Everything else (all other industries combined): January–July profits down 7.3%; July alone down 13%, versus a marginal +0.7% the prior month — a swing from barely positive to double-digit decline.
In plain terms = headline industrial profits look like they are growing, but strip out two hot sectors — chipmaking and mining — and most of Chinese industry is still losing ground, and the losses accelerated in July.
Inside the AI chain, who is making the most money?
Integrated circuits — led by AI compute chips and memory chips — saw profits surge 18.5× YoY, contributing over 80% of the entire electronics sector's profit growth.
Computer assembly, peripherals, and industrial-control computing profits rose 3.3×, 2.5×, and 1.6× respectively; optical fiber manufacturing jumped 468.4%, and telecom equipment grew 55.0%.
This means → the AI chain's profit explosion is concentrated overwhelmingly in the chip segment. Profit leverage diminishes as you move downstream from chips to equipment to optical communications — the closer to the compute source, the bigger the earnings swing.
What signals are inventories and leverage sending?
Nominal finished-goods inventories rose 10.8% YoY at end-July. Stripping out PPI, real inventories grew an estimated 7.3%, accelerating for the third straight month — the PPI pullback means real inventory is piling up faster.
The first half was likely dominated by "active restocking" as upstream prices bottomed and revenues improved. July may have shifted to "passive restocking" — demand (new orders) cooled while production adjusted with a lag, leaving finished goods stranded.
The asset-to-liability ratio hit 58.4%, up 0.3 pp YoY. Liabilities grew 7.1%, climbing steadily from the 4.2% low at end-2025. Receivables turnover stretched to 71.9 days, up 0.9 days YoY.
This reflects a squeeze on two fronts: firms are adding leverage while involuntarily stacking inventory and stretching collection cycles — cash-flow pressure is transmitting from the demand side to the production side.
What should we watch next?
The State Council executive meeting has already called for clearing "chain-linked" payment arrears and preventing new overdue obligations — policy is responding to the receivables and debt-clearance problem.
Labour-intensive consumer-goods exports grew 6.2% YoY in July after negative readings from March through May — an improving export margin is starting to repair some downstream-sector profits.
In plain terms = convergence in the K-shaped split has not appeared yet. Two things to watch: how fast fiscal spending actually lands, and whether demand can stabilize — if passive restocking continues, profit growth faces further deceleration pressure.
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