China’s industrial sector demonstrated continued profit growth in the first seven months of the year, despite persistent pressures on certain traditional industries and segments of the midstream and downstream supply chains. According to recent data from the National Bureau of Statistics (NBS), overall profits in key industrial enterprises rose 11.2 percent year-on-year in July. However, this marked a slowdown from the 15.1 percent growth recorded in June and represented the third consecutive month of decelerating single-month profit growth.

Sector-specific figures reveal uneven performance across industries. Profits in electrical machinery and equipment manufacturing declined by 7.6 percent, while automobile manufacturers experienced a sharper 20.4 percent drop. The ferrous-metal smelting and processing sector, closely tied to the property market, saw its earnings fall dramatically by 51.2 percent, underscoring the ongoing challenges faced by industries linked to real estate.

Experts attribute the mixed results to China's ongoing economic transition, characterized by a shift from traditional growth drivers toward new engines of development. While new growth sectors now contribute over 40 percent of overall economic expansion, they have not yet matched traditional industries in their ability to generate employment and household income, limiting the recovery of domestic demand and the sustainability of profit growth.

Su Jian, director of Peking University’s National Center for Economic Research, emphasized that the transition’s primary difficulty lies in this gap. He noted that reducing excess capacity in certain industries should be accompanied by policies that expand demand. Su called for accelerated implementation of fiscal spending that has already been budgeted, with greater focus on transferring resources to households to support income growth.

Wen Bin, chief economist at China Minsheng Bank, suggested that despite the slowdown, industrial profits retain potential for further recovery in the coming months. He cautioned, however, that profit growth may ease as the comparison base from earlier in the year rises and improvements in profit margins slow.

Yu, a spokesperson or official cited on the matter, acknowledged the rapid profit growth but warned of challenges stemming from a complex international environment and an internal imbalance between strong supply and weak demand. This mismatch necessitates coordinated efforts to ensure a smooth transition from reliance on traditional industries to new sources of economic growth.

Overall, while China’s industrial profit growth remains positive, underlying structural issues and shifting economic dynamics continue to pose challenges as the country adapts to a changing domestic and global landscape.