China's industrial profits and revenue both rebounded in June

Overview

This report tracks China's June industrial enterprise profit and revenue data. Goldman Sachs believes that both industrial profits and revenue maintained year-over-year growth in June, and seasonally adjusted month-over-month performance improved significantly from May; profit margins also continued to rise slightly on a 12-month average basis.

Core views

The core views are: first, June industrial profit growth remained relatively high year over year but slowed from May; second, revenue accelerated both year over year and month over month, indicating improving industrial operating activity; third, profit composition diverged, with downstream profit growth accelerating while upstream profit growth slowed markedly due to drags from chemical materials, oil, and natural gas extraction; fourth, overall profit margins continued to improve at the margin.

Analysis framework

The report uses National Bureau of Statistics industrial enterprise profit and revenue data, combined with Goldman Sachs' seasonally adjusted non-annualized month-over-month indicators, to compare the year-over-year and month-over-month changes between June and May, while also breaking down upstream, downstream, and industry contributions to assess industrial profit momentum.

Methodology notes

• Macroeconomic data trackingIndustrial profit and revenue year-over-year and seasonally adjusted month-over-month analysis

  Combining year-over-year growth with seasonally adjusted non-annualized month-over-month change

  Year-over-year metrics are used to observe growth relative to the same period last year, while seasonally adjusted non-annualized month-over-month metrics are used to identify marginal monthly momentum and avoid judging trends solely based on base effects.

• Profit structure analysisUpstream and downstream profit decomposition

  Profit distribution along the industrial chain

  By comparing changes in upstream and downstream profit growth, the analysis identifies whether profit improvement comes from demand, prices, costs, or industry structure.

• Profitability analysis12-month average profit margin

  Total profits divided by revenue

  Using a 12-month average basis helps observe the smoothed trend in profit margins and reduces the disturbance of single-month volatility on profitability assessment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China macroeconomy

  Directly related

  Strengths

  Industrial revenue and profits grew year over year, seasonally adjusted month-over-month momentum strengthened, and profit margins continued to improve slightly.

  Weaknesses

  Year-over-year profit growth slowed from May, and upstream industry growth fell sharply.

  Comparison

  In June, both year-over-year and month-over-month revenue growth were stronger than in May; month-over-month profit growth turned positive from negative in May, but year-over-year profit growth was lower than in May.

  Risks

  If upstream prices, resource-sector profitability, or external demand weaken, the improvement in industrial profits may slow.

• China industrial and manufacturing enterprises

  Highly related

  Strengths

  Overall profit margins improved, and downstream profit growth accelerated.

  Weaknesses

  Upstream chemical materials, oil, and natural gas extraction weighed on profit growth.

  Comparison

  Downstream profit growth rose from 10.2% in May to 16.2% in June, while upstream profit growth fell from 58.3% to 24.5%.

  Risks

  Divergence in profits along the industrial chain may widen performance differences across industrial subsectors.

Key data

• June industrial profits year over year+18.3%May was +21.0%.
• June industrial profits, seasonally adjusted month over month+1.5%Non-annualized, seasonally adjusted by Goldman Sachs; May was -8.4%.
• June industrial revenue year over year+11.4%May was +6.7%.
• June industrial revenue, seasonally adjusted month over month+3.1%Non-annualized, seasonally adjusted by Goldman Sachs; May was +0.6%.
• June downstream profits year over year+16.2%May was +10.2%, with growth accelerating.
• June upstream profits year over year+24.5%May was +58.3%, with growth slowing significantly; the main drags came from chemical materials, oil, and natural gas extraction.
• Contribution from raw materials manufacturing in the first half+8.8 percentage pointsThe National Bureau of Statistics said it contributed 8.8 percentage points to the 18.7% industrial profit growth in the first half.
• Contribution from the electronics industry in the first half+8.5 percentage pointsThe National Bureau of Statistics said the electronics industry contributed 8.5 percentage points.

Impact & implications

The data indicate marginal improvement in the operating activity of China's industrial enterprises in June, with revenue expansion and a rebound in profit margins supporting corporate earnings; however, the sharp slowdown in upstream growth suggests that momentum in price- or resource-related industries may be weakening, and the sustainability of profit improvement still needs to be observed.

Risks

• The significant slowdown in upstream profit growth may weaken overall industrial profit growth momentum.
• Single-month data may be affected by seasonality, base effects, and industry price fluctuations, so the trend needs to be validated with subsequent months.
• The report does not provide stock or sector allocation recommendations and cannot be directly equated with an investment rating.
• The research report is based on public information available at the time, and the data and views may be adjusted as subsequent statistics or policies change.

What to watch

• Whether year-over-year and seasonally adjusted month-over-month industrial profit growth continue to improve in subsequent months.
• Whether industrial revenue growth can maintain an expansion trend above profit growth.
• Whether the drag from profits in upstream chemical materials, oil, and natural gas extraction continues.
• Whether the improvement in downstream profits spreads to broader manufacturing subsectors.
• Whether the 12-month average profit margin continues to rise.