China's industrial profits posted modest growth in March, and Goldman Sachs raised its 2026/27 PPI forecasts

Overview

This report comments on China's March industrial enterprise profit data and simultaneously updates Goldman Sachs' forecasts for 2026/27 PPI inflation. The report notes that the year-over-year growth rate of industrial profits in March was slightly higher than in January-February, but this improvement was partly driven by favorable base effects; on a seasonally adjusted month-over-month basis, profits grew only slightly while industrial revenue edged down. Goldman Sachs also emphasizes that March data were affected by the shifting timing of the Lunar New Year, making seasonal adjustment more difficult.

Core views

The core view is that industrial profits appeared strong on a year-over-year basis, but month-over-month momentum was moderate; upstream industries remain an important source of margin improvement, and equipment manufacturing, especially the electronics industry, made a large contribution to first-quarter profit growth. On the other hand, higher crude oil price forecasts increase upward pressure on PPI, so Goldman Sachs raised its PPI forecasts for 2026 and 2027, but believes oil price pass-through to CPI is significantly weaker than to PPI, and that other disinflationary factors such as falling pork prices will offset this, so CPI forecasts remain unchanged.

Analysis framework

The report analyzes year-over-year growth, Goldman Sachs seasonally adjusted non-annualized month-over-month growth, upstream/downstream profit breakdowns, 12-month average profit margins, and the rule of thumb for oil price pass-through to PPI. Data sources include NBS, CEIC, and Goldman Sachs Global Investment Research.

Methodology notes

• Macroeconomic data trackingYear-over-year and seasonally adjusted month-over-month analysis of industrial profits

  Observe both year-over-year and seasonally adjusted month-over-month changes to distinguish base effects from true short-term momentum.

  The report points out that industrial profits rose 16.0% year over year in March, but grew only 0.1% on a non-annualized seasonally adjusted month-over-month basis by Goldman Sachs, showing that strong year-over-year growth does not necessarily mean a substantial improvement in month-over-month momentum.

• Price pass-throughRule of thumb for oil price pass-through to PPI

  Rising oil prices usually affect producer prices more directly, so the impact on PPI is greater than on CPI.

  After Goldman Sachs' commodities team raised its crude oil price forecast by more than 10%, the macro team accordingly raised its 2026/27 PPI forecasts, but CPI forecasts remained unchanged because CPI pass-through is limited and factors such as pork prices offset the effect.

• Margin analysis12-month average profit margin

  Use total profits divided by revenue on a 12-month average basis to observe trends in corporate profitability.

  The report says the overall profit margin edged up in March on a 12-month average basis, mainly driven by improving margins in upstream industries.

Asset mapping & comparison

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

• China macro assets

  Directly related

  Strengths

  Year-over-year improvement in industrial profits and a slight rise in margins show some recovery on the corporate earnings side.

  Weaknesses

  Seasonally adjusted month-over-month growth is weak, and revenue declined month over month, so short-term momentum remains unstable.

  Comparison

  March profit growth year over year was higher than in January-February, but revenue growth year over year was lower than in January-February; month over month, profits rose slightly while revenue slipped slightly.

  Risks

  The shifting timing of the Lunar New Year creates uncertainty for seasonal adjustment, and base effects may exaggerate the year-over-year improvement.

• Upstream industrial and energy-related assets

  Indirect positive

  Strengths

  Upstream profits rose 43.4% year over year, and the improvement in overall margins was mainly driven by upstream industries.

  Weaknesses

  The year-over-year growth rate of upstream profits was below 58.5% in January-February, indicating some moderation in marginal growth.

  Comparison

  Compared with the downstream profit growth rate of 3.9% year over year, upstream earnings growth remains significantly stronger.

  Risks

  Changes in oil prices, geopolitical factors, and demand fluctuations could make margin improvement unstable.

• China PPI-related inflation expectations

  Forecast revised up

  Strengths

  The crude oil price forecast was raised by more than 10%, increasing the upside room for PPI inflation forecasts.

  Weaknesses

  PPI improvement is driven more by cost and commodity price pass-through and may not represent a broad-based improvement in end demand.

  Comparison

  The 2026 PPI forecast was raised from 1.0% to 1.2%, and the 2027 forecast from 0.6% to 0.9%; CPI forecasts remain unchanged.

  Risks

  The degree of oil price pass-through, other disinflationary factors, and changes in domestic demand could cause PPI forecasts to deviate.

Key data

• March industrial profits year over year+16.0%January-February was +15.2%.
• March industrial profits seasonally adjusted month over month+0.1%Non-annualized basis, seasonally adjusted by Goldman Sachs; January-February was +0.3%.
• March industrial revenue year over year+4.5%January-February was +5.3%.
• March industrial revenue seasonally adjusted month over month-0.2%Non-annualized basis, seasonally adjusted by Goldman Sachs; January-February was +7.0%.
• March downstream profits year over year+3.9%January-February was -0.4%.
• March upstream profits year over year+43.4%January-February was +58.5%.
• Contribution of equipment manufacturing to first-quarter industrial profit growth6.8 percentage pointsNBS said first-quarter industrial profits grew 15.5%, with the contribution mainly driven by the electronics industry.
• 2026 PPI forecast1.2%The previous forecast was 1.0%.
• 2027 PPI forecast0.9%The previous forecast was 0.6%.

Impact & implications

In terms of investment implications, the report signals a mild recovery with structural divergence: the year-over-year improvement in industrial profits helps ease pressure on corporate earnings, but month-over-month momentum is not strong and the revenue side edged down, indicating that demand still needs to be monitored. Improving upstream margins and higher oil prices will lift PPI expectations, potentially affecting nominal revenue and profit performance for industrial goods, the energy chain, and upstream cyclicals; but unchanged CPI forecasts imply that pressure on consumer prices remains relatively limited.

Risks

• March was affected by the shifting timing of the Lunar New Year, making seasonal adjustment difficult and month-over-month data potentially uncertain.
• The improvement in year-over-year profits was helped by favorable base effects, which may overstate true earnings momentum.
• Industrial revenue edged down month over month, suggesting demand may still be weak.
• If oil price pass-through to PPI is weaker than expected, the upward revision to PPI forecasts may not materialize.
• Disinflationary factors such as falling pork prices may continue to offset part of the upward price pressure.

What to watch

• Whether seasonally adjusted month-over-month industrial profits and industrial revenue continue to improve.
• Whether improving upstream margins can spread to midstream and downstream industries.
• Whether the contribution of equipment manufacturing and the electronics industry to industrial profit growth continues.
• Whether crude oil prices and Hormuz-related supply disruptions continue to support a rise in PPI.
• Whether the upward revision to PPI will pass through to corporate revenue, profits, and macro policy expectations.