Employees work on the production line of solar panels at a workshop of Jiangsu DMEGC New Energy Co., Ltd. on July 22, 2025 in Suqian, Jiangsu Province of China.
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Profits at China’s industrial firms grew at their fastest pace in six months in March, even as the Middle East war upended global oil markets and sent raw material costs soaring.
Industrial profits jumped 15.8% from a year earlier in March, the sharpest growth since September last year, National Bureau of Statistics data showed Monday, quickening from the 15.2% surge in the first two months of this year.
In the first three months this year, enterprise profits rose 15.5%, the fastest start to a year since 2017, barring the pandemic-driven spike in 2021.
Yu Weining, chief statistician at NBS, highlighted surging profits in the equipment and high-tech manufacturing sectors, which saw profits soar 21% and 47.4% in the first quarter, respectively.
The artificial intelligence and semiconductor boom drove outsized profit growth across several subsectors in the first three months of the year. Profits for optical fiber makers surged 336.8% from a year earlier, while manufacturers for optoelectronics and display devices posted gains of 43% and 36.3%, respectively.
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Demand for intelligent products also lifted earnings across emerging industries, including drone manufacturers with a 53.8% profit gain, and other intelligent consumer device makers.
Earnings for raw material producers rose 77.9% in the first quarter from a year earlier, as oil refineries swung to a profit. A slew of strategic emerging industries, such as aerospace, new energy, and next-generation information technology, also drove a 116.7% surge in profits at non-ferrous metal firms, according to NBS data.
The upswing follows a period of stabilization in 2025 when industrial companies’ earnings eked out a modest 0.6% growth after three consecutive years of annual declines.
The improved profitability for manufacturers was in part underpinned by robust exports, said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. In the first quarter, China’s exports grew 14.7% from a year earlier in U.S. dollars, the fastest pace since early 2022.
The Middle East conflict will nonetheless weigh on the economy in the second quarter, as higher energy prices and weakening external demand pose a growing headwind for exporters, Zhang said.
Relative resilience amid energy shock
The soaring profits came even as rising oil prices started seeping into the global economy, pushing up import costs and threatening to squeeze margins for manufacturers dependent on certain raw materials.
Brent crude oil prices have soared about 48% since the U.S.-Israel strikes on Iran began at the end of February, driving up costs for chemicals, fibers and plastics across the global supply chain.
China’s energy mix, heavily anchored in coal and renewables, has provided a structural buffer against oil price volatility, according to Robin Xing, chief China economist at Morgan Stanley.
In a survey of 32 sectors, around 70% of companies indicated “smaller cost shocks and fewer production disruptions” than their global peers, Xing said in a note Monday.
“China is relatively better positioned and may capture pockets of export market-share gains under a sizeable but not extreme energy shock,” Xing said.
That said, the economy is not fully insulated from the broader fallout, as slowing global demand could cap its export momentum, while higher energy import costs squeeze margins further down the supply chain.
Enterprises’ profits were already under strain, as a prolonged property market downturn and a gloomy job market pressured domestic demand, fueling price wars across sectors.
The recent rally in metal prices and Beijing’s effort to rein in excess production capacity and curb cutthroat competition have helped ease deflationary pressure in the economy.
China’s producer price growth turned positive in March, driven by higher oil prices, marking the first expansion in more than three years and ending the longest deflationary streak in decades.
Morgan Stanley expects the modest inflationary effect to push China’s producer price index 1.2% higher this year, after a 2.6% decline last year. Consumer prices are expected to rise 0.8% this year, compared with a flat reading last year.
Large onshore inventories of Iranian oil and crude on tankers at sea have also provided some cushion for the world’s biggest importer. The Trump administration’s naval blockade of the Strait of Hormuz in recent weeks, however, could alter Beijing’s calculus, with roughly half of China’s oil imports transiting the waterway before the war broke out.
The Trump administration said on Friday it had imposed sanctions on an independent “teapot” refinery in China for buying billions of dollars’ worth of Iranian oil, potentially harming a key energy source that accounts for a quarter of Chinese refinery capacity.
— CNBC’s Evelyn Cheng contributed to this report.
