Chinese industrial firms posted a sharp rise in profits in the first two months of 2026, extending a recovery from late last year, but analysts warned that rising oil prices and geopolitical tensions could weigh on growth in the months ahead.
Data released Friday by the National Bureau of Statistics (NBS) showed industrial profits climbed 15.2 percent year-on-year in January and February, following a 5.3 percent increase in December 2025. The gains were broad-based, led by high-tech manufacturing and raw materials sectors.
Yu Weining, chief statistician at the NBS, attributed the rebound to accelerated factory activity and higher product prices during the early months of the year. “Profit growth is being driven by strong performance in technology and strategic industries,” Yu said, highlighting the surge in high-tech manufacturing profits, which jumped 58.7 percent. Companies producing semiconductors and unmanned aerial vehicles were particularly buoyant.
Raw material producers also saw robust gains. Non-ferrous metals firms reported a 148.2 percent increase in profits, while chemical producers rose 35.9 percent, reflecting stronger commodity prices and improved industrial demand.
The profit surge comes as Beijing has sought to stabilize industrial earnings after years of pressure from overcapacity, slowing domestic consumption, and intense competition in certain sectors. For the full year of 2025, industrial profits grew just 0.6 percent, ending three consecutive years of decline. Authorities have encouraged firms to expand exports and avoid aggressive price competition to protect margins.
Despite the strong start to 2026, the NBS cautioned that risks remain. Yu noted that spillover from “escalating geopolitical tensions” could affect economic performance, referencing disruptions to global energy markets caused by the ongoing Middle East conflict, without naming any country directly.
The war in the Middle East, triggered by U.S. and Israeli strikes on Iran, has led to the closure of the Strait of Hormuz to most commercial vessels, sending oil prices soaring and creating volatility in global energy markets. China has partially shielded domestic consumers by raising the ceiling price for retail gasoline and diesel, but only by about half the usual adjustment.
Analysts said rising oil costs could squeeze industrial margins and increase input costs for energy-intensive sectors, even as China benefits from substantial domestic oil reserves and alternative energy capacity. Iran has reportedly continued to supply millions of barrels of crude to China since the conflict began, helping mitigate the impact of the global supply disruption.
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Sector analysts said the uneven recovery means not all industries are benefiting equally. High-tech firms, materials producers, and export-oriented manufacturers are leading the rebound, while consumer-facing industries and smaller local producers remain more vulnerable to energy and input cost shocks.
“China’s industrial profit data shows resilience, but the upside could be capped if oil prices remain elevated and geopolitical risks continue to disrupt trade,” said Li Ming, economist at Beijing-based consultancy SinoInsight.
As the world’s second-largest economy navigates these headwinds, the government is expected to continue supporting key sectors while encouraging firms to improve efficiency and leverage export opportunities. Policymakers also face the challenge of balancing domestic price stability with the need to maintain profit margins amid external shocks.
For now, the January-February profit surge underscores the strength of China’s industrial base, even as the country watches global energy markets and geopolitical developments that could influence its growth trajectory in 2026.
