Industrial Profits Data Signals Recovery, but Structural Imbalances Remain

China's National Bureau of Statistics reported that in the first half of 2026, industrial enterprises above the designated size achieved total profits of 3,947.99 billion yuan, a year-on-year increase of 18.7%. Profits from state-owned holding enterprises, joint-stock enterprises, foreign-invested enterprises, and private enterprises reached 1,307.74 billion yuan, 3,044.32 billion yuan, 887.32 billion yuan, and 965.56 billion yuan, respectively, with growth rates of 17.9%, 24.7%, 2.6%, and 13.0%.

During the same period, the mining industry saw profits of 574.5 billion yuan, up 33.5%; manufacturing profits reached 2,971.21 billion yuan, up 20.1%; and the utilities sector (electricity, heat, gas, and water production and supply) posted profits of 402.27 billion yuan, down 4.2%.

Driven by the rapid integration of artificial intelligence across various sectors and surging demand for computing power, the electronics industry's profits skyrocketed by 96.9% year-on-year, contributing 8.5 percentage points to the overall profit growth of industrial enterprises. Analysts believe the data confirms a steady repair of China's industrial profitability, but the recovery pace is uneven. Export-oriented businesses and the public utilities sector show weaker recovery, reflecting pressures on external demand and insufficient domestic consumption recovery. While improved industrial profits help solidify the performance base of the manufacturing cycle and moderately repair market expectations for the real economy, the concentration of profits in upstream sectors and the sluggish transmission to mid- and downstream segments suggest that the equity market is unlikely to see a broad-based rally. Capital will continue to discriminate among sectors with stable profit-generation capabilities, and structural pain points in the real economy still need to be addressed. The market's direction will largely depend on the sustained recovery of domestic and external demand, and the pattern of profit divergence among industries is expected to persist for some time.

Offshore Yuan Funding Costs Show Divergent Trends

On July 27, the CNH HIBOR data showed a decline in major tenors, with the overnight rate dropping 8 basis points to 1.20000%, a new low since June 1. Liquidity indicators revealed that nearly 30% of the 30 billion yuan in intraday repo liquidity provided by the Hong Kong Monetary Authority (HKMA) has been utilized. Term differentiation emerged: the one-week HIBOR edged down to 1.40000%, hitting a low since June 8; the two-week HIBOR rose to 1.45000%; and the one-year HIBOR slightly retreated to 1.68515%. The divergent price trends across different tenors reflect an unbalanced supply-demand structure in Hong Kong's offshore yuan market. Analysts interpret the divergent short-term rates as a sign that liquidity in the offshore yuan market has not entered a state of full easing. The decline in overnight and one-week costs points to relatively ample intraday short-term supply, but the rise in the two-week rate indicates cautious sentiment among institutions regarding medium-term position management. The moderate use of the HKMA's liquidity tools suggests that some institutions still have temporary needs for position adjustments, revealing a clear structural mismatch in fund supply and demand. This term differentiation in funding costs is expected to transmit to offshore yuan bond trading and FX carry activities, leading to distinct trading behaviors across different tenors. The tightening or easing of the offshore funding environment indirectly influences the volatility range of the yuan exchange rate. If the current uneven funding pattern persists, pricing volatility in offshore-related assets is likely to continue.

Rating Actions and Capital Market News

Lianhe International has affirmed the 'A-' international long-term issuer and debt ratings for Yangzhou Hanjiang State-owned Capital Investment Group Co., Ltd., with a stable outlook. It also affirmed the 'AA-' international long-term issuer rating for CSCEC International Construction Co., Ltd., with a stable outlook, and the 'A-' rating for Zhangzhou Transportation Development Group Co., Ltd., also with a stable outlook. The agency granted an 'AA+' international issue debt rating to the proposed USD-denominated certificate of deposit from Agricultural Bank of China (Macau Branch) and upgraded the international long-term issue debt rating on its issued USD certificates of deposit from 'AA' to 'AA+'.

A-Share Market: Rises with Increased Volume

The A-share market saw gains on Monday, with trading volume expanding. Most sectors rose, led by cosmetics, glass fiber, and hotel & catering, while oilfield services, oil & gas extraction, and insurance sectors fell. Advancing stocks outnumbered decliners, with over 5,000 stocks rising. Upward sectors were driven by the implementation of domestic consumption-boosting policies and the summer season's demand, which continued to repair expectations for the domestic demand track. Downward sectors were pressured by international oil price volatility, which dampened profit expectations for resource enterprises, and the interest rate environment, prompting profit-taking. The market showed clear sector rotation. Short-term sentiment in A-shares has seen a notable repair, and the market is likely to transition into a phase of structural divergence. If the pace of capital inflow slows, the likelihood of the index entering a period of consolidation increases, and capital will further concentrate on sectors with strong mid-year earnings certainty.

Gold Market: Range-Bound with a Slight Uptick

Gold traded in a narrow range and closed slightly higher. The U.S. S&P Global Manufacturing PMI for July unexpectedly fell to 53.8, its lowest level since March, below the market expectation of 54.3. However, the Services PMI rose to 53.6, an 8-month high, and the Composite PMI climbed to 53.6, also an 8-month high, both exceeding market expectations. Meanwhile, the U.S. dollar index remained at a high level, and short- and long-term U.S. Treasury yields stayed elevated, further capping gold's upside. The holdings of SPDR Gold Trust, the world's largest gold ETF, remained unchanged at 1,009.298 tonnes. Geopolitical risks in the Middle East provided support for gold prices, but the market remained range-bound. Without fresh capital inflows, gains were limited. On July 27, spot gold opened with a gap higher, briefly breaching $4,100/oz during the session before pulling back slightly. Key resistance is seen at $4,115/oz, while support lies at $4,050/oz. A convincing break below this support level could trigger further downside risk.

Commodities: Geopolitical Tensions Ease, Crude Oil Under Pressure

Crude oil prices declined as geopolitical tensions eased. On July 25, former President Trump ordered the U.S. military not to launch new airstrikes against Iran, ending the near-daily campaign that had lasted for 13 days. On July 26, Iran's Army spokesman confirmed that Iran would reciprocate by halting its retaliatory actions, though Iran's official stance remains skeptical of the ceasefire, viewing it as a tactical adjustment rather than a long-term resolution. Meanwhile, with Oman's mediation, Iran has initiated talks on restoring normal navigation through the Strait of Hormuz and establishing a maritime traffic management mechanism. Additionally, Israeli Prime Minister Netanyahu is scheduled to visit the U.S. on July 27 and meet with Trump on July 28, pushing for continued U.S. focus on Iran's nuclear program. The temporary de-escalation of the geopolitical crisis led the market to reprice supply disruption risks, pressuring oil prices lower. Short-term oil prices are likely to maintain a weak, range-bound trend as the geopolitical risk premium is priced out. However, the truce is only a tactical pause, and uncertainties surrounding the U.S.-Israel meeting could limit the downside. A sudden reversal of the situation could trigger a rebound in prices.

Power Market Data: Jan-June Trading Volume Up 24.2%

The National Energy Administration reported that total electricity market trading volume in the first half of 2026 reached 3,684.8 billion kWh, up 24.2% year-on-year. Within this, intra-provincial trading volume was 2,913.5 billion kWh, up 27.9%, and cross-provincial trading volume was 771.3 billion kWh, up 12.1%. By trading type, medium- and long-term trading volume was 3,256.8 billion kWh, while spot trading volume was 428 billion kWh. Green electricity trading volume reached 164.1 billion kWh, up 6.6%. The volume of electricity purchased by grid companies on behalf of customers was 398.5 billion kWh.

Energy Industry Report: Wind and Solar Capacity Surpasses Thermal Power

A report from the China Enterprise Reform and Development Society, the "2026 Energy Industry Ecology Report," shows that during the "14th Five-Year Plan" period (2021-2025), China's combined wind and solar power capacity surpassed thermal power for the first time, and the country leads globally in the nuclear and bioenergy sectors. The report highlights a dual synergy between secure energy supply and green, low-carbon transformation during the period. In 2025, total investment in key national energy projects exceeded 3.5 trillion yuan for the first time, growing nearly 11% year-on-year. The new energy industry experienced leapfrog development, with wind and solar capacity increasing from 530 GW in 2020 to 1,840 GW by 2025. China's total installed nuclear capacity remains the world's largest, while its bioenergy power generation capacity has led globally for seven consecutive years.

PV Industry: New Cost Accounting Standard Released

The China Photovoltaic Industry Association (CPIA) has officially released the "General Rules for Cost Accounting Models in the Photovoltaic Industry," a group standard that unifies the cost calculation scope, models, and coefficients across the entire "polysilicon-wafer-cell-module" value chain. The standard aims to eliminate the industry's chaos of inconsistent cost accounting methods and differing interpretations. It will work in tandem with energy consumption and safety standards to build a comprehensive management system, promoting the high-quality development of the photovoltaic industry.

PBOC Injections, Bond Market, and Financial Data

The People's Bank of China (PBOC) conducted 325.5 billion yuan in reverse repos in the open market today. With 398.5 billion yuan in reverse repos and 400 billion yuan in MLF maturing, the net withdrawal from the market was 473 billion yuan. The 30-year government bond futures contract rose 0.10%, while the 10-year contract fell 0.04%.

The PBOC stated that China's financial markets have been operating smoothly this year. In the first six months, the issuance of panda bonds totaled 160.03 billion yuan, and 21 new foreign institutions entered the interbank bond market. In June, net financing of government bonds was 768.33 billion yuan, down 582.52 billion yuan year-on-year, while net corporate bond financing was 401.16 billion yuan, up 158.97 billion yuan. As of the end of June, the total outstanding balance of the bond market was 205.0 trillion yuan. In June, the acceptance volume of commercial bills was 4.0 trillion yuan, and the discount volume was 3.2 trillion yuan. As of the end of June, the outstanding balance of commercial bills was 21.9 trillion yuan, up 13.2% year-on-year, and the discount balance was 17.3 trillion yuan, up 16.8%.

Private Enterprise Bond Issuance Up 33%

In the first half of 2026, the National Association of Financial Market Institutional Investors (NAFMII) supported 122 private enterprises in issuing 396.5 billion yuan in debt financing instruments, a 33% increase year-on-year. This accounted for over 70% of private enterprises' corporate credit bonds. The weighted average issuance rate for these private enterprise instruments was 1.74%, down 58 basis points year-on-year.

Digital Economy's Share of GDP Surpasses 10.5%

The latest "National Information Development Report (2025)" from the Cyberspace Administration of China shows that in 2025, the added value of China's core digital economy industries accounted for over 10.5% of GDP. Revenue from the digital industry reached 39.6 trillion yuan, up 8.8% year-on-year. Residents' digital consumption scale hit 25.3 trillion yuan, an increase of 8.7%. The country's network infrastructure has also been upgraded. By the end of 2025, the total number of 5G base stations reached 4.838 million, two-thirds of prefecture-level cities met the gigabit city standard, and the number of active IPv6 users reached 869 million.

Auto Industry: Revenue Up, Profits Down 20%

According to the China Passenger Car Association (CPCA), in the first half of 2026, automobile production was 15.1 million units, down 4% year-on-year. The auto industry's revenue was 5,189.3 billion yuan, up 1.8%, while costs were 4,610 billion yuan, up 2.8%. Profits fell 20% to 195.4 billion yuan. The industry's profit margin was 3.8%, still low compared to the average 6.5% profit margin for downstream industrial enterprises.

Regional GDP Data: 15 Provinces Outperform National Average

As of July 26, all 31 provinces have released their economic data for the first half of the year. Statistics show that 15 provinces recorded GDP growth rates above the national average, indicating a continued optimization of the coordinated regional development pattern. Experts suggest that relying on cutting-edge technology breakthroughs, the cultivation of strategic emerging industry clusters, and the steady recovery of the consumer market, various regions are steadily expanding their economic scale, with new growth drivers accelerating and shaping new growth trajectories.

Hainan Unveils Service Sector Development Plan

The Hainan provincial government has issued the "Hainan Province '15th Five-Year' Service Sector Development Plan," which sets a target for the service sector's added value to maintain an average annual growth rate of over 6%. By 2030, the sector's share of GDP is expected to remain around 61%, maintaining its role as the economy's main engine. The added value of the modern service industry is targeted to grow at an average annual rate of over 9%, reaching about 31% of GDP by 2030.

South Korea: Semiconductors Become Top Manufacturing Sector

The Bank of Korea reported that in 2024, the value of South Korea's semiconductor industry output reached 210.8 trillion won (approximately $143.9 billion), accounting for 10.1% of total manufacturing output. This makes semiconductors the country's largest manufacturing sector. In terms of value-added, the chip industry contributed 16.7% of manufacturing's total value-added in 2024. The sector employs 5% of the manufacturing workforce but accounts for only 0.7% of all manufacturing enterprises.