18.5 times, why are the sky-high profits of the integrated circuit industry soaring?

Data released by the National Bureau of Statistics on August 27 shows that from January to July this year, the profits of industrial enterprises above designated size nationwide increased by 17.6% year on year, maintaining double-digit growth for six consecutive months.

The revenue of industrial enterprises increased by 6.5% year on year, laying a foundation for rising profits, while unit costs continued to decline and the profitability of enterprises improved steadily.

The most outstanding highlight in this "report card" is the electronics industry.

Benefiting from the accelerated promotion of "Artificial Intelligence +" and the explosion of computing power demand, the profits of the AI-related electronics industry surged 1.1 times year on year, becoming the biggest driving force behind the total industrial profit growth.

Especially in the integrated circuit industry covering computing chips and memory chips, the profit growth rate reached an astonishing 18.5 times, contributing more than 80% to the overall profit growth of the electronics industry.

Upstream and downstream links such as complete computer machines, peripheral equipment, and special electronic materials have also generally achieved several times or even doubled growth.

Judging only from this series of figures, the industrial economy seems to have delivered a quite excellent report card in the summer of 2026.

But in fact, behind the data, there are very few industries that truly support profit growth, and the concentration of growth momentum is extremely high. This concentration precisely occurs in the chip sector driven by AI computing power.

The benefits reflected by the total figure have not been transmitted to most industrial industries.

Many people are used to judging the prosperity of the economy only by a single overall growth rate.

17.6% is indeed not low, but the growth rate is only an average value. The biggest problem with the average value is that it distributes the outstanding performance of a few high-growth industries to all industries, making everyone mistakenly think they have benefited from it.

What really explains the actual situation is where the growth comes from and where it flows to.

Who Exactly Is Supporting the Overall Profit Pie

In the data of the National Bureau of Statistics, several figures need to be viewed together. From January to July, the profits of the manufacturing industry increased by 50.1% year on year, driving the total profit growth of industrial enterprises above designated size by 9.6 percentage points.

The profit of the electronics industry increased by 1.1 times year on year, contributing 9.3 percentage points to the total profit growth of all industrial enterprises above designated size.

The profit of the integrated circuit industry increased by 18.5 times year on year, contributing more than 80% to the profit growth of the entire electronics industry.

These three figures form a clear logic: the 50.1% profit growth of the manufacturing industry seems very impressive, but among the 9.6 percentage points of contribution, the electronics industry accounts for 9.3.

Within the electronics industry, integrated circuits contribute more than 80% of the total profit growth.

If we exclude the electronics industry from the manufacturing sector, the remaining manufacturing industries only contribute 0.3 percentage points to the total profit growth of industrial enterprises above designated size.

That is to say, if we remove the integrated circuit, this single sub-sector from the statistical table, the profit growth rate of national industrial enterprises above designated size will drop to a rather mediocre level, and most of the remaining manufacturing industries can hardly achieve considerable profit expansion.

This is an extremely rare pattern of profit concentration.

Roughly calculated by the contribution percentage, the integrated circuit sub-sector alone may contribute more than 40% to the profit growth of national industrial enterprises above designated size.

A chip industry smaller than a fingernail supports 40% of the national industrial profit growth.

This pattern has almost no precedent in the history of China's industrialization.

Moreover, from January to July, the operating revenue of industrial enterprises above designated size increased by 6.5% year on year, and profits increased by 17.6% year on year. The profit growth rate is 2.7 times the revenue growth rate. This shows that the high profit growth is not mainly driven by increased product sales, but by changes in product prices and gross profit margins.

The dividends from the rise in industrial product prices have flowed concentratedly into the upstream chip link with the strongest bargaining power, rather than evenly spreading to the middle and downstream links.

The situation becomes more obvious when looking at the segmented data.

The profit of computer complete machine manufacturing related to computers and servers increased by 3.3 times, the profit of computer peripheral equipment manufacturing increased by 2.5 times, and the profit of industrial control computer and system manufacturing increased by 1.6 times.

The profit of special electronic material manufacturing increased by 226.8%, the profit of semiconductor discrete device manufacturing increased by 45.8%, and the profit of electronic circuit manufacturing increased by 37.1%. Behind these figures, a highly concentrated and highly connected industrial chain is experiencing simultaneous explosive growth.

The electronics industry has become the core growth pole of industrial enterprises' profits, which has also been clearly recognized by the National Bureau of Statistics.

Yu Weining, Chief Statistician of the Department of Industrial Statistics, put it very clearly that the electronics industry is the main support for the rapid profit growth of industrial enterprises above designated size.

The problem is that if the support relies too much on a single industry, the endogenous driving force of the industrial economy is questionable.

How Much Moisture Is There in the Profit Growth Rate?

As we all know, profit is the residual item of an enterprise, which equals revenue minus costs and expenses. When product prices rise sharply while fixed costs change little, the year-on-year profit growth rate will far exceed the year-on-year revenue growth rate.

This is the natural elasticity of profit to price and capacity utilization. It is both an opportunity and a hidden risk.

We need to understand what the real composition of the 18.5 times growth is, and we should analyze it from at least three aspects.

The first is the base effect. In the same period of last year, memory chips and computing chips were at the bottom of the cycle, and many enterprises had profits close to zero or even suffered losses. When the base is close to zero, any recovery will produce an astronomical figure in the year-on-year growth rate. Part of the 18.5 times growth is a mathematical effect, which has little to do with the substantial improvement of enterprises' operating capabilities.

The second is price increase. The profit growth rate from January to July far exceeded the revenue growth rate, indicating that prices are rising. The chip industry experienced a clear price increase cycle from the second half of 2025 to the first half of 2026. The global expansion of AI capital expenditure, the restocking of consumer electronics, and the superimposed demand for domestic substitution, while the supply side did not release large-scale production, so prices naturally rose. The profits brought by price increases come quickly and may also disappear quickly.

The third is the cycle nature. The semiconductor industry has never been a linear growth industry, and it has very obvious periodicity. The memory chip sector is particularly typical, and the cycle of "shortage - price increase - capacity expansion - surplus - sharp decline" has occurred many times in the past two decades. There was also a round of chip price surge from 2020 to 2021, when the profits of related enterprises also increased sharply, but then from the second half of 2022 to 2023, the industry profits plummeted. The 18.5 times growth rate cannot be extrapolated linearly, which is clear to all people who study the industrial economy.

Some people interpret the sharp surge in the electronics industry's profits as the victory of new quality productive forces, which makes some sense. AI has indeed driven the expansion of real demand.

But if we regard the cyclical elasticity as the performance of new driving forces, we will overestimate the actual progress of economic transformation.

The core of new quality productive forces lies in the change of production function, efficiency improvement and technological breakthrough, not just the profit pulse brought by the price cycle.

There are real gains in the 18.5 times growth, but there is also cyclical moisture mixed in.

Few people discuss this problem now, because the data is so good that people are unwilling to squeeze out the moisture.

But if we mistakenly take the cyclical peak as the new normal, when chip prices fall and the year-on-year profit growth rate changes from 1.1 times growth to negative growth, the total industrial profit pie will face the risk of sudden stall.

Chips Reap Huge Profits, While Vehicle Manufacturing Suffers Losses

There is another set of special data from the National Bureau of Statistics: from January to July, the profit of automobile manufacturing decreased by 20.4% year on year, the profit of ferrous metal smelting decreased by 51.2%, the profit of non-metallic mineral products decreased by 48.2%, and the profit of electric power and heat supply decreased by about 8%.

There is a clear profit transfer chain between the decline of profit margin in these industries and the sharp surge of profits in the chip industry.

When chip prices rise, the profits of chip design companies and manufacturing enterprises surge.

Vehicle manufacturers need to purchase chips, and electronic component manufacturers also need to purchase semiconductors, so their costs rise accordingly. The automobile industry is already facing a price war, the terminal selling price cannot go up, and the upstream cost cannot be reduced, so the profit space is squeezed from both sides.

Ferrous metal and non-metallic mineral products industries are constrained by the downward trend of the real estate sector, with weak demand and low prices, so their profits continue to shrink significantly.

Therefore, on the surface, the profit margin of all industries is improving, the cost per 100 yuan of revenue is decreasing, and the effect of cost reduction and efficiency improvement is obvious.

A closer look will find that the distribution of this improvement is extremely uneven.

The profit margin of upstream chip enterprises has increased significantly, pulling up the average profit margin of all industries; the profit margin of middle and downstream manufacturing enterprises is actually being squeezed. The statistical average value once again creates a sense of widespread prosperity, which most industries have not felt at all.

The long-term impact of this profit distribution pattern on the industrial economy is worth pondering.

A healthy industrial system should have a relatively reasonable distribution of profits among all links of the industrial chain.

Reasonable profits in the upstream can motivate enterprises to invest in R&D and capacity expansion; reasonable profits in the midstream can maintain employment and investment; reasonable profits in the downstream can absorb cost fluctuations and stabilize terminal prices.

If profits are excessively concentrated in the upstream, and the middle and downstream links lose blood for a long time, the upstream will eventually lose the support of demand.

A similar situation occurred in 2021. In that year, chips were in short supply, the profits of upstream chip factories surged, and the midstream and downstream vehicle manufacturers, home appliance manufacturers and equipment manufacturers were under collective pressure.

By the end of 2022, chip demand weakened, prices fell rapidly, upstream profits plummeted, and the total industrial profit growth rate declined simultaneously. History tells us that the high concentration of profits in the upstream is not only a feature of the cyclical peak, but also indicates the chain reaction after the cycle reverses.

To judge whether the industrial economy has really recovered, we should not only look at the total profit growth rate, but also look at the diffusion degree of profits.

We may build an indicator similar to the "profit diffusion index" to count how many industrial industries have positive profit growth rate and improving profit margin.

If the profits of most industries are still shrinking, and only the electronics industry and upstream resource industries are growing, such a recovery is destined to be fragile.

The process that profits flow from the upstream to the midstream and downstream, from the computing power sector to the real economy, and from a few industries to most industries, is the real recovery.

At present, the industrial economy is still in the transition stage of adjusting old driving forces and expanding new driving forces.

The high growth of the chip industry is good news, which shows that China is indeed accumulating strength in the computing power infrastructure and semiconductor manufacturing links. But the good news should not only stay in one single industry.

If we fail to expand domestic demand, repair the real estate industry chain, and help the midstream and downstream manufacturing industries restore their profits, it will be too late to make up for these tasks after the chip cycle peaks and the total profit growth rate turns downward.

The 17.6% profit growth means that the book benefits of industrial enterprises are improving, and the 5.66% revenue profit margin means that the profitability is indeed rising.

These two figures themselves have no problem, but they do not represent comprehensive prosperity.

The value of statistical data does not lie in how large the total pie is, but in what is contained in the pie.

Breaking down the 17.6% growth, the electronics industry accounts for the largest part of the growth, and the integrated circuit sector accounts for the largest part of the electronics industry. Most of the remaining traditional manufacturing and service supply industries are still struggling to maintain their profits.

Chips smaller than a fingernail can not only light up the computing power revolution of artificial intelligence, but also cover up the structural problems of the industrial economy.

It is extremely critical to see clearly the real quality of the 17.6% growth figure.

This article is from the WeChat official account "Dongzhen Strategy", author: Dongzhen Strategy, published with authorization from 36Kr.