Industrial Profits Surge 18.2%, Yet A-Share Markets Diverge: Valuation Re-rating Drives ChiNext Outperformance

The “Highlight Moment” of Industrial Profits vs. Market Pricing “Misalignment”: The Rebalancing Logic Behind Structural Divergence

From January to April 2024, total profits of China’s industrial enterprises above the designated size rose 18.2% year-on-year (y-o-y), accelerating further from 15.5% in January–March. Notably, profits surged 24.7% y-o-y in April alone—the strongest growth since the second half of 2021. This figure significantly exceeded broad market expectations (consensus forecast via Wind: ~14%), offering direct evidence of robust earnings recovery across domestic manufacturing—underpinned by resilient exports, the rollout of equipment-upgrading policies, and cost optimization among midstream producers. Yet capital markets reacted markedly at odds: during the same period, the Shanghai Composite Index fell 1.11%, the CSI 300 declined 0.72%, while the ChiNext Index rose 0.70%–2.20%—even briefly surpassing the Shanghai Composite intraday for the first time in history. This “triple tension”—strong earnings data, underperforming broad indices, and outperformance by growth-oriented sectors—is no mere sentiment-driven fluctuation. Rather, it signals a deep, systemic reassessment by A-share investors of earnings quality, sectoral weightings, and valuation anchors.

Profit Structure: SOEs and Joint-Stock Firms Lead; Foreign-Invested and Private Enterprises Lag Significantly

A granular look at profit growth reveals pronounced structural divergence. According to the National Bureau of Statistics, profits of state-owned enterprises (SOEs) rose 22.9% y-o-y in January–April, and those of joint-stock enterprises climbed 20.1%—both substantially exceeding the overall average of 18.2%. In contrast, profits of foreign-invested and Hong Kong/Macau/Taiwan-invested enterprises grew only 6.8% y-o-y, while private enterprises registered a modest 5.3% increase. This tiered pattern underscores that current earnings improvement is not a broad-based recovery, but rather a concentrated outcome of policy resource allocation and advantages conferred by position within industrial chains:

• SOEs and joint-stock firms are deeply embedded in national strategic equipment-upgrading initiatives (“national heavy machinery”), including rail transit equipment, shipbuilding, and energy infrastructure projects. They benefit directly from targeted central-government support—including interest-subsidized loans and special re-lending facilities—resulting in high order visibility and shortened receivables cycles.
• Foreign-invested and private enterprises, by contrast, are disproportionately concentrated in labor-intensive, export-oriented segments such as consumer-electronics contract manufacturing and light industry. They face compounded headwinds: marginal softening in global demand, incomplete overseas inventory digestion, and geopolitical disruptions—all constraining earnings elasticity.
  This structure implies a pronounced “ownership filter” behind the headline “high growth.” Consequently, markets price in caution regarding the breadth of genuine recovery—weighing on the Shanghai Composite, whose composition is dominated by blue-chip, value-weighted stocks.

Sectoral Contributions: Upstream Profit Sharing, Midstream Ascendancy—New Energy & High-End Equipment as Core Engines

Profit growth momentum is undergoing a clear “transmission-chain restructuring” across sectors. Upstream resource industries (coal, oil extraction) have seen their profit growth notably decelerate: coal mining profits rose just 3.1% y-o-y in January–April—sharply down from last year’s pace. Meanwhile, midstream manufacturing has emerged as the undisputed engine:

• General-purpose equipment manufacturing: Profits surged 38.6% y-o-y, boosted by special subsidies for industrial machine tools and accelerated tech upgrades across manufacturing.
• Automotive manufacturing: Growth reached 25.4% y-o-y, driven by dual forces—exports of new-energy vehicles (NEVs) and intelligent-vehicle upgrades.
• Electrical machinery and equipment manufacturing (including PV modules, energy-storage batteries, and UHV transmission equipment): Profits rose 23.7% y-o-y, fueled by overseas channel expansion and domestic mega-project construction.
• Computer, communications, and electronic equipment manufacturing: Grew 19.2% y-o-y, supported by semiconductor equipment localization and surging AI-server orders.
  Critically, even though strategic emerging industries—including photovoltaics, lithium batteries, and semiconductors—are still navigating capacity digestion phases, leading firms have achieved early profitability inflection points through technological iteration (e.g., TOPCon cell mass-production efficiency exceeding 26%; improved HBM packaging yield) and superior cost control. This explains why the ChiNext Index—which houses nearly 70% of A-share-listed new-energy and semiconductor companies—could rally strongly despite broader market weakness: markets aren’t ignoring macro data—they’re assigning premium valuations to high-quality, structural growth.

Valuation-Recovery Logic: Tech-Themed Repricing—But Sustainability Hinges on Three Hard Constraints

The ChiNext’s leadership reflects a tactical rebound of the growth style, anchored in this logic chain: midstream manufacturing earnings confirmation → heightened confidence in tech-industry trends → marginally looser liquidity conditions → risk appetite migrating toward higher-beta assets. Near-term catalysts include the explosive overseas success of short-form dramas (triggering daily waves of film-and-TV stock limit-ups), unexpectedly strong semiconductor equipment tender volumes, and stabilization/rebound in N-type PV cell prices. Yet whether this rebound endures depends on three hard constraints beneath the surface:

1. Pace of Earnings Realization: The ChiNext’s forward P/E remains at the 65th percentile of its five-year range. Should Q2 NEV sales or PV export growth disappoint, valuation pressure will mount.
2. Marginal Liquidity Shifts: While May’s Medium-Term Lending Facility (MLF) rollover was smooth, delayed Fed rate cuts are weighing on the RMB exchange rate—and northbound funds recorded two consecutive weeks of net outflows, limiting fresh capital inflows.
3. Policy Implementation Effectiveness: Large-scale equipment upgrading has entered its complex execution phase. Local governments’ fiscal matching capacity, project approval efficiency, and private-enterprise participation willingness remain key variables.

Notably, the MSCI Emerging Markets Index recently hit an all-time high—confirming international capital’s unchanged long-term allocation logic toward Chinese assets. However, its buying focus is shifting decisively away from traditional financials and real estate toward tech and manufacturing—mirroring and reinforcing the A-share market’s internal structural divergence.

Conclusion: Divergence Is Not Disorder—It Is the Market’s Inevitable Passage Toward Maturity

The industrial-profit surge is no illusory bubble—it is tangible proof of structural resilience within China’s manufacturing ecosystem amid complex external conditions. And the A-share “earnings–index” misalignment is not market failure; rather, it reflects the evolution of investor cognition—from chasing aggregate metrics toward meticulously discerning who is growing, why, and whether it can last. When the ChiNext uses share-price language to reaffirm faith in technological self-reliance and green transition, and when the Shanghai Composite hesitates due to lackluster earnings visibility in traditional heavyweight sectors, this seemingly contradictory pair of phenomena is, in fact, a precise capital-market reflection of China’s economic momentum shift. The key to future market direction lies not in hoping for a “broad-based bull market,” but in tracking two critical transitions: whether midstream manufacturing profits can smoothly evolve from policy-driven to endogenously driven growth—and whether the tech theme can convert conceptual enthusiasm into sustained revenue and cash flow generation. Only then can today’s structural divergence truly mature into capital-market expression of high-quality development.