Summary in One Sentence:
Many ordinary people feel that the economy has been lukewarm in the first half of the year, and it's even harder for small businesses to thrive. However, the semi-annual reports of over 5,500 listed companies on the A-share market showed a remarkable increase in net profit of 18.57% year-on-year. This seems contradictory to the GDP trend of higher growth at the beginning and lower growth later on. In reality, it reflects extreme structural differentiation: funds have largely concentrated in the hands of a few leading companies in the AI industry chain, upstream resource sectors, and high-end overseas markets. Traditional industries such as real estate are still struggling. The A-share market is beginning to exhibit characteristics of mature markets like the U.S. and Korean stock markets, where a few giants dominate. Moreover, most of this profit growth comes from the core businesses of these companies, not from fictitious earnings.
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Five Detailed Explinations:
1. Why Do You Feel It's Hard to Do Business, While Listed Companies' Profits Soar?
The discrepancy between people's experiences and the data lies in the different statistical methods used:
- The GDP growth rates of 5% or 4.3% we hear about are real growth rates after adjusting for inflation. For example, if you sold 100 cups this year, 4 more than last year, resulting in a 4% growth rate, but the price of cups increased, the total revenue (nominal GDP) increased by 5.3%, the highest in the past five years. Additionally, the ex-factory prices of industrial products have risen, meaning all factories are selling their products for higher prices, even if sales volumes haven't increased much, leading to higher revenues and profits.
- The over 5,000 companies on the A-share market are the best performers among tens of millions of enterprises in the country, naturally more resilient to risks. Owners of small restaurants or processing factories are not included in this statistical sample, so their experiences differ significantly from those of listed companies.
- This profit growth did not come from one-time gains such as selling property or government subsidies. Excluding these non-recurring incomes, the profit growth rate is similar to the overall profit growth, indicating that it is based on genuine business performance, not financial fraud.
2. Industry Differentiation Is Extreme: Some Soar, Others Struggle
- Of the 31 major industries, only 19 are seeing profit growth, while 12 are declining, creating a stark contrast:
- The three industries with the highest growth rates are the electronics sector (almost tripling in profit), non-ferrous metals (doubling in profit), and non-bank financial services (up nearly 70%). Other sectors like computers, defense, and new energy equipment also had profit growth rates over 35%.
- In contrast, industries like agriculture, forestry, and fisheries suffered significant losses, with profits dropping by more than 50%, especially those related to the real estate sector.
- The reasons for this are clear: the AI revolution has boosted demand for storage chips, servers, and electronic components, driving up prices. Geopolitical conflicts at the beginning of the year increased the prices of commodities like crude oil, copper, and aluminum, benefiting upstream resource companies. The strong stock market performance in the first half of the year increased trading volumes and profits for insurance and securities firms. Real estate, however, is in a downward cycle, leading to reduced demand for steel, cement, and building materials.
3. The A-share Market Is Becoming a Giant-Oriented Market
- The profit concentration on the A-share market is higher than many expect, similar to mature overseas markets:
- In the U.S., the seven largest tech companies account for 27% of the total profits of the S&P 500. In South Korea, Samsung and SK Hynix together account for 80% of the total market profits. In Taiwan, TSMC alone accounts for 40% of the market profits.
- On the A-share market, the top 10 companies earned 300.9 billion yuan, more than 51% of the total profit increase, indicating that they took more than half of the new profits. The top 100 companies accounted for 71.6% of the total profits, and the remaining 5,000 companies shared less than 8%.
- In some high-growth sectors, a single company dominates: for example, Changxin Technology on the STAR Market generated more than half of the total profits, and China State Shipbuilding Corporation accounted for over 70% of the profits in the defense industry. China Life Insurance accounted for 16% of the new market profits, meaning that for every additional 6 yuan in profits, 1 yuan went to China Life Insurance.
4. Two Surprising Positive Developments in the Semi-Annual Reports
- There are two real strengths in these reports indicating improving fundamentals:
- Chinese companies are earning more money from overseas operations. Over 3,000 listed companies reported overseas revenue, totaling over 6 trillion yuan, a year-on-year increase of nearly 23%. Previously, they mainly exported low-value-added products like clothing and toys, but now the electronics sector's overseas revenue increased by 40%, and exports of new energy products like lithium batteries and wind power equipment increased by 30%. Many domestic shipbuilders have orders until 2030, indicating that they are earning higher profits from technology rather than low labor costs.
- The actual cash flow of real enterprises (excluding banks and non-bank financials) has increased by 60% compared to two years ago, indicating that profits are real and not based on credit sales. While some high-growth sectors may have inflated figures, most industries' performance is solid.
5. Can This High Growth Continue?
- This profit growth is driven by long-term trends such as the AI revolution and global trade recovery, but there are concerns:
- The high prices of resources, driven by geopolitical conflicts, may not sustain if conflicts ease, affecting the performance of related industries.
- Companies with high inventory may face losses if downstream demand does not meet their stockpiles.
- This trend of profit concentration in leading companies and high-tech manufacturing is a long-term one. Small companies and traditional industries will find it increasingly difficult to profit. Investors who invest in unproven or niche sectors risk losing money, as market opportunities will mainly lie with the top companies in key sectors.