China's Two-Speed Economy: AI Boom vs. Auto Price War in May 2024

The Export Side: AI Boom Propels Electronics and Chip Profits

The global AI investment supercycle became a major tailwind for China's export-oriented manufacturing. Bloomberg reported that China's exports jumped more than 19% in May, driven by AI hardware demand, with chip sales rising 111% . The electronics sector surged 17% on the back of AI supply chains, and equipment manufacturing grew 9.5%, driving nearly 80% of total industrial output growth .

By 2026, Xinhua reported that AI-related electronics and new-energy materials were key drivers of accelerated industrial profit growth among China's major industrial firms in the first five months of the year . This export strength created a buffer against the domestic slowdown.

The Domestic Side: Auto Price War and Property-Linked Weakness

Auto Sector: Profits Drop 19.8% Amid Brutal Price War

The automobile industry provides the clearest picture of domestic pressure. Profits at automakers dropped 19.8% in May 2024, according to NBS and Wind data reported by CNBC , even as export volumes remained robust. This collapse was driven by a prolonged and intense price war that began in 2023, triggered initially by Tesla discounts and escalated by BYD .

Reuters reported that China's automotive industry was under severe financial pressure from overcapacity and the sustained price competition, with regulators and industry leaders warning that the instability threatened the sector's long-term sustainability . The industry's average profit margin sank to a historic low of 4.1% in 2025 and dropped further to 2.9% in early 2026 . S&P Global warned that the price war was "obliterating profitability" and undermining R&D spending .

Furniture Earnings: 58.4% Plunge Tied to Housing Downturn

Furniture makers' profits plunged 58.4% in May 2024, per NBS data . The collapse is directly linked to China's prolonged property market downturn. A USDA/Foreign Agricultural Service report described severe challenges for China's wooden furniture industry, including shrinking domestic demand tied to the housing-market downturn, fierce price competition, low profit margins, and intense international competition .

In the first half of 2025, large-scale furniture enterprises saw total profits fall 23.1% year-on-year, with operating profit margins at just 3.4%, well below the manufacturing average . Over 40% of 56 listed building materials and home furnishing firms reported net losses in 2025 .

Weak Domestic Demand as the Common Thread

The NBS and Reuters both cited subdued domestic demand as the primary factor behind May's sharp profit-growth slowdown . The May data highlighted persistent challenges in the economy: retail sales and fixed-asset investment remained soft, and producer price deflation continued to squeeze margins in domestically exposed sectors .

Even as foreign and private industrial firms posted profit growth (up 12.6% and 7.6% respectively in January–May), state-controlled enterprises saw a 2.4% drop in profits over the same period, highlighting the uneven recovery .

What the Data Does Not Support: Unsubstantiated Claims

The available sources do not clearly establish two factors sometimes cited in broader discussions of this period:

• Rising producer prices (PPI) as a profit driver: Weak demand and price competition, not rising output prices, are documented as the main margin pressures in domestically exposed sectors .
• Geopolitical disruptions (e.g., Iran conflict): While the Middle East conflict may have influenced oil prices or trade flows for specific sectors, the sources do not substantiate a direct impact on May 2024 industrial profits .

Summary: The Two-Speed Picture

The evidence supports a clear two-speed picture: AI-related electronics and export-linked manufacturing show clear strength in later data, while domestically oriented sectors such as autos and furniture face pressure from price wars, overcapacity, property weakness, and soft demand . The 0.7% headline profit growth in May 2024 masks this internal divergence, especially between export-linked resilience and weak domestic demand .