This represents the result of macro policy effectiveness and deepening advancement of the unified national market, with significantly enhanced "inclusive" profitability across various market entities.

An impressive industrial "report card" provides a warm-up for the National Day holiday. On September 27, the latest data released by the National Bureau of Statistics showed that profits of industrial enterprises above designated size achieved an unexpected "reversal" in August - growing 20.4% year-on-year, a substantial improvement from July's decline of 1.5%. This not only marked the highest growth rate since December 2023 but also injected a "shot in the arm" for the market ahead of National Day.

"Industrial enterprise profits improved significantly," said Yu Weining, Chief Statistician of the Industrial Department at the National Bureau of Statistics. From January to August, profits of industrial enterprises above designated size shifted from a 1.7% year-on-year decline in the January-July period to a 0.9% increase, reversing the continuous downward trend in cumulative enterprise profits since May this year.

This change signals distinctly positive developments. From a micro perspective, enhanced enterprise profitability directly boosts development confidence and provides support for production expansion. In August, the enterprise production and business activity expectation index reached 53.7%, rising 1.1 percentage points. From a macro perspective, this is expected to drive the formation of a virtuous cycle of "enterprise profitability - production expansion - employment stability - resident income growth - consumption expansion - economic recovery," becoming an important driving force for sustained economic warming.

Concurrent data also confirms the recovery in economic prosperity levels. In August, the Manufacturing Purchasing Managers' Index (PMI), the Non-Manufacturing Business Activity Index, and the Composite PMI Output Index were 49.4%, 50.3%, and 50.5% respectively, with all three indices showing improvement, indicating that China's overall economic prosperity level continues to maintain an expansion pace.

**Why the Unexpected "Reversal"?**

The unexpected "reversal" in August profits of industrial enterprises above designated size was not due to a single factor, but rather the result of coordinated interaction across multiple dimensions including base effects, revenue, industry structure, and enterprise entities, collectively building solid support for profit improvement.

An important factor that cannot be ignored is the low base effect. In August last year, profits of industrial enterprises above designated size declined 17.8% year-on-year, the lowest for that year, laying an important foundation for this year's high profit growth.

Zhang Liqun, a researcher at the Macroeconomic Research Department of the Development Research Center of the State Council, mentioned in media interviews that from the perspective of base factor influence, in August last year, natural disasters such as high temperatures, heavy rains, and floods had significant impacts on some regions. Combined with insufficient effective demand, industrial enterprise profit data weakened, with monthly profits even showing negative year-on-year growth. This to some extent elevated this year's year-on-year growth rate for industrial enterprises above designated size during the same period.

Yang Chang, Chief Analyst of the Policy Group at Zhongtai Securities Research Institute and Chief Expert at the Institute of Public Policy and Governance at Shanghai University of Finance and Economics, told reporters that August industrial enterprise profits were approximately 672.62 billion yuan, the second-highest point since the second quarter, increasing month-on-month compared to July. The month-on-month improvement in August combined with the lower base from the previous year directly boosted the impressive year-on-year growth performance.

Stable growth in industrial enterprise revenue and relief from price pressures provided dual guarantees for profit recovery. From January to August this year, industrial enterprise revenue maintained stable growth, with revenue of industrial enterprises above designated size growing 2.3% year-on-year. In August, industrial enterprise revenue grew 1.9%, accelerating 1.0 percentage point from July. The acceleration in revenue growth created favorable conditions for continued enterprise profit recovery.

Unit costs for enterprises declined in August, with cost conditions for industrial enterprises above designated size improving somewhat. Costs per 100 yuan of operating revenue decreased by 0.20 yuan year-on-year, the first monthly year-on-year decrease since July 2024.

Wang Dan, Senior Macro Analyst at GF Securities, further analyzed from a "volume-price" logic perspective. In August, while national industrial value-added above designated size slowed slightly to 5.2% year-on-year from 5.7% the previous month, the Producer Price Index (PPI) decline narrowed by 0.7 percentage points compared to the previous month. Positive changes on the price side not only directly supported enterprise revenue but also provided positive momentum for profit margins, becoming one of the key drivers of profit growth.

From an industry structure perspective, differentiated growth in equipment manufacturing, raw materials manufacturing, and consumer goods manufacturing jointly drove improvement in industrial enterprise profits.

"The 'ballast stone' role of equipment manufacturing is evident," Yu Weining analyzed. From January to August, profits of industrial equipment manufacturing above designated size grew 7.2%, contributing 2.5 percentage points to overall industrial enterprise profit growth above designated size, making it one of the strongest contributing sectors. Among the eight industries in equipment manufacturing, seven achieved profit growth, with railway, ship, and aerospace equipment and electrical machinery industries showing relatively fast profit growth at 37.3% and 11.5% respectively.

As raw materials manufacturing warmed up, related enterprise profit growth accelerated significantly. Sun Xiao, Chief Statistician of the Industrial Department at the National Bureau of Statistics, introduced that in August, industrial value-added in raw materials manufacturing above designated size grew 6.8% year-on-year, accelerating 0.2 percentage points from the previous month, reaching the highest point in nearly 18 months. Driven by factors including increased market demand, price recovery, and somewhat reduced costs, raw materials manufacturing profits grew 22.1% year-on-year from January to August, accelerating 10 percentage points from the January-July period, contributing 2.5 percentage points to overall industrial enterprise profit growth above designated size.

Additionally, consumer goods manufacturing profits also shifted from decline to growth. From January to August, consumer goods manufacturing profits shifted from a 2.2% decline in the January-July period to 1.4% growth, with alcoholic beverages, tea, and agricultural and sideline food processing industries showing relatively fast profit growth at 19.9% and 11.8% respectively, collectively contributing 1 percentage point to overall industrial profit growth above designated size.

The substantial recovery in August profits of industrial enterprises above designated size also correlates with growth in other gains and losses. The CICC macro team pointed out that one possible reason is that recent positive performance in the A-share market has driven some increase in enterprise investment returns.

Universal improvement across enterprises of different sizes and types further consolidated the profit "reversal" trend. From January to August, medium and small industrial enterprises above designated size saw profits grow 2.7% and 1.5% year-on-year respectively, accelerating 1.1 and 0.4 percentage points from the January-July period, while large enterprise declines narrowed by 4.6 percentage points from the January-July period.

By enterprise type, the profit decline for state-controlled enterprises narrowed by 5.8 percentage points from the January-July period; private enterprise profits grew 3.3%, higher than the average level of all industrial enterprises above designated size by 2.4 percentage points, accelerating 1.5 percentage points from the January-July period.

Yu Weining stated that this represents the result of macro policy effectiveness and deepening advancement of the unified national market, with significantly enhanced "inclusive" profitability across various market entities.

**Enterprise Profitability Expected to Continue Rising**

Although August industrial enterprise profits achieved an unexpected "reversal," issues such as industry differentiation and cost pressures still exist, and enterprise profitability recovery still faces considerable challenges in the next phase.

However, multiple experts point out that in the next phase, the trend of enterprise profitability recovery is expected to continue.

From short-term variables, rising base effects may have some impact on subsequent growth rates. Regarding future trends in industrial enterprise profits, Yang Chang indicated that the base for industrial enterprise profits in September last year gradually rose, which may constrain year-on-year growth rates in subsequent months this year.

Currently, industry profit differentiation remains quite evident, with varying recovery paces. Data released by the National Bureau of Statistics shows that petroleum, coal, and other fuel processing industries reduced losses year-on-year, ferrous metal smelting and rolling processing industries shifted from loss to profit year-on-year, while automobile manufacturing declined 0.3%, non-metallic mineral products declined 2.2%, chemical raw materials and chemical products manufacturing declined 5.5%, textile industry declined 7.0%, petroleum and natural gas extraction declined 12.4%, and coal mining and washing declined 53.6%.

Enterprise profit improvement is an important source of enterprise capital flow "living water." While focusing on enterprise profit issues, enterprise accounts receivable is also an unavoidable topic.

"Accounts receivable absolute amounts continue to rise, but year-on-year growth rates have declined for six consecutive months," Yang Chang also noted. At the end of August, accounts receivable for industrial enterprises above designated size reached 27.24 trillion yuan, growing 6.6% year-on-year, down 0.2 percentage points, showing deceleration for six consecutive months since March, potentially indicating that previous work to guarantee payment to small and medium enterprises has achieved phased results.

However, it should still be noted that the absolute value of accounts receivable continues to rise, with an average collection period of 70.1 days, an increase of 3.7 days year-on-year.

Yu Weining mentioned that in the next phase, against the backdrop of a severe and complex external environment and still insufficient domestic market demand, it is necessary to further expand domestic demand, deepen the construction of a unified national market, standardize enterprise competition order, and create more favorable conditions for sustained recovery of industrial enterprise profits.