Goldman Sachs' latest research report, released on September 7, reveals that as the 2026 second-quarter earnings season draws to a close, profit growth among Chinese listed companies has reached a five-year peak, with growth momentum broadening from AI hard tech into a wider range of sectors. The analysis covers second-quarter and first-half financial results from roughly 6,800 A-share, H-share, and ADR-listed companies.

Profit Growth at a Five-Year High, Led by A-Shares

Statistics show that net profits for all Chinese listed companies grew 14% year-over-year in the first half of 2026 (in RMB terms), significantly outpacing real GDP growth over the same period. Momentum accelerated notably into the second quarter, with earnings up 24% year-over-year — the strongest quarterly growth in five years. This marks a substantial jump from the 6% recorded in Q1 and also exceeded the bank's earlier top-down projections.

By ownership structure, private-owned enterprises (POEs) and the "New China" segment delivered profit growth of 36% and 62% year-over-year, respectively, far outpacing state-owned enterprises (SOEs) at 18% and the "Traditional China" segment at 10%. A-shares continue to dominate the earnings expansion. The STAR Market and ChiNext saw profits surge 102% and 44% year-over-year, respectively, while the CSI 500 and CSI 1000 recorded gains of 27% and 22%. In offshore markets, the MSCI China Index posted 16% year-over-year profit growth in Q2, though growth was heavily concentrated in the financial sector (up 34%), with ex-financial growth at just 5% — indicating that the offshore recovery remains relatively narrow.

Sectors Show Sharp Divergence: Upstream Strong, Consumer Weak

The structural divergence in earnings growth is highly pronounced. Growth drivers are also spreading beyond AI hard technology into a broader range of industries. The strongest performing sectors in Q2 included IT (up 142%), insurance (up 140%), materials (up 78%), energy (up 52%), brokerages (up 58%), and pharmaceuticals (up 20%). The consumer side continues to face headwinds, with food and beverage (down 50%, dragged by the agriculture segment), retail (down 20%), and autos (down 14%) all recording profit declines.

On the revenue front, total Chinese listed companies saw first-half 2026 revenue grow 6% year-over-year, up from 2% in 2025 and -1% in 2024. Upstream materials (up 15%) and energy (up 6%) benefited from recovering producer price index (PPI) readings, while IT (up 22%) and financials (up 13%) were also robust. Consumer sector revenue growth, however, stood at just 2%-4%, reflecting persistently weak household demand.

In terms of net margins, the combined net profit margin for all Chinese listed companies improved to 8.2% in the first half of 2026, up from 7.6% in the same period of 2025. The IT sector's margin climbed from 3.6% to 6.7%, materials improved from 4.1% to 6.1%, and brokerages rose from 31% to 40%. Real estate remains the biggest drag, with revenue down 21% year-over-year and margins still in negative territory.

Semiconductors Dominate AI Profit Pool; Memory Chips Are the Biggest Winner

Analysis indicates that China's AI profit pool is accelerating its concentration toward hardware, particularly semiconductors. In Q2 2026, China's semiconductor sector earnings surged approximately 150% quarter-over-quarter to $23 billion, accounting for 42% of China's total AI profits — up from 25% in Q1 and just 9% for all of 2025.

Memory chips are the core growth engine. After the domestic memory leader's listing, it has been rapidly capturing profit share from the global memory cycle and now commands 13% of global memory earnings. China's overall semiconductor sector margin reached 20% in Q2 (still in single digits for full-year 2025), with memory profitability as high as 71% and foundry at 15% — though still trailing the US at 35% and other regions at 43%.

Beyond semiconductors, China's global profit share in power, AI infrastructure, and physical AI also improved quarter-over-quarter in Q2. The power sector remains China's most solid area of advantage, holding a 42% global profit share (approximately $12 billion), with power generation accounting for 48% of global profits. AI infrastructure earnings rebounded to $8 billion (19% global share), with PCB/CCL, servers, and optical modules performing particularly well. Notably, China's AI model layer remains loss-making, as domestic value creation is heavily concentrated in the hardware enablement segment rather than in foundational models and software.

Internet Earnings Hitting Bottom, Poised for Positive Growth in H2

Offshore soft tech and internet companies slightly missed expectations in Q2. The nine major internet companies tracked by Goldman Sachs — including Alibaba, Tencent, and Trip.com — posted a 13% year-over-year earnings decline in Q2, below the consensus expectation of -8%. However, the bank believes earnings growth is bottoming out. Consensus estimates suggest Q3 growth will turn positive at +17%, accelerating to +25% in Q4 and potentially reaching +43% in Q1 2027.

Key factors supporting the recovery include easing food delivery subsidy competition, new revenue streams from AI and cloud monetization, and continued cash generation from e-commerce operations. That said, the bank's economists project retail sales growth of just 1.7% for H2 2026, with weak consumption remaining a constraint.

A-Share Shareholder Returns Strengthen; HK Buybacks Trend Lower

Goldman Sachs highlights a clear divergence in shareholder returns between A-shares and Hong Kong-listed stocks. On the A-share side, more than 870 listed companies have announced interim dividend plans, totaling RMB 740 billion in cash payouts, with an interim payout ratio of 29%. Fifty-seven companies declared their first-ever dividends since listing. SOEs contributed approximately 80% of total dividend value, with 15 companies paying out over RMB 10 billion each in a single distribution.

On buybacks, over 1,270 A-share companies announced repurchase plans for 2026, totaling more than RMB 230 billion. CATL announced the largest buyback in A-share history (RMB 20-40 billion). Approximately 70% (around RMB 165 billion) of repurchases are cancellation-type buybacks, up from 45% in 2024 and H1 2025 — indicating that listed companies are increasingly focused on enhancing shareholder value through share count reduction.

In Hong Kong, buyback activity has cooled recently, partly due to window restrictions during the earnings reporting period. More fundamentally, internet companies' subsidy spending and accelerating AI capital expenditures are depleting cash flows — Alibaba's recent completion of the largest placement in Hong Kong market history serves as a prime example. Net issuance for MSCI China ex-financials has shifted from EPS-accretive over the past two years to now dilutive. The bank states that this divergence supports its stance of maintaining an overweight position in A-shares while staying neutral on offshore China.

Earnings Call Keywords: AI, Expansion, Shareholder Returns, Profitability

Goldman Sachs conducted text analysis of over 1,500 A-share earnings call transcripts. AI remains the most frequently cited theme, though the scope of discussion has expanded from hardware and semiconductors to downstream applications including data center operators, AI models, autos, and healthcare. "Expansion" (going overseas) and "shareholder returns" follow as the second and third most discussed topics, while interest in "anti-involution" and "tariffs" has noticeably cooled. Additionally, with inflation picking up and net margins improving, companies are broadly discussing pricing, margins, costs, and profitability during these calls.

Seeking Growth Beyond AI

The bank believes that as AI-related stock positioning becomes increasingly crowded, investors are searching for growth opportunities outside the AI hard-tech ecosystem. Goldman Sachs has screened a basket of non-AI hardware companies rated "Buy," with selection criteria including EPS compound annual growth above 15% for 2025-2027 and upward revisions of more than 7% in consensus 2026/2027 EPS estimates over the past month. Covered sectors span healthcare, financials, consumer, shipbuilding, and materials, with names including Hansoh Pharmaceutical, Innovent Biologics, MMG, Yangzijiang Shipbuilding, Sino Biopharmaceutical, Better Life, Jiangxi Copper, CICC, Roborock, BeiGene, Monalisa, and Lonking.

Goldman Sachs maintains its MSCI China EPS growth forecasts of 8% and 12% for 2026 and 2027, respectively — below consensus expectations of 17% (and higher thereafter) — while also reaffirming its 20% growth projection for the CSI 300, likewise below the consensus estimate of 27%.