China's Economy Splits: Private Firms Soar, SOEs Stumble

In the first quarter of 2026, China's listed companies exhibited a clear divergence in financial performance. Private enterprises saw a robust rebound, with trailing twelve-month net profit growth climbing to 22.5% year-over-year. This contrasts sharply with state-owned enterprises, which recorded a continued decline of 14.5% during the same period.

The trend is also evident across industry classifications, with strategic emerging companies showing 21.0% net profit growth, while traditional companies experienced a 6.1% decrease. Investor sentiment towards equity markets remains resilient, with a majority expecting A-shares to rise. However, the broader market rally is predominantly driven by valuation expansion, as evidenced by a 31.2% increase in price-to-earnings ratios despite minimal earnings growth.

Sentiment towards the real estate sector has shown improvement following recent policy measures, though investment willingness remains cautious. The CKGSB Investor Sentiment Survey underscores the increasing bifurcation in corporate performance, favoring innovation-led sectors and private firms over state-owned entities and traditional industries. Global investors are advised to reassess the balance between valuation gains and fundamental earnings in China's equity markets.