According to data from China’s National Bureau of Statistics, the nation’s industrial profits jumped 15.8% year over year in March 2026, accelerating from the 15.2% surge witnessed in the first two months of 2026. In the first quarter, profits expanded 15.5%, marking the fastest start to a year since 2017, excluding the pandemic-driven spike in 2021.

This robust performance came against a complex backdrop. While Chinese exports grew 14.7% in the first quarter, domestic demand remained under pressure due to a prolonged property downturn. Meanwhile, the Middle East war involving Iran, Israel and the United States has caused oil prices to soar more than 50% so far this year.

The Chinese economy is currently navigating a complex "two-track" recovery, with Beijing softening its 2026 GDP growth target to prioritize structural reforms while factory deflation finally came to an end recently. The surge in industrial profits puts a spotlight on the Chinese equity market—and by extension the exchange-traded funds (ETFs) that hold the nation’s manufacturing powerhouses.

But before mentioning the names of these ETFs, let us delve deeper into what drove the double-digit surge in China’s industrial profit amid the ongoing global uncertainty due to the Middle East war, and whether it will continue in the days ahead. This will help you make an informed decision.

Factors That Drove the Profit Jump

The impressive 15.5% jump in first-quarter profits is the result of a "perfect storm" of industrial recovery and global price shifts. First, the end of the 41-month factory-gate deflationary streak has been a game-changer. As producer prices turned positive, amid Beijing’s efforts to curb excess capacity, manufacturers in China regained the ability to raise prices, instantly fattening margins that had been suppressed for years.

Furthermore, the surge in oil prices due to the Iran-Israel conflict also significantly boosted producer price growth, marking the first expansion in more than three years and ending the longest deflationary streak in decades (as cited in CNBC). 

Additionally, the high-tech manufacturing sector, particularly semiconductors and AI-related hardware, saw double-digit growth as China continued its push for technological self-reliance amid global trade tensions.

Lastly, China’s energy mix—heavily anchored in coal and renewables—provided a structural buffer against the oil shock, with Morgan Stanley’s chief China economist, Robin Xing, noting that 70% of local companies reported smaller cost shocks than global peers (in a survey conducted on 32 Chinese sectors).

What Lies Ahead for China?

The end of factory deflation signals that the worst of the margin squeeze is over, creating a highly favorable environment for the manufacturing sector. With industrial firms proving they can thrive even amid a property slump and regional wars, investor confidence in Chinese "A-shares" and manufacturing-heavy indices is rebounding. 

The consensus expectation for MSCI China 2026 earnings growth is 15%, according to a Franklin Templeton report published in January 2026. 

Now, with the latest data releases implying that the long-running deflation is gone, investor sentiment for Chinese stocks might improve further, and those who are willing to gain exposure to this momentum, through a less-risky diversified approach, may consider adding the following China ETFs to their watchlist:

iShares MSCI China ETF (MCHI Quick QuoteMCHI - Free Report)  

This fund, with net assets worth $6.83 billion, offers exposure to 578 large and mid-sized companies in China. From an industrial look, consumer discretionary takes the first spot in this fund at 26.35%, followed by communication (19.06%) and financials (18.91%).  

The fund charges 59 basis points (bps) as fees. It traded at a good volume of 2.78 million shares in the last trading session.

iShares China Large-Cap ETF (FXI Quick QuoteFXI - Free Report)

This fund, with net assets worth $6.10 billion, offers exposure to 50 of the largest and most actively traded Chinese companies. From an industrial look, financials takes the first spot in this fund at 34.49%, followed by consumer discretionary (26.38%) and communication (15.93%).  

The fund charges 73 bps as fees. It traded at a good volume of 20.07 million shares in the last trading session.

Invesco China Technology ETF (CQQQ Quick QuoteCQQQ - Free Report)  

This fund, with a market value worth $2.69 billion, offers exposure to 174 companies that are open to foreign ownership and derive a majority of their revenues from the technology sector in China, Hong Kong and Macau. 

The fund charges 65 bps as fees. It traded at a volume of 0.95 million shares in the last trading session.

Invesco Golden Dragon China ETF (PGJ Quick QuotePGJ - Free Report)  

This fund, with a market value worth $115 million, offers exposure to 72 companies deriving the majority of their revenues from the People’s Republic of China. From an industrial look, consumer discretionary takes the first spot in this fund at 54.34%, followed by communication services (20.94%) and industrials (10.08%).

The fund charges 70 bps as fees. It traded at a volume of 0.04 million shares in the last trading session.