BEIJING: China's industrial profits grew at their fastest pace since June last month, as an artificial intelligence-driven manufacturing boom offset persistent weakness in domestic demand, official data showed Tuesday.
Profits at large industrial firms rose 14.4% in September from a year earlier, according to the National Bureau of Statistics. For the first nine months of the year, industrial profits climbed 15.5%, slightly below the 15.7% gain recorded in the January-to-August period.
The figures mark a sharp turnaround from three straight years of declining industrial earnings. Beijing's efforts to curb price wars across sectors and surging demand for AI-related equipment have helped lift profitability.
The global AI boom and higher commodity prices stemming from the war in Iran have boosted earnings for miners, chipmakers and raw-material suppliers this year, even as downstream manufacturers grapple with rising input costs and soft domestic demand. Factory-gate prices rose at their fastest pace since mid-2022, driven by higher energy and raw-material costs amid the Middle East conflict.
NBS Chief Statistician Yu Weining attributed much of the earnings growth to electronics and advanced-technology manufacturing. Electronic special materials manufacturers saw profits more than triple, while profits at semiconductor device equipment makers jumped 51.7% over the nine-month period as demand for AI computing power and storage remained robust.
Profits at optical fiber manufacturers rose more than sixfold, and cable makers more than doubled their earnings from a year earlier, Yu said. Raw-material producers for copper and aluminum also benefited from rising demand from AI-related and renewable industries, with profits up nearly 45%.
The gains stand in contrast to consumer-facing industries such as clothing, autos and furniture, underscoring an increasingly bifurcated economy. Retail sales grew just 1.1% in September, only marginally above August's weak reading. China's economy expanded 4.5% in the third quarter from a year earlier, bringing growth for the first nine months to 4.6% — within the government's full-year target of 4.5% to 5%.
"High-tech manufacturing investment and electronics capacity utilization remain resilient, supported by the global AI cycle and domestic policy priorities," said Shena Yue, senior economist at Oxford Economics. But overall investment and industrial utilization remain subdued, she said.
"China's export strength isn't able to fully offset its domestic weakness," Yue added, noting that the property downturn continues to weigh on household demand.
Beijing has so far held back from major new stimulus for domestic demand, with concerns mounting over local government debt and the fading benefits of consumer trade-in subsidies. Policymakers see no urgency to act, according to Dan Wang, China director at Eurasia Group. Falling prices have raised purchasing power even as deflationary pressure builds, and officials are betting on tech exports to hit the growth target, she said.
But strains are mounting. Most manufacturers earn "very thin" profits, with some operating at a loss, Wang said, while consumers continue to save rather than spend amid what she described as China's most severe employment crisis in decades. Debt-laden local governments are also wary of spending, she said.
"A lot of money they should have spent is not spent because the officials are so afraid of being held accountable for new projects that they have approved," Wang said.
Pessimism over the breadth of corporate profitability has weighed on Chinese stocks, driving the benchmark CSI 300 Index into a bear market late last week as a prolonged consumption slump and intense competition take a toll on earnings.
