China’s AI Surge Drives Industrial Profits Higher Despite Sluggish Local Demand
A global boom in artificial intelligence hardware pushed Chinese industrial profits to their fastest monthly growth since June, helping offset a prolonged downturn in domestic spending. Figures released Tuesday by the National Bureau of Statistics show profits at large industrial firms jumped 14.4% in September from a year earlier.
For the first nine months of the year, industrial earnings rose 15.5%, a slight deceleration from the 15.7% pace recorded in the January-to-September period. The latest expansion follows a modest rebound in 2025 that came after three consecutive years of profit declines. Beijing’s efforts to stem price wars, combined with surging demand for AI infrastructure, provided key support to factory balance sheets.
Tech and Materials Outshine Consumer Goods
Earnings growth remains sharply divided across the economy. High-tech manufacturing sectors like artificial intelligence and robotics are vastly outperforming consumer-focused industries such as apparel, automotive, and furniture manufacturing. High energy and raw material costs connected to the Middle East conflict also pushed factory-gate prices up at their fastest rate since mid-2022, boosting upstream suppliers while squeezing downstream producers.
NBS Chief Statistician Yu Weining credited advanced technology and electronics manufacturing for driving the bulk of recent gains. Within those sectors, makers of specialized electronic materials saw earnings more than triple over the first nine months. Semiconductor equipment manufacturers logged a 51.7% profit surge, buoyed by global demand for data processing and storage hardware.
Infrastructure expansion for data centers caused profits for optical fiber makers to expand more than sixfold, while cable manufacturers saw earnings more than double. Demand from renewable energy and AI projects also boosted basic metal producers, lifting profits for copper and aluminum suppliers by nearly 45% over the nine-month span.
Domestic Stagnation Weighs on Broader Recovery
Despite the tech sector’s momentum, broader economic activity faces persistent drag from weak consumer confidence and a lingering real estate downturn. Retail sales rose just 1.1% in September, showing only a slight improvement over August. Shena Yue, senior economist at Oxford Economics, noted that while high-tech capacity and investment remain solid, overall industrial utilization is still subdued.
“China’s export strength isn’t able to fully offset its domestic weakness,” Yue said, pointing to sluggish demand for housing and household durables.
Overall economic output grew 4.5% year-over-year in the third quarter, bringing nine-month growth to 4.6%. That keeps China within Beijing’s full-year target range of 4.5% to 5%. However, central officials have avoided launching large-scale domestic stimulus as benefits from consumer trade-in subsidies fade and concerns over municipal debt persist.
Local government spending remains constrained as officials work to curb regional debt loads and industrial overcapacity. Dan Wang, China director at Eurasia Group, noted that local administrators are reluctant to initiate new commitments. “A lot of money they should have spent isn’t spent because the officials are so afraid of being held accountable for new projects that they have approved,” Wang said.
That cautious stance comes as many downstream manufacturers face razor-thin margins or losses, while households choose to save amid a severe employment slump. The uneven profit picture recently dragged the benchmark CSI 300 Index into a bear market late last week.