China’s industrial profit growth slows sharply as weak demand outweighs AI boom

[BEIJING] China’s industrial profit growth slowed further in August as strength in technology manufacturing amid the AI boom was outweighed by persistently weak domestic demand.

Firms are increasingly struggling to maintain pricing power due to soft consumption and excess capacity in some sectors. Factories are relying on overseas markets for better profits, a shift that risks deepening China’s reliance on exports at a time of heightened geopolitical tensions and greater scrutiny of its trade surplus.

China and the US agreed to cut tariffs on US$30 billion in goods and to hold a dialogue on the risks and benefits of AI during Chinese President Xi Jinping’s Sep 23-25 visit to Washington, but underlying strains in the relationship remain.

Profits at China’s industrial firms in August rose 4.2 per cent from a year earlier, down from 11.2 per cent in July, while profit increased 15.7 per cent in the first eight months, easing from 17.6 per cent in the January-July period, National Bureau of Statistics (NBS) data showed on Monday (Sep 28).

Profits in computer, communication and other electronic equipment manufacturing led the gains, jumping 110 per cent in the first eight months, according to a breakdown of NBS data. By contrast, the wine, beverages and refined tea manufacturing industry was among the worst performers, with profits falling 34.7 per cent.

“Going forward, boosting household income and consumption and expanding domestic demand will be crucial to sustaining steady growth in industrial enterprise profits,” said Ding Meng, chief economist of China Citic Bank ​International.

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Earlier in September, a central bank adviser warned that AI may worsen and extend China’s imbalance between robust supply and subdued demand, reinforcing calls for measures to boost consumer spending and strengthen balance sheets throughout the economy.

Industrial profit figures cover firms with yearly revenue of at least 20 million yuan (about US$3 million) from main operations. REUTERS