China industrial profits rise as AI-linked manufacturing offsets weak demand

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China industrial profits rise

Highlights

Profits at large Chinese industrial firms rose 14.4% year-on-year in September, driven by AI-linked manufacturing and higher commodity prices.
Industrial profit growth remains uneven, with high-tech sectors outpacing consumer sectors as domestic demand stays weak and retail sales rose only 1.1% in September.
China's economy grew 4.5% in Q3, bringing nine-month growth to 4.6%, but Beijing has avoided major new domestic demand stimulus amid local government debt concerns.

Profit growth driven by AI and commodities

As reported by CNBC, citing official data released Tuesday, profits at large industrial firms increased 14.4% last month from a year earlier. For the first nine months of this year, industrial profits climbed 15.5%, slightly below the 15.7% rise recorded in the January-September period.

The latest gains extend a rebound that turned industrial earnings back to double-digit growth earlier this year, after a modest gain in 2025 and three consecutive years of declines. Beijing's efforts to curb aggressive price wars across sectors and stronger demand for AI-related equipment are supporting the recovery.

The global AI boom and higher commodity prices linked to the war in Iran are lifting earnings for miners, chipmakers and raw-material suppliers. At the same time, downstream manufacturers are facing higher input costs, adding pressure to companies more exposed to domestic consumption.

Uneven recovery clouds broader outlook

Domestic demand remains weak, leaving China's industrial recovery uneven and limiting broader traction in the economy. Profit growth in high-tech industries such as AI and robotics continues to outpace consumer-related sectors including clothing, autos and furniture.

China's economy expanded 4.5% in the third quarter from a year earlier, slightly faster than in the previous quarter, bringing growth in the first nine months to 4.6%. That keeps expansion within the government's full-year target range of 4.5% to 5%, but consumption remains soft, with retail sales rising 1.1% in September, only marginally above August's weak reading.

With concerns growing over local government debt and the impact of consumer trade-in subsidies fading, Beijing has so far refrained from launching major new support for domestic demand. Shena Yue, senior economist at Oxford Economics, said high-tech manufacturing investment and electronics capacity utilization remain resilient, supported by the global AI cycle and domestic policy priorities, while broader investment and industrial utilization are still subdued.

Yue said household demand remains the weak link as the property downturn continues to weigh on housing purchases and related durable goods. She added that China's export strength is not able to fully offset domestic weakness.

In our earlier article on expectations for China’s third-quarter GDP and the latest policy support, we noted that economists were looking for only a modest growth pickup despite targeted rate cuts, mortgage subsidies, and additional government debt quotas. The piece emphasized that solid exports and factory output were helping offset weak domestic consumption and lingering property-sector stress, keeping the recovery uneven and close to the lower end of Beijing’s annual target range.

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