AI demand lifts China industrial profits

China’s industrial profits rose 14.4% year-on-year in September, marking the strongest monthly growth since June and a clear pickup from August’s 4.2% increase. The acceleration followed four consecutive months of slowing profit growth, signaling a notable, though uneven, improvement in industrial earnings.

Over the January to September period, industrial profits increased 15.5% compared with a year earlier. Despite the strong September reading, the cumulative profit growth rate eased slightly from the level recorded through August, showing that the broader uptrend remains moderate on a year-to-date basis.

A global boom in artificial intelligence demand has been central to the profit rebound. Companies involved in AI equipment, chip production and related raw materials benefited from strong orders and higher prices. High-tech manufacturing investment and electronics capacity utilization have remained resilient, supported by the AI cycle and domestic policy priorities.

Within electronics and advanced-technology manufacturing, profits in electronic special materials more than tripled in the first nine months, while profits for semiconductor device equipment makers rose 51.7%. The buildout of AI computing power and data centers pushed profits at optical fiber manufacturers to more than six times their year-earlier level, and profits at cable makers more than doubled over the same period.

Raw material producers supplying copper (HG1) and aluminum also saw profits expand nearly 45% in the first nine months, helped by rising demand from AI-related and renewable industries. Higher commodity prices linked to the conflict in Iran added further support to miners, chipmakers and raw-material suppliers.

The improvement in profit growth has been concentrated in a relatively small set of industries tied to energy and AI, including mining and electronics. Many other sectors, particularly those relying on domestic consumption, have lagged and in some cases fallen further behind.

Downstream manufacturers face rising input costs due to higher commodity and intermediate goods prices, while weak domestic demand limits their pricing power. Consumer-facing industries such as clothing, autos and furniture recorded weaker earnings growth than high-tech and AI-related fields, underscoring the lopsided nature of the recovery.

China’s economy grew 4.5% year-on-year in the third quarter and 4.6% over the first nine months of the year, remaining within the government’s 4.5% to 5% full-year growth target range. This macro backdrop provides some support to industrial activity but has not translated into broad-based profit gains across all sectors.

Retail sales rose 1.1% in September, slightly above expectations but only a modest improvement from August’s weak reading. Sluggish consumption and constrained government spending have weighed on businesses focused on the domestic market, while concerns over local government debt have limited major new measures to boost demand.

Overall, industrial earnings have returned to double-digit growth this year after a modest 0.6% increase in 2025 that followed three consecutive years of declines. Yet, with overall investment and industrial capacity utilization still subdued, the current profit expansion remains heavily reliant on AI-related and commodity-linked segments rather than reflecting a broad-based upturn.