China’s industrial profits rise 15.5% in nine months, but sectoral gaps persist

China’s industrial profits grew at a faster pace in September, supported by strong earnings in technology-related manufacturing, but a widening gap between sectors underscored the uneven nature of the country’s economic recovery.

Profits at China’s industrial firms rose 14.4 per cent year-on-year in September, accelerating from a 4.2 per cent increase in August, data released by the National Bureau of Statistics (NBS) on Tuesday showed.

For the first nine months of the year, industrial profits increased 15.5 per cent from a year earlier. The growth rate was broadly unchanged from the 15.7 per cent recorded in the January-August period, indicating that the improvement in September has yet to translate into a significant acceleration in cumulative earnings growth.

The figures point to continued strength in parts of China’s manufacturing sector, particularly industries linked to artificial intelligence (AI) and electronics. However, persistent weakness in traditional manufacturing and uncertainty over global trade are raising questions about how broadly the gains are being shared across the economy.

AI-related manufacturing drives profit growth

The divide between industries remained pronounced during the first nine months of the year.

Profits in the computer, communication and other electronic equipment manufacturing sector more than doubled over the period, highlighting the strength of technology-related production and demand linked to the AI supply chain.

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By contrast, profits in furniture manufacturing fell by more than half, making it one of the weakest-performing sectors.

The divergence reflects a shift in the sources of industrial growth, as investment and demand linked to emerging technologies support some manufacturers while other businesses continue to face pressure.

Ding Meng, chief China economist at CITIC Bank International, said the rapid expansion of AI-related industries was supporting the outlook for industrial earnings.

He said domestic and external demand generated by the development of the AI supply chain had become a key force supporting industrial profits.

Ding added that industrial profits were expected to continue growing at a rapid pace unless there was a major reversal in the global AI investment boom.

The outlook, however, remains dependent on the durability of that investment cycle and whether stronger earnings in technology-linked industries can offset weakness elsewhere.

Uneven recovery clouds China’s growth outlook

China’s latest industrial profit figures come after the economy expanded by a stronger-than-expected 4.5 per cent in the third quarter, putting the country within reach of its annual growth target of 4.5 to 5 per cent.

Yet the broader recovery remains uneven, with differences in demand and profitability across industries continuing to weigh on the outlook.

The contrast between technology-related manufacturing and traditional sectors suggests that headline growth figures do not fully capture the financial pressures facing businesses across China.

The pressure is also visible among major companies. Contemporary Amperex Technology (CATL), the world’s largest electric vehicle battery maker, reported a sharp slowdown in quarterly net profit growth as intense competition in the battery market squeezed margins amid a downturn in China’s auto sales.

The development highlights a challenge for manufacturers operating in sectors that have been central to China’s industrial expansion. Strong production and competition do not necessarily translate into sustained profit growth when companies face pressure on prices and margins.

Trade tensions pose another risk

China’s export-oriented manufacturers are also confronting greater uncertainty as the country’s expanding trade surplus adds to tensions with trading partners, particularly in Europe.

A stronger export performance can support industrial production and earnings, but it can also intensify disputes over market access, competition and trade imbalances.

Any escalation in trade restrictions could complicate the outlook for businesses that rely on overseas demand, even as AI-related industries provide a source of support.

The balance between external demand and domestic consumption will therefore remain important for the sustainability of profit growth.

NBS statistician Yu Weining said China would continue to use macroeconomic policies to support growth, expand domestic demand and optimise supply.

The policy focus reflects Beijing’s efforts to strengthen domestic demand while shifting the economy away from traditional growth drivers towards newer industries.

China’s industrial profit data cover companies with annual revenue of at least 20 million yuan from their main business operations.

While September’s increase signals improving earnings momentum, the gap between technology-linked manufacturers and struggling traditional industries suggests that the benefits of China’s recovery remain unevenly distributed.