AI boom boosts industrial profit growth

China's industrial profits sustained double-digit growth in the first eight months of the year, as the global artificial intelligence boom bolstered earnings expansion and underscored the increasing contribution of new growth drivers, officials and experts said.

However, monthly profit growth slowed for a fourth straight month in August, with gains still concentrated among upstream resource producers and high-tech manufacturers, strengthening the case for more forceful measures to boost domestic demand and smooth the transition from traditional to new growth drivers, they added.

Their comments came as fresh data from the National Bureau of Statistics showed that profits at major industrial enterprises reached 5.27 trillion yuan ($785.23 billion) in the January to August period, up 15.7 percent year-on-year. Growth remained strong, although it eased from 17.6 percent in the first seven months.

The electronics sector was a key driver of the increase, with profits surging 110 percent year-on-year and its contribution to overall industrial profit growth reaching 62 percent, the bureau noted.

Yu Weining, chief statistician at the bureau's industrial statistics department, attributed this rapid growth to the wider application of new technologies such as AI, which boosted demand in related fields.

"For instance, new energy vehicles, the internet of things and computing centers are driving up demand for chips," Yu said, noting that profits at makers of optoelectronic devices and discrete semiconductors rose 72 percent and 51.8 percent, respectively.

Meanwhile, new growth drivers also played a central role as profits at major high-tech manufacturers jumped 54.7 percent year-on-year in the first eight months, outpacing overall industrial profit growth by 39 percentage points, NBS data showed.

Highlighting the contribution of new growth drivers, Chen Mengyun, a macroeconomic analyst at Shenyin &Wanguo Futures, said electronics and other high-tech industries are likely to continue providing a strong boost to profit growth in the near term.

However, the benefits have yet to spread widely to traditional industries, Chen said, adding that the persistent divergence in performance across sectors points to lingering weakness in end demand.

Profit growth at major industrial enterprises eased to 4.2 percent year-on-year in August from 11.2 percent in July, extending the slowdown to a fourth consecutive month, NBS data showed.

Echoing Chen's view, Ming Ming, chief economist at CITIC Securities, said strong profit growth among upstream resource producers and technology firms contrasted with continued pressure on many midstream and downstream industries.

Automakers and producers of alcoholic beverages, food and pharmaceuticals continued to face pressure, he said.

To put profit growth on a firmer footing, analysts called for stronger countercyclical policy support and closer coordination among fiscal, financial and industrial policies.

Yan Xiang, a researcher at the research institute of China Chengxin International Credit Rating, urged faster implementation of existing measures, particularly efforts to translate funding from local government special-purpose bonds, special treasury bonds and policy-based financial instruments into concrete progress on projects.

"Greater emphasis should be placed on boosting household consumption and improving business expectations," Yan said, calling for measures to stabilize employment, raise incomes, expand services consumption and reduce companies' financing and operating costs to encourage spending and investment.

Looking ahead, industrial earnings remain well supported, although profit growth may face short-term pressure before stabilizing in the fourth quarter, said Wen Bin, chief economist at China Minsheng Bank.

Wen said the high comparison base from last September would continue to weigh on year-on-year growth, with that pressure expected to ease markedly in the fourth quarter.