China industrial profits post strongest growth in three months as tech boom widens economic divide

QIANDONGNAN, CHINA - OCTOBER 24: Workers produce jewelry products to fulfill orders at a workshop ahead of the upcoming Double 11 shopping festival on October 24, 2026 in Congjiang County, Qiandongnan Miao and Dong Autonomous Prefecture, Guizhou Province of China.

Shi Honghui | Visual China Group | Getty Images

China's industrial profits grew at their strongest pace last month since June, as a boom in manufacturing tied to artificial intelligence offset drag from persistently weak domestic demand.

Profits at large industrial firms rose 14.4% in September from a year earlier, according to data released Tuesday by the National Bureau of Statistics. For the first nine months of this year, industrial profits climbed 15.5%, slightly below the 15.7% rise in the January-September period.

The strength comes as industrial earnings swung to double-digit growth earlier this year, following a modest gain in 2025 after three straight years of declines, helped by Beijing's efforts to curb rampant price wars across sectors and surging demand for AI-related equipment.

The global AI boom and higher commodity prices stemming from the war in Iran have lifted earnings for miners, chipmakers and raw-material suppliers this year, even as downstream manufacturers face rising input costs and weak domestic demand.

The uptick in earnings came as factory-gate prices rose at their fastest pace since mid-2022, driven by higher energy and raw material prices amid the Middle East conflict.

AI boom vs consumer bust

Earnings growth in high-tech sectors, such as AI and robotics, has been outperforming profits in consumer-related industries, including clothing, autos and furniture, underscoring the increasingly bifurcated momentum in the economy.

NBS Chief Statistician Yu Weining attributed earnings growth mostly to surging profits in electronics and advanced-technology manufacturing sectors. Electronic special materials manufacturers saw profits more than triple, while they jumped 51.7% for semiconductor device equipment makers, as demand for AI computing power and storage over the nine months remained robust.

The buildout of AI computing power and data centers sent profits at optical fiber manufacturers more than sixfold higher, while those at cable makers more than doubled in the January-to-September period from a year earlier, according to Yu.

Raw material producers for copper and aluminum also benefited from rising demand from AI-related and renewable industries, with profits rising nearly 45% over the nine months.

High-tech manufacturing investment and electronics capacity utilization remain resilient, supported by the global AI cycle and domestic policy priorities, said Shena Yue, senior economist at Oxford Economics. Overall investment and industrial utilization are still subdued, she said.

Household demand is the weak link as the property downturn continues to weigh on housing purchases and related durables, Yue said. "China's export strength isn't able to fully offset its domestic weakness," she said.

Consumption remains soft, with retail sales growing 1.1% in September, beating forecasts but only marginally above August's weak reading.

China's economy expanded 4.5% in the third quarter from a year earlier, slightly faster than the previous quarter, taking growth in the first nine months to 4.6%, within the government's full-year target range of 4.5% to 5%.

Muted stimulus

Beijing has so far held back from major new stimulus for domestic demand, with concerns mounting over local government debt and the benefits of consumer trade-in subsidies fading.

watch now

Policymakers see no urgency to act, said Dan Wang, China director at Eurasia Group. Falling prices have raised purchasing power even as deflationary pressure builds, and officials are betting on tech exports to hit this year's growth target, she said.

But the strains are mounting among businesses and consumers. Most manufacturers make "very thin" profits, some even running at a loss, Wang said, while consumers continue to save up instead of spending, at a time when China faces its most severe employment crisis in decades.

Local governments across the country, saddled with debts, are also wary of spending as Beijing works to rein in local debt and excess capacity, Wang said. "A lot of money they should have spent is not spent because the officials are so afraid of being held accountable for new projects that they have approved."

Pessimism over the breadth of businesses' profitability has also gripped Chinese stocks, driving the benchmark CSI 300 Index into a bear market late last week, as a prolonged consumption slump and intense competition have taken a toll on earnings.