China industrial profits post strongest growth in three months, rising 14.4%

China's industrial profits experienced a notable uptick in September, although the growing economic disparity across the nation cast a shadow on corporate earnings. Industrial firms saw a 14.4% increase in profits compared to the previous year in September, marking a steep rise from the 4.2% growth in August, according to data from the National Bureau of Statistics (NBS).

Year-to-date, profits rose 15.5% in the first nine months, only slightly different from the 15.7% rise in the January-August timeframe. The sectoral gap remained evident, with profits in the computer, communication, and other electronic equipment manufacturing industry more than doubling over the nine-month period, while profits in the furniture manufacturing sector dropped by more than half, ranking among the poorest performers.

The sustainability of this profit growth is questioned as export-oriented firms face uncertainty due to expanding trade surpluses straining relations with trading partners, notably Europe. However, CITIC Bank International's chief China economist, Ding Meng, remains optimistic about the outlook, attributing the rapid growth in AI-related industries as a key driver supporting industrial profits.

Despite this, the rapid development of the AI supply chain is expected to be a significant force bolstering industrial profits. Should there be no major shift in the global AI investment surge, industrial profits are anticipated to maintain a rapid growth trajectory.

China's GDP expanded by a stronger-than-anticipated 4.5% in the third quarter, positioning the nation closer to its annual growth target of 4.5% to 5.0%. Nevertheless, economic disparities across various sectors of the economy suggest that the recovery remains uneven, with continued weaknesses in some industries persistently hampering corporate profitability.

This pressure has become increasingly palpable at the company level. The net profit growth at the world's largest electric vehicle battery maker, CATL, slowed drastically in the latest quarter, as intense competition in the EV battery market squeezed margins alongside a downturn in China's auto sales.

China plans to continue utilizing macroeconomic policies to sustain growth, boost domestic demand, and optimize supply. NBS statistician Yu Weining emphasized the push to replace traditional growth drivers with new ones. Industrial profit figures encompass firms with a minimum annual revenue of 20 million yuan (US$3.0 million) from core operations.

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