China’s industrial profit growth picks up amid deepening economic divergence

Beijing, October 27 - Industrial profits in China experienced a faster growth in September, though economic disparities impacted business earnings. The profits of industrial firms increased by 14.4% year-on-year in September, a sharp rise from the 4.2% increase observed in August, according to data released by the National Bureau of Statistics (NBS) on Tuesday.

The profits for the first nine months of the year rose by 15.5%, nearly identical to the 15.7% increase from January to August. However, the sectoral disparity persisted, with profits in the computer, communication, and other electronic equipment manufacturing segment more than doubling over the nine-month period. In contrast, profits in the furniture manufacturing sector plummeted by over half, making it one of the worst performers.

Despite the promising growth in industrial profits, export-oriented firms are bracing for increased uncertainty due to expanding trade surpluses that have strained relations with trading partners, especially Europe. Nevertheless, CITIC Bank International’s chief China economist, Ding Meng, remains optimistic about the outlook. He attributes this optimism to the rapid growth in AI-related industries, which is expected to serve as a significant force bolstering industrial profits.

If the global AI investment trend continues unabated, industrial profits are likely to sustain their rapid growth trajectory. The latest third-quarter GDP expansion of 4.5% has China on the verge of meeting its annual growth target of 4.5% to 5.0%. However, economic disparities across different sectors indicate that the recovery remains uneven, with certain sectors still grappling with persistent weakness that continues to dent corporate profitability.

In response, Yu Weining, a statistician at the NBS, emphasized China's commitment to leveraging macroeconomic policies to bolster growth, stimulate domestic demand, and optimize supply. The NBS statistician highlighted a concerted effort to shift away from traditional growth drivers and embrace new avenues. Industrial profit data encompass firms with annual revenue of at least 20 million yuan ($3.0 million) from core operations.