AI adoption powering industrial profit growth

China's industrial profits maintained double-digit growth in the first seven months of the year, as the broader application of artificial intelligence supported earnings expansion and underscored the sector's accelerating upgrade.

However, profit growth moderated in July for the third consecutive month while sectoral divergence continued, highlighting the need to expand domestic demand more proactively to ensure a smooth transition between old and new growth drivers, analysts said.

Profits at major industrial enterprises reached 4.58 trillion yuan ($682 billion) in the January to July period, up 17.6 percent year-on-year, the National Bureau of Statistics said on Thursday. The growth remained robust, although it eased from 18.7 percent in the first half.

The electronics sector was a major contributor, with its profits surging 110 percent year-on-year and accounting for 9.3 percentage points of the overall growth. Profits in the integrated circuit industry, including computing and memory chips, jumped 18.5 times year-on-year.

Yu Weining, chief statistician at the NBS' department of industrial statistics, attributed this rapid growth to the accelerating application of AI and sustained increase in computing-power demand, which boosted the market appetite and lifted prices for related products.

The broader industrial upgrade also continued as profits at major high-tech manufacturers rose 50.1 percent, the NBS said. Meanwhile, nonferrous metal producers recorded a 91.8 percent increase. Analysts attribute the surge in part to the AI boom, which has driven sustained demand for key mineral resources and kept their prices elevated.

However, some traditional industries and some of those in the midstream and downstream segments of industrial chains remained under pressure.

The NBS data showed that profits in electrical machinery and equipment manufacturing fell 7.6 percent in the first seven months, while automobile manufacturers registered a 20.4 percent decline. Earnings in ferrous-metal smelting and processing, which is closely linked to the property sector, plunged 51.2 percent.

In July, profits at major industrial enterprises rose 11.2 percent year-on-year, slowing from 15.1 percent in June, as both industrial production and producer-price growth moderated. It marked the third consecutive reading of slowing single-month profit growth.

Overall, Yu said, industrial profits are maintaining rapid growth, but warned that the international environment remains complex and challenging, while the domestic imbalance between strong supply and weak demand remains prominent, requiring coordinated efforts to facilitate a smooth transition between old and new growth drivers.

Analysts said the divergence and moderation in industrial profit growth reflect the challenges of China's economic transition. New growth drivers have yet to generate household income on a sufficient scale, constraining the recovery in domestic demand and, consequently, weakening the sustainability of profit growth.​

Su Jian, director of Peking University's National Center for Economic Research, said that new growth drivers now account for more than 40 percent of economic growth, but remain less capable of creating jobs and income than traditional engines such as property and infrastructure — the biggest pain point in the transition.

Su said that the phasing out of excess capacity in some sectors should proceed in tandem with demand expansion, stressing that the immediate fiscal priority should be to accelerate the use of already budgeted funds while directing more expenditure toward households.

Wen Bin, chief economist at China Minsheng Bank, said that industrial profits still have room to recover in the coming months, although cumulative growth may gradually ease from its first-half pace due to a higher comparison base and the slower improvement in profit margins.

zhoulanxv@chinadaily.com.cn