China's industrial profits rebounded in September, marking the highest increase in three months, driven by a boom in artificial intelligence (AI) and strong export performance. However, the ongoing real estate crisis and sluggish domestic demand continue to highlight the stark polarization in the Chinese economy.
The National Bureau of Statistics of China reported on October 27 that profits for large industrial enterprises (those with annual revenues exceeding 20 million yuan) rose 14.4% year-on-year in September. This increase is the largest since June, breaking a trend of declines in July (11.2%) and August (4.2%), and surpassing Bloomberg's forecast of 12%.
The rebound in industrial profits is attributed to rising oil prices due to the impact of the Iran conflict and a recovery in the Producer Price Index (PPI), which increased by 5.0% year-on-year, driven by expanded AI infrastructure.
From January to September, cumulative industrial profits increased by 15.5% compared to the same period last year, maintaining a steady double-digit growth rate throughout the year. The operating profit margin for industrial enterprises improved by 0.44 percentage points to 5.68% year-on-year.
By sector, the AI and high-tech manufacturing industries led the performance improvement. Profits in the electronics sector doubled, increasing by 100% (1.0 times) year-on-year, contributing 9.6 percentage points to overall industrial profit growth.
With the growing demand for AI computing power and advanced memory, profits in the manufacturing of electronic specialty materials surged by 220%, while semiconductor manufacturing saw a 51.7% increase.
Despite the strong performance in high-tech manufacturing, the downturn in the real estate market and cooling domestic demand continue to weigh on the Chinese economy. Notably, foreign and Hong Kong, Macau, and Taiwan investment firms, which are heavily exposed to domestic consumption and general manufacturing, saw their industrial profit growth slow to just 0.5% from January to September, a significant drop from 2.3% in the previous eight months, indicating a direct impact from domestic sluggishness.
Moreover, large state-owned enterprises owned by local governments are facing debt crises, raising concerns about financial risks stemming from the real estate sector. According to Bloomberg, Zhuhai Huafa Group, a prominent state-owned enterprise in Zhuhai, Guangdong Province, which constructed the 330-meter-high Zhuhai Tower, recently failed to pay two maturing trust products and has requested loan extensions from at least three banks.
In an effort to alleviate domestic sluggishness and enhance market liquidity, the People's Bank of China has injected funds into the market, resulting in the five-year government bond yield dropping to a record low of 1.34% during trading.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.