AI Hardware Boom Drives 14.4% Profit Surge for Chinese Factories

China's industrial economy faces a sharp split between booming technology sectors and struggling consumer markets. The divide became visible in data released Tuesday by the National Bureau of Statistics, which showed a strong rebound in factory earnings last month.

Profits at large industrial firms rose 14.4% in September compared to the same period last year. This marked the strongest growth rate recorded since June. For the first nine months of 2026, industrial profits climbed 15.5%, a figure slightly lower than the 15.7% increase seen in the same period the previous year.

The surge in earnings is driven primarily by the global demand for artificial intelligence infrastructure. Yu Weining, the chief statistician at the National Bureau of Statistics, attributed the growth to surging profits in electronics and advanced-technology manufacturing. Manufacturers of electronic special materials saw their profits more than triple over the nine-month period. Semiconductor device equipment makers reported a 51.7% jump in earnings as demand for AI computing power and storage remained high.

The construction of data centers and AI computing hubs has also boosted specific supply chains. Optical fiber manufacturers saw profits rise more than sixfold from the start of the year through September. Cable makers experienced a similar surge, with profits more than doubling over the same timeframe. Raw material producers for copper and aluminum also benefited from rising demand in AI and renewable energy sectors, posting a nearly 45% increase in profits over nine months.

In contrast, consumer-facing industries such as clothing, autos, and furniture continue to lag behind. Shena Yue, a senior economist at Oxford Economics, noted that high-tech manufacturing investment and electronics capacity utilization remain resilient. However, she stated that overall investment and industrial utilization across the broader economy are still subdued. Household demand remains the weak link, as the ongoing property downturn continues to weigh on housing purchases and related durable goods.

Retail sales in September grew 1.1%, a figure that beat forecasts but only marginally exceeded the weak reading from August. The national economy expanded 4.5% in the third quarter, slightly faster than the previous quarter. This pace keeps first-nine-months growth at 4.6%, which falls within the government's full-year target range of 4.5% to 5%.

Beijing has held back from introducing major new stimulus measures for domestic demand. Dan Wang, China director at Eurasia Group, said policymakers see no urgency to act. Falling prices have raised purchasing power even as deflationary pressure builds, and officials are betting on tech exports to meet this year's growth targets. Local governments, saddled with debt, are wary of spending as Beijing works to rein in local debt and excess capacity.

Wang noted that most manufacturers operate on very thin profit margins, with some running at a loss. Consumers continue to save rather than spend, a trend that aligns with China's most severe employment crisis in decades. Local officials are afraid of being held accountable for new projects, leading to unspent funds that could have supported local economies. This pessimism over broad profitability has also impacted financial markets, driving the CSI 300 Index into a bear market late last week.