China's industrial profit growth cools in August as AI-led gains offset by weak demand

Profit growth at China's industrial firms decelerated in August, as a surge in technology manufacturing tied to the artificial intelligence boom was offset by continued weakness in domestic demand.

Industrial profits rose 4.2% year-on-year in August, a marked slowdown from the 11.2% expansion recorded in July, according to data from the National Bureau of Statistics released on Monday. For the first eight months of the year, profits were up 15.7%, easing from the 17.6% growth seen in the January-to-July period.

The figures cover industrial enterprises with annual revenue of at least 20 million yuan (about $2.98 million) from their main operations.

A breakdown of the data showed that computer, communication and other electronic equipment manufacturing led the gains, with profits surging 110% in the first eight months. At the other end of the spectrum, the wine, beverages and refined tea manufacturing industry was among the weakest performers, posting a 34.7% decline in profits.

The divergence highlights the uneven nature of China's recovery. Firms are finding it increasingly difficult to hold onto pricing power amid soft consumption and excess capacity in certain sectors, pushing many factories to lean more heavily on overseas markets in search of better margins.

That growing reliance on exports carries risks, coming at a time of heightened geopolitical tensions and closer scrutiny of China's trade surplus.

Earlier this month, an adviser to the central bank cautioned that AI could deepen and prolong China's imbalance between strong supply and subdued demand, adding to calls for measures to boost consumer spending and shore up balance sheets across the economy.