China Industrial Profit Growth Slows as Weak Demand Offsets AI Gains

China’s industrial profit growth lost momentum in August as persistent weakness in domestic demand outweighed strong gains in technology manufacturing driven by the artificial intelligence boom.

Profits at major Chinese industrial companies rose 4.2% from a year earlier in August, slowing sharply from an 11.2% increase in July, according to data released Monday by the National Bureau of Statistics (NBS).

For the first eight months of the year, industrial profits climbed 15.7%, easing from 17.6% growth recorded during the January-July period.

China’s manufacturing sector continues to face pressure from subdued consumer spending and excess production capacity in some industries. Weak demand has made it increasingly difficult for companies to maintain pricing power, prompting factories to rely more heavily on overseas markets to support profitability.

That dependence on exports could create additional challenges as China faces geopolitical tensions and increased international scrutiny over its large trade surplus.

Technology manufacturing remained a major bright spot. Profits in computer, communication and other electronic equipment manufacturing surged 110% during the first eight months, reflecting strong demand linked to AI and advanced technology investment.

Other consumer-focused industries performed considerably worse. Profits in wine, beverage and refined tea manufacturing dropped 34.7% over the same period, highlighting continued weakness in domestic consumption.

“Going forward, boosting household income and consumption and expanding domestic demand will be crucial to sustaining steady growth in industrial enterprise profits,” said Ding Meng, chief economist at China CITIC Bank International.

Concerns about the imbalance between China’s strong manufacturing capacity and weak domestic demand have also intensified as AI investment accelerates. A Chinese central bank adviser recently warned that artificial intelligence could deepen the gap between robust supply and subdued demand, strengthening calls for policies aimed at supporting household spending and improving balance sheets across the economy.

Meanwhile, China and the United States agreed last week to reduce tariffs on $30 billion of goods and establish dialogue on AI risks and benefits during President Xi Jinping’s visit to Washington, although broader bilateral tensions remain.

China’s industrial profit data covers companies with annual revenue of at least 20 million yuan ($2.98 million) from their main operations.