China’s AI hardware boom drives 14.4% industrial profit spike in September

Chinese factories posted their strongest profit growth since June in September, with industrial earnings rising 14.4% year over year. This acceleration marks a sharp turn from the modest gains seen in 2025, which followed three consecutive years of declines. The National Bureau of Statistics released the data on Tuesday, showing that profits for the first nine months of 2026 climbed 15.5%. This figure is slightly lower than the 15.7% growth recorded in the same period last year, but the recent monthly pace indicates a recent uptick in momentum driven by technology sectors.

The primary driver of this growth is the global demand for artificial intelligence infrastructure. NBS Chief Statistician Yu Weining stated that earnings growth was largely due to surging profits in electronics and advanced-technology manufacturing. Electronic special materials manufacturers saw their profits more than triple. Semiconductor device equipment makers reported a 51.7% jump in earnings over the nine-month period. The expansion of data centers and AI computing power also pushed profits for optical fiber manufacturers higher by more than sixfold, while cable makers saw their earnings more than double.

Raw material producers are also benefiting from the tech buildout and higher commodity prices linked to the war in Iran. Profits for copper and aluminum producers rose nearly 45% in the first nine months, aided by demand from AI-related and renewable energy industries. Factory-gate prices rose at their fastest pace since mid-2022, driven by energy and raw material costs. However, this price strength has not translated into broad-based profit growth for all manufacturers.

A distinct divide exists between high-tech firms and consumer-facing industries. Profits in sectors such as clothing, autos, and furniture have lagged behind the tech sector. Shena Yue, a senior economist at Oxford Economics, noted that while high-tech manufacturing investment remains resilient, overall industrial utilization is still subdued. Household demand remains a weak link, with retail sales growing just 1.1% in September. This marginally beat forecasts but remained close to the weak reading from August, as the property downturn continues to weigh on housing purchases and related durables.

Beijing has not yet introduced major new stimulus measures to boost domestic consumption. Dan Wang, China director at Eurasia Group, said policymakers see no urgency to act, betting that tech exports will help meet the government's full-year growth target of 4.5% to 5%. The economy expanded 4.5% in the third quarter, keeping growth within the target range for the first nine months at 4.6%. Local governments are cautious about spending due to debt concerns, and many officials are wary of approving new projects that could increase their liability for excess capacity.

The disparity in profitability is affecting financial markets. The benchmark CSI 300 Index entered a bear market late last week as investors grew concerned about the breadth of corporate earnings. Most manufacturers are operating on very thin margins, with some running at a loss, according to Wang. Consumers are saving rather than spending, a trend that persists even as China faces its most severe employment crisis in decades. The market is currently pricing in the view that the tech boom is not enough to fully offset the weakness in domestic consumption.