China’s industrial profit growth slows further as economic imbalances deepen

BEIJING, Sept 28 (Reuters) – China’s industrial profit growth slowed further in August as strength in technology manufacturing amid the AI boom was outweighed by persistently weak domestic demand.

Firms ​are increasingly struggling to maintain pricing power due to ‌soft consumption and excess capacity in some sectors. Factories are relying on overseas markets for better profits, a shift that risks deepening China’s reliance on exports at a time of heightened geopolitical tensions and greater scrutiny of ‌its ​trade surplus.

China and the US agreed ⁠to cut tariffs on $30 billion ⁠in goods and to hold a dialogue on the risks and benefits of AI during Chinese President Xi Jinping’s visit to Washington last week, but underlying strains in the relationship ​remain.

Profits at China’s industrial firms in August rose 4.2% from a year earlier, down from 11.2% in July, while profit ⁠increased 15.7% in the first eight ⁠months, easing from 17.6% in the January-July period, ​National Bureau of Statistics data showed on Monday.

Profits in computer, communication ​and other electronic equipment manufacturing led the gains, jumping ‌110% in the first eight months, according to a breakdown of NBS data. By contrast, the wine, beverages and refined tea manufacturing industry was among the worst performers, with profits falling 34.7%.

“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 of ‌China CITIC Bank International.

Earlier this month, a ⁠central bank adviser warned that AI may worsen ​and ‌extend China’s imbalance between robust supply and subdued ​demand, reinforcing ⁠calls for measures to boost consumer spending and strengthen balance sheets throughout the economy.

Industrial profit figures cover firms with yearly revenue of at least 20 million yuan ($2.98 million) from main operations.

($1 = 6.7002 Chinese yuan)

(Reporting by Qiaoyi Li and Liz Lee; Editing by Thomas Derpinghaus ​and Kevin Buckland)