China’s Industrial Profits Grow at Weakest Since November Slump

China’s industrial enterprises saw their earnings grow at the weakest since they fell last November, highlighting the limits of a recovery disproportionately driven by elevated oil costs and sectors linked to artificial intelligence.

Industrial profits inched up just 4.2% last month from a year earlier after an increase of 11.2% in July, compared with a Bloomberg Economics forecast for 8%. For the first eight months, they rose 15.7%, data released by the National Bureau of Statistics showed on Monday.

NBS analyst Yu Weining attributed the slowdown in August to a high comparison base a year earlier. The electronics industry provided a “crucial support” by contributing close to two-thirds of the overall growth in the first eight months of the year, while raw materials accounted for 6.2 percentage points, Yu said in a separate statement.

The global AI supercycle and higher commodities prices stemming from the war in Iran have lifted earnings at China’s factories and mines this year. But domestic demand has remained stubbornly weak, resulting in a lopsided rebound that’s struggled to gain traction, with profit growth now moderating for four straight months.

Consumption growth in the country missed expectations again last month and softened to near zero. Business confidence has been sluggish as well, with manufacturers, property developers and infrastructure builders accelerating cutbacks in capital spending as government expenditure continued to drop.

With concerns mounting over local government debt and fading benefits from a program of consumer subsidies, Chinese authorities have so far refrained from adding major stimulus to try to bolster domestic demand. Instead, they are targeting supply-side issues, ramping up efforts to tackle industrial overcapacity and cut-throat price competition, which have been thinning margins.

The nation’s top economic-planning agency earlier this month announced it will issue regulatory warnings to manufacturers of key industrial goods in sectors where price competition is rampant and conduct probes into costs when necessary, as part of efforts to rectify disorderly market practices.

That followed the official roll-out in mid-June of a three-year action plan designed in part to phase out capacity that fails to meet certain energy efficiency requirements in nine industries including steelmaking and cement by 2028.

In the statement, Yu said officials will “maximize the effectiveness of macroeconomic policies, expand domestic demand, improve the quality of supply, accelerate the shift from traditional to new growth drivers, strengthen the internal dynamism of economic development, and advance the continuous transformation of the industrial economy toward more innovative and higher-quality growth.”