China's industrial profit growth cools as AI-linked sectors outpace
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An employee works on a production line manufacturing steel structures at a factory in Huzhou, Zhejiang province, China May 17, 2020. China Daily via REUTERS
BEIJING, Aug 27 (Reuters) - China's industrial firms reported slower profit growth in July, with export-focused sectors riding the global AI boom, while industries reliant on domestic demand remained under pressure.
Weakening demand at home has strained a broader recovery in the $20 trillion economy, and external uncertainties including trade tensions and geopolitical risks continue to cloud the outlook, pressuring margins and profitability.
Profit at industrial firms grew 11.2% last month from a year earlier, down from a 15.1% increase in June, while profit for the first seven months slowed to 17.6% from 18.7% in the first half, data from the National Bureau of Statistics (NBS) showed on Thursday.
Profits slowed as rising input costs squeezed margins, even as revenue growth remained broadly stable, said Zhaopeng Xing, a senior China strategist at ANZ, adding that higher raw material prices pressured midstream and downstream manufacturers.
Despite the slowdown, export-linked, high-tech and industrial sectors remained bright spots.
The computer, communication, and other electronic equipment manufacturing sector jumped 110% while the non-ferrous metal smelting, rolling processing sector leapt 91.8%, leading profit growth in the January to July period.
Notably, fibre optics, optical cable manufacturing, and communication system equipment manufacturing soared by 468.4%, 62.6%, and 55.0%, respectively, during the period.
Consumer-facing and property-related industries, however, continued to suffer from subdued domestic demand.
Kweichow Moutai, China's largest liquor maker by revenue, posted a 2% fall in first-half net profit, as cautious spending, the property market slump and tighter official outlays weighed on demand for premium liquor.
"The global environment remains complex and challenging, while the imbalance between strong supply and weak domestic demand remains a key constraint," NBS statistician Yu Weining said.
Consumers' reluctance to spend and businesses' caution toward investment have renewed pressure on policymakers to shore up growth and bolster confidence.
China's vice finance minister pledged in late August to roll out additional fiscal support measures in a timely manner after economic indicators pointed to a loss of momentum at the start of the third quarter.
Industrial profit figures cover firms with annual revenue of at least 20 million yuan ($2.97 million) from main operations.
($1 = 6.7230 Chinese yuan)
(Reporting by Qiaoyi Li, Shuyan Wang and Liz Lee; Editing by Muralikumar Anantharaman and Jacqueline Wong)
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