China's Industrial Profit Growth Eases to 4.2% as AI Fuels Rivals

Official figures released on Monday showed that China's industrial profits increased by 4.2% in August compared with the same month last year. The pace of cumulative profit growth for 2024 has now declined for four consecutive months.

The cumulative rate hit a peak of 24.7% in the period through April before slowing to 15.7% in the first eight months of the year. At the same time, a surge in profits driven by artificial intelligence is boosting competitor economies at a much quicker rate.

The AI Boom China Missed

In South Korea, audited companies achieved a record operating margin of 16.9% in the second quarter. That figure represents an increase of nearly 12 percentage points from the same period a year earlier.

Manufacturing margins alone jumped almost fivefold to 24.0%, propelled by chipmakers benefiting from the artificial intelligence memory wave.

A comparable trend emerged in Japan. Corporate profits rose 24.6% year-on-year in the second quarter, surpassing expectations by a wide margin.

Across the Pacific, after-tax profits at US manufacturers climbed to $370.1 billion in the second quarter, up from $225.8 billion a year earlier.

In contrast, China's 4.2% growth barely qualifies as expansion.

Europe Is the Exception

Yet one major economy is faring even worse than China. Eurozone industrial production dropped 1.2% year-on-year in January and remained flat by July.

The Eurozone's manufacturing gauge reached a 44-month high in February, driven by a recovery in Germany. Germany's own index returned to expansionary territory for the first time in over three years.

China's factories are decelerating. Europe's are barely stirring.

What It Means

The divergence reveals a widening fracture in the global economy. AI hardware is generating hefty profits in Seoul, Tokyo and Washington.

Beijing finds itself stuck in the middle. Brussels is even further behind.