A technician conducts chip quality inspections in a factory in Yiwu, East China's Zhejiang Province, in March 2026. Photo: VCG

Profits in China's integrated circuit industry surged 18.5-fold year-on-year in the first seven months of 2026, as the accelerated expansion of the "AI+" initiative and sustained growth in computing-power demand boosted demand for related products, pushing up prices and driving rapid profit growth in electronics industries linked to AI production and applications.

The surge offers a glimpse of a broader shift under way in China's industrial economy: AI is moving beyond model development and becoming a source of demand for physical infrastructure and advanced manufacturing, with its impact increasingly visible in corporate earnings, Chinese experts said.

Data from the National Bureau of Statistics (NBS) showed that profits at major industrial enterprises totaled 4.58206 trillion yuan（$681.3 billion） in the first seven months, up 17.6 percent year-on-year. Operating revenue rose 6.5 percent, while profits increased 11.2 percent year-on-year in July alone.
 
Industry observers said the more telling change lies in the composition of that growth. Electronics and high-tech manufacturing are emerging as major profit engines, as demand generated by AI spreads from chips and computing infrastructure into a much wider manufacturing ecosystem.

AI demand spreads

In the first seven months, the broader electronics sector as a whole saw profits more than double, rising 110 percent year-on-year and contributing 9.3 percentage points to total industrial profit growth. That made electronics the single largest driver of industrial profit growth, said Yu Weining, chief NBS statistician.

The integrated circuit industry accounted for more than 80 percent of the increase in electronics-sector profits, with computing chips and memory chips among the main drivers. Elsewhere in the chain, profits in computer manufacturing, computer peripheral equipment and industrial control computers and systems rose 3.3 times, 2.5 times and 1.6 times, respectively, NBS data showed. 

Computing chips and high-bandwidth memory, or HBM, are key hardware for AI computing, as both the training and inference of large models require substantial computing power and memory bandwidth, Ma Jihua, a veteran telecom industry observer, told the Global Times.

"The rapid development of AI over the past two years has driven a sharp expansion in demand across both upstream and downstream industries," Ma said. Upgrades in large models and robotics are pushing up investment in chips, data centers and memory, while stronger industrial output is translating into faster revenue and profit growth for related companies.

The spillover is also visible in communications infrastructure. Profits in optical-fiber manufacturing jumped 468.4 percent in the first seven months, while optical-cable manufacturing and communications-system equipment manufacturing posted increases of 62.6 percent and 55 percent, respectively. High-tech manufacturing profits overall rose 50.1 percent, contributing 9.6 percentage points to total industrial profit growth. 

Underlying those gains is a rapid expansion in computing infrastructure. China's intelligent computing capacity reached 2,185 EFLOPS on an FP16 basis（a commonly used measure of AI computing performance） in the first half of the year, up 177 percent year-on-year, according to the Ministry of Industry and Information Technology (MIIT). The country has built 52 intelligent-computing facilities each equipped with more than 10,000 accelerator cards. 

The same data showed that major electronic information manufacturers posted 12.15 trillion yuan in revenue in the first half, up 17.8 percent year-on-year, while profits surged 66 percent to 703.6 billion yuan. Integrated circuits, computer manufacturing and specialized electronic materials were the largest contributors to profit growth. 

Ma said the next layer of demand is coming from wider AI adoption itself. As user numbers, API calls and hardware installations rise, demand is no longer concentrated on model training but is increasingly being generated by inference and real-world applications.

"Large-model firms are generating robust revenue from token sales, while mass-produced humanoid robots are gaining traction in overseas export markets. All told, China's AI industry is witnessing vibrant high-growth momentum," Ma noted.

Goldman Sachs on Monday forecast that China is set for another wave of semiconductor investment, driven by surging AI demand.

It expects China's semiconductor capital spending to grow at double-digit annual rates through 2030, when it is projected to hit $82 billion, a 79 percent upward revision from its forecast a year ago.

Goldman Sachs data also shows that measured by output volume, China's chip self‑sufficiency rate reached roughly 70 percent in June, compared with just 38 percent in January 2010.

From scale to quality

Beyond AI-related industries, the latest NBS data also point to improving operating efficiency and a broader recovery in profitability across China's industrial economy.

In the first seven months, costs per 100 yuan of operating revenue at major industrial enterprises fell by 0.47 yuan year-on-year to 85 yuan, while expenses declined by 0.09 yuan to 8.41 yuan. Their operating profit margin rose 0.54 percentage points to 5.66 percent, the highest for the same period since 2023, NBS data showed.

Ma said the combination of stronger profits and lower unit costs is important because it suggests that part of the improvement is coming not simply from producing more, but from companies becoming more efficient at converting production into earnings.

"The change is increasingly about both scale and efficiency," Ma said. "When companies can expand revenue while bringing down unit costs, it reflects stronger operating quality and provides a more solid foundation for sustainable profit growth."

The shift comes as China steps up policy support for upgrading its traditional industrial base. The 2026 Government Work Report earmarked 200 billion yuan ($28 billion) in ultra-long special treasury bond funds for large-scale equipment renewal, while calling for a new batch of major technological upgrading projects, a fresh round of efforts to strengthen key manufacturing chains, and the construction of more smart factories and intelligent supply chains. 

The National Development and Reform Commission said in July that all 200 billion yuan in ultra-long special treasury bond funds earmarked for equipment renewal this year had been allocated, supporting about 11,000 projects across 22 fields. Investment in equipment and tools rose 9.3 percent year-on-year in the first five months and accounted for 17.5 percent of total investment, up 2.2 percentage points from a year earlier. 

The upgrading is also becoming more visible inside factories. By the first half of 2026, more than 30 percent of major manufacturing enterprises had adopted AI technologies, according to MIIT. Value-added output of equipment manufacturing and high-tech manufacturing rose 9.3 percent and 13.3 percent, respectively, while profits at major specialized and innovative "little giant" firms and high-tech enterprises grew by more than 20 percent in the first five months. 

Ma said such changes show that new technologies are increasingly being absorbed into the existing manufacturing base rather than developing as a separate technology sector.

"The more important step is to turn technologies such as AI into tools that can improve production efficiency, product quality and factory management," Ma said. "That is where technological advances begin to translate into broader productivity gains across the industrial economy."

Profit growth is also extending across different types of businesses. In the first seven months, profits at shareholding companies rose 23.6 percent year-on-year and those at private enterprises increased 10.9 percent, while profits at foreign-invested firms and companies from Hong Kong, Macao and Taiwan edged up 1.2 percent, NBS data showed. 

Parts of the traditional industrial base also posted strong profit growth. Profits in nonferrous metal smelting and rolling surged 91.8 percent, while the chemical raw materials and chemical products sector rose 56.6 percent. The petroleum, coal and other fuel processing industry returned to profitability, the NBS said.

The recovery, however, remains uneven. Profits in automobile manufacturing fell 20.4 percent in the first seven months, while non-metallic mineral products and ferrous metal smelting and rolling posted declines of 48.2 percent and 51.2 percent, respectively. 

As China enters the 15th Five-Year Plan period (2026-30), the policy focus is increasingly on achieving effective improvements in quality alongside reasonable growth in quantity, with industrial upgrading, innovation and stronger domestic demand forming key pillars of high-quality development, Chinese experts said.