What tech-driven company earnings say about China’s diverging growth paths

Artificial intelligence demand and technological domestic substitution drove profit growth for Chinese listed companies to its fastest pace in four years in the first half, underscoring the nation’s K-shaped economy as it transitions away from credit-fuelled expansion. Profit for firms on the chip-heavy Star Market under the Shanghai Stock Exchange surged more than fourfold from a year earlier in the six months to June, while those on the similarly structured ChiNext board in Shenzhen rose 33 per cent, according to a report by the China Association for Public Companies. That outpaced the 19.5 per cent increase for all 5,557 mainland China-listed companies, marking the fastest growth since 2022. The interim earnings season wrapped up on Tuesday. The disparity reflects Beijing’s push for technological self-reliance after policymakers set the goal of prioritising the tech industry in the AI race against the US. Technology and high-end manufacturing are becoming the new engines of economic growth in China Zhang Qiyao, Industrial Securities China’s big tech platforms are accelerating AI adoption by using home-made chips to support computing power, while memory chipmaker ChangXin Memory Technologies (CXMT) and other AI hardware companies have boosted capacity after tapping capital markets. “Technology and high-end manufacturing are becoming the new engines of economic growth in China,” said Zhang Qiyao, analyst at Industrial Securities. About a fifth of listed companies unveiled buy-back plans worth more than 200 billion yuan (US$29.8 billion) by the end of August, the report said. China Reform Holdings and China Chengtong Holdings Group – members of a so-called national team of state buyers – spent more than 60 billion yuan increasing stakes to support stock prices. CXMT, the most valuable company on the Star Market with a capitalisation of 3.8 trillion yuan, posted a profit of 77.6 billion yuan in the first half, swinging from a 2.33 billion yuan loss a year earlier. Net income for Cambricon Technologies, dubbed China’s challenger to Nvidia, more than doubled, while Zhongji Innolight, which supplies optical transceivers to US hyperscalers, recorded a 241 per cent profit jump. CXMT started trading on the Shanghai bourse in July, while Zhongji Innolight completed a dual listing with a Hong Kong debut that month. The resilience in earnings has been reflected in stock performances. The Star Market 50 index has risen 23 per cent this year even after a tech sell-off in July, beating the CSI 300 Index of predominantly old-economy firms that has barely budged. The divergence will probably strengthen throughout the year. While China’s economic data trailed economists’ estimates across the board in July, investors expect Beijing to bolster growth by ramping up support for the tech sector rather than rolling out a broad stimulus package. Revenue for Star Market companies rose 39 per cent year on year in the first half, while ChiNext companies grew 22 per cent, outpacing the average 7.6 per cent growth for all listed firms, the association said. “AI computing power, price increases in memory products and the push for domestic substitutes for hardware drove an acceleration of earnings growth,” said Li Haoyang, analyst at China Merchants Securities.