Even though growth was skewed towards high-polluting heavy industry, suggestions of further strengthening of the world’s second-largest economy were made as profit growth in China’s industrial sector picked up in October which was aided by stronger sales and higher prices.

While economists said growth driven by loose money policies won’t last and with headwinds of coal prices hitting records in recent weeks, there has been widespread speculation in China’s commodities futures market this year.

Indeed, as policymakers introduce curbs to cool home prices, which could hit profits of companies producing construction materials, a subdued property market is expected to drag on growth in the first two quarters next year.

The National Bureau of Statistics (NBS) said in a statement on Sunday said that profits in October rose 9.8 percent to 616.1 billion yuan ($89.1 billion). Profits in September rose 7.7 percent.

In a trend that is similar to an 8.4 percent growth rate in the first nine months of the year, industrial profits rose 8.6 percent in the first 10 months from the same period a year earlier.

While manufacturing profits rose 13.2 percent, profits in the coal mining sector rose 112.9 percent for January-October from the same period a year earlier.

“Although October industrial profit growth picked up, the structure of growth was not ideal,” NBS official He Ping said in a statement accompanying the data.

“Profits in traditional raw material production increased relatively quickly…while high technology and equipment manufacturing profit growth slowed,” He said.

He added that industrial firms need organic improvement to see better results as profit growth was overly reliant on rising prices.

In January-October, there was a rise of 310.2 percent in the profits for iron and steel production and processing companies.

In the midst of a supply crunch, prices of coal and other raw materials surged and there was a pick-up in the economy which helped in the more than expected jump in China’s producer prices in October. In the future months to come, the producer price index is also expected to stay positive.

Chinese industrial firms’ liabilities rise at a pace that was slower than rise in assets at the end of October and clocked 5.1 percent higher than at the same point last year.

Large enterprises with annual revenues of more than 20 million yuan from their main operations are covered in the data.

The finance ministry said on Friday that the first increase in year-to-date earnings for state-owned companies this year was noted as profits at state firms rose 0.4 percent in the first 10 months of 2016 from a year earlier.

Boosted by a recovery in commodities prices as supply tightened due to a capacity reduction drive and an infrastructure boom, China’s industrial profits have rebounded strongly this year after falling last year.

(Adapted from CNBC)

Categories: Economy & Finance