Profits in China’s industrial sector rise, but growth skewed towards polluting heavy industries

Profit growth in China’s industrial sector picked up in October, aided by stronger sales and higher prices, suggesting further strengthening of the world’s second-largest economy, although growth was skewed towards high-polluting heavy industry.

There has been widespread speculation in China’s commodities futures market this year, with coal prices hitting records in recent weeks and economists say growth driven by loose money policies will not last.

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

Profits in October rose 9.8 per cent to 616.1 billion yuan (HK$690 billion), the National Bureau of Statistics said in a statement on Sunday. Profits in September rose 7.7 per cent.

Industrial profits rose 8.6 per cent in the first 10 months from the same period a year earlier, similar to an 8.4 per cent growth rate in the first nine months of the year.

Profits in the coal mining sector rose 112.9 per cent for January-October from the same period a year earlier while manufacturing profits rose 13.2 per cent.

“Although October industrial profit growth picked up, the structure of growth was not ideal,” statistics bureau 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.

Profit growth was overly reliant on rising prices and industrial firms need organic improvement to see better results, He added.

Profits for iron and steel production and processing companies rose 310.2 per cent in January-October.

China’s producer prices jumped more than expected in October as prices of coal and other raw materials surged in the midst of a supply crunch and a pick-up in the economy. The producer price index is also expected to stay positive in coming months.

Chinese industrial firms’ liabilities at the end of October were 5.1 per cent higher than at the same point last year and rose slower than assets.

The data covers large enterprises with annual revenues of more than 20 million yuan from their main operations.

Profits at state firms rose 0.4 per cent in the first 10 months of 2016 from a year earlier, marking the first increase in year-to-date earnings for state-owned companies this year, the finance ministry said on Friday.

China’s industrial profits have rebounded strongly this year after falling in 2015, boosted by a recovery in commodities prices as supply tightened due to a capacity reduction drive and an infrastructure boom.