China’s industrial profits surge in October, take sting off government debt crackdown

Beijing (Reuters) – China’s industrial firms weathered a broad government crackdown on financial risks as profits continued to surge last month in a stabilizing force for the world’s second-biggest economy, which has started to cool slightly in recent months.

The vast industrial sector has been boosted by a year-long, government-led construction spree, helping lift demand and prices for building materials and taking the edge off higher borrowing costs.

Indeed, mining and heavy industry contributed the biggest gains in October, propelling overall industrial profits by 25.1 percent year-on-year to 745.4 billion yuan ($112.94 billion), compared with a 27.7 percent jump in September, the National Bureau of Statistics (NBS) said on Monday.

Despite the modest slowdown, October’s growth rate was still the second-highest for a single month this year, and overall profits are on pace to easily top 2016’s record 6.88 trillion yuan.

“Apart from very high growth of the coal sector, we have very decent growth in other sectors as well,” said Iris Pang, greater China economist at ING in Hong Kong.

“I think this growth will be sustainable, even though…we will have high base effect in coal and steel next year.”

The data covers large companies with annual revenue exceeding 20 million yuan from their main businesses.

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In the first 10 months, industrial firms notched up profits of 6.25 trillion yuan, up 23.3 percent from a year earlier, compared with a 22.8 percent gain in January-September.

There was some moderation in profit growth for upstream industries, as mining profits rose 405.4 percent from a year earlier in January-October, compared to 473.8 percent growth in the first nine months of the year.

Profits earned by China’s state-owned firms rose a sharp 48.7 percent to 1.41 trillion yuan in the first 10 months, compared to 47.6 percent in January-September.

“I don’t think industrial profits will be affected a lot. (Growth) will not be 20-something percent, but it can still be in the high teens,” ING’s Pang said.