China industrial profits rise most in three years as economy stabilises

BEIJING (Reuters) - Profits in China's industrial sector in August rose at the fastest pace in three years, supporting a growing view that the world's second-biggest economy is stabilising.

Profits of industrial firms jumped 19.5 percent from a year earlier to 534.8 billion yuan ($80 billion), the National Bureau of Statistics (NBS) said on Tuesday, the most since August 2013.

The statistics bureau said that steel, oil refining and auto industries were the driving forces behind the jump in profits. The data covers firms with annual revenues of more than 20 million yuan.

China's economy grew 6.9 percent last year, the slowest in 25 years, as global demand ebbed. It has shown some signs of stabilisation in recent months after billions of dollars in government spending and a property boom in the country's top-tier cities. Manufacturing unexpectedly expanded in August.

"Gross domestic product growth in the third quarter could be faster than the first or second, in the range of 6.7 to 6.8 percent," said Liao Qun, chief economist at Citic Bank International.

Whether the government will do more in the fourth quarter to stimulate the economy remains to be seen, he said.

China's central bank has held back from further loosening credit conditions, concerned about froth in the housing and financial markets and capital outflows.

"China's growth momentum has stabilised, backed by the strong performance of the housing market," ANZ wrote in a note on Tuesday.

"However, the vibrancy of the property market is a double-edged sword. Massive property sales have been a growth driver, but this has resulted in surging mortgage loans and financial risk."

In line with the improving outlook, the Asian Development Bank on Tuesday raised its growth forecast this year for China to 6.6 percent from its last estimate of 6.5 percent, citing fiscal and monetary stimulus measures.

The statistics bureau's profit data, however, remained uneven by sector.

Manufacturing profits rose 14.1 percent from a year earlier while mining industry profits fell 70.9 percent.

Industrial profits in August have shown some positive changes and government policies continue to produce effects, but traditional industries are still struggling, particularly in sectors hobbled by excess capacity, NBS said.

China has embarked on a campaign to cut capacity in the coal and steel sectors in the economy's most significant transformation in two decades.

The restructuring could lead to the layoff of up to 1.8 million workers in those sectors, according to official estimates.

"Another risk is consumer sentiment being undermined as income growth further decelerates and the labour market weakens under continuing industrial restructuring," ADB said.

($1 = 6.6693 Chinese yuan)

(Reporting by Ryan Woo and Fang Cheng; Additional reporting by Yawen Chen and Sue-Lin Wong in BEIJING; Editing by Jacqueline Wong)