Increase in prices of raw building materials fuels growth, data show

Profits for China's industrial firms rose the most in three years in 2016 as a construction boom fueled a rally in prices of building materials from steel to cement, the National Bureau of Statistics said on Thursday.

Strong profit growth of 8.5 percent last year suggests there may be a solid pickup in industrial investment in 2017, although analysts expect China's overall economic growth to cool to about 6.5 percent, down from 6.7 percent in 2016.

A narrower loss for the mining sector, and stronger profit growth in equipment and high-tech manufacturing, contributed to the overall 2016 earnings turnaround, the bureau said.

But part of the reason for the strong numbers last year was largely due to a weak base of comparison from the previous year, while the foundation for further improvement in the industrial sector was not stable, it added.

"Average profit growth over the past two years has not kept up with output growth," the bureau said. "An unreasonable demand structure, difficulties collecting funds and high costs are a dragon corporate profits."

Profits in December rose 2.3 percent year-on-year to 844.4 billion yuan ($122.8 billion), according to data released by the bureau on Thursday, a sharp slowdown from growth of 14.5 percent in November.

The bureau said the slower profit growth in December was due to volatility in oil prices and adjustments by some firms to their product structure.

But the earnings recovery remained uneven across the industrial sector, with coal miners and processors such as steel mills and oil refiners continuing to see sharper gains than other firms.

Profits in the coal mining sector surged 223.6 percent in 2016, while those for iron and steel producers rose 232.3 percent.

Baosteel Group said last week it expected its net profit to rise 770 percent in 2016 from a year earlier. The company is taking over rival Wuhan Steel to create the world's second-largest steelmaker. China's stock market investors have cashed in on the industrial revival. An index tracking the industrial sector has risen about 22 percent since June and reached a 10-and-a-half-month high in November.

Reuters contributed to the story