China's industrial profit growth picks up amid deepening economic divergence

BEIJING, Oct 27 (Reuters) - China's industrial profits grew at a faster pace in September, though a deepening divergence across the economy weighed on business earnings.

Profits at industrial firms rose 14.4% from a year earlier last month, quickening from a 4.2% increase in August, data from the National Bureau of Statistics (NBS) showed on Tuesday. Profits were up 15.5% in the first nine months of this year, largely unchanged from the 15.7% increase in the January-August period.

The sectoral divide remained pronounced, with profits in the computer, communication and other electronic equipment manufacturing category more than doubling over the nine-month period, whereas profits in the furniture manufacturing sector fell by more than half, making it one of the worst performers.

Also casting a shadow over the sustainability of profit growth, export-oriented firms are bracing for greater uncertainty as expanding trade surpluses stoke tensions with trading partners, particularly Europe.

However, CITIC Bank International's chief China economist, Ding Meng, expressed optimism about the outlook because of the rapid growth in AI-related industries.

"This suggests that domestic and external demand generated by the development of the AI supply chain has become a key force supporting industrial profits," he said.

"Barring a major reversal in the global AI investment boom, industrial profits are expected to continue growing at a rapid pace."

A stronger-than-expected 4.5% expansion in third-quarter GDP put China within reach of its annual growth target of 4.5% to 5.0%, but disparities across different parts of the economy suggest the recovery remains unbalanced, with persistent weakness in some sectors continuing to erode corporate profitability.

That pressure has become increasingly visible at the company level. Net profit growth at the world's largest electric vehicle battery maker, CATL 300750.SZ, slowed sharply in the past quarter, as intense competition in the EV battery market squeezed margins at a time when China's auto sales were in a downturn.

China will continue to leverage macroeconomic policies to support growth, expand domestic demand and optimize supply, said NBS statistician Yu Weining, underscoring a push to replace traditional growth drivers with new ones.

Industrial profit figures cover firms with yearly revenue of at least 20 million yuan ($3.0 million) from main operations.

($1 = 6.6702 Chinese yuan)