2nd LD-Writethru-News Analysis: China industrial profit growth accelerates in Oct.

China's combined industrial profits rose 9.8 percent year on year in October, up from 7.7 percent in September, official data showed Sunday.

The acceleration was attributed to growth of sales revenue, rising producer prices and the strong profit growth in chemical, coal and general equipment sectors, the National Bureau of Statistics (NBS) said in a statement.

The main business revenue of companies with annual revenue of more than 20 million yuan (2.9 million U.S. dollars) rose 5.4 percent last month, up 1.5 percentage points from September.

The producer price index (PPI), which measures costs of goods at the factory gate, rose 1.2 percent year on year in October, up from a rise of 0.1 percent in September.

Rising producer prices are further evidence for recovery of industrial product demand and contributed significantly to profit growth in October, said NBS statistician He Ping.

The strong chemical, coal and general equipment sectors last month drove up industrial profit growth by 2.7 percentage points, He Ping said.

The figures are part of a steadier trend of industrial profit growth and the manifestation of supply-side structural reform.

Inventories, leverage ratio and corporate cost all dropped from a year ago. The inventories of large industrial companies dropped 0.3 percent, extending a trend that began in April. Their ratio of liabilities to assets stood at 56.1 percent at the end of October, down from both October 2015 and the end of this September.

Last month, the average cost for those companies was 85.73 yuan for each 100 yuan of main business revenue, down 0.13 yuan from October 2015, the NBS data showed.

"Despite the steady profit rise in October, the structure of the profit increase is not ideal," He Ping said, citing growth in raw material sectors in comparison with slower growth in high-tech manufacturing.

The view was echoed by Jiang Chao, a senior analyst at Haitong Securities, who said that the profit pickup is mainly in upstream industries, including coal mining.

Some sectors have rising inventories. Falling demand in property and thermal coal sectors will restrain overall inventory rises and may weigh on future economic improvement, Jiang added.

In the first 10 months, total industrial profits expanded 8.6 percent year on year to 5.26 trillion yuan, faster than the 8.4 percent rise for the first three quarters, the NBS said.

Among the 41 industries surveyed, 29 posted year-on-year profit growth during the first 10 months, with ferrous metal processing, crude oil processing, as well as coal mining and washing sectors recording the strongest growth.

Profits of state-owned enterprises increased 4.8 percent in the first 10 months, slower than 6.6 percent for private enterprises. Endi