HIGHER production costs and a rapidly appreciating yuan are challenging the stable growth in China's industrial sector.

In the first nine months of the year, prices of raw materials, fuel and power rose 9.8 percent from a year earlier, while ex-factory prices for industrial goods climbed 4.3 percent, said Zhu Hongren, a spokesman for the Ministry of Industry and Information Technology, yesterday in Beijing.

Industrial manufacturers also face higher costs in labor, land use, financing and saving energy and these variables make it difficult for the sector to develop in a stable manner, he said, adding that corporate profitability has been declining since the second quarter.

Companies, such as Aluminum Corp of China, have suffered from higher electricity tariffs and government curbs on energy-intensive industries. The company, also known as Chalco, this week reported a third-quarter net loss of 117.8 million yuan (US$17.6 million).

A rising yuan has not helped either, Zhu said.