More than 4,800 Chinese companies listed in Shanghai, Shenzhen and Beijing posted lower net profit as the zero-Covid policy and a real estate crisis weigh heavily on the country’s listed companies.
Chinese corporate profits are collapsing again like in 2020 and suffering one of its worst earnings slumps on record, CNN reported.
According to the results now published for the first half of the year, it’s a bloodbath. As many as 53% posted a decline in net profit, according to data from Wind and Choice, the country’s two leading financial news services.
China’s biggest tech companies are among those hurting. The second quarter marked the end of years of explosive growth, with Alibaba (BABA) reporting flat revenue for the April-June period. Tencent (TCEHY) posted its first quarterly decline in sales.
For some other sectors of the economy, this year has already been the worst on record.
Three of China’s biggest airlines – Air China (AIRYY), China Southern Airlines (ZNH) and China Eastern Airlines (CEA) – posted record losses, with a combined loss of 50 billion yuan ($7.2 billion). ) for the first semester. They all blamed travel disruptions due to Covid restrictions and the depreciation of the yuan, which has plunged 9% against the US dollar this year, CNN reported.
A weaker currency hurts China’s airline industry as it has to pay for imported planes, parts and fuel in dollars. The costs of servicing dollar-denominated debt are also rising.
Property developers are also among the worst performers so far this year, as the country’s housing market has crashed.
The sector, which accounts for up to 30% of its GDP, has been crippled by a government campaign since 2020 to curb reckless borrowing in the industry. Home prices fell, as did sales of new homes, CNN reported.
The crisis has intensified in recent months as thousands of disgruntled buyers threatened to stop paying their mortgages on unfinished homes, shaking markets and prompting businesses and authorities to take action to defuse the crisis.
Country Garden, China’s number one developer by sales, reported a 96% drop in first-half net profit, the biggest since it listed in Hong Kong in 2007.
The company said it was weighed down by “forces beyond our control such as the resurgence of the pandemic in various parts of mainland China and extreme weather conditions, coupled with the downturn in the real estate sector.”
It was almost as bad as 2020, when companies posted their worst earnings season on record as the country nearly came to a standstill during the first coronavirus outbreak. At the time, 54% of listed companies saw profits fall in the first six months, CNN reported.
The number of companies reporting a loss hit a record high of nearly 900 in the first half. In 2020, around 780 lost money.
Falling profits in the world’s second-largest economy may reverberate around the world as Chinese companies are big buyers of raw materials, technology and other products in the global market, CNN reported.
“We have already seen the impact,” said Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, a French investment bank. Prices for oil and other energy commodities fell and semiconductor factories began to see their orders slow, she added.
Experts have blamed China’s tough Covid restrictions and worsening property market slump for dismal business performance.
“The main reasons are mobility restrictions and a huge drop in sentiment associated with the disappearance of the real estate market,” Garcia-Herrero said.
Larry Hu, chief China economist for the Macquarie Group, said the low incomes reflected the slowdown in China’s economy, which was being driven by the property crisis, the worsening Covid situation and weakening the global economy, CNN reported.
So far, China has stuck to its zero Covid policy, which often leads to strict restrictions on the movement of people and instant city lockdowns in a few cases. Travel to and from China is also restricted.
Shanghai, the financial hub of the country of 25 million people, was placed on lockdown for two months earlier this year. Since then, many other key cities have also tightened restrictions on residents and businesses. On Thursday, Chengdu, a city in southwestern Sichuan province, locked down its 21 million people following a spike in Covid cases.
China’s GDP rose just 0.4% in the second quarter from a year ago, the weakest performance since the start of 2020. Last month, several major investment banks cut their forecast for China’s annual economic growth at 3% or less.
Analysts are also concerned about a record heatwave that swept across southern China recently, prompting some provinces to close factories to save energy.
“Whether Beijing decides to start easing (zero-Covid policy) from March 2023, we expect the economy and markets to have a tough time, as people will either be disappointed with the lack of openness or overwhelmed by an upsurge in Covid infection,” Nomura analysts said in a research report on Friday.