TOKYO -- Big American companies have maintained double-digit earnings growth while their Chinese peers have slowed sharply, with the U.S.-China trade war adding to the negative effect of Beijing's push to reduce corporate debt.
U.S.-headquartered companies' net profits rose 10% in fiscal 2018, based on a Nikkei analysis of QUICK-FactSet data on about 7,800 global companies with market capitalizations of at least $1 billion. While this marked a slowdown from the year-earlier expansion of nearly 20%, China-based companies' profit growth plunged to 3% from 22%.
This relatively solid U.S. performance was driven mainly by technology companies. Apple's net profit for the year ended Sept. 29 swelled 23% to $59.5 billion, the highest of any listed company worldwide. Google parent Alphabet's profit more than doubled for the year through December, bouncing back from a one-time hit from the U.S. tax overhaul.
Financial groups also fared well. Citigroup posted the largest net income gain worldwide, helped by the Federal Reserve's rate hikes through 2018, which widened profit margins on lending. Lower tax rates also provided a boost to banks by lifting the economy and capital spending.
U.S.-headquartered businesses accounted for about 31% of a record $4.14 trillion in global corporate profits, up 2 percentage points from a year earlier, the data shows.
But China, which made up the second-largest share of corporate earnings, dragged down the global growth rate. The Chinese government's efforts to reduce the country's debt overhang have made it harder for the private sector to raise funds, weighing on economic activity.
This is on top of the uncertainty caused by the U.S.-China trade war. Annual new-auto sales shrank in China for the first time in 28 years in 2018 amid deteriorating consumer sentiment, leading to profit declines or losses at a number of automakers. Telecommunications equipment maker ZTE sank into the red after crippling U.S. sanctions last year. The slump in global trade caused Cosco Shipping Holdings' net profit to drop by half.
Globally, the top 1% of companies generated roughly 30% of total net profits. The four American companies in the top 10 -- Apple, Alphabet, JPMorgan Chase and Bank of America -- all logged at least double-digit earnings growth. Each of the Chinese companies on the list -- Industrial and Commercial Bank of China, China Construction Bank, and Agricultural Bank of China -- reported increases of less than 10%.
America also outpaced China in profitability, in a reversal from fiscal 2017. The overall operating profit margin for U.S. companies came to 8.5%, improving 0.3 percentage point from that year, while the Chinese figure narrowed nearly 1 percentage point to 7.7%.
This fiscal year, the outlook for the world economy will probably hinge on how the Sino-American trade tensions play out.
"Global business conditions are unlikely to deteriorate significantly, but the timing of the cyclical recovery will probably be delayed by the trade war," said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management.
The International Monetary Fund sees global economic growth slowing to 3.3% in 2019 from last year's 3.6%, citing such downside risks as supply chain disruptions caused by a flare-up of trade tensions.
American companies are also feeling the pinch. Ford Motor, suffering from sluggish sales in China, said Monday that it will cut 7,000 jobs worldwide. Net profits at companies in the U.S. S&P 500 fell on the year in the January-March quarter, marking the first decline since April to June of 2016, according to Refinitiv data. The weak performance is expected to continue through the third quarter.
Global stock prices have recovered this year, but mainly on monetary stimulus hopes.
With inflation remaining low in the U.S. and other major markets, central banks have leeway to loosen monetary policy to provide an economic shot in the arm. The Chinese government has indicated that it will implement a package of spending and tax cuts to stimulate the economy, a step that should provide support for corporate earnings.