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Economy

Corporate China faces earnings headwinds

Chinese banks, such as the Agricultural Bank of China, are suffering a dent in profit as they clear bad debts.   © Takaki Kashiwabara

SHANGHAI -- Listed Chinese companies logged a decrease in combined January-June net profit due to an economic slowdown and efforts to address industrial overcapacity and bad debts, on the heels of the first full-year decline in seven years in 2015.

Comparable year-earlier data was available for 2,928 enterprises on the Shanghai and Shenzhen bourses. They logged a combined profit of 1.38 trillion yuan ($206 billion) for the half, down 5%, financial data from Shanghai DZH shows. The decline reaches double digits if banks are excluded.

The government's structural reform efforts dealt a blow to resource-related businesses. Net results worsened at 36 of 58 such concerns among the listed companies. Twenty-four, or about 40%, bled red ink.

Henan Province coal producer Henan Dayou Energy reported a nearly 1 billion yuan net loss, having reportedly held down production volumes in compliance with government instructions.

Machinery builders were hit by slowing growth in capital investment. Zoomlion Heavy Industry Science and Technology ended the half 800 million yuan in the red. A year earlier, the construction machinery maker had sustained its first net loss since its 2000 listing.

Brokerage houses reported drops of 30-80%, having turned in solid results a year prior amid the domestic stock bubble. Banks eked out a 3% gain, but the government-led push to clear bad debts put a dent in profits at large state-owned banks in particular. Agricultural Bank of China wrote off roughly 60 billion yuan in nonperforming loans in the January-June half.

A government initiative to slay so-called zombie enterprises has not made much progress, judging by the earnings data. Listed companies with first-half net losses numbered 401, compared with the year-earlier 440. A total of 245 suffered second consecutive half-year net losses.

Auto- and housing-related companies did well in the January-June period, with a small-vehicle tax break and a persistent property bubble providing support. Net profit at listed real estate companies enjoyed double-digit growth. Steelmakers climbed back into the black thanks to a bottoming out of the market.

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