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Companies

One in three Chinese listed companies saw profit fall in 2018

10% of businesses sank into the red as trade war gave consumers chills

People walk outside the headquarter building of China Life Insurance in Beijing. The company estimates a 50% to 70% decline in annual net profit, citing a slump in the asset management business.   © Reuters

SHANGHAI -- More than 1,000 of China's roughly 3,600 listed companies suffered a net earnings decline for 2018, hurt by slumping consumer spending and the country's ongoing trade frictions with the U.S.

The 1,070 companies reporting a downturn in their December year-end results include more than 400 that expect to book a net loss. If the weak earnings hurt employment, China could face a new drag on economic growth.

Excluding financial companies, the 2,540 Chinese enterprises disclosing numerical earnings estimates combined for a net profit decline of nearly 3% in 2018. Due to the fact that some highly profitable companies do not disclose their earnings estimates, the total profit at all listed Chinese businesses may fare better.

However, the pace of Chinese growth clearly slowed in the October-December quarter, as these companies had posted a double-digit increase in net profit over the January-September period.

Nikkei tallied the results disclosed by companies listed on the Shanghai and Shenzhen stock exchanges. Chinese businesses end their financial year in December, and they are required to disclose year-end results by the end of January unless net earnings change sharply.

The consumer spending slump slashed earnings for automakers. Beiqi Foton Motor plunged to a net loss of 3.2 billion yuan ($475 million) from a profit of 111.9 million yuan in 2017, hampered by weaker sales of Borgward brand passenger cars and delays in large-lot orders for commercial vehicles.

China's new-car sales dropped 2.8% in 2018 to 28.08 million units. But the saturated market sent various automakers down different roads. Leading player SAIC Motor, which has joint ventures including with Volkswagen, boosted net income by nearly 5%, while Chongqing Changan Automobile and Jiangling Motors both suffered roughly 90% drops.

Sales fell about 40% last year for Geely Automobile Holdings, listed in Hong Kong. The company targets sales of 1.51 million units for this year, just slightly above the 1.5 million in 2018.

A department store operator based in Guangxi Zhuang Autonomous Region fell into a net loss, as the consumer spending slump particularly hurt provincial areas.

The U.S.-China trade war especially damaged ZTE, which faced Washington's sanctions. The communications equipment maker fell into a net loss of at least 6.2 billion yuan.

Net profit shrank by more than 50% for Cosco Shipping Holdings, as the tit-for-tat tariffs between China and the U.S. cut into international trade. Shanghai's international airports also report lower international cargo handling volumes on the year since September.

Prolonged turmoil in financial markets hindered performance by Chinese companies as well. The yuan hit a 10-year low against the dollar in autumn 2018, while share prices on the Shanghai exchange tumbled nearly 25% last year.

Major air carriers China Eastern Airlines and China Southern Airlines both reported drops of around 50% in net profit as they suffered higher fuel prices and foreign exchange losses worth several billion yuan due to the weaker Chinese currency.

State-owned China Life Insurance estimated a 50% to 70% decline in annual net profit, citing a slump in the asset management business.

Meanwhile, 270 Chinese companies were forced to write down the value of goodwill stemming from past acquisitions, with their losses believed to have swollen to 100 billion yuan.

Yet more than a few businesses enjoyed strong earnings growth -- including major state-owned resource companies such as PetroChina, as well as luxury liquor maker Kweichow Moutai and construction machinery manufacturer Sany Heavy Industry.

But many small and midsize private companies are struggling, slammed by a credit crunch as Chinese President Xi Jinping's leadership team works to reduce excessive debt.

The slowdown in corporate earnings growth has begun to impact employment. Beiqi Foton Motor said it has streamlined its organization and personnel. Some smartphone makers and real estate companies hit by falling sales announced reductions of up to several thousand jobs. But restructuring has just begun, and many companies are expected to cut labor expenses after the Lunar New Year holidays.

Beijing has already enacted economic stimulus, including infrastructure development and an increase in subsidies. However, the benefit of these support measures could be offset if employment insecurity prompts consumers to tighten their purse strings further.

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