Chinese executives are sounding warning bells over the world’s second-largest economy.
At least 20 companies, including China Life Insurance Co (中國人壽) and Chongqing Changan Automobile Co (重慶長安汽車), late on Tuesday told investors that full-year earnings would fall well short of expectations.
Reasons they cited included the nation’s economic slowdown, as well as changes to accounting rules and the equity market’s US$2.3 trillion rout last year, the world’s biggest loss of value.
The firms join a growing chorus from around the globe warning about China’s weaker demand.
More gloomy signals are likely before a deadline today, when many Chinese companies must report whether they expect any substantial changes in their financial results.
More than 1,800 firms have announced preliminary data, with those in the technology, communications and financial sectors suffering the most.
“Private companies are particularly vulnerable to the economic downturn,” Beijing Dajun Zhimeng Investment Management Co (北京大君智萌) money manager Lu Changshun (呂長順) said. “The deleveraging campaign and the deterioration of their corporate health is normal for any economy that is shifting gears and slowing down.”
Changan, Ford Motor Co’s main partner in China, said profit probably tumbled as much as 93 percent.
China Life, the nation’s biggest life insurer by market share, said net income could have dropped as much as 70 percent.
Detailed releases are due by the end of March.
Beijing HualuBaina Film & TV Co (北京華錄百納影視), cloud-storage operator Gosun Holding Co (高升控股) and First Tractor Co (第一拖拉機) all said they would probably post billions of yuan of losses for last year after being profitable in 2017.
Anhui Shengyun Environment Protection Group Co (安徽盛運環保) and Anhui Ankai Automobile Co (安徽安凱汽車) — which makes buses and auto parts — said their net losses would be at least twice as large relative to 2017, while Guangdong Homa Appliances Co (廣東奧馬電器), a maker of refrigerators, also forecast a loss this year. That was only months after saying it would post a profit.
China’s economy slowed for an eighth straight month this month, as weaker global demand and decelerating factory inflation combined to undercut growth, according to a Bloomberg Economics gauge aggregating the earliest available indicators on business conditions and market sentiment.
The data suggest government efforts to stimulate the economy have yet to translate into more business activity so far in the first quarter.
Tougher regulatory scrutiny on accounting calculations has also forced companies to reduce the value of goodwill on their balance sheets, after expensive acquisitions proved less fruitful than expected.
The China Securities Regulatory Commission in November last year required listed firms to assess goodwill impairments at the end of each year, spurring concerns that those costs would dent earnings over a number of years.
Instead of reporting years of losses, some companies have opted to bite the bullet in one go, allowing them to report better numbers going forward.
A case in point was Anhui Liuguo Chemical Co (安徽六國化工), which warned it would probably report a net loss of as much as 620 million yuan (US$92 million) due to impairment charges at its subsidiaries. Its stock closed limit down.
“While investors had expected poor earnings given the economic slowdown, the scope and magnitude of profit declines and losses were bigger than expected,” Shanghai-based KGI Securities Co (凱基證券) analyst Ken Chen (陳浩) said. “A lot of companies’ guidance and estimates were too aggressive in 2016-2017, making their earnings’ slide last year all the more drastic.”
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