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June 28, 2017

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Chinese firms see profits plunge amid slowdown

BEIJING -- Some of China's biggest companies, from tech giants to airlines and retailers, are warning of unexpectedly sharp drops in profit of up to 80 percent, adding to pressure on Beijing to reverse a painful economic slump.

On Wednesday, Air China Ltd., one of three main government-owned airlines, warned first-half profit will fall by at least half from a year earlier. State-owned ZTE Corp., one of the world's biggest producers of telecommunications equipment, is projecting a decline of up to 80 percent.

The woes facing even politically favored companies that benefit from monopolies, low-cost bank loans and other government aid highlight the challenges for the authoritarian country's leaders who are trying to pull China out of its deepest slowdown since the 2008 crisis.

Forecasters say the slowdown might have bottomed out after growth fell to a three-year low of 7.6 percent in the second quarter but the timing and strength of a rebound are uncertain. Premier Wen Jiabao warned last weekend a recovery was not yet stable. On Tuesday, he said the employment outlook "will become more complex and severe."

"Economic growth will be unstable for the next six or even 12 months at quite a low level," said Zhang Jiuhui, an analyst for Great Wall Securities in Beijing.

Beijing has cut interest rates twice since the start of June and is pumping money into the economy through spending on building low-cost housing and other public works. It is trying to use targeted measures instead of flooding the economy with money after a binge of spending and bank lending that helped China rebound quickly from the 2008 crisis fueled inflation and a wasteful building boom.

China's expansion is still far more robust than the United States and Europe but its companies have come to depend on unusually high growth to stay profitable.

Industries that rely on demand for new factories and equipment have been hurt as struggling manufacturers put off spending and Beijing enforces curbs imposed on home purchases to cool surging prices. The country's shipbuilding industry association, slammed by weak trade, says May orders for new vessels were half the level of a year earlier.

"We have seen more profit warnings than expected in the first half and there might be more than there were in 2008," said Mao Sheng, a strategist for Huawei Securities in the western city of Chengdu.

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