Real economy faces real challenges

Interim reports from listed companies show the Chinese economy still faces downturn pressure

Shanghai-listed Tianjin Quanyechang (Group) Co. Ltd. unveiled on July 11 its performance in the first half of 2012, the first listed company to do so this year. According to their commitment to the China Securities Regulatory Commission (CSRC), all 2,428 listed companies in China will publish interim reports by August 31.

By August 20, a total of 1,700 companies had released their reports. The results have been underwhelming, suggesting that China's real economy seems to still be lingering in the shadow of the financial crisis.

Slower profit growth

According to the announcement by Tianjin Quanyechang, in the first half it recorded 553 million yuan ($87.09 million) of sales revenue and 4.41 million yuan ($694,488) of net profits, up by 22.62 percent and 60.38 percent, respectively, year on year. The earning per share stood at 0.01 yuan (0.16 cents). The promising outlook from the year's beginning, however, didn't bring too much surprise to the investors. Among the 1,700 listed companies, fewer than 600 recorded growing net profits.

In the second quarter, net profits of the 1,700 listed companies grew by only 3.8 percent over a year ago and the quarterly growth was 29 percent. In comparison, profit growth of listed companies on the quarterly basis surpassed 40 percent in the first quarter this year and the second quarter last year, an indication that performance of listed companies is growing remarkably slowly.

In the first half, Aluminum Corporation of China recorded the biggest losses, which stood at 3.2 billion yuan ($503.7 million).

Figures released by the National Bureau of Statistics (NBS) on August 3 also confirmed the real economy's sluggish trend. In July, added value of industrial enterprises whose annual sales revenue is above 5 million yuan ($787,402) grew by 9.2 percent, lower than the 9.5-percent growth in June—being the lowest over the past three years. The NBS said the poor performance of heavy industries is the major reason for the slower growth of industrial added value.

Power consumption figures released by the NBS on August 14 confirmed the weak performance of heavy industries. In July, the country consumed 455.6 billion kwh of electricity, a year-on-year increase of 4.5 percent. Of the total increase, heavy industries contributed 2.4 percent, which means production was declining, industrial production capacity was not fully utilized and some enterprises had even suspended production.

According to figures released by the China Federation of Logistics and Purchasing (CFLP) on August 1, the purchasing manager's index stood at 50.1 percent in July, which was 0.1 percentage point lower than the previous month.

"The economy still faces downturn pressure, and government policy should focus on stabilizing economic growth based on the long-term goal of economic restructuring and transformation of the economic growth pattern," said Cai Jin, Vice Chairman of the CFLP.

Sluggish textiles

The textile industry used to be the country's biggest contributor to exports. In the past two decades, exports of textiles and garments accounted for 80 percent of China's total exports. After the global financial crisis, many textile enterprises were closed due to weak performances. There are 87 listed textile and garment enterprises in China. The published interim reports indicate that the industry's performance has taken a hit.

Xinjiang Tianshan Wool was the first in the textile industry to release its report. In the first half, the company suffered a loss of 15.94 million yuan ($2.51 million), almost four times the losses in the same period last year. The company said losses were mainly caused by declining international orders and growing production costs.

On August 13, the Jiangsu-based Luolai Home Textile Co. Ltd. published its interim report, saying that net profits declined by 17.7 percent in the first half. Its own and its parent company's inventories rose by 48.5 percent and 28.4 percent respectively.

On August 15, another Jiangsu-based textile company, Huafang Textile Co. Ltd., said its sales revenue was recorded at 733 million yuan ($115.43 million) in the first half, a year-on-year increase of 2.28 percent. However, the operational costs were as high as 788 million yuan ($124.09 million), soaking up the net profits and making the company suffer losses of 33.76 million yuan ($5.32 million). Losses were largely due to declining prices of textiles on the international market. Since the company is located in the developed eastern region, a labor shortage has restricted its production capacity.

According to the China Cotton Textile Association, 40 percent of the cotton and textile enterprises it surveyed are suffering losses, and nearly 50 percent of the small and medium-sized spinning enterprises are reducing or stopping production.

Europe's sovereign debt crisis is spreading and the global financial crisis is still affecting the world economy, leaving uncertainties to the prospect of the international market and depressing the confidence of Chinese textile companies seeking recovery.

"Industrial tendency in the second half is not optimistic and the growth rate will continue declining compared with the first half," said the announcement of Huafang Textile Co. Ltd.