China Company Profits Sinking; H1 Earnings Report A Bloodbath, Just Like In 2020

China is suffering one of its worst earnings recessions on record as Beijing's zero-COVID policy and a real estate crisis take their toll on the country's listed companies, Laura He stressed in an analysis for CNN Business.

Photo Insert: Three of China's biggest airlines — Air China, China Southern Airlines, and China Eastern Airlines — posted record losses, with a combined loss of 50 billion yuan ($7.2 billion) for the first half, all blaming COVID curbs and a dipping yuan.

More than 4,800 Chinese companies listed in Shanghai, Shenzhen, and Beijing have now released their earnings for the first half of the year. It was a bloodbath. As many as 53% posted a decline in net profit, according to data from Wind and Choice, two major financial information services in the country.

That was almost as bad as 2020, when companies posted their worst earnings season during the initial coronavirus outbreak. Back then, 54% of listed companies saw their profit drop in the first six months.

The start of this year was worse as the number of companies reporting a loss hit a record high of nearly 900 in the first half. In 2020, about 780 lost money.

An earnings crash in the world's second-largest economy can ripple around the world. That's because Chinese companies are big buyers of commodities, technology, and other products on the global market.

"We've already seen the impact," said Alicia García Herrero, chief economist for Asia Pacific at Natixis, a French investment bank. Prices of oil and other energy commodities have retreated and semiconductor factories have started to see decelerating orders, she added.

Experts blamed China's strict COVID curbs and a deepening crisis in the property market for the dismal performance of companies. China's most prominent tech companies are among those suffering.

The second quarter marked an end to years of explosive growth with Alibaba reporting flat revenue for the April-to-June period. Tencent posted its first quarterly sales decline. For some other sectors of the economy, this year has already been the worst on record.

Three of China's biggest airlines — Air China, China Southern Airlines and China Eastern Airlines — posted record losses, with a combined loss of 50 billion yuan ($7.2 billion) for the first half.

They all blamed travel disruptions because of COVID curbs and a depreciating yuan, which has plunged 9% against the US dollar this year. Property developers are also among the worst performers so far this year, as the country's housing market has spiraled downward.

The sector, which accounts for as much as 30% of its GDP, has been crippled by a government campaign since 2020 to rein in reckless borrowing in the industry.

Property prices have been falling, as have sales of new homes. Country Garden, China's No.1 developer by sales, reported a 96% plunge in net profit in the first half, the most since its 2007 listing in Hong Kong.

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