China is experiencing one of the worst profit recessions. The “Zero Covid” policy adopted in the country and a real estate crisis affected several companies. Nearly 5,000 Chinese companies located in Beijing, Shanghai and Shenzhen have already released their results for the first half of 2022. The data is disastrous.
According to Wind and Choice, a financial information institution, just over 50% saw a drop in net income (a company’s true profit). The numbers are almost as bad as 2020, when all companies marked their worst season in business due to the Covid-19 pandemic. At the time, almost 55% of institutions had a drop in their profits in the first six months.
However, the beginning of this year seems to have been worse. About 900 companies have reported losses so far. In 2020, 780 lost money. Falling profits in the world’s second largest economy could wreak havoc across the planet. It is Chinese companies that buy commodities, technology and other products on a massive scale.
Some economists blame the strict restrictions imposed on the country by Covid-19 and the growing crisis in the Chinese real estate market. “The main reasons are mobility restrictions and a huge drop in sentiment associated with the dwindling housing market,” economist Alicia García Herrero explained in an interview with CNN International.
So far, China has steadfastly maintained its “covid-19” policy. Restrictions range from the movement of people to lockdowns snapshots in cities. Even traveling to the country has restrictions.
The country’s financial center, Shanghai, has a population of 25 million and was under lockdown for two months at the beginning of 2022. And it’s not just the country’s capital, on Thursday the 1st, the city of Chengdu isolated just over 20 million people.
In the second quarter of this year, China’s Gross Domestic Product (GDP) grew by only 0.4%. This is the weakest performance since the beginning of 2020. In 2021, several investment banks lowered their forecasts for the country’s economic growth to 3%.
The analysts of Nomura, a Japanese financial insurer, also expressed concern about the current situation in China in a report released on Friday 2. “If Beijing decides to start easing the ‘covid zero’ policy from March 2023, we expect the economy to and the markets go through a difficult period”, he informed. “People will be disappointed that there is no real opening up or they will be overwhelmed by a growing Covid-19 infection.”
who loses more
Technology companies are the ones that suffer the most from the country’s poor performance. The second quarter of this year marked the end of growth for Alibaba — a Chinese technology multinational. Tencent (a technology and entertainment company) had its first quarterly decline in sales.
For other industries, 2022 is the worst year to date. China’s three biggest airlines (Air China, China Southern Airlines and China Eastern Airlines) set record losses. The total amount reaches 50 billion yuan (just over R$37 billion) in the first half. All blamed the decrease in travel for Covid-19 restrictions. In addition, the national currency, the yuan, is down nearly 10% against the dollar this year.
Real estate also had one of the worst performances to date. The sector accounts for 30% of the national GDP, and was hampered by a government policy that curbed “Reckless” loans to this industry.
The crisis has only escalated in the past six months, as thousands of disaffected citizens threatened to stop paying mortgages on unfinished homes. This shook the market and led companies and authorities to take other measures in an attempt to end the crisis. Country Garden, the country’s biggest selling real estate company, recorded a little more than 95% drop in net income in the first six months.
In a statement, the company said it was “pressed by forces beyond its control, such as the resurgence of the pandemic in various parts of mainland China and extreme weather, which have been combined with the slowdown in the real estate sector.”
Also read: “The insanity of ‘covid zero’ in China”, report by Cristyan Costa for Issue 112 of Revista Oeste.