Chinese companies report slowed second-quarter profit growth as weaker economy, US-China trade war bite into earnings

Publicly traded Chinese companies reported slowed earnings growth in the second quarter, as moderation in economic expansion and a flare up in the US-China trade war bit into profits.

Earnings season has wrapped up for another quarter, with all 3,000-plus companies trading on the Shanghai and Shenzhen exchanges releasing their first-half results by the end of last month. The companies posted a 6.5 per cent increase in earnings for the April-June period, compared with a 9.4 per cent growth rate for the first quarter, according to Haitong Securities.

“The slowdown in the macroeconomy had a very big impact on listed companies’ earnings in the second quarter,” said Ken Chen Hao, strategist at KGI Securities in Shanghai. “The trade war was another negative factor, as lots of companies will be indirectly impacted. It has dented external demand and that will, in turn, hurt China’s investment and consumption.”

Chinese economic growth slowed to 6.2 per cent for its weakest expansion since at least 1992 in the second quarter.

The interim results also signalled that corporate earnings have yet to bottom out, as a pickup in first-quarter growth turned out to be a false rebound. The deceleration in profit growth could also mostly explain why a run-up on Chinese stocks since the start of this year has faltered. The Shanghai Composite Index now remains down about 8 per cent from a high in April, as traders pull out of equities over concerns that gains in stock prices have outstripped earnings prospects.

The new Science and Technology Innovation Board, or the Star Market, which began trading in July, was a bright spot. First-half profit growth at the 28 companies that have already gone public reached 25 per cent, and their expenditure on research and development as a percentage of sales far exceeded the average, according to the Shanghai Stock Exchange.