Chinese Corporate Earnings Don’t Bode Well For A Second-Half Recovery

As canaries in coal mines go, China Inc is a large one. But evaporating corporate profits were an early indicator of the economy’s slowing in 2011, which makes analysts forecasts for the coming earnings season worrying. These are being cut faster than at any time in the past 30 months, according to Thomson Reuters I/B/E/S, which tracks earnings estimates for Chinese companies in the MSCI China index. Nor are petrochemical and cement producers, two leading recovery indicators because their output is used in the early stages of the production cycle, showing much if anything by way of a pick-up. Their downward earnings forecast revisions still outnumber upwards ones. That provides scant encouragement for hopes of a second-half recovery.

Bank Profits Trimmed By Subprime Losses

China’s banks are taking their lumps from losses on trading mortgage-related securities, even while the strong domestic economy is boosting profits.

Bank of China reports a larger than expected $1.3 billion of subprime writedowns while Industrial & Commercial Bank of China, the world’s largest bank by market capitalization, reported $400 million-worth. Bank of China says it has sold down its exposure to subprime mortgage-related mortgages to $5 billion from $9.5 billion in August. ICBC says it holds $1.2 billion of such securities, the same level as last June.

Both banks were announcing their 2007 results: net income up 65% at ICBC and 31% at Bank of China. The average for China’s 14 publicly traded banks is 70%.

That number will shrink substantially this year as the government turns the screw on bank lending as it tries to damp down inflation.