Annual Reports Mirror China’s Macroeconomy

China’s stock market is not a barometer of its macroeconomy, although the performance of its listed companies in Shenzhen and Shanghai can mirror its economic development.

By April 30, the listed 2,493 companies in Shenzhen and Shanghai had all released their 2012 annual reports. The companies altogether harvested 1.95 trillion yuan($317.07 billion) in net profits, a slight increase of 2 percent from 2011. Adjusting for inflation, the companies actually experienced negative growth, something rarely seen in the past decade.

It’s safe to say the performance of listed companies is in line with that of the real economy. In 2012, China’s gross domestic product (GDP) growth fell below 8 percent for the first time in the past decade; local debt and risks in the financial system began to arise; and many industries were struggling with overcapacity. Listed companies as well as China’s economy have bid farewell to high-speed growth.

More speci fically, the banking and insurance industries performed much better than the real industries. Among the top 20 A-share listed companies with the highest net pro fits,13 were banks. The 16 listed banks earned 1.03 trillion yuan ($167.48 billion) in net profit attributable to shareholders, accounting for more than half of the total pro fits made by all the listed companies.

In stark contrast, industries like farming, forestry, animal husbandry, sideline production, fishery, steel, nonferrous metal,shipping and clothing, performed dismally.China COSCO Holding Co. Ltd., Aluminum Corp. of China and China Metallurgical Group Corporation all lost more than 6 billion yuan($975.6 million), while the total 31 listed steel companies were in the red.

Small and medium-sized listed companies also underwent harsh times too. The 1,051 listed companies in the Small and Medium Enterprise Board and the Growth Enterprise Board (GEB) saw a plunge of 7.97 percent in net pro fits, with over 30 GEB companies in the red, which was largely a result of the most adverse business environment ever seen since the financial crisis.

In addition, pro fiting from the macroeconomic policies to stabilize growth, the real estate industry was still the most lucrative in 2012. The 135 listed real estate companies harvested net profits of 72.9 billion yuan($11.85 billion), up 17 percent. Despite a slowdown, major real estate companies like Vanke, Poly and China Overseas Holdings Ltd. all set sales records, with net profits growing by roughly 30 percent.

That is to say, in the context of stabilizing growth in the second half of last year, real estate investment played a crucial role in stabilizing macroeconomic growth and local financial revenue. Real estate-driven economic growth will still be the case within the foreseeable future.

As it were, the annual reports of the 2,493 listed companies exactly reflected China’s macroeconomic performance. Declining pro fits mark the end of a high-growth era.

The hefty pro fits made by banks suggest the financing cost for the real economy is too high. There appears to be no delay in pushing forward interest rate liberalization and breaking the banking monopoly. On the other hand, losses in the steel industry indicate that top priority should be given to tackling overcapacity and upgrading the manufacturing industry.

Since the dividend of the investmentand-export-driven development model is gone, China’s macroeconomy and all Chinese enterprises should set out to find new growth points by changing their ways of thinking.

Both the economic growth rate and corporate performance would suffer remarkable declines without changing the current development mode, improving the allocation of resources, supporting small and mediumsized enterprises, and promoting financial reforms.

In this regard, only by undergoing reforms can China’s economy maintain stable growth. And now, the country doesn’t have much time to waste. ■