OPINION

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 specifically, the banking and insurance industries performed much better than the real industries. Among the top 20 A-share listed companies with the highest net profits, 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 profits 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 profits, 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, profiting 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 profits mark the end of a high-growth era.

The hefty profits 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 investment-and-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 medium-sized 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.

This is an edited excerpt of an article by Ma Guangyuan, a research fellow of the Venture Investment Institute under Peking University, published in Economic Information Daily

THE MARKETS

Sale Surge

German auto giant Volkswagen said on May 14 that its passenger car sales in the first four months of 2013 rose 5.3 percent, thanks to strong demands from China and North America.

The Wolfsburg-based automaker sold 1.91 million passenger vehicles from January to April globally, compared with the sales of 1.81 million cars during the same period last year.

During the same period, deliveries in China grew year on year by 20 percent to 783,900 vehicles.

"Overall, the brand recorded a modest increase in worldwide deliveries as a result of its convincing model range. The signals from China, where Volkswagen has been successfully selling vehicles for the last 30 years, continue to be positive," said Christian Klingler, Board Member for Sales and Marketing for the Volkswagen Group.

China has become Volkswagen's largest market. Among all its passenger cars in the Asia Pacific region in the period ending in April, 91.7 percent were sold in China.

During the same period, sales in Europe dropped 7.5 percent year on year to 545,300 vehicles. There was also a downward trend in Germany, where customers bought 180,500 new vehicles, which was 10.9 percent less than in the previous year.

Overseas Expansion

The China National Machinery Import and Export Corporation (CMC), the country's biggest state-owned machinery equipment trader, said on May 14 that it would establish more overseas subsidiaries in 2013 with Africa as a key market.

"While maintaining growth in traditional foreign markets in Asia and South America, we are planning to strengthen resource allocation in new markets such as those in Africa this year," said Wang Xusheng, CMC President.

"We are seeking a new business model in terms of market allocation and technology innovation in overseas markets," Wang said at a news conference to release CMC's first corporate social report (CSR).

"The completion of CMC's first CSR report is a milestone for the development of the company. It will help upgrade the company's CSR management level," Wang said.

On the basis of its four traditional business sectors including energy, transportation, light industry and building materials, CMC is shifting its core business from the traditional areas to international project contracting and auto sales.

NUMBERS

63.5%

The proportion of private fixed-asset investments among all fixed-asset investments from January to April

5.04 tln yuan

Fixed-asset investments in the service industry from January to April, a 23.9-percent increase year on year

2.71 tln yuan

Private fixed-asset investment in the service industry in January and February, a 26-percent increase year on year

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