Trade war squeezes corporate earnings in Japan and China
Japanese machine tool builder Okuma's main plant in Aichi Prefecture. The company has suffered a 30% drop in orders due to weak demand in China. (Photo by Yohei Hirose)
TOKYO -- Half of major Japanese companies fell short of the market's profit forecasts for the April-September period as the U.S.-China trade war took its toll, with Chinese businesses also feeling the imapct.
"Shipment to China has slowed. Recent orders are down about 30% from a year earlier" Yoshimaro Hanaki, president of Japanese machine tool builder Okuma has said.
Okuma's six-month period ended September logged a 36% increase in net profit to 7.9 billion yen ($70 million), but this was 500 million yen short of its forecast.
The combined net profit of Japanese companies that have released their results by Friday rose just 0.5% for the July-September quarter after climbing by double digits for seven straight quarters. For the first half through September, profit growth was just 5%, compared with 23% a year earlier. Nikkei tabulated the earnings of 641 companies that close their books in March, or 40% of the t otal.
"The decline in capital-spending in China came more quickly than expected," said Kazuhiro Takahashi at Daiwa Securities.
The net profit of Nitto Denko, which makes materials for smartphones, is believed to have sunk 26% to 35.1 billion yen for the half, well short of the market forecast of 43.3 billion yen.
The shadow of the trade war has reached Japan's mainstay automobile industry. Six of eight Toyota Motor group companies posted net profit declines. U.S. sanctions against China and higher tariffs on steel and aluminum depressed annual operating profit by about 7 billion yen at Toyota Industries and roughly 5 billion yen at Denso.
In China, companies have seen a sharp slowdown in growth. The combined net profit of roughly 3,500 listed companies rose just 7% on the year in the July-September quarter, compared with 23% growth in the prior quarter. Nikkei tabulated results announced in October by companies listed on the Shanghai and Shenzhen stock exchanges, excluding financial companies.
A wide range of companies are suffering, from manufacturers and marine shipping companies directly hit by the trade tensions, to airlines that face higher costs due to a weaker yuan, as well as automakers and supermarket chains slammed by sluggish consumer spending.Workers help dock a Cosco container ship at Qingdao Port in China's Shandong Province. The company handled less cargo leaving China in the July-September quarter. Â© Reuters
Communications equipment maker ZTE's net profit fell to a third of the year-earlier figure due to American sanctions imposed against it for three months starting in April for violating restrictions on technology exports to Iran and North Korea. Cosco Shipping Holdings' freight shipments out of China decreased 2%, and General Manager Wang Haimin warns that U.S.-bound freight out of China will likely see a 10% drop.
China Southern Airlines posted a 52% plunge in net profit. Because jet fuel and many other expenses are settled in dollars, the weaker yuan led to a foreign exchange loss of 2 billion yuan ($290 mi llion) for the January-September period.
Chongqing Changan Automobile fell into the red on sluggish consumption. With new-auto sales in China down on the year in every month since July, Chinese automakers as a whole logged a double-digit profit decline for the July-September quarter.
Yonghui Superstores' profit plummeted 75% on weak consumption in addition to competition with e-commerce businesses.
Meanwhile, there are companies on both sides that have fared well. In China, state-owned enterprises, in such areas as resources, steel and real estate have brushed off trade tensions with strong earnings.
In Japan, Sony was one of the corporations with robust earnings. It reported a roughly 90% surge in net profit for the April-September half, upgrading its full-year projection by about 200 billion yen. Years of structural reforms have put the company on a more profitable footing, and its new pillar, the gaming business, has generated strong earnings.
The semiconductor industry had both winners and losers, depending on the products they handle and where their clients are based. Chipmaking equipment manufacturer Tokyo Electron lowered its full-year outlook, but peers including Advantest and Shin-Etsu Chemical have upgraded their projections.
Nikkei staff writers Daisuke Harashima in Dalian, Takashi Kawakami in Guangzhou and Naoki Matsuda in Shanghai contributed to this report.
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