China Stocks Drop To Fresh Post-2009 Lows Following Plunge In Industrial Company Profits

Tyler Durden's picture


Today the Chinese stock market did something unthinkable: it plunged to fresh post 2009 lows on news so bad they would have been enough to send the stock markets of such "developed" bizarro economies as the US and Europe limit up. The catalyst, as Bloomberg reports, was that Chinese industrial companies’ profits fell in July by the most this year, a government report showed today, adding to evidence the nation’s economic slowdown is deepening. Income dropped 5.4 percent last month from a year earlier to 366.8 billion yuan ($57.7 billion), the fourth straight decline, National Bureau of Statistics data today showed. That compares with a 1.7 percent slide in June and a 5.3 percent drop in May. What is disturbing is that the slide persisted even as revenue in the first seven months increased 10.6 percent to 50 trillion yuan, today’s report showed. Which means that cost and wage pressures are starting to truly bite Chinese corporations, that the US ability to export inflation to China is much more limited, and that one can forget the PBOC easing monetary conditions any time soon for many of the reasons discussed in the past week. It also means that China is now stuck hoping that Wen Jiabao will at least implement some fiscal stimulus. The reality however, judging by the SHCOMP's reaction, is that the benefit from fiscal programs in China, and everywhere else, is far more limited than monetary policy intervention. End result: SHCOMP down 1.74%,to 2,055, a three year low.

From Bloomberg:

Today’s data add pressure on the government to step up policy easing to reverse a slowdown that may extend into a seventh quarter. On an inspection of Guangdong province from Aug. 24 to 25, Premier Wen Jiabao said difficulties in stabilizing the expansion are “still relatively large” and called for measures to promote export growth to help meet the country’s annual economic targets, the Xinhua News Agency reported.


“The economy is slowing faster than what had previously been expected,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. The profit outlook is for “further weakness throughout the year,” he said.


Industrial companies’ profits in the first seven months of the year declined 2.7 percent to 2.7 trillion yuan, according to today’s statement. That compares with a 2.2 percent drop in the first half and a 28.3 percent gain in the same period in 2011.


Bank of America and Deutsche Bank AG this month reduced their forecasts for full-year economic expansion to 7.7 percent, which would be the slowest pace since 1999. Wen in March set a target of 7.5 percent.


Company profits are declining amid falling prices, higher costs and slower demand.


Xinjiang Goldwind Science & Technology Co. (2208), China’s second- biggest maker of wind turbines, said last week that first-half profit slumped 83 percent as competition intensified and market growth slowed.

Deutsche Bank's Jim Reid had this to add:

Asian equities are weaker despite the positive US lead on Friday. The Hang Seng and the Shanghai Composite are down 0.15% and 1.32% as we type as China‘s latest industrial profits dropped 5.4%yoy in July (-2.4% year-to-date). Chinese Premier Wen was quoted by state media over the weekend as saying that “negative factors…will affect stable economic operations in the second half” and the difficulties of estabilising growth are “relatively large”. Adding to the negative sentiment, BHP Billiton CEO commented that he expects ''long-term'' price declines for the miner's commodities as slower economic expansion in China weighs on demand. Iron ore prices continue to fall with the spot benchmark down for its 8th consecutive day on Friday.

We showed the iron ore collapse previously here.

Finally, the Telegraph adds some more color on what is now China's last recourse, namely more fiscal stimulus, since courtesy of the risk of soaring Soybean prices first predicted here over a month ago, and since confirmed, the PBOC's hands are tied:

 The Telegraph has travelled to the south of China over recent days to witness a slowdown in the coastal economy and in the export sector, and also to areas which are flourishing with new investment, and where the local economy is booming. The picture appears mixed. China, geographically almost the same size as the Eurozone, appears to be struggling in some areas and flourishing in others. A new inland corridor, running from Liaoning in the north to Guizhou in the south, through cities such as Wuhan and Changsha, is booming.


In response, Guangdong has unveiled 177 "core projects" worth 1 trillion yuan, joining a long list of local governments to announce "stimulus" plans. The huge cities of Chongqing and Tianjin, meanwhile, both said they would spend 1.5 trillion yuan, while Guizhou, one of China's poorest provinces, has said it will spend 3 trillion yuan on eco-tourism and creating a series of national parks.


The central government, meanwhile, said it would spend to plough 2.4 trillion yuan into reducing carbon emissions and energy conservation programmes over the next three years, and has already set aside 26bn yuan in subsidies to encourage consumers to switch to low-energy appliances.


The role call of announcements may be a signal that after half a year of fine-tuning monetary policy, the government is preparing to take more drastic measures.


While the Communist party had pencilled in slower growth of 7.5pc for this year, in order to restructure and rebalance the economy, there are indications that China may suffer, or may already have suffered, a "hard landing", where growth would fall to below 7pc.


"A hard landing in China would look like the fourth quarter of 2008 and the first quarter of 2009 when exports collapsed, factories had no orders and migrant workers were laid off by the tens of millions," says Wang Tao, an economist at UBS.


Mr Wen said many "negative factors" would continue "to affect stable economic operations in the second half" and that the difficulties of boosting growth are "still relatively large".


"Facing the current difficulties, we have to improve the operating environment for companies and enhance the corporate confidence," he said.

At this point all we can add is that we are jealous and envious of China, where men are men, women are women, bad news are no longer not good news, and things are finally starting to make sense. As reported earlier, expect US stocks to soar on the realization that for China a hard landing now looks inevitable.

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Mon, 08/27/2012 - 04:49 | 2740326 TwoShortPlanks
TwoShortPlanks's picture

Less than 1.75%...hurry, warn the King and the rest of the town!

I'm guessing I'll be able to buy cheap Chinese shit for a bit longer, yeah?!

Mon, 08/27/2012 - 04:59 | 2740346 AldousHuxley
AldousHuxley's picture

chinese shit is not for the middle man, but savings are not passed down to end consumers instead goes into profit to shareholders.

Mon, 08/27/2012 - 05:16 | 2740363 TwoShortPlanks
TwoShortPlanks's picture

Well, to be frank, if the standard of living in China increases (ie wage increases), that's gonna serously impact upon my electronics imports. I think everyone's geared-up for a 'slave-wage China', certainly not a 'rising-wages China'. It's sad, but a China with a rising standard of living really upsets the status quo.

Mon, 08/27/2012 - 06:02 | 2740388 malikai
malikai's picture

FTSE A50 is down about 100pts as well.

Mon, 08/27/2012 - 07:11 | 2740442 GetZeeGold
GetZeeGold's picture



Game over man......GAME OVER!!!

Mon, 08/27/2012 - 08:21 | 2740508 GMadScientist
GMadScientist's picture

Don't worry. Chinese "capitalists" are just as greedy and short-sighted as American "capitalists".

Mon, 08/27/2012 - 04:44 | 2740329 Muppet of the U...
Muppet of the Universe's picture

Global Collapse Bullish for US YAY!!!  O wait.  I'm long vix.  Shit.

Mon, 08/27/2012 - 04:55 | 2740342 new game
new game's picture

if you can believe another bunch of liars/gub hacks from china; fucken-eh

liars everywhere...

central planned lies, hidden agenda and then theres timma and bernanks the spanks.

enuf of the fuckin fantasy land econ b.s.

more coffee please

smoke time...

Mon, 08/27/2012 - 05:03 | 2740347 vast-dom
vast-dom's picture

" As reported earlier, expect US stocks to soar on the realization that for China a hard landing now looks inevitable." US stocks soar until they don't in our panponzicon quantum physics defying float up and into some perverse alter reality.

Mon, 08/27/2012 - 06:38 | 2740416 Dr. Engali
Dr. Engali's picture

We could have a nuclear strike in Washington and our stocks will soar. Wait a minute... Let me think that through.... It would probably be a justifiable reason for our stocks to soar.

Mon, 08/27/2012 - 08:46 | 2740559 20-20 Hindsight
20-20 Hindsight's picture

What am I missing here?  For the past year, all the "experts" have seemed so concerned that a hard landing in China would lead to catastrophic economic consequences around the globe.  Now someone is trying to tell us that this would be good news for Wall Street?  WTF???

Mon, 08/27/2012 - 04:55 | 2740343 hugovanderbubble
hugovanderbubble's picture


Mon, 08/27/2012 - 08:22 | 2740510 GMadScientist
GMadScientist's picture

Tied, at the hip.

Mon, 08/27/2012 - 04:57 | 2740345 hugovanderbubble
hugovanderbubble's picture



Mon, 08/27/2012 - 05:07 | 2740348 TwoShortPlanks
TwoShortPlanks's picture

Like I've mentioned before, the state flag of Western Australia has a dirty great BLACK SWAN on it.

Special mention to my ex located at Ground Zero (AKA Perth), Tick-Tock bitch! :)

Mon, 08/27/2012 - 06:15 | 2740396 dont say a word
dont say a word's picture

I live in Perth and have been warning many to get out of debt and prepare for the real collapse when China's economy crashes. Needless to say I get blank stares as if should be in a white jacket which straps up from behind.

As the saying goes: he who laughs last...

Queue: When The Shit Goes Down

Mon, 08/27/2012 - 08:12 | 2740496 LawsofPhysics
LawsofPhysics's picture

You are not alone.  I have a partner in China looking to get out.  China is a centrally-planned state-controlled society.  People who think that the U.S. state is repressive haven't seen anything.

Mon, 08/27/2012 - 05:06 | 2740352 hugovanderbubble
hugovanderbubble's picture

Not a bad idea to SHORT AUDUSD.... till 0.95

Mon, 08/27/2012 - 05:17 | 2740366 TIMBEEER
TIMBEEER's picture

I just sold everything related to Aus or Canada just two weeks ago. This will get interesting..

Mon, 08/27/2012 - 05:37 | 2740372 TwoShortPlanks
TwoShortPlanks's picture

I don't now if you live in, or have visited oz, but, this place is leveraged up to the fucking brim. Too many Audi's and McMansions...everyone's a Millionaire, just ask them!

Nobody, and I really do mean nobody, understands that equity is subjective smoke and mirrors and debt is granite.

I've been gearing down for nearly 3 years now and have pulled back to the bone. Completely liquefied and even relocated to another city least likely to suffer the coming firestorm as the paper burns.

Australia had forsaken it's Wheat and Cattle industry long ago, favoring instead the sand-pit playground with Tonka toys, shipping red dirt to China and playing instant Red Wine swilling Tycoons on the weekend...but as the dirt drops below $100 and the memory that 2/3rds of our Gold reserves were sold at rock-bottom dollar years ago, many are now frozen with fear...for this we will pay dearly.

Mon, 08/27/2012 - 05:59 | 2740385 Genève Barbegazi
Genève Barbegazi's picture

Real estate bubble popping in oz the same time raw materials orders drop whilst global food prices soar in 2013 due to this year's drought....sounds like the aussies are truely going to be downundah....

Mon, 08/27/2012 - 06:04 | 2740389 TwoShortPlanks
TwoShortPlanks's picture

You forgot to note: and a Gen-Y demographic, the majority of which are incapable of pulling the skin off custard.

Mon, 08/27/2012 - 07:43 | 2740465 Praetor
Praetor's picture

is there an app for that?

Mon, 08/27/2012 - 08:23 | 2740511 GMadScientist
GMadScientist's picture


Mon, 08/27/2012 - 08:53 | 2740572 20-20 Hindsight
20-20 Hindsight's picture

Timbeeer, could you please comment on why you're bearish with regard to Canada?  Not that I disagree with you, in fact I'm Canadian and for a while I've been telling a lot of people that the average Joe Schmuk is over-leveraged to an insane level, that the housing market is precarious at best, and that we will not be immune to a crash when the whole US house comes tumbling down.  Every time I make these types of comments, I get blank stares and a smug response that... well... "no, we're different here.  We have wonderful banks and everything is under control, don't worry, be happy."  Anyone care to comment on this please?

Mon, 08/27/2012 - 09:36 | 2740689 Vendetta
Vendetta's picture

There are still plenty of ppl in the US with their head in the sand about the real estate market just like you witness in Canada.  Most of those whom I have spoke with still think this is just a cyclical downturn

Mon, 08/27/2012 - 05:16 | 2740364 TIMBEEER
TIMBEEER's picture

"At this point all we can add is that we are jealous and envious of China, where men are men, women are women, bad news are no longer not good news, and things are finally starting to make sense."

This is a desperate call for "Democracy" in China! We sure have to set things straight!

Where is MDB when we need him the most?


Mon, 08/27/2012 - 06:04 | 2740390 malikai
malikai's picture

He's busy counting his remarkable gains on his stellar FB investments.

Mon, 08/27/2012 - 05:16 | 2740365 Julian
Julian's picture

cash first then gold bitchez!

Mon, 08/27/2012 - 05:49 | 2740381 tawse57
tawse57's picture

So not gold now?

Wait for the stock market crash to take gold and silver down with it and then buy PMs? Seems a plan.

Mon, 08/27/2012 - 07:41 | 2740462 GetZeeGold
GetZeeGold's picture



Ten years ago would have been better.....but it's never too late for gold. Do it.....right now


Miss the beat....lose the rhythm. Now you gotta run to get even.......



Mon, 08/27/2012 - 05:18 | 2740368 BlackholeDivestment
BlackholeDivestment's picture

Humpty Dumpling sat on the Chinese Wall

Humpty Dumpling had a great fall 

All the Commie horse shit and all the Chinese men couldn't find a single reason not to sell their unwanted girls for some carry trade Yen 

...but they aborted those girls, oops. 

Dumb bastards...


Mon, 08/27/2012 - 05:26 | 2740370 Boilermaker
Boilermaker's picture

Time to ramp the shit out of the ES!!!

Mon, 08/27/2012 - 05:27 | 2740371 intric8
intric8's picture

In this case ( blame it on xbox, in chinas case, blame it on constant deceptive numbers and truth coming home to roost

Mon, 08/27/2012 - 06:33 | 2740410 Dr. Engali
Dr. Engali's picture

Are you talking about the deceptive numbers coming out of China or the deceptive numbers coming out of the U. S. ?

Mon, 08/27/2012 - 06:00 | 2740384 intric8
intric8's picture

Also, they have already been "implementing fiscal stimulus" over the years in the form of massive ghost cities, roads to nowhere and hugh overpasses that go donk. Fiscal stimulus up the ass. I have never trusted numbers out of china, so you can bet that the actual numbers are much worse than this. They have already postponed economic bad times in exchange for a genuine reckoning in the future, and that time is now.

Mon, 08/27/2012 - 06:08 | 2740391 ptolemy_newit
ptolemy_newit's picture


If China is not low cost then we better have technologies and quality: 

By 2016 China will not have the cost advantage and lose significant market share to the U.S. and Germany manufacturing.

 Chinese wage rates for blue collar workers are growing at 17 percent annually.  The U.S. is at 3 percent.   Chinese white collar and specialist wage growth is about 135 percent per year, the U.S same group is 3.7 percent.

 With the excessive money printing from central banks in every country the inflation rates will force China to speed the appreciation of the Yuan or face high input and transportation cost.

 As China shifts its attention to its own domestic market and away from exports, it will allow U.S and German producers to recapture domestic market share.

 Labor rates and education levels make the central European work force will be very cost effective through 2020.


Mon, 08/27/2012 - 16:39 | 2741894 El Tuco
El Tuco's picture

ATM Chinese factory wages are around $300 a month. They work 6 days a week. We have quite a way to go before our wages drop to Chinese levels.

The only chance we got and it still won't be great is automating the fuck out of industy and removing the human component as much as possible which isn't great for Joe 6pack.


It sucks all around....

Mon, 08/27/2012 - 06:16 | 2740398 Boilermaker
Boilermaker's picture

And...there's liftoff of the ES.  Right at 6am. 

God...I love this crooked shit.

Mon, 08/27/2012 - 07:21 | 2740448 intric8
intric8's picture

shit is fukd up and shit, no?

Mon, 08/27/2012 - 07:25 | 2740451 Boilermaker
Boilermaker's picture

Ain't no problum wit me!


401k Joe

Mon, 08/27/2012 - 06:20 | 2740401 I am Jobe
I am Jobe's picture

Dang . Means Christmas sales is going to double at WMT this year. Line up thiose inbred fuckers for Waffle Irons and Large Screen TV. Need one for the fucking crapper since the walls are already covered.

Mon, 08/27/2012 - 06:46 | 2740422 disabledvet
disabledvet's picture

eh, so what. as pointed out the Shanghai has been going down for years now. What's the connection to the US market again? i did read a story of "post import taxes" in the USA where an American buys Chinese made solar panels and "somehow it is discovered and they past a law saying you now have to pay a retroactive tax on that." Sounds like Russia and Khoderkofsky. "It is now determined that you owe taxes on everything." And "here comes your fine for not being in compliance with a law that doesn't exist."

Mon, 08/27/2012 - 06:55 | 2740429 SR71
SR71's picture

And the europe still full of dope

Mon, 08/27/2012 - 06:57 | 2740432 Law97
Law97's picture

What is disturbing is that a communist centrally-planned authoritarian country has freer markets than the U.S.

Mon, 08/27/2012 - 07:55 | 2740474 buzzsaw99
buzzsaw99's picture

Confucius say man who gorge on foreign stocks someday forced to shit BRICs.

Mon, 08/27/2012 - 08:24 | 2740513 GMadScientist
GMadScientist's picture

+1 ...sideways.

Mon, 08/27/2012 - 07:58 | 2740475 The worst trader
The worst trader's picture

Bullish! Going all in!

Mon, 08/27/2012 - 08:39 | 2740543 orangegeek
orangegeek's picture

Communist China - the economic engine of the future.


Maybe the Chinese could build a few more empty cities to f* with their GDP numbers - while their people starve.


Big government anywhere is poison.

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