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Chinese companies predict falling profits

A worker controls the production line of textile at Babei Group Co., Ltd on July 3, 2012 in Shengzhou of Zhejiang Province, China.

Jeremy Hobson: Some of China's biggest companies are warning that profits for the first half of this year could be cut in half. It's the latest evidence of an economic slowdown in China and gives you a sense of how big that slowdown might be.

The BBC's John Sudworth joins us now from Shanghai with more. Good morning.

John Sudworth: Good morning Jeremy.

Hobson: So more signs pointing to an economic slowdown in China?

Sudworth: Yeah, more gloom and doom; it doesn't seem to end, at the moment, does it? These are profit warnings from some very big companies like Air China -- one of the three big government-owned airlines here -- warning that their profits for the first half of this year are likely to be down something in the region of 50 percent or so. ZTE corporation -- one of the world's biggest producers of telecoms equipment -- warning of a profit slide of up to 80 percent.

Hobson: And do profit warnings like that from Chinese companies end up having an effect in places far from China, like right here in the United States?

Sudworth: Well, in some ways it's difficult to see a main and immediate effect. But of course, there will be worries of a knock-on. The concern is this: that in some ways, China is the only last remaining engine of economic growth left in the world. With the U.S. economy still in the doldrums; with Europe sputtering away with its sovereign debt crisis; the Chinese engine still producing growth of around 8 percent a year is the only thing that's really functioning.

And some people suggest to see the global economy as a zero sum game -- China's win is our loss or whatever -- is the wrong way. And if China was to really start its growth fall off, we would all be losers.

Hobson: How are the people there in China feeling about this slowdown?

Sudworth: You know, it's funny -- you don't see much sign of a slowdown. People are still spending. The luxury car makers -- there's an Aston Martin, the famous British luxury brand car showroom down here -- that always seems to be doing a booming trade. And those things aren't cheap.

But you know, when you speak to people, there is a real concern in China that it can't get its domestic economy going because people are saving too much. They have very serious doubts about their own economy security, and until China squares that circle, there's really no worries that the sort of economic gloom will perpetuate and become self-fulfilling.

Hobson: The BBC's John Sudworth in Shanghai. Thanks a lot.

Sudworth: It's a pleasure.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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