The Wall Street Journal published a frightening article about the health of some of China’s leading companies.  (Sorry, subscription required).

According to the piece:

“A string of dire profit warnings has signaled a rapid deterioration in the financial health of Chinese companies on which the world’s third-biggest economy heavily depends, putting more pressure on the government to enhance its stimulus efforts.”

The story continues with a message for those of us who were hoping that China’s domestic economy would allow the country to weather the economic storm:

“The warnings have come from a range of industries, but companies tied to shrinking global trade are particularly badly hit. China Shipping Container Lines Co. Ltd. has warned investors annual profits for 2008 fell more than 50%. The world’s largest producer of shipping containers, China International Marine Container, said its annual profit likely dropped about 53% to 1.5 billion yuan ($219 million). Output of its main product, dry-bulk containers, “basically stopped in the fourth quarter,” CIMC said.

Businesses focused on China’s domestic market are also in trouble. SAIC Motor Corporation Ltd., the biggest local auto maker by sales, warned of a profit decline of more than 50% on weaker sales. Most steelmakers are losing money as construction dries up. Financial giant China Life Insurance Co., hammered by the stock market decline and tougher competition, also said it expects a more than 50% drop in profits.”

It strikes me that protectionist sentiment, like the “Buy American” requirements in the new U.S. “Stimulus” plan will only exacerbate this problem.  On the “silver lining” side, however, perhaps our vendors will see less wage inflation pressure, which may allow them to set blended rates for outsourcing that are even more competitive with other regions.

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