China Petroleum (NYSE: SNP) has already announced that its profits were down 71% in the first half. Now PetroChina (NYSE: PTR) is getting ready to report a drop in its profits.

The culprit is China's energy policy, which is hurting investors in the Chinese oil industry. According to the AP, "While other global oil giants are reporting record profits, Chinese government price controls prevent PetroChina and other domestic refiners from passing on higher costs for crude oil to consumers." It is an excellent reason for investors to avoid these stocks.

The central government control of oil profits is a fine example of why China should not have taken many of its large companies private. China needs to keep gas and diesel prices down to control inflation and offer cheap fuel to maintain transportation costs of exports at low levels.

With oil trading around $120 a barrel, the oil refiners in China could actually swing to losses in the second half. China is driving investors out of its most important corporations. PetroChina already trades near a 52-week low. That is likely to get worse.

Douglas A. McIntyre is an editor at 247wallst.com.

Stock markets in Asia picked up steam as the day went on.

The Nikkei rose 2.6% to 13,860. NEC was up 5.7% to 447. Sharp was up 7.7% to 1967.

The Hang Seng rose 3.9% to 25,032. China Life (NYSE:LFC) rose 9.3% to 32.25. China Petroleum (NYSE:SNP) rose 7.2% to 9.39.

The Shanghai Composite moved up 8.1% to 4,672.

Data from Reuters.

Douglas A. McIntyre is en editor at 247wallst.com.

Markets in China plunged overnight. Hong Kong's Hang Seng dropped 5.5% to 23,819. The Shanghai Composite dropped 5.1% to 4,914. Some shares fell much more. China Life (NYSE: LFC) sold off 9.5% and China Petroleum (NYSE: SNP) dropped 9.1%.

Markets in China are nearing a flat-out correction. in the last month, the Hang Seng has dropped about 13% putting it down much more than the S&P 500. The Shanghai Composite is now off about 3% for the period, but that is after moving up over 80% during the previous year.

Much of the wealth of China's middle class is built on the rising value of the stock market and real estate markets there. Any slowdown in the country's GDP which has been rising over 10% a year will probably take the stock market down further. This could lead to a recession in consumer spending in China.

The fall in the stock market also shows how closely China's economy is tied to the US. As chances for a recession grow here it is clear that imports from the world's most populated country could take a big tumble.

The US is not the only country which needs to worry about negative GDP growth.

Douglas A. McIntyre is an editor at 247wallst.com.

MOST NOTEWORTHY: Sonus Networks, Kenexa, Canadian Pacific, Applied Materials and Powerwave Tech were today's noteworthy upgrades:

• Merriman upgraded Sonus Networks (NASDAQ: SONS) to Neutral from Sell following its win at BT Group (NYSE: BT) for its ASX platform, which the firm believes endorses the company's technology.
  
• Cantor upgraded Kenexa (NASDAQ: KNXA) to Buy from Hold. The firm finds the stock being 40%+ off due to the 3Q weak earnings report as quite an overreaction and believes there is more than enough upside to advise buying shares. Management announced a 2M share buyback program.
  
• Shares of Canadian Pacific (NYSE: CP) was upgraded to Sector Outperformer from Sector Performer at CIBC, as they believe the strong Canadian Dollar and the delay in STB approval of the DM&E acquisition is priced into shares.
  
• Applied Materials (NASDAQ: AMAT) was upgraded to Outperform from Neutral at JP Morgan and to Buy from Hold at Citigroup; Citigroup expects capex revisions to start to reverse in mid-08 and views solar as a free option.
  
• Piper Jaffray raised its rating on Powerwave Technologies (NASDAQ: PWAV) to Outperform from Market Perform on valuation and seasonally strong Q4 capex trends.

OTHER UPGRADES:

• eBay (NASDAQ: EBAY) was upgraded to Outperform from Market Perform at Piper Jaffray.
  
• Morgan Joseph upgraded Perini (NYSE: PCR) to Buy from Hold and Shuffle Master (SHFL) to Hold from Sell.
  
• Goldman upgraded China Petroleum & Chemical Corp (NYSE: SNP) to Buy from Neutral.

Asian stocks took a pounding. The Japanese Nikkei fell 2% and shares in Toyota Motor Corp (NYSE: TM) dropped 4.2%.

Hong Kong's Hang Seng dropped 3.2%. Shares of China Petroleum (NYSE: SNP) fell 8.1%.

The Shanghai Composite was off 4.9%.

Douglas A. McIntyre is an editor at 247wallst.com.

Markets in Asia took a beating as the Hong Kong Hang Seng fell 5%. Key China stocks moved down sharply. China Mobile (NYSE:CHL) fell 7%. China Petroleum (NYSE:SNP) fell over 10%.

The Shanghai Composite fell 2.5%.

Douglas A. McIntyre is an editor at 247wallst.com.