n July 22, this year’s Fortune Global 500 list was released. It revealed that 129 companies based in China, including 10 in Taiwan, made the list. It was the first time that the number of China-based companies exceeded that of the US, which slid from 126 to 121. Many observers called it a historic shift.
At first glance, this should be something to cheer about.
Chinese companies accounted for 13 out of a total of 25 new entrants. Among them is Xiaomi Corporation, one of China’s top cellphone makers. Established only nine years ago, Xiaomi was also the youngest company on the list.
Besides the increased number of entrants, the overall ranking of Chinese companies has also increased, with 84 companies ranked higher than last year.
China Evergrande Group is No. 138, 92 places higher than last year. Chinese tech giant Huawei also moved up to No. 61 from 72 last year, despite the ban on it imposed by the US.
But behind the rising number of big Chinese enterprises, the list also shows that Chinese companies still lag behind the US and the world average in some key indicators.
First, Chinese companies lagged in terms of profitability. The average annual profit of Chinese companies, excluding those from Taiwan, is US$3.5 billion, much lower than the average US$4.3 billion in profits reported by US companies. Chinese companies also underperformed on the per capita level. On average, each Chinese employee created a profit of US$17,000 for the company, far less than that of the US companies at US$40,000. Chinese companies also accounted for half of the 30 companies that recorded a net loss.
Second, State-owned enterprises continued to dominate the Chinese companies listed. Four out of the 10 biggest companies were State-owned banks, and 47.5 percent of all the Chinese companies’ profits combined came from the banking sector. In the meantime, real estate continued to outperform other sectors. Country Garden, China’s largest developer by sales, was the fastest climber worldwide, rising by 176 spots over the past year. This indicates China’s economy has not steered away from the model driven by real estate development as is desired.
Third, China still lagged far behind the US in terms of high-tech companies. Among the 121 US companies on the list, 18 are in the IT sector, which reported an average annual revenue of US84.1 billion and an average annual profit of US$12.8 billion, far greater than that of Chinese high-tech companies. With a net profit of about US$9 billion, Huawei was the only Chinese high-tech company that showed profits close to this level.
While more Chinese companies might have made the top 500, the quality of Chinese companies and the overall Chinese economy still has a long way to go to catch up.
As the Chinese economy continues to slow amid the escalating trade war with the US, the historic shift analysts are talking up is perhaps not as big a breakthrough as they suppose
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