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Chinese companies are catching Fortune magazine readers’ attention. This year, 79 enterprises from the Chinese mainland, Hong Kong and Taiwan have entered the Fortune Global 500 list, the second largest number behind only the United States with 132.
Li Jin, chief researcher at the China Business Management Academy, said the increase was due to the economic development of China, now the second largest economy in the world, and the proliferation of increasingly profitable businesses.
However, compared with U.S. companies on the list, most of their Chinese counterparts are big but far from strong and face various challenges as they establish their global presence.
Reflecting on growth
When Fortune published its first Global 500 list in 1995, China’s mainland had three companies on the list: China Petrochemical Corp., China Cereals, Oils and Foodstuffs Group, and Bank of China. After its WTO entry in 2001, China’s involvement in the world economy became more entrenched, allowing the Asian giant to reap handsome economic benefits.
Confronting the global financial crisis in 2008, the Chinese economy was the first to recover and achieved the fastest growth. In 2010 China overtook Japan as the world’s second largest economy. During this period, Chinese companies grasped development opportunities and realized leap-frog development.
The Fortune Global 500 list shows that the Chinese financial sector is performing well compared to companies in the West. Among the Chinese companies on this year’s list, rankings of Chinese banks improved significantly: Industrial and Commercial Bank of China rose in rank from 77th to 54th, China Construction Bank from 108th to 77th, Agricultural Bank of China from 127th to 84th, Bank of China from 132nd to 93rd, Bank of Communications from 398th to 326th, and China Merchants Bank enters the list for the first time, at 498th.
Industrial and Commercial Bank of China was the most profitable among Chinese businesses on the list, witnessing profits soar to 208.2 billion yuan ($32.89 billion).
Hu Chi, with the Research Center of the State-Owned Assets Supervision and Administration Commission, said the rapid increase in the number of Chinese companies on the list of Fortune Global 500 is closely related to the ultra-high growth speed of the economy and increasing expansion of the country’s economic scale. The rule that the number of global 500 of a country is directly proportional to the country’s economic scale also applies to the United States, Japan and the European Union. On this year’s list of Fortune Global 500, the five countries with the most companies incorporated are the United States, China, Japan, Germany and France, with respective numbers hitting 132, 79, 68, 32 and 32. In 2011, the global top five GDP rankings are also the five countries.
Although the United States still has the most companies on the list, the number of incorporated U.S. companies is dropping. Ten years ago, the United States had 197 companies on the list, accounting for more than one third of the total.
Similar to the United States, the number of Japanese companies on the list is also decreasing. In 1995, there were 147 Japanese companies on the list, but this year, the figure sits at 68, largely due to a weak economy following a massive asset bubble burst in the 1990s.
If the Chinese economy can achieve its 7.5-percent growth target this year, there will be more Chinese companies on the list next year, and the number of companies from other countries will decrease correspondingly, Hu said.
Still weak
“Chinese companies have gained an outstanding position among the global top 500, but compared with countries like the United States and Japan, Chinese companies fall behind in terms of mechanisms, resource integration, innovation capability, talent nurturing, brand influence, independent intellectual property rights and core technologies, as well as capability of international operation. To catch up with world top companies, Chinese companies still have a long way to go,” Li said.
Reviewing the Fortune Global 500 lists in the past 10 years, the number of incorporated Chinese companies is increasing year by year. However, among the 69 companies from the Chinese mainland on the list this year, none has international brand influence.
Among the 79 Chinese companies on this year’s list, most are in the sectors of power, banking, iron and steel, energy, engineering and construction, telecommunications and automobiles, which are capital-intensive and operate in natural or administrative monopoly business environments. In contrast, the number of companies from electronic and information technology sectors, which depend on technologies and innovation, is still small. There are only four from the electronic industry and three from the computer industry, with Taiwan companies contributing two to each sector. In some industries that need core technologies, such as aviation and space industry, there is no Chinese company, indicating inefficiency of technology and innovation-led companies on the Chinese mainland.
Wang Zhile, Director of Beijing New Century Academy on Transnational Corporations, said although many domestic companies have surpassed some veteran transnational corporations in business revenues, most are not real transnational corporations. Many Chinese companies on the Fortune Global 500 list lack the ability to expand into the world market and utilize global resources.
“We should not be too optimistic for the growing number of Chinese companies on the list, because some Chinese companies entered the list by acquiring transnational corporations when the U.S. economy is in recession. The real independent strength of Chinese companies should be deeply reconsidered,” he said.
Take Zhejiang Geely Holding Group as an example. This year, its ranking went up to 475th from 688th last year. This shows the vigor and potential of Chinese private companies. However, an analysis of its road to global 500 finds that the company enters the list through mergers and acquisitions: In 2011, the group acquired a famous auto brand Volvo.
In recent years Chinese companies have been actively engaged in overseas mergers and acquisitions, particularly purchasing international brands on the verge of bankruptcy. Chinese companies may expand their business scales and social influence by transnational mergers and acquisitions, but it is not a reliable way for Chinese companies to be global 500.
Wang said to be bigger and stronger, Chinese companies must improve themselves and establish their own world famous brands. Only when all the Chinese companies on the global 500 list are relying on their independent brands and without the background of state-owned capital, will China establish itself in the world economy. If Chinese companies do not enhance innovation and make up for the gap with world top companies, however large their number is on the global 500 list, nothing is worth showing off.
Numbers of Chinese and U.S. Companies Among Fortune Global 500
(Source: Fortune magazine statistics)
Li Jin, chief researcher at the China Business Management Academy, said the increase was due to the economic development of China, now the second largest economy in the world, and the proliferation of increasingly profitable businesses.
However, compared with U.S. companies on the list, most of their Chinese counterparts are big but far from strong and face various challenges as they establish their global presence.
Reflecting on growth
When Fortune published its first Global 500 list in 1995, China’s mainland had three companies on the list: China Petrochemical Corp., China Cereals, Oils and Foodstuffs Group, and Bank of China. After its WTO entry in 2001, China’s involvement in the world economy became more entrenched, allowing the Asian giant to reap handsome economic benefits.
Confronting the global financial crisis in 2008, the Chinese economy was the first to recover and achieved the fastest growth. In 2010 China overtook Japan as the world’s second largest economy. During this period, Chinese companies grasped development opportunities and realized leap-frog development.
The Fortune Global 500 list shows that the Chinese financial sector is performing well compared to companies in the West. Among the Chinese companies on this year’s list, rankings of Chinese banks improved significantly: Industrial and Commercial Bank of China rose in rank from 77th to 54th, China Construction Bank from 108th to 77th, Agricultural Bank of China from 127th to 84th, Bank of China from 132nd to 93rd, Bank of Communications from 398th to 326th, and China Merchants Bank enters the list for the first time, at 498th.
Industrial and Commercial Bank of China was the most profitable among Chinese businesses on the list, witnessing profits soar to 208.2 billion yuan ($32.89 billion).
Hu Chi, with the Research Center of the State-Owned Assets Supervision and Administration Commission, said the rapid increase in the number of Chinese companies on the list of Fortune Global 500 is closely related to the ultra-high growth speed of the economy and increasing expansion of the country’s economic scale. The rule that the number of global 500 of a country is directly proportional to the country’s economic scale also applies to the United States, Japan and the European Union. On this year’s list of Fortune Global 500, the five countries with the most companies incorporated are the United States, China, Japan, Germany and France, with respective numbers hitting 132, 79, 68, 32 and 32. In 2011, the global top five GDP rankings are also the five countries.
Although the United States still has the most companies on the list, the number of incorporated U.S. companies is dropping. Ten years ago, the United States had 197 companies on the list, accounting for more than one third of the total.
Similar to the United States, the number of Japanese companies on the list is also decreasing. In 1995, there were 147 Japanese companies on the list, but this year, the figure sits at 68, largely due to a weak economy following a massive asset bubble burst in the 1990s.
If the Chinese economy can achieve its 7.5-percent growth target this year, there will be more Chinese companies on the list next year, and the number of companies from other countries will decrease correspondingly, Hu said.
Still weak
“Chinese companies have gained an outstanding position among the global top 500, but compared with countries like the United States and Japan, Chinese companies fall behind in terms of mechanisms, resource integration, innovation capability, talent nurturing, brand influence, independent intellectual property rights and core technologies, as well as capability of international operation. To catch up with world top companies, Chinese companies still have a long way to go,” Li said.
Reviewing the Fortune Global 500 lists in the past 10 years, the number of incorporated Chinese companies is increasing year by year. However, among the 69 companies from the Chinese mainland on the list this year, none has international brand influence.
Among the 79 Chinese companies on this year’s list, most are in the sectors of power, banking, iron and steel, energy, engineering and construction, telecommunications and automobiles, which are capital-intensive and operate in natural or administrative monopoly business environments. In contrast, the number of companies from electronic and information technology sectors, which depend on technologies and innovation, is still small. There are only four from the electronic industry and three from the computer industry, with Taiwan companies contributing two to each sector. In some industries that need core technologies, such as aviation and space industry, there is no Chinese company, indicating inefficiency of technology and innovation-led companies on the Chinese mainland.
Wang Zhile, Director of Beijing New Century Academy on Transnational Corporations, said although many domestic companies have surpassed some veteran transnational corporations in business revenues, most are not real transnational corporations. Many Chinese companies on the Fortune Global 500 list lack the ability to expand into the world market and utilize global resources.
“We should not be too optimistic for the growing number of Chinese companies on the list, because some Chinese companies entered the list by acquiring transnational corporations when the U.S. economy is in recession. The real independent strength of Chinese companies should be deeply reconsidered,” he said.
Take Zhejiang Geely Holding Group as an example. This year, its ranking went up to 475th from 688th last year. This shows the vigor and potential of Chinese private companies. However, an analysis of its road to global 500 finds that the company enters the list through mergers and acquisitions: In 2011, the group acquired a famous auto brand Volvo.
In recent years Chinese companies have been actively engaged in overseas mergers and acquisitions, particularly purchasing international brands on the verge of bankruptcy. Chinese companies may expand their business scales and social influence by transnational mergers and acquisitions, but it is not a reliable way for Chinese companies to be global 500.
Wang said to be bigger and stronger, Chinese companies must improve themselves and establish their own world famous brands. Only when all the Chinese companies on the global 500 list are relying on their independent brands and without the background of state-owned capital, will China establish itself in the world economy. If Chinese companies do not enhance innovation and make up for the gap with world top companies, however large their number is on the global 500 list, nothing is worth showing off.
Numbers of Chinese and U.S. Companies Among Fortune Global 500
(Source: Fortune magazine statistics)