Opinion     

Fortune favors 3 directions for Chinese economy

China.org.cn, July 22, 2013

• The newly-released Fortune Global 500 list of the world's 500 largest companies features 95 Chinese enterprises, with only the U.S. having more companies on the list.

  Piggy bank [By Jiao Haiyang/China.org.cn]

  The facts about these 95 Chinese companies make for interesting reading: 48 of the 85 mainland companies have established their headquarters in Beijing and most of them belong to energy and monopoly industries such as oil, finance, coal and electricity. When classifying these companies according to their ownership, we can see that private-owned enterprises account for less than 10 percent of the mainland companies.

  These facts indicate three directions for China's economic reform, namely, promoting the real economy, encouraging the private economy and balancing regional economies.

  The first direction: Promoting the real economy through competition

  A more in-depth look at the list reveals that the majority of foreign companies which made the cut are those with strong market competitiveness, such as Apple and Coca Cola. They are predominantly technological and institutional innovation-led companies. By contrast, the Chinese companies on the list are monopoly companies which enjoy preferential policies. In the future, the Chinese government should work on fostering a more market-oriented economic system which provides much greater impetus for competition.

  The second direction: Encouraging the private economy

  Among the 85 mainland companies on the list, only seven are privately owned. In 2012, the private sector contributed more than 60 percent of China's GDP. Statistically, private-owned companies are much less likely to appear on the Global Fortune 500 list than state-owned ones. Another less noted statistic shows that the private sector accounted for 65 percent of China's GDP in 2004, which indicates that the private sector has been shrinking since then.

  There is clearly increasing inequality between state-owned and private-owned companies and there have been cases where state-owned companies, taking advantage of their status, have merged with or acquired better-performing private-owned companies. We also see a situation where thousands of private-owned companies are afflicted by a money shortage, whereas some state-owned enterprises with government funds are able to enter the real estate industry. It is important that, in the future, China gives the private sector more room to develop instead of simply aiming to get more companies on the Fortune Global 500 list.

  The third direction: Balancing regional economies

  Forty-eight of the 85 mainland companies named on the latest list have established their headquarters in Beijing. Guangdong, Jiangsu, Shandong and Zhejiang, four economically solid provinces, have 10 companies on the list altogether. Such a situation is clearly irregular.

  China's economy is currently facing a great challenge; with many provinces lacking growth momentum. State-owned enterprises are becoming stronger and with this strength comes the ability to change the country's economic pattern. Investment from a state-owned company can change the economic landscape of a province. Take Zhanjiang, a city in Guangdong Province, for example. Zhanjiang's GDP was about 100 billion yuan in 2012, while two investments from Baosteel and Sinopec also totaled more than 100 billion yuan.

  The over-concentration of state-owned companies is simply not conducive to the balanced development of the country's regional economies. State-owned companies should locate their headquarters in regions which are better suited to their development needs. By doing so, they not only benefit themselves but also help to balance China's regional economies.

  The author is a research fellow at the Quality Center for Business and Technology, State-owned Assets Supervision and Administration Commission. He was previously a senior researcher at the Cheung Kong Graduate School of Business.

  This article was first published in Chinese and translated by Li Huiru.

  Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

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