China in Transition

The Rapid Advancement of Chinese Private Enterprises as Revealed by the Fortune Global 500

Chi Hung KWAN Consulting Fellow, RIETI

The number of Chinese enterprises listed in Fortune's annual Fortune Global 500 ranking is increasing year by year, symbolizing the rise of China as an economic power. While the majority of such companies are still state-owned enterprises (SOEs), the rapid advance of private enterprises has become increasingly apparent. The headquarters of these SOEs are concentrated in Beijing, whereas those of private enterprises are spread more widely among major cities, led by Shenzhen. Sector segregation can also be seen, with SOEs concentrated in upstream (raw materials) and midstream (intermediate goods, capital goods) sectors, and private enterprises in the downstream (consumer goods and services) sectors of the supply chain.

Main players shifting from SOEs to private enterprises

The Fortune Global 500 was first announced in 1995 (based on revenue of the previous year, same hereinafter) when only three Chinese enterprises (mainland only, excluding companies from Hong Kong and Taiwan, same hereinafter), namely, the Bank of China, Sinochem, and COFCO found their places in this list. In the same year, 149 Japanese companies were listed, closely approaching the number of U.S. corporations, which stood at 151. In subsequent years, the number of Japanese companies decreased sharply, and the number of U.S. corporations also kept falling from a peak of 198 in 2002. In contrast, the number of Chinese enterprises increased dramatically, and overtook Japan in 2012 to claim the second spot. In the 2017 Fortune Global 500 announced in July this year, the number of Chinese enterprises increased by seven from last year to 105 (115 if four Hong Kong companies and six Taiwanese companies are included). This greatly exceeds the number of Japanese companies, which stands at 51, and is approaching the number of U.S. corporations, which stands at 132 (Figure 1). This change is broadly in proportion to the shift in the share of global gross domestic product (GDP) of China, United States, and Japan (Figure 2).

Figure 1. Changes in Composition of the Fortune Global 500 by Country
Figure 1. Changes in Composition of the Fortune Global 500 by Country
Note: Data for China exclude Hong Kong and Taiwan.
Source: Compiled by the author based on "Fortune Global 500," Fortune, various issues.
Figure 2. Number of Chinese, U.S., and Japanese Companies Listed in the Fortune Global 500 in Proportion to these Countries' Share of Global GDP
-Comparison of 1995 and 2017 rankings-
Figure 2. Number of Chinese, U.S., and Japanese Companies Listed in the Fortune Global 500 in Proportion to these Countries' Share of Global GDP
Note: Taking into consideration of the fact that the companies listed in the Fortune Global 500 ranking are selected according to revenue of the previous year, the 1995 and 2017 GDP figures used here are those of the preceding years.
Source: Compiled by the author based on "Fortune Global 500" (1995, 2017), Fortune and World Economic Outlook Database, IMF.

Of the Chinese enterprises listed in the latest Fortune Global 500 ranking, 81 are SOEs, which still hold the overwhelming share. However, the number of private enterprises has grown to 24 over approximately 10 years, since Lenovo Group became the first Chinese private enterprise to join this list in 2008 (Figure 3, Table 1). For China, which is aiming to shift from a planned economy to a market economy, the change in the main players from SOEs to private enterprises is inevitable. This transition can follow two routes. One is the growth of private enterprises established with private capital, and the second is the privatization of SOEs. However, in China, so far only small to medium-sized SOEs, and not the larger SOEs, are targeted for privatization. This is reflected in the fact that the majority of private enterprises listed in the Fortune Global 500 are those initially established with private capital.

Figure 3. The Rising Number of Chinese Enterprises in the Fortune Global 500
-State-owned Enterprises vs. Private Enterprises-
Figure 3. The Rising Number of Chinese Enterprises in the Fortune Global 500
Note: Excluding Hong Kong and Taiwan.
Source: Compiled by the author based on "Fortune Global 500," Fortune, various issues.
Table 1. Summary of Chinese Enterprises in the Fortune Global 500 (2017)
Rank Company Revenues
($ Million)
Profits
($ Million)
HD
Location
Industry
2017 2016
2 2 State Grid 315,199 9,571 Beijing Utilities
3 4 Sinopec Group 267,518 1,258 Beijing Petroleum Refining
4 3 China National Petroleum 262,573 1,868 Beijing Petroleum Refining
22 15 Industrial & Commercial Bank of China 147,675 41,884 Beijing Banks: Commercial and Savings
24 27 China State Construction Engineering 144,505 2,493 Beijing Engineering, Construction
28 22 China Construction Bank 135,093 34,841 Beijing Banks: Commercial and Savings
38 29 Agricultural Bank of China 117,275 27,688 Beijing Banks: Commercial and Savings
39 41 Ping An Insurance 116,581 9,392 Shenzhen Insurance: Life, Health
41 46 SAIC Motor 113,861 4,818 Shanghai Motor Vehicles and Parts
42 35 Bank of China 113,708 24,773 Beijing Banks: Commercial and Savings
47 45 China Mobile Communications 107,117 9,614 Beijing Telecommunications
51 54 China Life Insurance 104,818 162 Beijing Insurance: Life, Health
55 57 China Railway Engineering 96,979 924 Beijing Engineering, Construction
58 62 China Railway Construction 94,877 1,192 Beijing Engineering, Construction
68 81 Dongfeng Motor 86,194 1,415 Wuhan Motor Vehicles and Parts
83 129 Huawei Investment & Holding 78,511 5,579 Shenzhen Network and Other Communications Equipment
86 91 China Resources National 75,776 2,580 Hong Kong Pharmaceuticals
89 99 Pacific Construction Group 74,629 3,168 Nanjing Engineering, Construction
100 95 China Southern Power Grid 71,242 2,330 Guangzhou Utilities
101 102 China South Industries Group 71,151 580 Beijing Aerospace and Defense
103 110 China Communications Construction 70,751 1,431 Beijing Engineering, Construction
114 119 People's Insurance Co. of China 66,732 2,144 Beijing Insurance: Property and Casualty
115 109 China National Offshore Oil 65,892 1,752 Beijing Mining, Crude-Oil Production
119 105 China Post Group 65,605 4,980 Beijing Mail, Package, and Freight Delivery
120 323 China Minmetals 65,547 -447 Beijing Metals
125 130 China FAW Group 64,784 2,411 Changchun Motor Vehicles and Parts
129 122 Tewoo Group 63,324 142 Tianjin Trading
133 132 China Telecommunications 62,387 1,765 Beijing Telecommunications
135 134 China North Industries Group 61,326 853 Beijing Aerospace and Defense
136 121 COFCO 61,265 205 Beijing Trading
137 160 Beijing Automotive Group 61,130 1,261 Beijing Motor Vehicles and Parts
139 -- Anbang Insurance Group 60,800 3,884 Beijing Insurance: Life, Health
143 139 Sinochem Group 59,533 468 Beijing Trading
159 163 Shandong Weiqiao Pioneering Group 56,174 1,217 Binzhou Textiles
162 143 Aviation Industry Corp. of China 55,306 464 Beijing Aerospace and Defense
170 353 HNA Group 53,035 279 Haikou Airlines
171 153 Bank of Communications 52,990 10,117 Shanghai Banks: Commercial and Savings
172 156 CITIC Group 52,852 3,236 Beijing Diversified Financials
183 190 Amer International Group 49,677 1,200 Shenzhen Electronics, Electrical Equip.
190 200 PowerChina 48,869 1,058 Beijing Engineering, Construction
199 205 Sinopharm 47,810 504 Beijing Pharmaceuticals
204 275 China Baowu Steel Group 46,606 443 Shanghai Metals
211 234 ChemChina 45,177 18 Beijing Chemicals
216 189 China Merchants Bank 44,552 9,345 Shenzhen Banks: Commercial and Savings
221 201 HBIS Group 43,769 -147 Shijiazhuang Metals
222 229 CEFC China Energy 43,743 741 Shanghai Energy
226 202 Lenovo Group 43,035 535 Hong Kong Computers, Office Equipment
230 195 Industrial Bank 42,622 8,106 Fuzhou Banks: Commercial and Savings
233 281 China Shipbuilding Industry 42,149 486 Beijing Industrial Machinery
238 303 Guangzhou Automobile Industry Group 41,560 552 Guangzhou Motor Vehicles and Parts
241 207 China United Network Communications 41,274 23 Beijing Telecommunications
245 227 Shanghai Pudong Development Bank 40,689 7,993 Shanghai Banks: Commercial and Savings
248 262 Aluminum Corp. of China 40,278 -283 Beijing Metals
251 221 China Minsheng Banking 40,234 7,202 Beijing Banks: Commercial and Savings
252 251 China Pacific Insurance (Group) 40,193 1,815 Shanghai Insurance: Life, Health
259 327 China National Building Material Group 39,323 75 Beijing Building Materials, Glass
261 366 JD.com 39,155 -573 Beijing Internet Services and Retailing
268 -- Hengli Group 37,880 822 Suzhou Textiles
274 217 China Huaneng Group 37,543 -86 Beijing Energy
276 270 Shenhua Group 37,322 1,917 Beijing Mining, Crude-Oil Production
277 311 Greenland Holding Group 37,240 1,085 Shanghai Real Estate
307 356 China Vanke 34,458 3,165 Shenzhen Real Estate
312 309 China Energy Engineering Group 33,930 421 Beijing Engineering, Construction
318 266 CRRC 33,739 1,700 Beijing Industrial Machinery
320 267 Jizhong Energy Group 33,366 -154 Xingtai Mining, Crude-Oil Production
322 318 Xinxing Cathay International Group 33,174 448 Beijing Metals
326 325 Shaanxi Yanchang Petroleum (Group) 32,652 -23 Xi'an Mining, Crude-Oil Production
329 313 China Everbright Group 32,461 1,878 Beijing Banks: Commercial and Savings
334 293 Sinomach 32,237 502 Beijing Industrial Machinery
336 344 China Aerospace Science & Technology 32,094 1,996 Beijing Aerospace and Defense
337 347 Shaanxi Coal & Chemical Industry 31,926 -254 Xi'an Mining, Crude-Oil Production
338 496 China Evergrande Group 31,828 2,369 Guangzhou Real Estate
339 328 Jiangxi Copper 31,680 20 Guixi Mining, Crude-Oil Production
341 401 China Poly Group 31,508 744 Beijing Real Estate
343 410 Zhejiang Geely Holding Group 31,430 1,266 Hangzhou Motor Vehicles and Parts
348 359 Wuchan Zhongda Group 31,185 324 Hangzhou Trading
355 381 China Aerospace Science & Industry 30,582 1,444 Beijing Aerospace and Defense
362 329 China Electronics 30,010 322 Beijing Electronics, Electrical Equip.
364 349 China State Shipbuilding 29,877 368 Beijing Industrial Machinery
365 314 Jiangsu Shagang Group 29,862 352 Zhangjiagang Metals
366 465 China COSCO Shipping 29,743 1,489 Shanghai Shipping
368 342 State Power Investment 29,493 437 Beijing Energy
372 426 Shandong Energy Group 29,299 39 Jinan Mining, Crude-Oil Production
380 385 Dalian Wanda Group 28,483 110 Beijing Real Estate
382 331 China Huadian 28,204 361 Beijing Utilities
397 345 China Guodian 27,315 269 Beijing Energy
400 408 China Electronics Technology Group 27,292 1,612 Beijing Aerospace and Defense
430 322 Datong Coal Mine Group 25,630 -215 Datong Mining, Crude-Oil Production
433 337 Shanxi Coking Coal Group 25,123 -10 Taiyuan Mining, Crude-Oil Production
439 484 China National Aviation Fuel Group 24,588 320 Beijing Wholesalers: Diversified
445 374 Yangquan Coal Industry Group 24,284 11 Yangquan Mining, Crude-Oil Production
448 370 Shanxi LuAn Mining Group 24,087 -107 Changzhi Mining, Crude-Oil Production
450 481 Midea Group 24,060 2,210 Foshan Electronics, Electrical Equip.
454 406 China Datang 23,871 244 Beijing Energy
459 -- Yango Financial Holding 23,657 159 Fuzhou Diversified Financials
462 -- Alibaba Group Holding 23,517 6,490 Hangzhou Internet Services and Retailing
467 -- Country Garden Holdings 23,044 1,734 Foshan Real Estate
476 384 Shanxi Jincheng Anthracite Coal Mining Group 22,875 3 Jincheng Mining, Crude-Oil Production
478 -- Tencent Holdings 22,871 6,186 Shenzhen Internet Services and Retailing
485 -- Suning Commerce Group 22,366 106 Nanjing Specialty Retailers
488 -- Xiamen C&D 22,145 280 Xiamen Trading
490 383 China General Technology 22,113 414 Beijing Engineering, Construction
494 -- Xiamen ITG Holding Group 21,930 36 Xiamen Trading
495 -- Xinjiang Guanghui Industry Investment 21,919 252 Urumqi Trading
497 427 New China Life Insurance 21,796 744 Beijing Insurance: Life, Health
Note: Private enterprises are highlighted.
Source: Compiled by the author based on "Fortune Global 500" (2017), Fortune.

Shenzhen emerging as China's major hub of private enterprises

The top three locations for the headquarters of the 105 Chinese enterprises listed in the latest Fortune Global 500 ranking are as follows: Beijing (56 companies), Shanghai (eight companies), and Shenzhen (six companies). Of the 81 SOEs, 52 are based in Beijing, and of these, 48 are “central enterprises” which are controlled by the central government through the State-owned Assets Supervision and Administration Commission of the State Council and other agencies. On the other hand, of the 24 private enterprises, five are based in Shenzhen, four in Beijing, and two each in Hangzhou, Nanjing, and Foshan. In Beijing, 92.9% of the enterprises that find their places in this list are SOEs, while in Shenzhen, 83.3% of them are private enterprises (Table 2).

Table 2. Headquarters Location of Chinese Enterprises in the Fortune Global 500 (2017)
-State-owned Enterprises vs. Private Enterprises-
SOEs Private enterprises Total
Number Share (%) Number Share (%) Number Share (%)
Beijing 52 92.9 4 7.1 56 100.0
Shanghai 7 87.5 1 12.5 8 100.0
Shenzhen 1 16.7 5 83.3 6 100.0
Wuhan 1 100.0 0 0.0 1 100.0
Hangzhou 1 33.3 2 66.7 3 100.0
Guangzhou 2 66.7 1 33.3 3 100.0
Xi'an 2 100.0 0 0.0 2 100.0
Xiamen 2 100.0 0 0.0 2 100.0
Binzhou 1 50.0 1 50.0 2 100.0
Fuzhou 1 50.0 1 50.0 2 100.0
Nanjing 0 0.0 2 100.0 2 100.0
Foshan 0 0.0 2 100.0 2 100.0
Hong Kong 1 50.0 1 50.0 2 100.0
Total (including others) 81 77.1 24 22.9 105 100.0
Note: Two Chinese mainland enterprises based in Hong Kong are China Resources National (a state-owned company) and Lenovo Group (a private enterprise).
Source: Compiled by the author based on "Fortune Global 500" (2017), Fortune.

Shenzhen, which is adjacent to Hong Kong, has become China's major hub of private enterprises. Until the 1970s, it was merely a small fishing village. However, with part of the area being assigned as one of the first special economic zones in 1980, Shenzhen has become a window for the opening of China and an experimental area for reform. It enjoyed high growth over the next 30-plus years. In the 1980s, many Hong Kong companies moved their factories to Shenzhen to take advantage of the incentives available in the special economic zone. Subsequently, as wages and land prices in Shenzhen rose, the majority of factories moved to the surrounding areas, such as Dongguan. Shenzhen on the other hand, has experienced a rapid growth in finance, logistics and high-tech industries, and industrial upgrading continues to advance. Shenzhen has a large migrant population from other parts of China, dominated by young people. This has become a factor favoring economic growth and innovation.

Shenzhen is located in the Pearl River Delta, which has emerged as one of the world's leading industrial cluster. Here, the infrastructure is well established for the whole supply chain, from research and development (R&D) to component production and assembly factories, in a wide range of industries, such as electronics and automobiles. Economies of scale and scope are achieved, new ideas are generated, and productization is possible in a short space of time. Hence, Shenzhen has come to be known as the “Silicon Valley of hardware.”

In Shenzhen, besides Huawei (communications equipment), Amer International Group (electronics/electrical equipment), and Tencent Holdings (internet service and retailing), which are listed in the Fortune Global 500 rankings, there are emerging companies which have a high level of competitiveness in both domestic and overseas markets in some high-tech fields. These companies include ZTE (communications equipment), BYD (new energy vehicles), BGI (biopharmaceuticals), DJI (drones), and Royole (displays).

SOE and private enterprise segregation by sector

By sector, China's SOEs are concentrated in the upstream (raw materials) and midstream (intermediate goods, capital goods) of the supply chain, while private enterprises are concentrated in the downstream (consumer goods and services). This shows that, in the downstream sectors, a competitive market environment has already formed, whereas in the upstream and midstream sectors, the barrier to entry for private enterprises is still high, and the SOE monopoly structure has remained intact (Note). Thus, SOEs and private enterprises do not compete in the same sectors. Rather, they are segregated into different parts of the supply chain. This “vertical structure” is a main feature of the Chinese economy, and can be seen from the list of Chinese enterprises in the Fortune Global 500 ranking.

Specifically, the Chinese SOEs in the 2017 Fortune Global 500 maintain an overwhelming share of the capital goods and business services, energy, financial services, and materials sectors, while private enterprises are dominant in consumer goods and services and real estate (Table 3).

Table 3. Chinese Enterprises by Sector in the Fortune Global 500 (2017)
-State-owned Enterprises vs. Private Enterprises-
Sector SOEs Private enterprises Total
Number Share (%) Number Share (%) Number Share (%)
Capital goods and Producer Services 26 89.7 3 10.3 29 100.0
Energy 18 94.7 1 5.3 19 100.0
Financial Services 14 77.8 4 22.2 18 100.0
Consumer Goods and Services 5 41.7 7 58.3 12 100.0
Materials 7 87.5 1 12.5 8 100.0
Information technology 4 50.0 4 50.0 8 100.0
Real Estate 2 33.3 4 66.7 6 100.0
Utilities 3 100.0 0 0.0 3 100.0
Health Care 2 100.0 0 0.0 2 100.0
Total 81 77.1 24 22.9 105 100.0
Note: Industries included in each sector (as classified in Fortune Global 500) are as follows.
· Capital Goods and Producer Service: industrial machinery; aerospace and defense; airlines; shipping; mail, package and freight delivery; trading; wholesalers (diversified); engineering, construction
· Energy: energy; petroleum refining; mining, crude-oil production
· Financial Services: banks(commercial and savings); insurance(life and health); insurance(property and casualty); diversified financials
· Consumer Goods and Services: motor vehicles and parts; textiles; internet service and retailing; specialty retailers
· Materials: metals; chemicals; building materials, glass
· Information Technology: telecommunications; network and other communications equipment; computers, office equipment; electronics, electrical equipment
· Real Estate: real estate
· Utilities: utilities
· Health Care: pharmaceuticals
Source: Compiled by the author based on "Fortune Global 500" (2017), Fortune.

In consumer goods and services, seven Chinese private enterprises are listed in the ranking, with three of them (JD.com, Alibaba, Tencent) being internet services and retailing corporations. There are only six global internet services and retailing corporations on the list, which means that Chinese enterprises account for half of them. (The other three are U.S. companies: Amazon.com, Alphabet (Google), and Facebook.)

Moreover, six Chinese real estate companies are listed in this year's Fortune Global 500 ranking. Of these, four (China Vanke, China Evergrande Group, Dalian Wanda Group, and Country Garden Holdings) are private enterprises. There is not a single non-Chinese real estate company on the list.

Future outlook

While China's economic growth rate has slowed down, it has remained higher than that of major economies including the United States, Europe, and Japan. Reflecting this, China's presence in the global economy will continue to grow, and the size of its GDP (60.4% that of the United States in 2016) is expected to exceed that of the United States, and become the highest in the world sooner or later. Against this backdrop, the number of Chinese enterprises in the Fortune Global 500 should continue to rise, and finally exceed the number of U.S. companies. This is likely to be led by private enterprises established with private capital. However, we must wait for the privatization of large SOEs if we are to see the number Chinese private enterprises overtaking that of SOEs.

The original text in Japanese was posted on September 5, 2017.

Footnote(s)
  1. ^ WANG Yong "SOE reform under a vertical structure" Peking University Center for New Structural Economics, New Structural Economics Working Paper Series, Number 9, August, 2017.
Related article

October 4, 2017