How the Fortune 500 List Perfectly Mirrors China’s Distorted Economy

August 1, 2016 3:07 pm Last Updated: August 1, 2016 3:07 pm

The annual Fortune 500 list was published on July 20. The number of Chinese companies has increased from 106 in 2015 to 110 this year, more than 20 percent of the total list and close to the number of U.S. companies. Thirteen Chinese enterprises, including Vanke, made it on the list for the first time.

Fortune 500 is regarded as a mirror of the global economy. Over the years, despite the global economic landscape having undergone tremendous changes, emphasis on Fortune 500 has not changed much. Fortune 500 companies account for approximately 40 percent of global production, 50 percent of international trade, 60 percent of international technology trade, and 90 percent of international direct investment. It indeed represents the economic strength of a country and is a country’s most important “business card.”

However, when we examine industry distribution, profitability, international influence, and brand competitiveness, these 110 Chinese companies perfectly mirror the distorted state of China’s overall economy.

Industry Distribution

Most of the Chinese Fortune 500 companies operate in the petroleum, finance, electric power, iron and steel, automobile, coal, and non-ferrous metals sectors. Over many years, this industry distribution has not changed substantially, and these industries either have a monopoly status, or suffer excess capacity or huge losses.

Currently, China is making great efforts to reduce production and eliminate zombie companies — unproductive state-owned enterprises that are kept alive through loans. In other words, these Fortune 500 companies undoubtedly represent the Chinese economy’s shortcomings rather than its competitiveness.

A pedestrian walks past the People’s Bank of China in Beijing on Aug. 22, 2007. (Teh Eng Koon/AFP/Getty Images)

Banks Top List

This year, Apple reported a profit of $53.4 billion, surpassing the Commercial Bank of China as the world’s most profitable company. The 2nd to the 5th most profitable Fortune 500 companies are China’s big four banks. There are 10 Chinese banks on the list this year. With over $180 billion in profits, they account for 55 percent of all Chinese companies on the list in terms of profit.

Whether we are looking at China’s more than 3,000 companies listed on the stock exchange or the ones on the Fortune 500 list, banks are earning much more than the real economy. From the Fortune 500 list we can see that the real economy works for the banking industry.

A worker rides bicycle at an oil refinery of China’s Sinopec in Wuhan, a city in China’s Hubei Province on May 10, 2011. (STR/AFP/Getty Images)

Few Service and Technology Companies

Over the years, the number of U.S., Japanese, and even Korean companies on the Fortune 500 list have been declining. In 2016, only 54 Japanese companies are on the list, less than half the number of Chinese companies.

However, in terms of industry distribution, companies from these countries spread across retail, electronics, internet, state-of-the-art manufacturing, medical, and other fields that represent the world’s future economic development. Chinese companies, on the other hand, are mostly involved in oil, power, telecommunications, steel, and other monopoly or quasi-monopoly enterprises, although e-Commerce giant Jingdong, home appliance giant Midea, and food giant Wanzhou International are also on the list.

Visitors view architects’ models of apartment blocks during the 2007 Xian Autumn Real Estate Trade Fair in Xian of Shaanxi Province on Oct. 26, 2007. (China Photos/Getty Images)

Many Real Estate Companies

Lastly, China has the most real estate companies on the Fortune 500 list, including the three real estate giants, Vanke, Wanda, and Hengda. In the past, Greenland Holding Group was also on the list.

According to incomplete statistics, more than 13 companies associated with real estate are also on the list, including China Resources, China CITIC Bank, COFCO Group, PowerChina, China Minmetals, China State Construction Engineering, Aviation Industry Corp of China, Hainan Airlines, CK Hutchison, and Tianjin Goods & Materials Group. This means that among the 110 Chinese companies, at least 17 are related to the real estate sector. It reflects the Chinese economy’s dependence on real estate.

Challenges Ahead

Presumably, the more Fortune 500 companies a country boasts, the higher its overall economic power. But when taking industry distribution and profitability into consideration, the gap between the U.S. and China is not as small as it appears from the Fortune 500 list. It’s a huge embarrassment for Chinese to have companies on the list that are monopoly industries, industries plagued by overcapacity or financial losses, and real estate businesses. Meanwhile, there are few Chinese science and technology companies. It indicates that China still has a long and challenging road ahead before realizing economic transformation based on innovation and competitiveness.

The significance of any list will change with China included. To get on the Fortune 500 list has become a goal for Chinese enterprises, and local governments also pursue it for the sake of their performance records. It goes right along with China’s pursuit of gross domestic product size and the speed and scale of overall development in the past 30 years.

But clearly, making it onto the Fortune 500 list is not everything. For one thing, it does not represent advanced productivity. The 500 enterprises are in fact the 500 largest enterprises. As China relies on the state, it is not a big deal to have large enterprises. Some people think that through corporate mergers and acquisitions, China can take the top 200 places on the Fortune 500 list if it wants to.