China's top 500 companies need to grow stronger

The 2012 China Top 500 Enterprises List was jointly published by the China Enterprise Confederation and the China Enterprise Directors Association on Saturday.

With 2.55 trillion yuan (about 402 billion U.S. dollars) revenue in 2011, Sinopec, China's major oil company, has topped the ranking of the best-earning Chinese enterprises for the eighth straight year.

Entrepreneurs and analysts say that China's top 500 companies are only "big", but not "strong" enough, and that they still have a long way to go to grow stronger and more powerful.

Enterprises expand in scale

Sinopec was followed in second place by another oil company, China National Petroleum Corporation, which also reported a revenue of over 2 trillion yuan.

The two were joined by eight other big state firms in the top 10 -- the State Grid; Industrial and Commercial Bank of China; China Construction Bank; China Mobile; Agricultural Bank of China; Bank of China; China State Construction; and China National Offshore Oil Corporation.

The 500 companies reported a combined revenue of 44.9 trillion yuan in 2011, up 23.7 percent year on year, according to data from the China Enterprise Confederation.

The figure accounted for 95.3 percent of China's GDP in 2011, 4 percentage points higher than that of the previous year, which demonstrated that the top 500 enterprises played a more prominent role in the national economy.

Meanwhile, the total assets of the 500 companies reached 130.2 trillion yuan in 2011, an increase of 20.4 percent over the last year.

A total of 107 companies out of the 500 reported a revenue over 100 billion yuan, 20 more than the figure of the previous year, including 15 private companies, according to the list.

The list showed that the threshold of the 500 shortlisted reached 17.5 billion yuan, up 33.1 billion yuan from the year earlier.

"The much higher threshold for the 500 showed that Chinese enterprises expanded extensively in terms of scale," said Miao Rong, deputy director of the Research Institute of the China Enterprise Confederation.

Growth rate slows down

Although the combined profits of the 500 enterprises stood at 2.1 trillion yuan, the growth rate plummeted from 38.7 percent in 2011 to 0.96 percent this year.

Moreover, the profit-revenue ratio also declined 1.07 percentage points to 4.7 percent, reflecting that the companies failed to maintain high profit growth in the current complex economic situation.

It's noteworthy that 13 companies reported losses and 149 witnessed negative net profit margin, while the figure was seven and 74, respectively, in the 2011 list.

"The worsening operation situation due to the changes of the macro-economic environment and the rising costs of raw materials, laborers and financing worked together to squeeze enterprises' profits," said Li Jin, a senior researcher with the China Enterprise Research Institute.

At the same time, huge internal gaps exist among the 500 in terms of both assets and revenue.

The combined assets and revenue of the last 10 companies on the list was 0.12 trillion yuan and 0.18 trillion yuan, respectively, only accounting for 0.2 percent of 1.69 percent of those of the top 10.

Data showed that the combined profits of the five largest commercial banks and of the 272 manufacturing enterprises took up 32.2 percent and 25.04 percent of the total, respectively.

Miao Rong said, "It is the first time in five years that the five largest commercial banks reported higher profits than manufacturing enterprises."

From big to strong

Although the 500 Chinese companies achieved remarkable progress in scale, profits and innovative capacity, they still lag behind the Fortune Global 500.

The combined revenue, net profits and assets of China's top 500 companies only account for 23.55 percent, 19.89 percent and 27.4 percent of those of the global top 500, respectively.

Song Hua, a professor with the Renmin University of China, said, "Compared with large transnational enterprises, China's top 500 companies lack core competitiveness on the whole."

Song also noticed that the top-earning companies are dominated by state banks and industry monopolies, and that their profits can largely be contributed to the favorable policies and resources to which they are entitled.

"Chinese companies have grown big. Now they face the test to grow stronger," said Li Jin, a senior researcher with the China Enterprise Research Institute.

Shao Ning, deputy head of the State-owned Assets Supervision and Administration Commission, said China's big companies have been facing "arduous challenges" since the 2008 global financial crisis.

He said in the globalization age, a country's competitiveness relies on that of its big companies.

"Compared to China's world status in the world economy, Chinese companies are still weak, lack innovation, and command no major international influence," according to Shao.

He urged enterprises in China to accelerate reform, become more innovative and improve management to grow into internationally powerful corporate giants.

The government needs to further change its role to create favorable policies that allow big companies to grow, urged Wang Zhile, a research fellow with the Ministry of Commerce.