Top Chinese companies grow, but face bottlenecks

16 banks made more profits than top 300 manufacturing companies

Despite their growing size, China's top companies are facing profitability and innovation bottlenecks compared with their global counterparts, according to a recent domestic ranking of China's top 500 companies released on Tuesday.

In the 2014 edition of the Top 500 Chinese Enterprises, unveiled in Beijing Tuesday, China's oil giant Sinopec Group snatched the top slot for a 10th consecutive year with revenues of 2.95 trillion yuan ($479 billion).

The list was complied by the China Enterprise Confederation (CEC) and the China Enterprise Directors Association based on Chinese companies' 2013 revenues.

Although total profits for the 500 companies grew by 10.6 percent from the previous year to 2.4 trillion yuan in 2013, their profit-revenue ratio edged down for a third consecutive year, dropping 0.1 of a percentage point to 4.24 percent.

"Although the growth rate of China's top companies slowed down from over 20 percent two years ago, they continue to expand. They accounted for 35 percent of the nation's total tax revenue in 2013," Li Jianming, deputy director at the China Enterprise Confederation, told the Global Times Tuesday.

A total of 92 of the companies also landed in the US-based Fortune Magazine's rankings of the world's 500 largest companies, Li said.

However, some experts point out that bigger does not necessarily means stronger. Weak profitability and ability to innovate mean that many of these companies still have a long way to go before they can be counted among the world's best companies.

Li Jin, chief researcher with the China Enterprise Development Research Institute (CEDRI), said many of the top 500 companies are State-owned enterprises(SOEs) that lack vitality and efficiency, and lack incentives to reform, although he added that the central government aims to change this.

Jin said that China's top 500 companies are concentrated in the resource and manufacturing sectors, with fewer companies in high-value added sectors such as IT.

Experts said that relatively few top Chinese companies are technical leaders in their fields.

Two such examples, PC manufacturing giant Lenovo and telecommunications equipment maker Huawei Technologies, ranked 45th and 48th on the list respectively.

"[As a whole, these companies'] ability to innovate is weak. As the economy has slowed down, the rate of increases in R&D investment dropped for a second straight year in 2013, which is alarming," Li Jianming of CEC said.

In 2013, Chinese companies' investment in R&D grew by 7.36 percent year-on-year. That figure was 11.37 percent in 2012 and 16.50 percent in 2011, according to news portal 163.com.

According to Li, the manufacturing sector's profitability is at concerning levels.

"The 16 Chinese banks on the top 500 list made more profits than the top 300 manufacturing companies combined in 2013, and accounted for over half of the total profit of the top 500 companies, raising concerns of a 'hollowing-out' of domestic industry," Li Jianming said.

In comparison, the top 18 US banks only accounted for around 10 percent of total profit for the top 500 US companies.

With SOEs occupying the top 37 spots on the list, home appliance retailer Suning Commerce Group Co took the 38th spot as the largest company from the private sector, with annual revenues of 279.81 billion yuan.

The 2014 version of the list includes 200 companies from the private sector.

A total of 131 companies reported revenues of more than 100 billion yuan in 2013, up from 123 companies a year earlier, while the top 500 Chinese companies had combined revenues of 56.68 trillion yuan in 2013, up 13.31 percent from a year earlier, according to CEC.