The multiyear-ascent of Chinese corporations supports and reinforces China’s continued rise in the global economy, and has helped the country gain clout among world leaders like Angela Merkel and Vladimir Putin, who visited China recently. Moreover, according to this year’s list of Fortune Global 500 Companies, 95 Chinese corporations made the list, up from 89 last year, 73 two years ago, and 34 in 2008. Three companies made it to the top ten, beating the US and Japan—Sinopec Group, China National Petroleum, and State Grid. Does it mean that China's corporations are ready to take the world, as Japanese corporations did back in the 1980s?
According to the Forbes' contributor - not yet. Getting bigger doesn’t necessarily mean getting better—or more competitive. Chinese companies have yet to develop matching clout in the world economy, by gaining a competitive edge against their American, European, and Japanese counterparts.
In fact, it’s hard to find a major segment of the world economy dominated by China’s corporations. One reason for this discrepancy between size and clout is the ownership structure of Chinese corporations. Most of the companies that climbed onto the list are state-owned enterprises (SOEs) like Sinopec Group, China National Petroleum and State Grid. State ownership constrains quick growth overseas for Chinese corporations through high profile acquisitions, as was the case with Japanese corporations in the 1980s.
The reason for that is simple: acquisitions like these create too much political tension. In 2005, for instance, CNOOC failed to acquire the American oil company Unocal, due to political opposition. The same is true for Huawei’s failed acquisition of 3Com, and Chinalco’s failure to acquire a stake in Rio Tinto.
Another reason is that Chinese companies have yet to make the great leaps forward which come from the movement from imitation to innovation. Chinese companies are nowhere to be found in Forbes World’s Most Innovative Companies list. Therefore, Chinese companies have yet to gain the respect of institutional investors.
Let us have a look at a recently released Barron’s 2014 survey of the World’s Most Respected Companies—consistent with the findings of the 2012 and 2013 surveys. American companies crowded the top of the list. The middle of the list is also filled with American companies, though giving some space for a good number of European, Japanese, and Brazilian corporations.
Only three Chinese companies, China Mobile, Tencent Holdings, and China Construction Bank made — it near the bottom of the list, the same number as last year.
Although the survey doesn’t provide any specific reasons for the low
ranking of the Chinese corporations, it marks the five most important
criteria for including companies:
1) strong management,
2) sound business
3) ethical business practices,
3) competitive edge,
4) revenue and profit growth.
Obviously, Chinese corporations are lagging behind their American and European counterparts in all of these attributes. The corporations of the Asian giant have a long way to go before they can compete effectively in world markets, gain the respect of investors, and conquer the world.