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Bigger isn’t always better for China’s state-owned giants

September 2, 2021, 11:35 AM UTC

One of the key takeaways from Fortune’s 2021 Global 500 ranking, released last month, is that this year, for a second year in a row, the list was “more Chinese than American.” Mainland China (including Hong Kong) accounted for 135 companies on the 2021 list, eclipsing the U.S., which had 122. That widened the gap over last year, when mainland China had 124 firms, edging out the U.S. with 121.

Add in companies from Taiwan and the Greater China total for 2021 leaps to 143, up from 133 last year.

It’s not surprising that the number of Chinese firms on the Global 500 increased this year over last, while the number of U.S. companies held steady. China’s economy shook off the shock of the pandemic sooner and more quickly than did the U.S. China’s businesses were able to reopen for most of 2020, while much of the U.S. remained in pandemic-induced lockdown.

It’s less obvious, though, why China, with a $15 trillion economy, would claim 13 more places on the Global 500 than the U.S., which has a $21 trillion economy.

As we often remind readers, the Fortune Global 500 is a ranking of corporate size as measured by annual sales. So the dominance of Chinese companies on this year’s list doesn’t necessarily mean Chinese companies are “stronger” or more “competitive” than their U.S. counterparts. What it does reflect, at the risk of stating the obvious, is that China has more big companies than the U.S.—and has a lot more big companies per dollar of economic output.

That’s by design. In China’s centrally led socialist economy, most of the key industrial sectors—mining, oil and gas, chemicals, construction, auto manufacturing, aviation, shipbuilding, telecommunications, and banking—are dominated by a handful of giant companies controlled by the state.

The overseer for most of China’s state-owned giants is the State-owned Assets Supervision Administration Commission (a.k.a SASAC), a government agency that reports to the State Council, China’s highest governing body. As Hannah Reale puts it in this essay for The Wire China, SASAC is “perhaps the world’s most powerful business manager.” (That is perhaps an understatement.)

On its website, SASAC hailed the inclusion of 82 Chinese state-owned enterprises on this year’s Fortune Global 500. Those companies include State Grid (No. 2), China National Petroleum (No. 4), Sinopec (No. 5), China Railway Engineering Group (No. 35), China Mobile Communications (No. 56), and SAIC Motor (No. 60). Of this year’s top 100 companies, 17 answer to SASAC.

But SASAC’s list actually understates the presence of Chinese state-owned enterprises on the Global 500 because it doesn’t include the nation’s four largest banks and several other large financial institutions which are controlled via Central Huijin Investment Company, a holding company for the Ministry of Finance. Nor does it include China Post Group (No. 74), which is fully owned by the state and reports to the Ministry of Information Industry.

By my reckoning, this year’s Global 500 includes 11 other state-owned Chinese companies in addition to the 82 claimed by SASAC. That would mean state-owned companies account for 93 of mainland China’s 135 places on the list, while private Chinese companies account for 42. (Of the U.S. companies, the Postal Office, is state-owned, and Fannie Mae and Freddie Mac are more than 50% owned by the federal government.)

It was long assumed that China’s leaders planned to scale back the role of state-owned enterprises in China’s economy to make way for more dynamic and efficient private companies—and for three decades after Chinese leader Deng Xiaoping opened China’s economy to overseas trade and investment, that’s generally what happened.

Nicholas Lardy, now a senior fellow at the Peterson Institute of International Economics, published the definitive study of that process in 2014. It was aptly titled: Markets over Mao. Lardy estimates that by 2012, private firms contributed an estimated 70% of China’s GDP.

But in a 2019 book, entitled The State Strikes Back, Lardy argued that, since 2012, the year China’s current president Xi Jinping rose to power, “this picture of private, market-driven growth has given way to a resurgence of the role of the state in resource allocation and a shrinking role for the market and private firms.” Lardy estimated that the “resurgence of the state” under Xi would cost China as much as two percentage points a year in economic growth.

In a review of Lardy’s latter volume, Gabriel Wildau, then Shanghai bureau chief for the Financial Times, noted that many analysts predate China’s about-face on SOEs to 2008 following the Global Financial Crisis. It’s often argued that’s the moment China’s leaders lost faith in privatization and U.S.-style capitalism. Wildau praised Lardy for his recognition that Xi and his compatriots made a conscious trade-off between economic growth and political stability. The issue, Wildau averred, isn’t that Xi “doesn’t get” free markets. It’s that he “understands free markets well enough to perceive the threat they could pose to the Communist party’s rule.”

Xi had high praise last year for Chinese SOEs’ contribution to containing the coronavirus. In an April 2020 speech, he lauded state firms as “the economic and political foundation of China’s socialist system” and “a key pillar for the [Communist] Party’s rule.” China’s SOEs, he added, “must be built stronger, better and larger“ and “cannot be negated nor weakened.”

But cossetting state-owned giants has risks, too, and one of the clearest manifestations of that has been the ongoing saga involving China Huarong Asset Management, one of four “bad banks” created to mop up the delinquent debts from China’s state-owned giants. Huarong swapped those debts for stakes in hundreds of big SOEs, then plunged into investment banking, trusts, and real estate, borrowing billions from domestic and foreign investors who assumed that, no matter how speculative those investments, Huarong had the implicit backing of Beijing. Bloomberg has the inside story of how Huarong became, in effect, the Lehman Brothers of China and explains in this vividly reported account Beijing’s August 18 decision to bail the company out.

More Eastworld news below.

Clay Chandler

This edition of Eastworld was curated and produced by Grady McGregor. Reach him at

Eastworld news

Data rules

On Wednesday, China’s government implemented its new Data Security Law, outlining how corporations operating in China should handle their data. The law introduces harsh penalties for companies that mishandle data deemed important or core to China’s national interests, but its vague wording is leaving uncertainty about how it will be implemented. Ultimately, the new data rules reflect how China’s government is tightening its grip on the tech sector and entering a more heavily regulated Internet age. Fortune

Common company prosperity

On Monday, China’s President Xi Jinping called on officials to “urge companies to obey the leadership of the party” as the government imposes rounds of new regulations and restrictions on sectors like tech, gaming, and education. Companies appear to be listening. At least 73 of China’s largest firms have added the phrase ‘Common Prosperity’ to recent earnings reports, promoting President Xi’s campaign to reduce wealth inequality. Tech giants like Pinduoduo and Tencent have meanwhile pledged billions of dollars to funding rural development and other social responsibility schemes in China. Bloomberg

Ghost cities

A decade ago, photos of massive, yet deserted, urban centers in China went viral and drew the attention of Western media outlets. ‘Ghost cities’, as they were deemed, arose from China’s efforts to urbanize by building cities from scratch in the hope they would eventually draw residents. While the cities remained sparsely populated for years, resulting in eerie photos of desolate urban landscapes, at least some of them are now beginning to fill up. Years after the cities were completed, rural residents and people from outside the cities have become increasingly attracted by the promise of new jobs and already functioning schools, hospitals, and entertainment venues in the one-time ghost cities. Bloomberg

A micro shock

For years, India’s microfinancing ecosystem has been hailed as a success, allowing entrepreneurs across the country to secure small loans as a means to kickstart business and create jobs. But the pandemic has poked a hole in the microfinance system, as successive lockdowns since 2020 have forced small businesses to shut down. Millions of Indians are now finding it difficult to pay off their loans, saddling the country’s banks with rising levels of non-performing loans. Financial Times

Markets and movers

Prosus – The investment arm of South Africa’s Naspers Internet group is buying Indian digital payment firm BillDesk for $4.7 billion. The deal will merge BillDesk’s services with Prosus’ PayU payments business, and will create one of the world’s largest online digital payment providers. 

Pork futures – Chinese hog futures have dropped by 50%, worth an estimated $75 billion, since they started trading earlier this year. Chinese pork producers are coming to grips with the possibility that Chinese consumers are demanding less pork even as hog herds are recovering after a devastating African Swine Fever epidemic.

Tech unions – Chinese ride hailing giant Didi and e-commerce firm have established landmark employee unions in a tech sector where organized labor is extremely rare. The moves come as China’s government advocates that China’s top tech firms share their wealth. 

Bytedance – The Chinese tech giant cut employee pay by as much as 20% in August compared to previous months as the company imposed new cuts to overtime pay and reduced gruelling work schedules. In recent weeks, China’s government has cracked down on 996 working culture in Chinese tech, in which workers were asked to work for 12 hours per day for six days a week.

Xiaomi – The smartphone giant officially registered its new electric vehicle unit Xiaomi EV and named Xiaomi founder Lei Jun as CEO on Wednesday. Xiaomi announced that it plans to spend $10 billion in the next ten years on its electric vehicle business and has hired 300 employees to work at the EV unit. 

BioNTech – The first batch of BioNTech vaccine doses arrived Taiwan after political battles between mainland China and Taiwan resulted in months of delays in Taiwan acquiring the shots. Taiwan signed a $350 million deal in July to acquire 10 million doses after major Taiwanese firms Foxconn and Taiwan Semiconductor Manufacturing Company helped facilitate a deal between Taiwan and China's Fosun Pharma, which owns distribution rights for BioNTech's vaccine in Taiwan. 

Digital currencies – The central banks of Australia, Malaysia, Singapore, and South Africa announced that they will test a cross-border digital payment scheme to see if transitioning to central bank digital currencies can make international transactions cheaper and more efficient. 

Final figure


Chinese manufacturing activity slowed in August for the first time since April 2020, as output and total orders dropped, according Caixin’s Purchasing Manager’s Index (PMI). The PMI provides a snapshot of China’s manufacturing activity, with any number above 50 indicating a growth in manufacturing while any number below 50 means a contraction. Caixin reports that China’s PMI fell to 49.2 in August, down from a 50.3 reading in July. Factory managers report that China’s draconian efforts to contain its latest outbreak of COVID-19 hampered production and reduced overall demand.

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