How dominant are Chinese companies globally?

How dominant are Chinese companies globally?
How dominant are Chinese companies globally?
How dominant are Chinese companies globally? Top

    The world economy is shaped not just by states, but also by an assortment of influential companies. These firms are critical elements of national economic power that generate revenue, drive trade, and support research and development. In conjunction with China’s emergence as an economic superpower, several Chinese companies have climbed the ranks to be among the largest in the world. With the revenue of China’s largest businesses now measured in the trillions, assessing their presence in the global marketplace provides insight into China’s expanding economic clout.

    The Rise of Chinese Companies

    Comparing Chinese companies

    One way of measuring the growth of Chinese companies is through the Fortune Global 500, an annual ranking of the world’s top 500 companies by revenue. In 2008, only 29 Chinese companies made it onto the list. These companies had a combined revenue of $1.1 trillion, which accounted for just five percent of the revenue generated by the world’s 500 largest companies. By comparison, 119 Chinese companies with a combined revenue of $7.9 trillion appeared on the list in 2019 – representing nearly a quarter of the $32.7 trillion in revenue generated by all 500 companies.

    The emergence of more Chinese firms on the Global 500 has pushed other companies off the list. In 2008, Japan was home to 12.8 percent of the world’s top 500 companies, but this number dropped to 10.4 percent in 2019. The US has consistently produced the most companies on the Global 500, but its share dropped from 30.6 percent in 2008 to 24.2 percent in 2019. US companies maintain a notable margin in terms of revenue, with the total amount pushing $9.5 trillion dollars – 28.7 percent of the revenue generated by the top 500 firms.

    More than half of China’s top companies are concentrated within three sectors: financials (21.8 percent), energy (17.6 percent), and materials (12.6 percent). In broad terms, financial and energy companies dominate the Global 500, but China distinguishes itself in the materials sector where 15 of the 24 top firms are Chinese. Massive Chinese entities like China Minmetels, Amer International Group, and China Baowu Steel Group are listed as three of the five largest materials companies in the world.

    In the technology space, five Chinese firms made it onto the 2019 Fortune Global 500, which is less than half of the offering from the US (12 entries) but roughly on par with Japan (seven entries) and Taiwan (six entries). US technology companies also enjoy an edge in revenue. Apple alone raked in $265.6 billion in revenue, which nearly matched the revenue of $266.8 billion produced by China’s five biggest technology companies combined. China’s leading technology giant, Huawei, took in $109 billion in revenue.

    Comparison of Top Sectors (2019)
    Rank USA China
    1 Financials Financials
    2 Health care Energy
    3 Energy Materials
    4 Technology Wholesalers
    5 Retail Construction
    Source: Fortune Global 500

    Companies can also be compared in terms of brand value.1 Brand Finance produces an annual ranking of the world’s top brands, and in 2019 China’s most valuable brands were worth a collective $1.3 trillion. While good enough to earn China the second spot globally, the top American brands boast an impressive $3.1 trillion in combined value. The US also enjoys a nearly three-fold lead over China in the number of brands on Brand Finance’s ranking, with 198 US brands making the cut compared to 73 Chinese brands.2

    China’s top brands are notably different from those of other economic powerhouses. Large state-owned banks account for four of China’s top ten brands, with the Industrial and Commercial Bank of China (ICBC) at the top of that group. By comparison, the top four US brands, which also hold the top four spots globally, are all technology leaders: (1) Amazon; (2) Apple; (3) Google; and (4) Microsoft. Chinese technology firms are, however, making headway. Brand Finance lists video streaming service iQiyi as the world’s fastest-growing brand, and social media app WeChat as the third-fastest growing brand. Other major economies, including Germany and Japan, count automotive companies like Mercedes-Benz, BMW, Toyota, and Honda among their top brands.

    While revenue and brand value are useful measures, they do come with some limitations. Both metrics provide a concrete means of assessing the increasing scale of Chinese companies. Determining the global influence of China’s leading firms, however, is far more difficult to quantify. Related metrics like profitability and market capitalization offer additional datapoints, but none provide a holistic view by themselves. Nonetheless, evaluating the revenue and brand value of Chinese companies and comparing these figures cross-nationally provides a compelling glimpse into the changing nature of the global economy.

    Propelling China’s Companies Forward

    Many of China’s largest companies receive financial and political support from Beijing. Nearly 70 percent of the 119 Chinese firms featured on the Fortune Global 500 are state-owned enterprises (SOEs). The most important of these are central SOEs managed through the State Council’s State-owned Assets Supervision and Administration Commission, which is charged with hiring and firing executives, reforming and restructuring firms, and auditing.3

    Proportion of SOEs within Rankings (2019)
    Rankings Total Chinese Firms Number of SOEs Ratio (%)
    Fortune Global 500 119 83 69.7%
    Brand Finance Global 500 68* 33 48.5%
    Source: Fortune Global 500, Brand Finance Global 500
    *There are 73 Chinese brands included in the Brand Finance Global 500, but only 68 unique firms.

    The Chinese Communist Party (CCP) also exerts influence in SOEs by placing their top executives in important party roles. For instance, the leaders of the largest central SOEs – like Sinopec and ICBC – account for about 10 percent of the alternate members of the CCP Central Committee.4 These practices empower the party to directly incorporate these firms into the national agenda, such as promoting the Belt and Road Initiative.

    The party and government are likewise active within private businesses. Under President Xi Jinping, the Communist Party has expanded its presence within private firms through “party building” efforts, and the government is taking similar measures. In September 2019, for instance, it was announced that the city of Hangzhou would send government officials to work in 100 “key enterprises such as Alibaba, Geely Holdings and Wahaha” – likely boosting the government’s influence in these businesses.

    Beijing is also working to promote the market-based growth of its companies. In July 2019, China set up the Science and Technology Innovation Board on the Shanghai Stock Exchange. Commonly known as the “Star Market,” the new innovation board is designed to support companies that are working on “core technologies,” such as artificial intelligence and semiconductors. The Star Market is also aimed at enticing big-name Chinese technology firms, such as Alibaba and Tencent, to list domestically rather than on foreign exchanges.

    Investments in research and development (R&D) have helped Chinese companies improve their products and expand into new markets. According to the OECD, China’s R&D expenditure in 2017 was second only to the US at $444.8 billion – a more than tenfold increase since 2000. A large majority of this R&D (76.5 percent in 2017) is financed by businesses and typically goes toward producing commercial products rather than advancing scientific research.5 This rise in R&D spending has helped Chinese businesses climb the ranks of PricewaterhouseCoopers’ Global Innovation 1000 study. PwC’s 2018 study found that 145 Chinese companies were among the top 1,000 R&D spenders in the world, a considerable jump from just 25 companies in 2012.

    Chinese companies have also made targeted overseas investments to boost access to new technologies and management practices. Private carmaker Geely Automotive, for instance, acquired Volvo from Ford Motor Company in 2010. The purchase helped vault Geely onto the Fortune Global 500, where it now ranks 220th globally.6 While the deal did little to improve the exports of Geely products or its brand recognition overseas, Volvo’s industry knowledge has been leveraged to improve Geely’s performance at home.

    Computer manufacturer Lenovo made a similar keynote acquisition in 2005 when it bought IBM’s personal computer division. The move coincided with a boost in Lenovo’s market share and later inclusion in the Fortune Global 500 in 2008. In 2019, Lenovo sits at 212th globally and 16th within the technology sector.

    Competing for Chinese Consumers

    China’s ongoing economic development has resulted in a burgeoning middle class with access to growing levels of disposable income. The increasing significance of China’s middle class has left foreign and domestic firms competing for their hard-earned money.

    One particular area of interest is personal electronics, including mobile phones. China is home to the largest number of mobile phone users in the world with the amount of cellular subscriptions now approaching 1.5 billion. According to McKinsey, foreign smartphone brands once enjoyed a 90 percent share of China’s domestic smartphone market, but as comparable Chinese devices became more readily available this number fell to around 10 percent. As of mid-2019, Huawei held a 36 percent share of the market, while other Chinese companies Vivo, Oppo, and Xiaomi combined for another 50 percent. The top foreign player is Apple with around a six percent share.

    FDI

    China is expected to be a global leader in 5G technology. Beijing intends to invest $411 billion in 5G network infrastructure between 2020 and 2030. Learn more.

    The greater presence of Chinese brands in the domestic arena has intensified competition in other industries. Between 2008 and 2017, the market share of foreign firms dropped by 17 percent in pet foods and 13 percent in both video games and passenger vehicles. Big-name foreign companies have also been pushed out of domains like ride-sharing apps. Uber left China in August 2016 after years of difficulties navigating the market, but retained a presence by purchasing over a 15 percent stake in Didi Chuxing.

    Foreign companies have also struggled to navigate China’s unique political environment. Technology giants like Facebook and Google have effectively been shut out of the market due to Beijing’s tight control of the internet. Luxury goods companies Coach and Versace were embroiled in a row in August 2019 after listing Hong Kong, Macau, and Taiwan separately from China on certain garments.

    While it is unclear if the clothing controversy will have a significant impact on the sales of Coach and Versace products, luxury goods have in general become increasingly sought after by Chinese consumers. China’s share of global spending on luxury goods increased from four percent in 2008 to 33 percent in 2018, with foreign brands like Louis Vuitton, Bulgari, Cartier, and Gucci ranking among the favorites of Chinese consumers.

    As the appetite of Chinese consumers has evolved, companies have sought new ways to promote their products. In 2018, spending on digital advertizng in China reached $65.4 billion – approximately 23.1 percent of the global total. This is projected to more than double by 2023 to roughly $134 billion, or an estimated 26 percent of the global total.

    Harnessing the power of China’s media influencers is key to the advertising strategies of both Chinese and foreign brands. Chinese companies like Vivo, Xiaomi, and Meitu have taken advantage of local star power by featuring endorsements from well-known celebrities in their advertisements. Social media influencers, known as wanghong, are likewise being used to appeal to selected audiences. Foreign brands have followed a similar approach. In 2017, Burberry collaborated with influential Chinese fashion blogger Mr. Bags to sell a limited-edition bag on Wechat, which sold out within ten minutes. Successful foreign companies like Unilever have also worked with China’s leading technology firms, including Alibaba, to obtain customer data to better target advertisements. ChinaPower

    1. Brand Finance defines brand value as “the value a company would be willing to pay to license its brand as if it did not own it.”
    2. Brand Finance reports 70 Chinese companies, but this excludes firms in Hong Kong and Macau. For the sake of consistency with the Fortune Global 500, we have included these companies in our totals.
    3. There are also provincial and municipal SOEs, but the largest and most important SOEs are the 96 central SOEs administered by SASAC.
    4. There are currently 203 full members and 172 alternate members of the CCP’s 19th Central Committee. Alternate members are important party leaders, but do not vote on the committee. According to analysis by MacroPolo, there are currently 18 SOE leaders among the Central Committee’s alternate members.
    5. It is important to note that much of the R&D financed by businesses is done by SOEs, blurring the line between government and business financing.
    6. In the Fortune Global 500, Geely is listed by its full name, Zhejiang Geely Holding Group.