Chinese enterprises need to take on global challenges

By Wu Meng

The China Enterprise Confederation (CEC) released its 2009 Top 500 Chinese Enterprises list Saturday. For the fourth year in a row, Sinopec was ranked number one, with operating revenues of 1.46 trillion yuan ($213.8 billion).

The report shows that the gap between the top 500 Chinese enterprises and the Fortune 500 is getting smaller. However, Li Wei, vice chairman of the State-owned Assets Supervision and Administration Commission of the State Council, pointed out that although Chinese enterprises show growing competetiveness, they still have a long way to go to become global when compared with the real international giants.

After decades of continuous growth, there has been considerable progress in the scale and competitiveness of Chinese enterprises. But more than 60 percent of the CEC’s top 500 are State-owned enterprises and most gained success due to easy access to abundant domestic resources and a preferential national policy, rather than the market itself, particularly the international market. Much more needs to be done to make them real multinationals.

Recently, the China Council for the Promotion of International Trade conducted a survey among Chinese enterprises with revenue of over a million yuan ($146,000). It showed only 28 percent of the 1,104 enterprises interviewed had carried out foreign direct investment (FDI), and those that had did so on a small scale.

Strictly speaking, there are no top multinational enterprises in China. A real multinational company usually allocates resources all over the globe, employing a wide variety of staff from many countries and regions, and exploiting financial opportunities through taking advantage of low-tax regimes and similar loopholes. Although enterprises such as Sinopec are among the top 10 of Fortune 500 in terms of annual revenue, they are not strong enough to be considered real multinational companies.

On the other hand, there are reasons for their current caution. Only 39 out of the top 500 Chinese enterprises gain more than 30 percent of their sales revenue from overseas markets, which shows a lack of management strength overseas. According to the Financial Times, Chinese businesses also generally struggle in foreign countries, with 60-70 percent reporting losses.

There are several reasons for this. Chief among them is the lack of financial support available from Chinese banks. While the Bank of China and others have overseas branches, they aren’t yet set up to provide the variety of services multinationals need. There are also considerable differences in business culture and practice worldwide, which Chinese enterprises have limited experience in overcoming.

Undoubtedly, the most important reason Chinese enterprises, especially State-owned ones, should go global is to obtain a good reputation. The issue is not just money, but the overall strength of enterprises. It will take time and great effort for Chinese enterprises to take their place on the world stage.

The financial environment at the moment is highly amenable to Chinese FDI. The economic crisis has both caused many countries to relax previously strict restrictions and trade barriers, and created, through stimulus money, numerous opportunities, particularly in the field of green energy, which Chinese firms could exploit. Now is the time for Chinese enterprises to be bolder and more forward-thinking in making themselves truly international.