Two years before the Standard & Poor’s 500 index was first introduced, investors already had a guide to the biggest businesses in the United States. That was down to Edgar Smith, then assistant managing editor of Fortune, who published a league table in 1955 ranking American firms by their revenues. The list identified the 500 largest, hence its name: the Fortune 500.
Today, the ranking is still widely cited in gauging a company’s influence, as well as tracking the rise and fall of firms and sectors in the US.
Its international version – the Fortune Global 500 – provides a similar snapshot of the changing state of global markets and the relative strengths of national economies.
A revealing discovery this year is that – for the first time – there are more companies from mainland China and Hong Kong in the Global 500 than from the US: 124 versus 121 (with another nine hailing from Taiwan, according to Fortune).
The latest rankings were proof of China’s “sheer gravity-defying rise” in global business circles, according to Clifton Leaf, the editor-in-chief of Fortune magazine, who noted that nowhere else in the world produced more “giant ‘for-profit’ enterprises”.
In fact, the Chinese took most of the top five spots, with Sinopec (on revenues of $407 billion), State Grid and CNPC (better known internationally as PetroChina) only trailing behind first-ranked Walmart.
Four of China’s internet giants made an appearance too. Alibaba climbed 50 spots to reach 132nd place. JD.com, Tencent and Xiaomi ranked 102nd, 197th and 422nd respectively.
China’s media celebrated the findings. CBN was typical in enjoying how “Chinese companies dominate this year’s Fortune Global 500 list”, adding that there were five more Chinese firms in the 500 than last year and considerably more than in 1997 when the first candidates from mainland China made an appearance (they were Bank of China and China National Chemicals Import and Export).
However, Su Yong, a professor at Fudan’s School of Management, was more measured: “While we are pleased to see more Chinese corporations on the list, we should also be conscious that the majority of them are state-owned and they expanded to their current size through a series of mergers and acquisitions.”
Commentators from other countries weren’t quite as excited either. Some were also sceptical about Fortune’s methodology, arguing the prioritisation of revenues over other factors is always going to give advantages to companies operating in the world’s largest market. A large proportion of the higher-ranking firms in the Global 500 are state-backed monopolies, other critics concurred with Professor Su.
Changing the yardstick in the ranking also reshuffles the order dramatically. By profit, a lot of the Chinese firms would have difficulty making it onto the list at all. According to Jiemian, a local news outlet, average profit in the Chinese group was less than $3.6 billion, lower than the Global 500’s average, and just half the average net income of the 121 American firms in the ranking. Excluding the 10 Chinese banks on the list, which account for 44% of the total profits of all the Global 500 Chinese companies, the average profit drops further to $2.2 billion, versus $6.3 billion for non-bank entities in the US.
“If China seems like an economic and technological steamroller about to squash the US, it isn’t. A closer look shows that despite China’s strengths, this rivalry’s future remains highly uncertain,” Geoff Colvin, another of Fortune’s senior editors, claimed in an op-ed accompanying the release of the list.
Perhaps what is also being highlighted in the Global 500 is the huge costs that companies from both countries will pay in the wake of a fuller decoupling of the two superpower economies.
American firms will be particularly fearful of this kind of future. The rise of Chinese enterprises in the Global 500 – many with businesses with a largely domestic focus – points to the fact that China is going to be the world’s largest market for an increasing number of products and services for the foreseeable future. None of the major US companies will want to abandon that market opportunity or yank their supply chains entirely out of the country if they are to stay competitive.
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