2015 Greater China Top 1000 Survey — new economy companies win big
In this year’s Greater China Top 1000 Survey, new names have taken the top spots in growth, EPS and profits, and China’s new economy upstarts have dislodged the old guard.
China has left behind the era of high growth for a “new normal” of more moderate growth, but many companies continue to thrive despite facing more intense competition than ever. In CommonWealth Magazine’s 2015 Greater China Top 1000 Survey, the sales threshold for inclusion rose NT$3 billion to nearly NT$30 billion, and the companies at the top of the rankings for growth rate, earnings per share and profits were all different from last year.
The survey found that everchanging China has entered an era of transition to a new development model, with a clear line demarcating Greater China companies. On one side of the line are those embracing the “new economy model,” the new economic growth formula espoused by Chinese leader Xi Jinping, and on the other side are old economy enterprises.
The new and the old may be separated by a single line, but the survey found them to be worlds apart. The new economy companies in the Greater China 1000 survey posted outstanding results, while the old guard showed signs of receding growth, stagnation and even
Who Exactly Represents the
“China is currently undergoing a paradigm shift,” says Gordon Sun, the director of the Taiwan Institute for Economic Research’s Macroeconomic Forecasting Center. When one thought of China’s economy 10 years ago, Sun says, one thought of China Petrochemical Development Corporation (CPDC), China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC), Baosteel Group Corporation, and the coal companies that created the most “uncouth” nouveau riche of any industry in China.
They all represent the old guard that formed the core of China’s traditional growth model by stimulating rapid economic growth through massive investment and the consumption of large amounts of resources and raw materials.
Xi Jinping has declared an end to that era. Chia-hsuan Wu, an assistant research fellow at the Chung- Hua Institution for Economic Research in Taiwan, observes that the industries more likely to be in decline in the Greater China 1000 survey were the energy, petrochemical, steel and machinery sectors, largely because of the plunge in international energy (crude oil and coal) prices. CPDC (ranked 1st overall in the top 1000), CNPC (ranked 2nd), and CNOOC (ranked 26th) all stagnated or posted negative growth in 2014, and the revenues of energy companies slid, adversely affecting the downstream petrochemical sector.
Another reason for the decline has been China’s excess capacity throughout its economy, stunting the revenues of steel, aluminum and cement vendors. China’s infrastructure development has also come to a standstill, which has hurt sales of heavy machinery used in construction projects.
The negative impact of these trends has been felt not only in China but also in Taiwan, where the petrochemical, steel and cement sectors also stagnated or declined because of the shift in China’s development model and its excess capacity.
Jack Chang, deputy director of the Industrial Technology Research Institute’s Industrial Economics & Knowledge Center, says the shadow of China’s economic planning can be seen in the shifting fortunes of these companies. CPDC for example, still saw sales grow in 2013 from the previous year, but they fell 1.89 percent in 2014. The major player in China’s coal industry, China Shenhua Energy Co., Ltd. (ranked 29th in the top 1000), went from growth to a more than 10 percent fall in sales, and China’s biggest steel conglomerate, Baosteel (ranked 42nd in the top 1000), saw its pace of decline accelerate. Once the engines of growth of China’s economy, these goliaths have become afterthoughts, treated as nothing more than old economy relics.
The survey’s results indicate, however, that the “new economy” is thriving and being driven by four main formulas.
New Economy Formula No. 1: A Bigger Internet Targeting
China’s first new economy formula is to build up the Internet market and Internet technology, from the traditional Internet to mobile platforms, while continuing to protect its home turf from outsiders. Even notorious Internet rogues have emerged as rapidly growing “star enterprises.”
ITRI’s Chang said the first thing he noticed in the survey results was the stunning performance of China’s e-commerce and Internet giants. Many of them had high rates of sales growth for the second consecutive year, including JD.com Inc. (ranked 65th overall) with 65.85 percent growth, Baidu Inc. (ranked 177th) with 53.56 percent revenue growth, and Vipshop Holdings Ltd. (VIPS — ranked 333rd) and Qihoo 360 Technology Co. (ranked 719th) both seeing their sales more than double.
Chang especially singled out Qihoo 360 because of the strong profitability that accompanied its meteoric revenue growth. In the Greater China 1000 survey, its earnings per share (EPS) ranked in the top 50. Qihoo 360 may have limited capital but it excels at making money, much like Taiwanbased smartphone camera lens maker Largan Precision Co.
But Qihoo 360 got its start by “kidnapping” users’ software to grow. Any Internet user who inadvertently clicked on Qihoo 360 software or applications was forced to use the company’s products or customer advertisements, which could not be deleted.
But Qihoo 360 typifies Xi Jinping’s new economy. China is aggressively encouraging e-commerce operators to shift from the traditional Internet to the mobile Internet and go from serving e-commerce businesses to catering to the average mobile phone user. These operators will likely need Qihoo 360’s products to make the transition, which will inevitably bolster the company’s revenues.
New Economy Formula No. 2: ‘Internet Plus’ = Huge Potential
The second new economy formula is called “Internet Plus.” Li Weiwei, head of Chinese equities at Edmond de Rothschild Asset Management, says this was announced by Chinese premier Li Keqiang as one of China’s major development strategies along with “Made in China 2025” after the National People’s Congress and Chinese People’s Political Consultative Conference met earlier this year. “Internet Plus” is aimed at highlighting the use of the Internet in every Chinese sector, including integrating it with the education, medical, financial and security sectors.
In other words, China not only wants to shift the traditional Internet to smartphones, it also intends to merge “physical” sectors with the Internet, and anything can be added to the network. The Chinese authorities hope to encourage these trends without directing companies on which elements they should use.
“Ultimately, they want to transform the commercial model from the investment- intensive, high energy and resource consumption of the past to an innovation-based model,” the Hong Kong-based Li says. “Internet Plus” emphasizes Internet innovation to push economic reform and compel change in sectors traditionally resistant to transformation, such as the medical, education and financial sectors.
What’s interesting, Li says, is that the people best equipped to run “Internet Plus” are IT tech geeks, far different from the previous generation of coal bosses who rule the old economy.
In this Nov. 27, 2014 photo, a man drives his tricycle cart loaded with coal briquettes as he leaves a coal processing station in Tangxian in China’s Hebei province.