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.

The China Post - - BUSINESS - BY LU KUO- CHEN

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

‘old econ­omy’?

“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

Mo­bile Users

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.

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