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Top 1000 Listed Companies of Greater China

The New Code for Success in China

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The New Code for Success in China

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China's breakneck pace of growth is hiding serious deficiencies that provide opportunities to Taiwan's companies. What is the code that will unlock this potential bonanza?

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The New Code for Success in China

By Benjamin Chiang
From CommonWealth Magazine (vol. 447 )

Just as the global economy began emerging from the shadow of the credit tsunami in 2009, China's highly touted domestic market started showing some cracks. Pressures on China's currency to appreciate and soaring commodity prices have fueled fears that high inflation is just around the corner.

The private sector faced plenty of adversity in 2009, and the harsher the changes in the economic environment, the more enterprises' true abilities were tested – and revealed.

According to the findings of CommonWealth Magazine's 2010 survey of the "Top 1000 Listed Companies of Greater China," the top enterprises in the region generally survived the test, posting combined revenues of NT$98.3 trillion.

Sales Fall, Profits Surge

Though the total may sound imposing, the impact of the global financial crisis was still felt, as revenues declined by NT$1.83 trillion from 2008.

Yet while sales suffered, the top 1,000's after-tax income bucked the difficult environment and actually grew by NT$1.12 trillion year-on-year.

For individual enterprises, 2009 was clearly a mixed adventure. Some were blown off course by the global economic tempest and could not overcome the deep freeze in private consumption, but other companies survived and even strengthened their operations to post record earnings.

Of this year's top 10 enterprises, three banks (HSBC Holdings, Industrial & Commercial Bank of China, and China Construction Bank) and two petrochemical companies (China Petroleum and Chemical Corporation, better known as Sinopec, and Petrochina Co.) posted lower sales numbers. 

The leader of the pack, Sinopec, saw revenues fall 6.87 percent, while HSBC's revenues fell for the second year in a row.

But China Mobile, ranked fifth in the survey, saw revenues rise 9.78 percent. Through its aggressive promotion of 3G business and flexible operating strategies, it continued to pull away from its closest rivals China Unicom and China Telecom. China Mobile partnered with Hon Hai Precision Industry, Hanwang Technology, and Datang Telecom Technology to develop its 3G e-book platform, and it introduced e-books, e-readers for handsets and cell phone TV to increase the utilization of its 3G content.

In the past year, China Mobile chairman Wang Jianzhou and other top executives have made frequent visits to top Taiwanese telecom equipment vendors, hoping to deepen mutual cooperation on 3G communications.

Hon Hai Precision Industry also withstood and even thrived in the economic storm, helped by the return to the helm of founder and chairman Terry Gou, who had tried to retreat to a behind-the-scenes role in the company in 2008 to pave the way for his retirement. Hon Hai moved up a notch in the rankings to sixth, jumping past China Construction Bank.

Transportation Infrastructure a Gold Mine

Over the past two years, companies that have seized opportunities tied to major transportation infrastructure projects (high-speed rail, freeways and airports) and the telecommunications sector have immediately found themselves on a growth gravy train.

China expects to complete an 18,000-kilometer high-speed train network by 2020, creating growth for Greater China companies involved in high-speed rail construction. Two such companies – China Railway Construction Corporation and China Railway Group – vaulted onto this year's list of the top 10 companies in the region, with revenue growth of 57 percent and 47 percent, respectively.

Because of the projects it has undertaken on China's railway system, China Railway Construction is now the world's fourth largest engineering and construction contractor.

"The global economy was in a serious slump last year, but China Railway Construction had its best results ever," said the company's chairman Li Guorui at a press conference announcing the company's results in Hong Kong at the end of April.

Comparing the stock markets in the region, 16 more companies in the top 1,000 survey were listed in China than last year, while there were eight fewer companies listed on Taiwan's bourse and three fewer listed in Hong Kong.

Hong Kong's stock market was the most popular choice for many of Greater China's biggest banks and petrochemical, telecom, insurance, and construction companies, with 331 out of the top 1,000 listed there. Those companies, 55 of which are also listed in Taiwan, Shenzhen or Shanghai, had total revenues of NT$57.5 trillion, or 58 percent of the total, up NT$11.7063 trillion from 2007. The next most popular markets in 2009 were Shanghai, with 303 companies listed (46 of them also listed in Hong Kong); Taipei, with 244 companies listed (three also listed in Hong Kong); and Shenzhen, with 177 companies listed (six also listed Hong Kong).

Innovative Service the Top Priority

Faced with exchange rate volatility, soaring commodity prices and the slow rebound of private consumption, Greater China's manufacturers saw their profitability lag behind that of the financial services and service sectors.

A closer look at the top 1,000 enterprises shows that manufacturing was the most represented sector, with 579 enterprises and NT$48.31 trillion in revenues. Of them, 174 were Taiwanese producers, with NT$13.36 trillion in revenues.

Another 360 companies, totaling NT$31.26 trillion in revenues, were in the service sector, and the remaining 61 enterprises were engaged in financial services, with revenues of NT$19.64 trillion.

Companies in the financial sector were the most profitable, combining for NT$2.99 trillion in after-tax income.

In the service sector, where profits depend more on ideas than investment, 2009 showed that any company with a good, innovative service model can immediately take advantage of Greater China's 1.3 billion-people market to dramatically drive up earnings. Although fewer service companies than manufacturers made it into the top 1,000, they generated NT$2.70 trillion in after-tax profits, NT$180 billion more than the NT$2.56 trillion in combined after-tax profits for manufacturers.

Profit Machines: Transportation Infrastructure, Telecom

After thoroughly analyzing the income statements of the top 1,000 companies, CommonWealth Magazine also ranked the 50 best performers in the categories of revenue growth, after-tax net income, gross margin, and EPS (earnings per share).

The rankings indicate that catering to China's domestic demand is almost a guarantee of rapid revenue growth.

The company leading this year's revenue growth charge is Shenzhen-based Brightoil Petroleum (Holdings) Ltd., whose sales shot up 131-fold. With a strong presence in southern China, Brightoil is the country's biggest private service provider of marine bunkering, and in the past two years has consolidated services covering the entire supply chain, from marine bunkering, oil storage, and wharf facilities to tanker shipping and oil and gas exploration. This year, it plans to expand into Singapore.

Taiwan's Excelsior Medical Co., which ranked fifth in revenue growth rate, specializes in hemodialysis equipment and is Taiwan's biggest agent for dialysis equipment and materials. Two years ago, Excelsior Medical established a foothold in China and Hong Kong, tempted by the estimated 850 billion renminbi expected to be generated by China's health care reform initiative and a dialysis market more than 10 times the size of Taiwan's. The company has entered into a venture with China National Medicines Corporation to establish hospitals dedicated to kidney dialysis.

The most profitable company in 2009 among the top 1,000 was Industrial and Commercial Bank of China (ICBC), which had after-tax net income of NT$590.5 billion.

Taiwan had seven of the top 50 companies in this category, three of them from the Formosa Plastics Group (Formosa Petrochemical, Formosa Chemicals & Fibre, and Formosa Plastics).

The gross margin leader was Cheung Kong Infrastructure Holdings Limited (CKI), the property of Hong Kong billionaire Li Ka-shing. The company derived its large margins through its control of most of Hong Kong's power distribution and involvement in basic energy infrastructure projects in China.

Of the top 10 in gross margin, seven were Hong Kong-invested companies. The leading underground mall operator in China – Renhe Commercial Holdings – cracked the top five for the first time, while Taiwan had only one entry in the top 50 – bulk carrier U-Ming Marine Transport, a subsidiary of the Far Eastern Group.

Eight Taiwanese companies made it into the EPS top 50, with MediaTek Inc. and HTC Corporation both ranking in the top 10.   

The two companies reflected the general trend for enterprises active in China's handset and network communications markets to have particularly strong earnings per share. After becoming the biggest supplier of handset chips in China, MediaTek is now developing chips compatible with China's TD-SCDMA 3G standard and has acquired American and Chinese communications software design companies to transform itself into a supplier of mobile phone operating systems.

The New Code: Investment Transitioning

So after the turbulence of 2009, what will be the next investment target for companies in the Greater China region?

"Helping China's society and company operations modernize," is the short answer given by Friendly Business Group president Thomas Liu.

The Chinese government is currently committed to a shift in its investment priorities, away from the emphasis placed on big transportation infrastructure projects that were prevalent in 2008 and 2009 in favor of the "deep structure" of the country's social economy.

This "investment transitioning" is the DaVinci code for operating successfully in China's market, but it also means getting closer to people's daily lives.

"Improving the modern lives of people in both urban and rural areas, creating universal access to economic benefits throughout society, and reengineering industry – these are the biggest opportunities," says Seafer Wang, the head of MediaTek China. The management of every sector in China, he says, needs a modernizing makeover to improve efficiency.

Over the long term, China's extensive model for economic development and business operations has brought it strong economic growth, but it has also engendered a series of problems – a big urban-rural divide, low management efficiency and wasted energy.

Li Jing-ping, the head of Mitac International Corp.'s operations in China, sees a gold mine in helping Chinese companies update their management systems that have been unable to keep up with the country's breakneck pace of growth.

"This is without a doubt the biggest opportunity in China for Taiwanese businesses, which excel at upgrading management efficiency," Li stresses.

Translated from the Chinese by Luke Sabatier

Keywords:

好友人數