The latest “2021 Hurun China Top 500” was released a few days ago, and the list shows that private companies have suffered heavy losses under the strong suppression of the Chinese Communist Party. Chinese Internet giant Tencent, which evaporated RMB 1 trillion in a year, still ranks first with RMB 3.9 trillion, while e-commerce giant Alibaba’s market value was cut down to third place.
According to another Hurun ranking, PetroChina, China’s largest oil business, has a market worth of less than a fourth of Tencent’s.
CATL vs. PetroChina (Ningde Times vs. PetroChina)
CATL placed fifth in the list of top 500 non-state enterprises, with a market value of 1.5 trillion yuan (236 million dollars) after growing 2.5 times last year, while PetroChina ranked sixth with a market value of 843 billion yuan (133 million dollars).
What’s astonishing is that it has already produced more value than PetroChina and Sinopec combined, despite being just ten years old.
When forming the above businesses, the Chinese government divided the Ministry of Petroleum and Petrochemical Industry in 1998, creating PetroChina and Sinopec, two super-large enterprises.
CATL, founded in 2011, specializes in the production of lithium-ion batteries for electric vehicles, with more than 30,000 employees. CATL’s battery consumption has led the globe for four years in a row as of 2020. According to the New York Times, they control one-third of the global battery market for electric vehicles.
In 1998, China separated the petroleum and petrochemical industries into two mega-corporations, CNPC and Sinopec. Their total revenue in the same year was 4.2 trillion yuan (661 million dollars). Despite this, their total profit was only 76.8 billion yuan (12 million dollars), and their profit margin was only 1.8 percent, ranking them last among global energy sector corporations.
Global oil and natural gas prices rose in 2021 due to increased demand. These three companies had the best performance in recent years, with gross profit exceeding 100 billion dollars in the first half of the year. However, the rate of return is still a “trickle” compared to the investment. Of course, China’s oil industry’s low earnings result from state policy.
In addition, there is another figure: the number of Chinese drilling rigs has a global share of more than one-third, but the production of oil and gas is only 5% of the world. The massive capital investment and the resulting return are utterly out of scale. People are also wondering where all of the money went.
Are state-owned enterprises less efficient than private enterprises?
China’s Ministry of Finance said on December 24 last year that the overall profit of China’s state-owned and controlled companies was 4.14 trillion yuan (651 million dollars) from January to November 2021, a rise of 40% over the same period last year.
Although this number may seem high, the gross profit margin is just 6.15% compared to operating income of 67 trillion yuan (10.5 billion dollars). CATL’s gross profit margin grew to 27% during the same period.
China’s state-owned businesses’ assets climbed by 180.7 trillion (28.5 billion dollars), from 454.5 trillion (71.5 billion dollars) to 635.2 trillion (100 billion dollars) in three years, from 2018 to 2020. Of the total newly added assets, 126 trillion are liabilities, 44 trillion (6.9 billion dollars) are equities, and liabilities account for 70%. If the average increase in state assets is 180 trillion yuan per person, 1.4 billion Chinese have increased state assets by 129,000 yuan (20.3 thousand dollars) per capita. In comparison, the Chinese’s total disposable income per capita is only 91,200 yuan (14.3 thousand dollars).
Thus, how profitable is a Chinese state-owned firm with such a massive asset base?
In a nutshell, according to data, for every 100 yuan of state-owned company assets, the average operational revenue is less than 30 yuan, the profit is less than 1.6 yuan, and the tax is less than 2.2 yuan, all of which are significantly lower than the interest rate on a one-year term bank loan.
According to official figures from the government, Chinese private firms currently provide more than 50% of tax income, more than 60% of GDP, more than 70% of technical innovation accomplishments, more than 80% of jobs in metropolitan areas, and more than 90% of new jobs.
For example, Alibaba’s “Alipay” and Tencent’s “WeChat Pay” account for more than 90% of the Chinese mobile payment industry. In contrast, Didi Chuxing, an online ride-hailing platform, accounts for 90% of the automobile market.
It’s very simple to explain why state-owned firms are not as efficient. If someone spends their own money, they will be highly cautious. However, state companies will spend others’ money freely because they are not responsible for it.
Despite attempts to “take over” profitable private businesses legally, once a thriving enterprise is nationalized, its effectiveness is immediately reduced due to the method, and the enterprise’s management system has not changed.
After the old characters were nationalized
Tongrentang, an old Chinese pharmacy, has existed for 300 years thanks to the rules of their industry. However, when the Chinese government is here, the rules of Tongrentang are worthless, even worse.
In 1949, Le Chonghui, the twelfth descendant of the Le family, came to Taiwan with the secret recipe of his ancestors and opened Tong Ren Tang in Taipei. Tongrentang has been plagued with counterfeit drugs since it became a state-owned enterprise.
In 2004, Tongrentang exposed the case of “Longdan Xiegan Drugs.” There are many patients with kidney damage caused by taking “Long Dan Xie Gan Medicine.” Twenty-eight people sued Tongrentang but ended up in failure. Tongrentang was informed of unqualified medication manufactured between 2008 and 2016. Tongrentang was also involved in a scandal about the expired phony controversy in 2018.
The company is now a long-established pharmaceutical firm with a market value of 63 billion yuan (9.9 billion dollars), less than half of Yunnan Baiyao’s 124.7 billion yuan (19.6 billion dollars), and a fraction of Pien Tze Huang. China has damaged a historic brand with a hundred-year heritage in a few decades.
Tongrentang is not what it used to be, not due to a corrupted general manager, but to China’s system’s corruption, which is the root of many businesses. This will not exclude other state-owned enterprises.
Information from Deutsche Welle shows that private enterprises in China have been the main target of the Chinese government’s crackdown, with their stock values plummeting across the board.
Xi Jinping has also promoted state-owned firms’ domination, arguing that “the nation advances, the people recede.”
As some people have commented, it is hugely concerning that SOEs are now attempting to take advantage of private enterprises and the market because they have capital and government support. As a result, Hurun’s top 500 Chinese companies will be rife with variables.