A recent report provides an interesting snapshot of China's domestic corporate landscape and some insights into likely trends.
A Standard & Poor's survey, China's top 100 corporates – the changing shape of China's economy, lists China's largest corporations by 2004 revenues. Predictably, companies in the steel, petrol and petrochemicals and telecommunications industries dominate the list (see chart).
The 10 largest companies account for 56% of the total revenues, dominated by oil majors Sinopec, PetroChina and CNOOC and local telecommunications companies China Mobile and China Telecom.
S&P's report identifies some interesting trends among China's largest corporations, including a strong variation in earnings trends over 2003, with the most profitable among commodity-driven businesses. There is also a squeeze in operating margins among downstream companies where manufacturing input costs are on the rise but output prices have remained flat or are actually falling.
Cautious view
S&P adopts a cautious outlook for China, citing continued margin contraction and the likely effect of austerity measures. Continuing consolidation in what remains a fragmented market is unavoidable, especially among automakers, property developers, low-end steel manufacturers, mobile phone manufacturers and consumer goods companies.
Many of China's domestic companies are unlikely to survive the effects of increasing globalization, says the S&P report, including some that are in the current top 100.