From Cover, no. 341, November 12th 2007
Translated by Ren Jie, Zuo Maohong, and Liu Peng
Original article: [Chinese]
Valued at over a trillion U.S. dollars, PetroChina now has the largest market value in the world, far exceeding the second largest, ExxonMobil, valued at 487.6 billion dollars. Chinese companies currently comprise half of the world's ten largest enterprises, with China Mobile fourth, the Industrial and Commercial Bank of China (ICBC) fifth, Sinopec ninth, and China Life tenth. In contrast, only three US companies, including ExxonMobil, General Electric, and Microsoft, are listed.
Toward the end of last year, ICBC and China Life respectively beat Citibank and American International Group, becoming the world's largest commercial bank and insurance company respectively. Thus, the trend of China dominating the competition would appear to have spread to other industries. Shall we cheer for this victory? Can we conclude that Chinese firms have established their precedence over US ones-- and the world economy? Have we become competitive giants in the global market?
We believe it's too early to tell. Chinese companies have reached such high market value because, compared with foreign competitors, they are simply more highly estimated by investors-- especially domestic ones. This high estimate is closely related to a bubble in the A-share market. When this is considered, we must admit that our companies still lag behind foreign competitors in terms of scope of assets, capital strength, and profits.
For example, PetroChina's market value is now double ExxonMobil, but this lead is reversed on other performance indexes. In 2006, PetroChina's net profit was 136.229 billion yuan (18 billion dollar). ExxonMobil's was up to 39.5 billion dollars-- two times that of Petrol China. Also, after PetroChina issued its A-shares, its shareholder's equity increased to 656 billion yuan, more than 82 billion dollars. At the end of 2006, ExxonMobil's shareholder's equity was 113.8 billion dollars. With the above data in mind, we wonder how Petrol China's value could be two times of ExxonMobil's today.
Another chasm exists between the share price of PetroChina's A-shares and H-shares. On November 6th 2007, its A-shares closed at 39.99 yuan, and its H-shares at 17.5 Hong Kong dollars. PetroChina's high A-share price pushed its shareholder's equity to become the highest in the world. If the A-share price is the same as the H-share price, the shareholder's equity of Petrol China should be much lower. Recently, investors have focused on A-share market bubble. We can say that the high shareholder's equity of PetroChina is the embodiment of the market bubble—just as Sinopec, ICBC and China Life are. High prices in the A-share market have pushed up other firms stock prices both in the mainland and in Hong Kong. The moment the A-share bubble bursts, how can these high shareholder's equitys continue?
Sinopec, ICBC, and China Life are all monopolies except ICBC who, comparatively speaking, faces severe competition. PetroChina and Sinopec dominate China's oil industry while China-Mobile has absolutely monopoly status in telecommunications. China Life also has the same advantage.
Monopolies strangle competition and reduce the overall efficiency of the economy, and their income comes at the expense of consumer interests. The increase in their stock value does not represent increases in efficiency that they bring to their trade. And the fact that they are monopolies is one important element that excites investors and pushes their prices up.
That Chinese companies, propelled by a growing economy, would ascend to the top of the global 500 list has been well anticipated by the world. But we must ask ourselves whether such astounding peaks can improve China's productivity and efficiency, and whether they are helping forge a country whose businesses are globally competitive.
