Corporate Giants and Economic Growth – A Case for China and Russia
We analyzed Chinese and Russian corporations and found that total sales of the largest 400 companies combined converge to a bit over 70% of the GDP in both China and the US. In Russia, revenues of the top 400 companies currently account for about 55% of the GDP, and the trend indicates convergence to the American and Chinese level.
Chinese and Russian companies are still small by American standard. But more of them start to make the Fortune Global 2000 list. In 2010, there were 113 Chinese companies on the list, while Russia had 28. At the current rate, we are projecting half of the Fortune Global 2000 list will be Chinese companies in 10 years.
Russian companies are growing much faster, and much more profitably, which debunks the myth that there is little or no profit in emerging markets. While Chinese companies display the typical high-growth-low-margin pattern, the Russian companies consistently show average profit margins of over 10% in recent years.
The private sector in Russia plays a more prominent role than in China, as many as 80% of the top 400 list are private companies, while only 18% of the top 400 list in China are private companies. But in recent years, China and Russia have seen a slight erosion of the private sector, a phenomenon called “State-Progress-Private-Regress” (SPPR), as many private companies are being nationalized or consolidated under the SOEs, especially in coal mining, iron and steel, and aviation industries.
The authors caution that SPPR may pose a long-term detrimental effect on the competitiveness of the Chinese and Russian economy as well as corporate China and Russia. The model of paralleled growth of the private and state sector seems to have been working fine for the last thirty years, but whether the economy will sustain such a distinctively different growth model seems to be of legitimate concern.