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By He Zhiyi

If the name is right, the words will flow smoothly; if the name is wrong, the words will not flow smoothly.

More than 20 years ago, when the “World’s Top 500” companies selected by the U.S. Fortune magazine were translated into “The World’s Strongest 500” companies, it caused great misunderstanding in Chinese society, triggered improper behavior by companies and local governments, and even produced serious consequences.

The English name used in the certificates issued by Fortune magazine is Fortune Global 500 - The World's Largest Corporations. From a translation perspective, it is probably difficult to make a bigger mistake than translating "Largest" as "strong", unless in the Chinese literal meaning "big" means "strong". Obviously, there is no such low-level conceptual error in Chinese.

Therefore, it is unknown what motives the originator of this translation had to make such a mistake, causing Chinese society to be immersed in this mistake for a long time.

Now, it is time to get back to the basics. We must restore the "World's Top 500" to the "Fortune Global 500". First of all, it should be noted that this is a ranking list of the US "Fortune" magazine; secondly, it is only ranked according to the revenue data reported by the companies themselves; in addition, it does not say "strong", but "big". Then let us make an objective and fair comment under this premise.

This year's "Fortune Global 500" (hereinafter referred to as "Fortune 500") list has been released again.

For many years, I have felt uneasy about the term "Top 500" and the craze for it. We are glad to see that the craze has started to cool down. It is reported that some companies have voluntarily withdrawn from the list this year, which is undoubtedly a progress.

In 2024, the number of Chinese companies on the "Fortune 500" list began to decline. There were 139 American companies on the list, and 133 Chinese companies including Taiwan. After deducting 5 Taiwanese companies and 3 Hong Kong companies, there were 125 mainland Chinese companies.

Since 2018, the number of Chinese "Fortune 500" companies has exceeded that of the United States for five consecutive years, and the number of mainland Chinese companies has exceeded or remained the same as that of the United States for three consecutive years. See Figure 1. Below we mainly analyze mainland Chinese companies.

Figure 1: Comparison of the number of "Fortune 500" companies in China and the United States over the past decade

I often emphasize that even based on common sense, if we make a research assumption, it is basically impossible for us to assume that when China's GDP data is two-thirds of that of the United States, the number of China's "Fortune 500" companies is more than that of the United States. We will not even assume that China's "Top 500" companies are more than the United States.

There must be something wrong with this, and the guiding principle behind this phenomenon is even more problematic. It is both vanity and bloating. Fortunately, this year's data has begun to return to reality.

Last year, I wrote an article analyzing that among China's top 500 companies, there are a large number of loss-making companies, unprofitable companies and micro-profit companies, collectively referred to as abnormal companies.

Unprofitable enterprises are those with profit margins below 1%, and micro-profit enterprises are those with profit margins below 2%. Last year, the revenue threshold for the "Top 500" was US$30.9 billion, and this year it is US$32.1 billion, or about RMB 220 billion.

Think about it, what is the state of profit margin below 1%? Tighten the water and it will be gone. Tighten the expenses, tighten the costs, tighten the inventory losses, tighten the accounts receivable, and it will be gone. And tightening 1% of the water will be more than 2 billion yuan. If these companies continue to be like this year after year, it is a very dangerous phenomenon. Unless there are special circumstances or temporary phenomena, what is the meaning of such "Fortune 500" companies?

Even if we say "Top 500", it is meaningless and just empty talk. According to our two-year comparative data, there are 57 Chinese "Top 500" companies that have been loss-making, unprofitable or micro-profitable for two consecutive years, accounting for 86.4% of the total number of abnormal companies in 2024. It is worth noting that among the four new companies on the list this year, three are unprofitable or micro-profitable companies.

In order to avoid unnecessary negative impact on specific enterprises, we only conduct an overall analysis of loss-making, unprofitable and micro-profitable enterprises, and only list normal and excellent "Top 500" enterprises.

We take a revenue profit margin of 2% as the standard for micro-profit enterprises, and refer to Walmart, which has long been ranked first in the "Fortune Global 500". In 2024, its revenue was US$648.1 billion, its profit was US$15.5 billion, and its revenue profit margin was 2.4% (relatively low).

Although its return on total assets is only 6.14%, its return on net assets is 18.5%. Therefore, Wal-Mart's cost management, inventory management and capital turnover management are benign, and it has formed its own unique business model. This is the case for the world's largest company by revenue. China's top 500 companies with high revenue should not use their high revenue as an excuse for low revenue profit margins.

According to data from 2024, there are 125 mainland Chinese companies on the list, accounting for 25% of the global number; among these 125 companies, 5% are loss-making companies, 26% are unprofitable companies, and 22% are micro-profit companies; after deducting the three types of companies, the number of companies with a sales profit margin of more than 2% (hereinafter referred to as normal companies) is only 59, accounting for 47%; while the proportion of normal companies with revenue profit margins of more than 2% among the world's "Fortune 500" companies is 73%, and that in the United States is 78%.

Therefore, the ratio of normal enterprises in China and the United States is 0.60, 5 percentage points lower than the GDP ratio of China and the United States, which is 0.65. The average revenue profit margin of China's "Top 500" enterprises is 3.95%, lower than the global average of 6.64% and the US average of 8.61%, and only 60% of the global average and 46% of the US average.

Furthermore, the average profit of China's top 500 companies is $3.95 billion, while the global average is $5.93 billion and the US average is $8.80 billion. China's data is 67% of the global average and 45% of the US average. This is a very eye-catching data, which clearly shows that the quality of China's top 500 companies is not high, and both the profit value and profit margin are low.

Among the 125 "Fortune 500" companies in China, only 20 have a revenue profit margin that is above the global average of 6.64%. Among them, there are 11 financial institutions and the remaining 9 non-financial institutions are:

1.Pinduoduo Holdings (24.20%)

2.Tencent Holdings Limited (18.90%)

3.Huawei Investment Holding Co., Ltd. (12.30%)

4.Contemporary Amperex Technology Co., Ltd. (11.00%)

5.China Mobile Communications Group Co., Ltd. (10.70%)

6.China National Offshore Oil Corporation (10.30%)

7.Midea Group Co., Ltd. (9.00%)

8.Alibaba Group Holding Ltd. (8.50%)

9. Zijin Mining Group Co., Ltd. (7.20%)

Another indicator is the return on equity. The average return on equity of Chinese companies is 7.82%, which seems good, but the problem is that the global average is 18.58%, and the US average is 37.21% (arithmetic mean of all corporate data).

Therefore, the global data is 2.4 times that of China, and the US data is 4.8 times that of China. Among the 20 countries with more than two Fortune 500 companies, the return on net assets of Chinese companies is only higher than that of South Korea, and lower than that of any other country. Seeing such a gap is also embarrassing.

Of course, for a few public utility companies that are related to the national economy and people's livelihood, they may not be measured by efficiency indicators, such as State Grid Corporation of China. According to the data reported by it, the revenue profit margin is 1.7% and the return on net assets is 2.7%. However, whether such data is reasonable and whether there is room for efficiency improvement is also worth discussing.

In comparison, Tokyo Electric Power Company, ranked 317th on the list, has a revenue profit margin of 3.9% and a return on net assets of 8%; Electricité de France, ranked 49th, has a revenue profit margin of 7.2% and a return on net assets of 18.8%. Therefore, the efficiency of China's State Grid should still have room for improvement and enhancement under the premise of serving the people.

We noticed that among the top 500 American companies, the average revenue profit margin was 8.61%, while that of Japanese companies was 5.47%.

What is particularly strange is that among the 125 Chinese "Top 500" companies, there are 6 loss-making companies and 6 companies with a revenue profit margin of less than 0.1%, and 8 of them have been in this category for two consecutive years. Under such circumstances, they still want to apply for the top 500, which is really unsightly. Among them, 2 companies have a revenue scale of 1 trillion yuan, but the losses are in the range of 10 billion to 20 billion.

For such enterprises, I really advise them not to strive to be among the top 500, but to focus their energy on reducing swelling, improving their internal strength, avoiding risks, and guarding against crises.

Overall, China's unprofitable and micro-profit enterprises account for about 60% of similar enterprises in the world, while Chinese enterprises with revenue profit margins greater than 2% only account for 16% of similar enterprises in the world.

In other words, Chinese companies have dragged down the efficiency of the world's top 500 companies. After calculation, if Chinese companies are removed, the average revenue profit margin of the world's top 500 companies in other countries is 7.54%, an increase of about 1%. Moreover, the revenue profit margin of China's top 500 companies is lower than the average of 6.47% of all listed companies in China and the average of 7.28% of all listed companies in the world. After calculation, we see that the revenue profit margin of the normal 59 top 500 companies is 7.58%, reaching a reasonable level.

Among the 66 abnormal enterprises, 77% are state-owned enterprises. Among them, 67% of loss-making enterprises are state-owned enterprises, 72% of unprofitable enterprises are state-owned enterprises, and 86% of micro-profit enterprises are state-owned enterprises.

Among the 91 listed state-owned enterprises, 56% are abnormal enterprises, of which 43% are central enterprises and 57% are local state-owned enterprises. It can be seen that the vanity and bloat phenomenon of state-owned enterprises, especially local state-owned enterprises, is more serious.

The above comparison can be seen in Figure 2 and Table 1.

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I am pleased to see that after the release of the "Top 500" list, the SASAC news media "Guozi Xiaoxin" immediately published an article and made several comments on the state-owned "Top 500" enterprises:

▶▷1. Companies such as China Aerospace Science and Technology, China Aerospace Science and Industry Corporation, Shandong Iron and Steel, Weichai Power, and China Merchants Group voluntarily chose not to participate in the selection.

▶▷Second, at the "Minister's Channel" of this year's two sessions, the leaders of the State-owned Assets Supervision and Administration Commission made a clear statement: "We have strengthened the assessment of scale. For example, some companies excessively pursue the top 500 ranking, but the top 500 actually refers to the top 500 in sales revenue. We must now work towards becoming stronger and better."

▶▷3. Among the 44 central enterprises shortlisted for the “Top 500” this year, only 34 are Grade A central enterprises, and the main indicators for the assessment of central enterprises are “one profit and five rates”.

In other words, 10 of the "Top 500" central enterprises are not even Class A enterprises that are not included in the domestic assessment. The above information clearly conveys that the SASAC does not encourage central enterprises to blindly pursue and apply for the "Top 500". I suggest that at least these 10 non-Class A central enterprises should take the initiative to check their status. If they are not rated as Class A enterprises next year, they should withdraw from the "Top 500" application.

Figure 2: 2023/2024

The proportion of normal and abnormal numbers of China's top 500 companies

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Table 1: 2024

Table of normal and abnormal status of China's top 500 enterprises

Similarly, we see that among the 59 normal "Top 500" companies, there are 40 state-owned enterprises and 19 non-state-owned enterprises. While seeing that state-owned enterprises are the main force of the "Top 500" companies, we would like to give special praise to the following 19 private enterprises, which are:

1. Pinduoduo Holdings

2. Tencent Holdings Limited

3. Huawei Investment Holding Co., Ltd.

4. China Minsheng Banking Corporation Limited

5. Contemporary Amperex Technology Co., Ltd.

6. Midea Group Co., Ltd.

7. Alibaba Group Holding Limited

8. Ping An Insurance (Group) Company of China, Ltd.

9. Pacific Construction Group Co., Ltd.

10. Xiaomi Corporation

11. BYD Company Limited

12. Meituan

13. Luxshare Precision Industry Co., Ltd.

14. Taikang Insurance Group Co., Ltd.

15. SF Holding Co., Ltd.

16. Tsingshan Holding Group Co., Ltd.

17. Vanke Enterprise Co., Ltd.

18. Su Shang Construction Group Co., Ltd.

19.JD.com Group Co., Ltd.

The revenue profit margin of these 19 private enterprises reached 7.86%, surpassing the global average of 6.64% and the average of similar state-owned enterprises of 7.45%. This also proves that Chinese private enterprises that have stood out through full market competition in China and the world are truly excellent enterprises and deserve our respect and care.

At the same time, we must also see that in the social atmosphere of pursuing "Fortune 500" which leads to big but not strong, private enterprises are not immune. The abnormal rate of private enterprises in the "Fortune 500" is 44%, which is lower than the 56% of the overall state-owned enterprises, but higher than the 41% of central enterprises.

For example, among the newly listed or re-listed companies that were talked about this year, there is a private enterprise in Hangzhou called HL Group, whose revenue profit margin is only 0.1%, or one thousandth. It is said that it has been a "top 500" company since 2019, but it fell off the list in 2023 and re-listed this year. However, this kind of data is obviously not convincing, so it is used as a negative case.

By 2024, the Third Plenary Session of the 20th CPC Central Committee proposed to build a high-level socialist market economic system, continuously promote high-quality economic development, and build more world-class enterprises. Therefore, the low-quality "Fortune 500" can be abandoned, and the pride in this evaluation system can be abandoned, and the dominance of American magazines can be abandoned, and the belief that big is strong can be abandoned.