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Size also needs strength

(China Daily)
Updated: 2009-09-08 13:12

At a ceremony announcing China's top 500 firms in 2009, State-owned Assets Supervision and Administration Commission (SASAC) Chairman Li Rongrong struck a jarring note. He said the 500 on the list are actually the biggest, rather than the strongest.

The comment on the state of domestic firms reveals a truth that all interested parties should take to heart. It is a warning that firms that are big but not strong will fail, sooner or later. It may sound inopportune and out of tune on the occasion, but it is a necessary reality check.

Besides, being forthright like this is not the Chinese way. On such occasions, people are more comfortable with achievements being touted.

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We should be thankful to the SASAC chairman for the home truths. The addiction to size and confusing size with strength is approaching hazardous levels. Yet few bother to point it out. Li did it.

For the first time, the profit rates of the top 500 Chinese firms are said to have surpassed those of the Top 500 in the US and in the world. Of course, there is something to celebrate. After all, profit-making capabilities are closely related to performance.

But, take a closer look at the list, and one finds little reason to celebrate. We are not sure how many at the very top would be there but for their monopoly status. A good number of those on the list have grown fat fed by the "visible hand" of the State. The State granted and guaranteed their unchallenged privileges in the market place by preventing competition. Their profits have little to do with competitiveness, or even performance.

There are six civil aviation enterprises on the list, four of which are bleeding red. In the 10 from the power industry, the top five are losing money. Are they strong or not?

Break-up by industry shows a more worrisome aspect: the dominance of firms in fields such as energy and heavy industry indicates a rather primitive industrial structure incompatible with the country's economic ambition. Hi-tech and tertiary industries are embarrassingly few on the list. So are those from the non-State sectors. What does that mean in the eyes of the market economy?

We do not care that much about the fact that only 220 of the 500 involve overseas operations. They do not need to go overseas to feel the pressure from overseas competitors. Some of them may never need to worry about real pressure from competitors, domestic or overseas. National interest would appear to suffice as justification for monopoly in some industries. But we are sure not all of them can count on the wings of the State forever.

Being big may prove a lethal disadvantage in the market place without the support of strength. Instead of being carried away by their prominence on the Top 500 list, these enterprises should think more about honing their own competitive edge.