Guess, where the largest company in the world is located?  You guessed wrong.  U.S.- based ExxonMobil has just been bumped off the top spot by a Chinese company, PetroChina.  China’s state-owned oil and gas producer became the world’s largest company after an initial public offering valued the company at $1 trillion this week.  China now has five of the world’s 10 biggest companies.  This is “size” in terms of the market value.  In terms of sales, only two out of top fifty companies in the world are Chinese. 

What does it mean to be the “world’s biggest company”?  Biggest in the global marketplace generally means the best.  In order to become the biggest, a company has to offer the best product quality; its employees have to work the hardest; and its management has to provide the best vision and leadership.  That is how a company beats out the rest of the competition and gains the number one position in the market place. 

Are all those conditions true for PetroChina?  Not quite.  PetroChina is a state-owned enterprise.  Because it is state-owned, it also is a monopoly in its market.  So, in the absence of competition, PetroChina can grow as gargantuan as possible; no other company is there to check its growth. 

What about the IPO that valued the company at $1 trillion?  When PetroChina was offered up on the stock exchange, only 2% of the company’s shares were released by the government.  That is because the government still wants to maintain control of PetroChina, even though it is now publicly traded.  The ease with which a Chinese company can raise capital on the domestic stock exchanges, shouldn’t be discounted, either.  The massive Chinese population saves at the rate of over 40% and those savers don’t have much choice on where to invest their money.  Chinese banks do not offer rates that would even safeguard the savings from inflation, much less bring income.  And Chinese citizens are not allowed to invest their saving overseas. 

For all these reasons, experts, such as Fraser Howie, an independent financial analyst, and a co-author of two books on China’s stock markets To Get Rich is Glorious and Privatizing China, in an interview with National Public Radio contended that it is at best “misleading” to compare Western publicly-traded companies and the Chinese state-owned enterprises.  However, there are no distinctions made when the companies meet in the world market place.  Our own government unfathomably does not recognize that the playing field is not even for the U.S. private companies that are trying to compete with the state-owned behemoths that are the Chinese companies, such as PetroChina.
 
Take for instance the steel industry.  The U.S. International Trade Commission recently held a public hearing on the subject of the Chinese Government policies that affect U.S. trade.  At that hearing, the representatives of the domestic steel industry drove home the point that the main reason why the U.S. steel companies can not fairly compete with their Chinese counterparts is the issue of state ownership.  Witness after witness testified to the subsidies the Chinese government-owned steel enterprises receive–preferential loans, subsidized inputs, such as energy and key raw materials, and debt- equity swaps between the state, the state-owned banks, and state-owned enterprises–making it impossible for the U.S. companies to beat out competition from China.

We should not be blinded by the sheer size of the Chinese companies, or the speed with which the Chinese economy is growing.  It all comes at a tremendous cost to our own companies and workers, and our own government needs to assess those costs and enforce an even playing field for our companies that play by the rules.
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This entry was posted on Friday, November 9th, 2007 at 10:09 am and is filed under Holding China Accountable, Economic Security. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.