This is the 19th year since China joined the World Trade Organization. At that time, having nearly 20% of the global population, China contributed 4% of world GDP. According to data from The World Bank for 2018, China’s GDP accounted for approximately 16% of the global GDP. The fast-growing economic body has been engaging in global activities deeper and wider in all dimensions, from trade to culture. This article intends to sketch a map of how China interacts with the world from the business angle: looking at A-share listed companies, who are doing business overseas and how are they doing?
Companies listed in China’s stock market are required to disclose their revenues from overseas markets – the 2018 statistics marked a new height for A-share-listed companies’ overseas earnings. From 2012 to 2018, A-share-listed companies tripled their overseas revenues from USD 202 billion to USD 700 billion.
The A-share-listed companies’ overseas revenue CAGR during the period 2012–2018 is 23.2%. The growth was sustained and we expect a similar pattern in the future – without considering possibly exacerbated trade frictions or ‘Black Swan’ events like the outbreak of COVID-19.
Secondary industry is the main force
Looking back to those Chinese companies who recorded the most overseas revenues, most of them are in secondary industries. Among the top 100 overseas moneymakers of 2018 in A-share bourses, 17 companies were under the category of Electronics, 10 from the Chemical Engineering sector and 9 from Construction & Decoration. Manufacturing and construction are the main themes in the story and this phenomenon echoes China’s nickname – the World’s Factory.
The top five industries that generated the most overseas revenues in 2018 were Electronics, Chemicals, Construction & Decoration, Home appliances and Transportation. Taking over 56.9% of the total recorded overseas revenue of USD 700 billion, these sectors are dominated by state-owned enterprises (SOEs): Sinopec (中国石化, 600028:SH), China Communications Construction Company (中国交建, 601800:SH), China State Construction Engineering Corp (中国建筑, 601668:SH), etc.
China’s electronics industry has outperformed all other sectors since 2016. The sector recorded an overseas revenue in a total of USD 128 billion, which was nearly four times the overseas revenue generated by the Transportation sector in the same period. In the industry, HNA Technologies (600751:SH) reported the highest overseas earnings of CNY 335 billion (USD 48 billion) and around 40% were from North America and 29% from Europe. However, the parent company of HNA Technologies has been going through a hard time.
In the Chemicals sector, three out of the top five companies are petroleum companies: Sinopec, Sinochem and SPC (controlled by Sinopec). In 2018, Sinopec earned CNY 395 billion (USD 56 billion), which accounted for only 13.7% of its total revenue. For Sinochem, 53.6% of its revenue in 2018 came from overseas markets. The top five companies on the list made the most overseas revenues but how heavily they relied on global markets varied drastically.
Unlike the other sectors topped by SOEs or state-controlled companies, the top five home appliances overseas market pioneers have only one state-controlled company – Changhong (600839:SH). Three of them – Midea (000333:SZ), Haier (600690:SH) and Gree (000651:SZ) – are also listed in Fortune 500. Midea reported an overseas revenue of CNY 110 billion (USD 16 billion) in 2018, accounted for 42% of its total revenue; Haier filed CNY 77 billion earnings from abroad, which was 42% of its annual earnings in the same period; Gree reported the least percentage of overseas revenue – only 11% of its 2018’s revenue. In spite of the revenue’s geographic composites, these companies are making their organizations fully globalized in scope. For instance, while establishing overseas companies and sales offices, Haier has built eight R&D centers and launched various brands to meet needs in different markets.
Tech-oriented companies are taking the lead
From the top five sectors, we observed that China’s secondary industry takes the main role in the outbound business. Things have been changing – the ranking of the top five sectors that generate the most overseas revenues is not consistent: Electronics rose with an accelerated speed in the past four years and it has become the best overseas money-making sector in China. This sector is composed of more and more high-end and tech manufacturing companies like chipmakers and laser producers.
Shifting from bulky and heavy Construction & Decoration to delicate and light Electronics, the phenomenon implies a change in China’s industry’s structure – upgrading towards a tech-savvy path that has higher bars to entry and stricter requirements on talent but which will enhance the core competency of the nation’s industry as a whole.
Past statistics presented a strong growth of these A-share listed companies’ overseas performances. However, due to COVID-19’s outbreak, countries in the world have started to adopt stronger border regulations (including lockdown policies) and this may impose risks to the overall performance of these companies in the short run. In the long term, the growth will be maintained at a promising speed and the ranking of the top five sectors with best overseas performance will also change, while China has been reforming its industry structure for a greener and tech-savvier economic development.