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A new reality. As Chinese businesses have control of the world
Material posted: Publication date: 27-06-2018
Over the past five years big business from China has confidently occupied the top positions in the ranking of the biggest companies on the planet Forbes Global 2000. It was the natural result of turning China into a state Corporation, which at all levels supports private entrepreneurs.

The Chinese company which consecutive year topped the rating of the largest companies in the Forbes Global 2000. The top ten includes four Chinese banks, two of which are on the first and second positions. Of Commerce and industry (ICBC) and China Construction Bank is confident operatoions JPMorgan Chase, Bank of America and Wells Fargo.

In other industries, a similar pattern is observed. By 2018, the world finally entered a new reality. The reality that major financial and technological flows is controlled by the Chinese.

As rose banks

Banks dominate the financial system of the PRC. According to the world Bank, the amount of issued credits in 2016 amounted to 156,6% of GDP. In the United States, the figure is 53% of GDP. It is not surprising that in the first hundred companies in the Forbes Global 2000 of the 31 Bank's only 11 Chinese and four American.

In General, the number of American and Chinese banks in the rating comparable: 36 vs 35. The biggest banks in Japan, but Japanese banks 44 39 included only in the second Millennium ranking. The total number of banks in the Forbes Global 2000 — 312.

The level of Bank lending to the economy relative to GDP in China similar to Australia, Korea and European countries — Switzerland, Denmark, UK, Sweden. In the US, by contrast, financial markets and non-Bank institutions provide a much larger amount of loans compared to banks. According to the Bank for international settlements, amount outstanding of US debt at the end of December 2017, totaled $39.3 per trillion, of which liabilities financial, nonfinancial and public sectors — as $15.4 trillion to $6.1 trillion and $17,5 trillion, respectively.

In China total debt is $11.7 trillion, by $4.4 trillion, $2.8 trillion and $4.4 trillion between financial, non-financial and public sectors. The international monetary Fund has estimated the US GDP and China for 2017 in purchasing power parity in $19,39 $23,16 trillion, respectively. This means that the share of outstanding debt in relation to GDP, the US is 203%, and China — 51%.

In the may report, S&P Global Market Intelligence has been a significant growth in assets of Chinese banks in 2017: the only assets of the four largest Chinese banks in the PRC for the year increased by $1.7 trillion and reached $13.6 trillion. Half the growth in 2017 was due to the strengthening of the yuan to the U.S. dollar. 11 the assets of us banks included in the hundred largest banks in the world, according to S&P Global Market Intelligence, at the end of December 2017 was $12.2 trillion, and their increase since December 2015 do not exceed $0,78 trillion —the average is less than $0.39 trillion a year.

There are no signs that in the coming years, the asset growth of Chinese banks slowed. China, on the one hand, protect its domestic market from foreign players and foreign funds its projects mainly through Chinese banks. This rule applies to both public and private Chinese companies. Accordingly, the activity of China in the world market causes asset growth of Chinese banks.

Why strengthen insurers

The largest Chinese insurance companies, Ping An Insurance Group ranks tenth in the Forbes Global 2000. In the first hundred of the ranking were three Chinese (including one from Hong Kong), German, French, English and two American insurance company.

One of the reasons for the domination of Chinese players — a high concentration of the insurance market in China. The ratings were only eight Chinese insurance companies, of which two represent Hong Kong, and all eight were in the first thousand. For comparison of 30 U.S. insurance companies, 14 were in the second thousand of the rating, and the highest position — 73rd place (Prudential Financial). In total, the Forbes Global 2000 are 110 insurance companies.

In 2017, the insurance market of China grew by 19.6%. According to the German insurance company Allianz (22-e a place in Forbes Global 2000), the growth of the insurance market in China in the coming ten years will reach 12.9% in the year. The access of foreign players in the insurance market of the PRC is limited, therefore, correlated with the world's pace here: in Western Europe the expected increase will be 2.8% in Japan and 3.2% in North America by 3.7%.

Thus, in the coming years we can expect a growth in the number of Chinese insurance companies in the Forbes Global 2000 or classes of insurance companies from rating higher places, or both together.

Asset management in Chinese

The five hundred largest companies in the Forbes Global 2000 were 19 companies asset management, ten of them American and three Chinese companies. The leading American company Berkshire Hathaway is at the fourth position, and the leading Chinese, China Huarong Asset Management only on the 323 line. All the ratings were 91 companies that provide services for asset management, including 25 U.S. and 17 Chinese.

The company estimates the asset management Casey Quirk belonging to Deloitte, the value of the assets under management of Chinese companies in 2017, equal to $3.2 trillion. In 2016, this amount was $2.8 trillion. American companies are in 2016 in the management there were assets of $33,4 trillion, ranked second in the UK —$3.8 trillion.

According to the Casey Quirk's forecasts, until 2020, the growth of assets under management of Chinese companies will be at the level of 15.5% per year, from 2020 to 2025 — 13.5% per year 2025 to 2030 — 11.5% in the year. This trend repeats the situation on the American market in the early nineties.

In total, the industry of asset management in China is expected capital inflow of $8.5 trillion until 2030. It is half the amount of new assets attracted worldwide. Total assets under management of Chinese companies by 2030 is estimated at $17.1 trillion. Foreign (i.e. non-Chinese) companies will get no more than 6% of this market.

Thus, in the next few years, Chinese companies asset management will significantly rise in the rankings. You can also expect the emergence of new names.

As China squeezes competitors

Financial power of China is best illustrated by its foreign exchange reserves. According to the State administration of foreign exchange of China (SAFE) in may 2018, China had foreign exchange reserves of $3.1 trillion. A similar figure of the Ministry of Finance of Japan, the second largest foreign exchange reserves of us $1.25 trillion. The Central Bank of Russia in may 2018 announced figure of $0.45 trillion. This allows Russia to take fifth place in the world for currency reserves.

Now Chinese companies have accumulated rich experience on large-scale infrastructure projects in the country, are entering foreign markets. This helps them leverage from state banks. One of the established schemes is: Chinese banks offer foreign borrower benefit related long-term loans under government guarantees. The borrower on the funds hires a Chinese company and buys Chinese equipment. Chinese companies engaged in projects that involve Chinese specialists.

By agreement between the parties, repayment of loans may be made through the delivery to China of the country needs resources like oil, gas, timber or other products. The attractiveness of this scheme to the borrower is that all the funds offered by the Chinese side, and the timing of the payment occur after commissioning into commercial operation after several years. The Chinese company, thus, getting contracts and creating jobs within the country. So the money Chinese banks work for the national economy.

As you can see, jobs and contracts accrue mostly to the Chinese side, and the burden of debt for infrastructure and other projects — country-borrower. Despite the obvious bias, this scheme is widespread in developing countries. One of the reasons that the long-term credit, takes their one government, and give will be quite different. As a result, small countries like Sri Lanka gaining loans they can't pay.

In December 2017, a precedent was set: with more than $8 billion of loans from Chinese state-owned companies of Sri Lanka paid the debt part of its territory. The repayment of the loan of $1.12 billion for 99 years to China handed over a strategic port of Hambantota. The last tranche of $0,585 billion, the Chinese side did not pay, insisting on permission to use a artificial island in the port area is not for port infrastructure and for the entertainment industry.

Concessional financing provided by Chinese state banks with such projects, and the ability to put lower prices than counterparts in developed countries, have become a powerful instrument in the competitive struggle for foreign markets. If, for example, PetroChina (30-e a place in Forbes Global 2000) according to the above scheme received a contract to develop oil and gas fields, for example, in Iran, the final word in choosing the equipment for the project will be the Chinese, not the Iranian side. It is obvious that Chinese state companies will buy foreign equipment only in the absence of Chinese counterparts, a preference for Chinese equipment will be provided, even if the technical characteristics of foreign products will be higher.

Financial leverage used by China in the struggle for world markets in traditional industries, reduces competitiveness of companies from other countries. In such circumstances, the technical characteristics of the products cease to be decisive. A significant role in the establishment of such a linkage was played by non-convertibility of the yuan.

According to the above diagram China displaces from the markets of Africa and Asia, manufacturers of high-tech products from developed countries. As a result, the GDP of China and its partners from developing countries is growing, while the share of developed countries GDP to world GDP is falling. Realizing more and more contracts, the Chinese side improving technology, reducing costs and becoming more competitive. At the same time, have supplanted the traditional markets for companies from developed countries to improve technology and reduce costs narrowed.

Why develop Chinese technology

Without a strong government support to compete with Chinese state-owned companies in traditional sectors is extremely difficult. For example, for the production of aluminum in the first thousand Forbes Global 2000 were two Chinese and one Norwegian company. Russian RUSAL, Hindalco Industries, Indian, American, Alcoa and Arconic was a place only for the second thousand.

Of the 26 trapped in the first thousand Forbes Global 2000 construction companies have accumulated ten Chinese, six Japanese and three French. Four Chinese construction companies, occupying 84, 169, 188 and 218-th position in the ranking, ahead of Japan's largest remaining 343-th row. In such situation, companies from developed countries have to rely on high-tech industry.

Research and development, as a rule, the first conducted under the patronage of the state, then they starts paying market. For those who entered the market late, the cost of entry is higher — you will have to pay the part of R & d financed by the market.

When the cost of R & d expenditure begins to exceed the capacity of the market to implement new technologies with economic efficiency, the pace of innovation slowed. At the stage of market saturation, new technologies acquired through the purchase of companies that are leaders in the respective areas.

The entrance ticket to the market of high-tech products at the stage of saturation is so expensive that a late player to go at it economically inefficient. Such a decision can only be done for strategic reasons — and this is the level of the state. Demand from global industry leaders to the Chinese government not to interfere in market mechanisms governing high-tech industry, it is an attempt to consolidate the existing balance of power in the markets of high-tech products entering the maturity stage.

China has repeatedly shown that to cover the gap in high-tech industries on the stage of the innovation is implementable. A striking example is the creation of China's own semiconductor industry. Taking advantage of the unique opportunities of China gives the status of "world factory", China collects on its territory the largest players, creates a massive modern additional power and generates a large pool of local high-tech companies.

A global company, to which China will be able to reach technologically, would be driven out of the market its economic power due to the fierce price competition. At the same time low price for the products will make economically inefficient investments in the creation of high technology the next generation in the foreseeable future. Thus, foreign high-tech companies at first forced out of the domestic market of China, then history will repeat described above for the traditional industries.

In the development of high technology, China is investing very large sums of money. Only in Guangdong province, local government allocated $150 billion in the development of robotics and refurbishment factories of industrial robots. Right now in China creates its own robotics. Last year Midea Group (245-th position in Forbes Global 2000) bought for $5 billion, one of the four leading manufacturers of industrial robots, the German company Kuka AG, which occupies a leading position in Europe. As a result, in Europe there is only one large concern engaged in the manufacture of industrial robots, —Swedish-Swiss ABB. In Japan there are two: Fanuc and Yasukawa Electric. All three are actively competing in the Chinese market.

It is unclear how, without Kuka AG Germany to build a smart production, spelled out in the government's strategy 2020 Industrie4.0. Even less clarity as to the new technological order will go to the United States, which is not and was not a major robotics corporations. Instead of development of the industry in American society is still debate about the ethical component of replacing people with robots in industry.

Large-scale robotization of automobile, textile, chemical industry, logistics, manufacturing, electronics, food, household appliances, pursued by China, significantly pereformuliruem world production. Most likely, in the coming years, the Forbes Global 2000 will be much more Chinese high-tech companies.

Deterrents do not work

China has offered the world a new model of competition: the state acts as a single Corporation. A major state Corporation has greater financial power compared to multinational corporations, and gradually displace them from their traditional markets in the same way, as in the time of strong multinational corporations out of the market national company, promoting the idea of globalization.

Faced with a new phenomenon, developed countries, primarily the United States, trying to protect its domestic market by imposing tariffs and other restrictions. Considering the effectiveness of these actions should take into account losses from retaliatory measures of the Chinese government. Besides, out of range of fees and restrictions remain the markets of Africa and Asia, in the economic sphere of China's influence. It is from these growing markets of China primarily to exclude competitors from developed countries.

To compete with the big state Corporation with a powerful financial leverage, can only be another big state Corporation. Thus, the idea of a free market and free competition becomes a utopia. The European Union experience shows that to create out of a few States, the state Corporation is extremely difficult, if not impossible: very different interests of the participating countries.

Within the US there is also no consensus: the proponents of globalization in the face of holders of financial capital do not share the interests of the industrial sector, which requires the mobilization of resources for country development and transition to new technological way.

The use of military force against the nuclear powers of China directly is unlikely. On the other hand, non-nuclear military capabilities, China is also growing, and China's ability to defend the country's interests abroad, especially with the possibility of concerted action with Russia also increase. In these circumstances, to compete successfully with China, the US is still impossible.

Yanina Kutova


Tags: economy , China

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