China’s Potemkin economy

BEIJING— When the 2009 Fortune 500 list was announced in July, the big news was that nine new Chinese companies joined the lineup, bringing the total to an unprecedented thirty-seven. American entries fell to just 147.

The news was hailed as further evidence of a China on the rise and an America in decline. Fortune was quick to gush about the significance of the trend, quoting a U.S. National Intelligence Council report, titled Global Trends 2025, that predicted that by 2025, China would have the world’s second largest economy. The report went on to say that within 5 to 10 years, one-fifth to a quarter of the biggest global players would be from China.

Beijing is keen to boost the number of Chinese state companies on the list to between 80 and 100, by consolidating state-owned firms (such mergers, of course, are never easy to manage). This would result in some huge enterprises. China hopes about half of these companies will make it on to the Fortune 500 list next year.

Some experts say, however, that the picture may be misleading.

All of the Chinese newcomers except for the Jiangsu Shagang Group are state-owned enterprises that play on a slanted playing field in a protected market that ensures limited competition. They all have access to easy cash from the country’s flush state banking system — an advantage that private businesses don’t enjoy…

Editor’s note: This article is available to members of GlobalPost Passport. Click to continue readingif you are a Passport member.

This article is available to Passport members. If you are not a member, take advantage of Passport’s summer sale. For two dollars a week, you’ll get exclusive in-depth reporting, direct access to our foreign correspondents, and a voice in the topics that Passport covers. Support GlobalPost by becoming a member of our inner circle. Join Passport’s innovative community today.