Private party for Fortune 500 list

More privately held Chinese enterprises make 2016 rankings, but longevity is the only way to show they are world class

The latest Global Fortune 500 list shows more Chinese enterprises made the grade this year.

China has 110 names in the rankings, four more than in 2015. Of those, 99 are from the Chinese mainland, seven are from Taiwan, and four are from Hong Kong (no companies from Macao made the list).

The increase can mainly be attributed to the great contribution by privately owned mainland enterprises. Of the 99 mainland names, 13 are private enterprises, six more than in the 2015 and 2014.

Six private companies appear for the first time: China Vanke at No 356; JD.com, No 366; Wanda Group, No 385; Midea Group, No 481; WH Group, No. 495; and China Evergrande Group, No 496.

Six new state-owned enterprises from the mainland also appear, mostly from growth industries such as transportation, defense, aerospace, information technology and insurance. At the time, seven SOEs that featured in previous rankings have dropped off the list, mainly those from the steel and coal sectors, which are experiencing overcapacity issues.

In addition, one Taiwan company also dropped off the list.

This shift in balance from SOEs to private enterprises demonstrates the growing vitality and importance of the private mainland enterprises' economic activities and development.

This is surely welcome news. China's modern economic success essentially comes down to the hybrid ownership model that the country adopted when it launched its economic reforms some 30 years ago.

SOEs and private enterprises have played complementary and competitive roles in China's economic miracle.

Traditional SOEs have been leading the development of key industries, such as finance, telecommunications, transportation, energy, mining, defense and public utilities - all sectors considered of strategic, systemic or social importance to China's long-term welfare and security. They indeed have contributed immensely to the buildup of China's global leadership in some industries, more specifically in banking, oil and gas, telecom, steel, coal, rare earths, construction, power, solar energy, automobiles, transportation, defense and aerospace.

Some of these industries demand massive, long-term and far-reaching commitments of capital and resources, which in many cases only the state can effectively provide. State leadership and participation in these industries have helped to transform some SOEs into national and even global champions that have largely made what China is today.

On the other hand, China's private enterprises have also grown into a major component of the economy and have contributed enormously to the nation's meteoric rise in economic growth and global reach. Although there are no official data on the aggregated contribution of private enterprises to China's total GDP, many data points show at a local level that these enterprises likely make up more than 50 percent.

In particular, private companies have been the main driver of China's powerful export machine. According to the Ministry of Commerce, in 2015, privately run businesses contributed 45.2 percent of total exports, while SOEs accounted for 10.6 percent. The other 44.2 percent came from foreign-owned enterprises.

Private Chinese companies have flourished in highly deregulated industries where they enjoy a more level playing field, or in industries that are relatively new where they can grow from the same starting line as SOEs.

On the deregulated front, well-known cases include Huawei Technologies in the telecom equipment industry and Shandong Weiqiao in aluminum manufacturing. Both are the largest companies in their respective industries globally.

On the new industry front, well-known cases include China Vanke and Wanda Group. They are the largest residential and commercial developers respectively in China's real estate market. Midea is also the industry leader in home appliances, which were new to Chinese consumers 30 years ago.

In fact, private companies make up a large proportion of the top 10 internet companies in China.

We expect more Chinese private enterprises to enter the Fortune 500 list in the future. When poring over lists of other major corporate rankings, such as the China Fortune 500 (also by Fortune magazine), the China Privately Owned Enterprises Top 500 (by the China National Association of Industry and Commerce), and the Most Valued Brand Names Top 100 (by multinational marketing company WPP), we can easily identify many more private companies that are ready to enter the global arena.

The candidate list is long, but we can make a shortlist: Alibaba Holdings and Tencent Holdings in the internet sector; Suning Commerce Group in retail; New Hope Group in agriculture; Country Garden in real estate; Sany in construction machinery; BYD in clean energy vehicles; the conglomerate Fosun; and Didi Chuxing in ride-hailing services.

To be fair, the Fortune 500 ranking measures only one aspect of an enterprise's strength - its revenue. But the strength of a world-class company can be measured using many qualities, and China has many more enterprises, both SOEs and private, that are considered world class. These are hidden gems that are yet to be unearthed by the Fortune 500.

This year's debutants deserve our applause, but we should also keep in mind that a one-off showing is only good for entertainment. Demonstrating staying power is the only way to prove superiority, as many of the existing Fortune 500 companies have done.

Nevertheless, the growing number of private Chinese enterprises making the Fortune 500 can serve as a reference for the continuing success of China's hybrid economic model, and the progress of China's ongoing SOE reform.

The author is a senior research fellow at Renmin University of China's International Monetary Institute. The views do not necessarily reflect those of China Daily.