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CRN: China’s Top 500 Make Low Profits

China Review News (CRN) recently published a financial commentary that analyzed why profits among the top 500 Chinese enterprises have declined considerably. The commentary started by comparing the ROE (Return On Equity, which measures a firm’s efficiency at generating profits from every unit of shareholders’ equity) of China’s Top 500 enterprises with the USA500, finding it was 2.1 percent less. China’s top 500 companies have high total sales, but are very low on the profit side. The commentator expressed the belief that this is related to the fact that 310 out of China’s top 500 are state-owned and the top 30 are all large state-owned enterprises. China’s top 10 are either state-owned banks or companies that enjoy monopoly power. Most of these companies are not interested in promoting, innovation, or in cutting costs. Instead, they focus on making sure that government policies are biased in their favor. With the downturn of both the global and the domestic markets, labor costs, leasing costs, and resource costs are all rising. The growth pattern that the China 500 follow is no longer applicable for generating a profit. The commentary called for a “reform of the system.”
Source: China Review News, September 7, 2012