-Analysis-

BEIJING — Included among Fortune"s recently-published Global 500 rankings of the top corporations worldwide are 106 companies from China, a new record for the country, and now second only to the United States in terms of representation on the prestigious list.

But it's imporant to note that the Global 500 rankings only reflect revenues without objectively reflecting the overall strength of companies, including factors such as profitability, innovation, globalization and sustainable competitiveness.

Looking purely at revenues, it's true that state-owned energy companies Sinopec and China National Petroleum Corp. (CNPC) as well as state-owned electric utility State Grid are among the magazine's top 10. But in terms of net profits, they rank 15th, 37th and 100th, respectively. And among the 54 companies on the Global 500 list that suffered the most losses last year, China accounts for 16 of them, more than any other country.

Innovation deficit

Technology companies play a critical role in the current global economic recovery. Take the United States as an example. Of its 128 companies on the list, 11 of them are high-tech enterprises, including Apple (No.15), Amazon (No. 88) and Google (No. 124). In terms of profits, Apple and Microsoft came in as No. 2 and No. 8, respectively.

Whereas American Internet companies manifest characteristics of high turnover, high market capitalization and high profitability, China's top three Internet giants — Baidu, Alibaba and Tencent — didn't make the Global 500 list (though Alibaba and Tencent have market capitalization as high as $200 billion).

China's high-tech companies usually enjoy high market capitalization. The problem is that this often neglects fundamental aspects of the companies. Whereas share prices for U.S. companies fundamentally reflect value, market values for Chinese companies rely much more on perception. Some of this difference is reasonable based on different national conditions, regulations and investors, but in the long term, a company's value should be assessed based on fundamentals and actual profitability.

Big but weak

The vast majority of Chinese companies on the Global 500 list represent traditional sectors such as energy, telecommunications, finance and real estate. They are very much characterized by their asset-heavy operations and resource monopolies. And their business is mostly concentrated in China itself. In other words, though China is home to many large-scale enterprises, it still lacks inspiring international brands. It is discouraging that after 37 years of reform and opening-up, Chinese businesses continue to count on the demographic bonus and resource monopoly.

Instead, the good news is that those few private Chinese corporations on the list — as opposed to state-run operations — perform much more positively. Lenovo and Huawei, the two pearls of China's communications and information industry, have both advanced considerably to No. 231 and No. 228.

　　

China's economy is facing a turning point. The main message from the Chinese government this year is to promote an innovative industrial transformation to improve quality and efficiency. Smart Chinese enterprises should grasp the opportunity to restructure within their respective industries and actively participate in a strategic international rollout. Not only should they achieve success in terms of business turnover, but they could also truly become global leaders through a healthy industrial ecology.

The Chinese should ponder, more rationally and calmly, the hidden problems behind the 106 Chinese corporations that made this illustrious list. Being ranked on the Global 500 doesn't in itself signify that Chinese companies already possess strong international competitiveness, and it certainly doesn't mean that they are global leaders.

On the contrary, they still have a long way to go in terms of fundamentals: profitability, technological innovation, global development and sustainable competitiveness. In the face of an ever more complex world economy, Chinese companies should deploy and develop with global thinking, and refine themselves according to the call of the market.

*X. Rick Niu is president of Starr Strategic Partners.