Global financial crisis and the changing geography and industrial composition of large, listed companies: evidence on China’s ascent

Abstract

Purpose – This paper examines the GFC’s impact on the rate of change in the global economic and financial landscapes, particularly China’s global financial influence. In doing so it fills a gap in the literature. While growth in China’s economic and financial resources and influence are recognised, analysis of China’s global share of large, listed (and effectively multinational) corporations is limited. Globalization is frequently linked to the growth of these large, listed corporations, which are important due to their dominance in determining FDI and trade flows, and their potential to exert political and economic power. China has focused on establishing such a set of large, internationally-competitive enterprises as part of its enterprise reform process.

Design/methodology/approach – This paper summarises established views in the international political economy literature (often expressed in the media) that we are entering an Asian era in which China’s global economic and financial control has grown to compete with that of the United States and European Union. It then presents stylised facts on changes in the geographic origin (control) and industry distribution of large (Top 1000) listed companies over the periods immediately preceding, covering, and following the GFC (2005 to 2011). This is done against measures of the relative economic and financial positions of major regions and countries, including China, over 1999 to 2011. This establishes trends in relative financial and economic importance against which more recent changes associated with the GFC may be evaluated.

Findings – The East Asian/Pacific region’s share of global equity market capitalisation has grown significantly over the 2000s. However, China’s gains are relatively minor given the significant outperformance of its stock market relative to major western markets. Additionally, rather than accelerating an economic and financial shift from North America, the data suggests that the GFC may have stabilised or improved its relative position, having impacted heavily on other regions/countries. This is especially with respect to the relative decline in value of equity in major markets that occurred during 2008. While the GFC’s impact on China’s share of large, listed companies appears to be positive, China still holds a relatively small share of the total, for which a relative lack of industrial diversification is observed. This is despite significant listings of large state-owned enterprises (particularly banks), and relatively rapid growth in China’s economy.

Research limitations/implications – Limitations in the analysis exist due to a focus on the largest 1000 listed companies as measured by asset value and market capitalisation. Additionally, use of the U.S. dollar as the benchmark currency for valuation leads to exchange rate imposed distortions. Future research should analyse the impact of shifts in exchange rates on conclusions re China’s emerging economic and financial influence under alternative measures of company size. Social implications – This paper contributes to the debate on the rise of China and decline of the North Atlantic economies. It suggests that the international political economy literature (and press) is potentially overstating the rapidity of China’s rise in financial influence, and that western fears of China’s current global financial power may be overstated.