China may still be the future. It's just not the present.
As Bloomberg reported this week, no Chinese firms now rank among the 10 most valuable companies in the world by market value. China's representation on the list has been shrinking since 2008, when it claimed five stocks among the top 10. By Wednesday, oil giant PetroChina Co. had dropped from sixth place in May (it was No. 1 as recently as March 2010) to 12th after losing $35 billion in market value this month. Industrial & Commercial Bank of China Ltd. fell four places to 13th after losing $28 billion. Every single company on the list now is American -- yet more evidence of the U.S. economy's resilience and skill at reinvention.
Like most lists, of course, this one is a bit of a gimmick: Less than $4 billion in market value separates PetroChina from a toehold among the top 10. Chinese stocks have taken a battering recently because of the government's efforts to rein in spiraling credit growth, which prompted a dramatic spike in interbank lending rates late last week and a market sell-off. One good rally could vault the Chinese back into the top 10.
But the changing list reflects another, deeper shift that should worry Beijing. Once again, all of the world's most valuable companies belong to the private sector. Back in 2008, the rise in value of China's biggest companies -- all of which were state-owned -- led to overwrought predictions about the death of the West and the rise of a new "Beijing Consensus.'' State-directed capitalism had supposedly triumphed. Government-run energy behemoths like PetroChina bestrode the world. Western banks and automakers were begging for bailouts.
Since then, however, as Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, has pointed out, global investors have refocused on profitability: In industry after industry, they now value private companies twice as highly as public ones. Over the past five years the market value of state-owned companies has dropped 40 percent.
Chinese leaders shouldn't be worrying about how to get their state-owned dinosaurs back into the top 10. The real challenge is how to launch a private-sector Chinese firm into that august realm. The shady "wealth management products'' at the heart of Beijing's recent crackdown have proliferated in part because private companies cannot access capital as easily as favored state firms. Instead they're forced to borrow through these less-regulated "shadow banking'' channels.
By scaring the markets, Beijing's new tight-fistedness may have helped shave billions off PetroChina and ICBC's valuations. But it could ultimately benefit China's private sector. Analysts like Nicholas Lardy at the Peterson Institute for International Economics believe that in order to stanch the flow of easy money, Beijing will be forced to let interest rates rise. If credit is allocated more rationally, based on economic fundamentals rather than on political whim, it should flow toward more efficient private companies, whose return on assets is currently three times that of state-owned enterprises. That's a future Beijing should welcome.
(Nisid Hajari is a member of the Bloomberg View editorial board. Follow him on Twitter.)