Shenzhen’s Top Companies: Fintech Giants

A glance at the financial scorecard of Shenzhen’s publicly listed companies in the most recent quarter shows an impressive performance: Across 393 companies, listed on six stock exchanges at home and abroad, revenues rose by 13.05%, profits by a whopping 33.08%, YoY.

 Revs (RMB, bn)YoY%Profits (RMB, bn)YoY%
Total          4,423.6113.05755.62533.08

The Top 20 did better than the average in revenues, which were up 15.82%, although profits growth lagged the overall total at a paltry 20.16%. Here is what our data team has compiled, based on stats for Shenzhen-based companies listed in Shenzhen, Shanghai, Hong Kong, NYSE, Nasdaq, and LSE:

Data source: NBS

This performance is against a provincial average of just 3% YoY growth for all industrial profits in the first three quarters, and a national average showing the country’s corporate sector is still in the red. We will show comparisons with listed companies based in Beijing and Shanghai in future updates.

Many factors can be cited to explain the improved showing by Shenzhen’s leading companies in Q3. One stands out, however: The government has been helping the corporate sector weather the current economic slowdown by cutting various types of taxes over the past fiscal year.

What makes the data more interesting is the way it challenges easy assumptions about Shenzhen. There are trends in these numbers that tell surprising stories.

One of the best is that despite Shenzhen’s reputation as a hardware hub, its leading companies are increasingly diversified across a broad spectrum of software and financial services. Strictly speaking, financial services, in fact, are king: No. 1 in profitability and a close No. 2 in revenues.

Tech vs. financials

 % of revs% of profits
Tech (IT)41%28%
Financials30%48%

But is this picture as simple as it seems? Looking more closely, financial services are dominated by the city’s No. 1 company, Ping An Insurance, which also has a separately listed bank that weighs in at No. 7. Put together, the Ping An duo account for nearly one-quarter of all revenues among Shenzhen’s listed companies, and 30% of profits. When the financial sector is discussed, only a few fingers of one hand are needed to count its main players.

Top 5: share of Shenzen’s totals
 RevsProfits
Ping An23.34%28.74%
Huawei14.32%7.97%
Foxconn6.56%1.70%
Tencent6.37%12.74%
Vanke5.25%6.27%

Yet the bigger question raised by the Ping An group of companies is: Do they belong in financials, or are they tech firms? Ping An might have a separate subsidiary, not yet listed, called Ping An Technology, which apparently gathers together all of the group’s pure-play tech ventures. Yet Ping An as a group is the 800-pound gorilla of a new sector readers might have heard of, called fintech.

The same could probably be said about China’s supposed software and gaming king, Tencent. Its ubiquitous WeChat platform is used mostly to buy and sell stuff when people are not chatting on it (and sometimes when they are). Doesn’t that make it a fintech play?

Don’t discount Huawei, either. The No. 2 entry on our list (privately owned), the world’s No. 1 provider of telecom networking equipment, is galloping through the fintech battlefield. It has its own payments platform and has tied up with China Unionpay. Anyone who thought Huawei was building the world’s 5G networks just so it could sell networking equipment must have an insufficient appreciation of Ren Zhengfei’s strategic genius.

Huawei, Ping An and Tencent are not the only juggernauts in this city. There is Foxconn at No. 3, still a force thanks to Apple’s iPhones, and BYD, No. 8, the country’s biggest maker of electric vehicles. And don’t forget ZTE, the second-biggest equipment manufacturer behind Huawei, which is still in recovery mode after being hammered by a US blacklisting less than a year ago.

Throw in a few other big guns, such as China Merchants Bank, the big property company, Vanke, and the logistics king, SF Express, and you get an All-Star Team of China’s private corporate sector. These elite members of the Top 10 account for nearly 80% of all profits among Shenzhen-based listed companies.

The 80/20 rule: (leading firms, % of total profits among all listcos)
Top 1078.16%
Top 2087.30%
Top 5094.31%

Data source: NBS

Data source: NBS

The dominance of the Top 20 is not necessarily something to crow about, however.

Rather, such strength might be taken as weakness: the biggest, it could be argued, are too dominant. This is not what an economic planner who talks incessantly about funding SMEs wants to see. Especially not when considering the province’s 45,000 national-level registered technology companies. That’s a lot of human potential in need of funding, which is perhaps being crowded out by the giants.

This is not to suggest that Shenzhen needs someone like US Senator Elizabeth Warren, an avowed trustbuster who wants to break up the big tech firms. It might be that Shenzhen’s fintech giants are great at allocating capital and technology, albeit within their own corporate universes.

Yet it does suggest that Shenzhen’s funding mechanisms for tech startups could do with some updating.

Should the city have its own STAR market, like Shanghai’s, with easier listing requirements? Should it cooperate more with Hong Kong on the Stock Connect scheme? Should it work with Macau to get more promising companies launched on a Renminbi-denominated offshore exchange there? Or should it focus efforts on boosting the venture-capital industry?

Or, even better, being the home of the fintech kings, should Shenzhen be pioneering wholly different funding models for corporate growth? How about a blockchain platform linking all suppliers in an industrial value chain, which determines via an AI algorithm where capital would be best allocated in the chain? Is this, perhaps, what a Pioneering Zone for Socialism with Chinese Characteristics should be allowed to tinker with? 

These are all questions that Shenzhen’s leadership is considering, according to local media reports.

Whatever strategy is chosen, one thing seems clear. Shenzhen’s rise as a tech power is going to require more investment than its domestic capital markets can afford. Smaller banks are going bust and local government financing vehicles are defaulting on bonds. The state-directed capital model is in need of reform.

It seems obvious that China’s biggest trading partners will be asked to step up to the plate. At some stage, at least. Now is the time, therefore, to stop focusing on what China’s leadership is saying about meddlesome foreigners and start focusing on what it is doing to remove foreign investment barriers.

Admittedly, the timing is not great right now. While China’s Silicon Valley is on a mission to attract international investment into its tech sector, the United States is mulling additional tariffs in its ongoing trade war, and the European Union is counting down toward imposing a “carbon tax” on Chinese companies.

Nevertheless, these high-handed, meddlesome foreigners, former arch-colonialists the lot of them, are the only game in town. No matter how much China talks about being less dependent on foreign technology, no matter how much “talent” it can lure home from American universities, it seems inescapably obvious that the country cannot afford the investments required to power its tech ambitions. The Belt and Road Initiative has achieved much in diversifying China’s external trade balances, yet no country in southeast Asia, the Middle East, or Africa has remotely close to the financial strength of professional investors based in the US and the EU.

Can the world’s future fintech champions emerge from the next stage of Opening and Reform bigger and better? Will the addition of foreign capital and know-how triumph over the most dire predictions of skeptics?

The raw materials are there. How international capital plays a constructive role in bringing Shenzhen’s – and the GBA’s – potential to fruition will be the most intriguing story of the coming years.

Note on data compilation:

To be clear, of these 393 companies, 85 are listed only on the Hong Kong stock exchange – as distinct from those with dual listings in the mainland and Hong Kong. Many have either not yet finished their Q3 reporting season, or do not report Q3 numbers. Therefore, these averages will change once full-year numbers are reported early next year.

There are eight Shenzhen-based companies listed only in New York (i.e., not counting ADRs); and one listed only in London. We have nearly all of their Q3 numbers, while those missing are too small to affect the overall averages.

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