The fifty fastest growing and most promising Chinese companies saw profit margin fall to 11 per cent, compared with 18 per cent for their global peers last year, according to a new study, in line with the slowing growth of the nation. 

According to a report from
The Boston Consulting Group, although the so-called 'Chinese challengers', are fast-growing and globalizing rapidly, they are also facing a more demanding future.
 
BCG's Chinese global challengers are broadly representative of the Chinese economy, ranging in size from US$180 million to around US$300 billion in annual sales. Nearly one-half of the companies are private, while 26 of them are owned by the state. Thirteen of them generate more than one-half of their revenue from overseas.
 
Between 2001 and 2011, sales growth at the Chinese global challengers averaged 20 per cent a year, compared with 9 per cent for the global benchmark the S&P 500. Since 2000, they have outperformed the S&P 500 by more than a factor of eight and also outperformed the MSCI Emerging Market and MSCI China indexes by wide margins.
 
But their stock-market returns have cooled off since the start of 2011, as profitability has come under pressure. "This softening signals that it may be time for Chinese companies to move beyond the advantages that they have historically enjoyed: a large domestic market, competitive cost position, and strong state support," said the report. 

Winners and losers

The hypergrowth phase of China’s economic development is over. Real GDP growth in 2012 is likely to settle below 8 percent, the lowest increase since 1991, according to estimations from Beijing in March.

China’s cost advantage is shrinking, as labor and other input costs rise. Between 2012 and 2016, manufacturing labor costs are expected to rise by at least 10 per cent annually, five times as fast as in many developed nations and twice as fast as developing markets such as Thailand and Vietnam. Plus, multinationals are starting to defend against the early successes of Chinese challengers.
 
Many Chinese companies have started to mature into global players through mergers and acquisitions, establishing capabilities beyond their previous experience.

To become global leaders, BCG said Chinese companies should embrace five strategic initiatives. These are; to take advantage of megatrends such as the rise of the middle class, to strengthen M&A capabilities, to establish capabilities beyond cost leadership, to improve productivity and to develop global organization, management, and governance practices.