Chen Fashu’s liquid asset

He has been called China’s Warren Buffett, thanks to his savvy investments. And he was making news again last week when he made a surprise acquisition of a stake in Tsingtao Brewery – China’s best known beer company.

Chen Fashu is reckoned to be Fujian province’s richest man and according to last year’s Hurun Report he is China’s wealthiest mining entrepreneur with a net worth of $1.1 billion.

His most recent deal saw him buy 7% of Tsingtao for $235 million. What made the transaction more interesting was its perceived nationalist angle. As discussed in WiC14, relations between China and Japan remain prickly. So when AB InBev wanted to offload its 27% stake in China’s national beer to Japan’s Asahi, it raised hackles. As China Daily points out: “Many Tsingtao fans were concerned that their favourite brand would fall into the hands of Asahi.” For which read, the Japanese.

Enter Chen, as the deal’s white knight. To appease consumer’s nationalistic concerns Asahi agreed to take 19.9% while he bought the remainder of the 27% on offer. Tsingtao issued a statement that the transaction was good for the company: it would remain in Chinese hands – in fact, the Qingdao city government retains 30% – and allow the beer company “to develop as a Chinese brand in the long run”.

Chen has not made clear how the deal came about. But it would it is quite possible that he was invited into the deal by the local government. When he made his investment in Zijin Mining almost a decade ago a similar thing happened.

Back in 1999 Zijin was searching for funding. At that stage, gold mining was anything but sexy and its search for capital was proving a tough slog – as reported in WiC 15. The mine is located in Fujian, and Chen was already one of the province’s more prominent businessmen. The local government asked him to take a stake, and he agreed. It was a fortuitous move. He remains Zijin’s biggest shareholder, and was instrumental in getting the firm listed first in Hong Kong and more recently in Shanghai. With the price of gold having surged in the meantime, his 20% stake is worth around Rmb4.1 billion ($598 million).

Chen’s is certainly a rags to riches tale. Born in 1961 in Anxi, he was quick to take advantage of Deng Xiaoping’s reform era; as a 21 year-old he drove a truck full of wood to Xiamen sensing an opportunity. The year was 1982; within three years he had become the largest timber dealer in the city of Quanzhou and owned his own house in neighbouring Xiamen.

His next move up the corporate value chain was to open a grocery shop, reports China Business News. In the next decade he would branch out from grocery stores to shopping malls, opening his first in Fuzhou.

In 1997, having opened a series of malls, he created his flagship vehicle, the New Huadu Industrial Group. The corporate empire includes 38 shopping centres in Fujian, and has also diversified into construction and engineering, hotels and IT.

His conglomerate now employs 5,000 and has an annual turnover of around Rmb5 billion. An unquestionable business success, less is known about the man himself. But according to those who do know him – and who spoke (off the record) to China Business News – he lacks bad habits. He is punctual, not a prima donna, and doesn’t smoke or drink. His everyday life is very healthy. He takes a midday nap, and both rises and goes to bed early. He also avoids the peacock-strutting social gatherings favoured by many of China’s new rich.

Indeed, he remains a low profile figure, and that is partly why he recently hired the flamboyant and media-savvy Tang Jun as New Huadu’s CEO. Tang is regarded as the country’s top professional manager and CEO. In fact, his moniker is ‘King of the Dagong’ (with dagong being a Chinese term that literally means ‘works for other people, not an owner of his own business’).

Although not an exceptional student, Tang worked his way up from the bottom at Microsoft’s China operations. As the country CEO of the US software firm, he built a phenomenal reputation for hard work. In his decade running Microsoft in China, he worked seven day weeks and sent around 560,000 emails. On his departure, a grateful Bill Gates gave him an honorific title within the firm.

He then jumped to online video game company, Shanda, which he joined as president and shepherded through a period of phenomenal growth (it now has around 800 million registered accounts). A great communicator, he was nominated by a Chinese fashion magazine as the nation’s most charming CEO.

A bit like Jack Welch, he has also published a couple of books. The first was titled Success Can Be Copied and the more recent tome is illustrative of the fascination with this successful manager’s life. He has published his diaries.

Being a dagong hasn’t prevented Tang from getting rich. In fact, he is the only person on the Hurun Report’s rich list that doesn’t own a business of his own. It certainly pays to be the nation’s leading manager: Chinese media have commented extensively on his ‘transition package’ and salary with New Huadu which is Rmb1 billion ($146 million).

Tang and Chen first met in November 2007, when a mutual friend organised a lunch. The pair got on well and after lunch continued talking in Chen’s car. As the conversation progressed, Chen – who is one year older – judged the chemistry right and asked whether he would like to become his CEO. He promised Tang a wide berth to implement the management and branding changes he felt necessary to grow New Huadu beyond Fujian province.

Tang joined last April. As China Business News points out, Chen’s business empire is “complex” and little understood by outsiders. Under Tang’s stewardship it will be reorganised, grown through acquisitions and steered towards a Shanghai listing. That ought to raise Chen’s net worth yet higher.

And the Tsingtao investment? Tang explained to the China Daily that the rationale was to “help Tsingtao optimise its corporate management and improve the company’s overall value.”

Chen, who is likely to receive a Tsingtao board seat, has a decent track record in making management’s improve their performance – he did so at Zijin. Local analysts are hopeful that Tsingtao’s management will benefit from Chen and Tang’s combined oversight.

China’s beer market has traditionally been fragmented and very competitive, but Chen’s instincts are presumably telling him that the prospects for beer sales are good. Some experts reckon that China could account for 50% of the growth in global beer sales in the next decade.

Should that play out, Chen’s entry into Tsingtao could also prove a smart move – indeed, as successful ‘liquid investments’ go, it may even be compared with Warren Buffett’s stake in Coca-Cola.

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