John Trumbull is not as famous an artist as Rembrandt or Cezanne, but one of his paintings is probably much more familiar to many of us.
It appeared on the old US two dollar banknote and depicts the signing of the Declaration of Independence.
But when founding father John Adams saw the completed work in 1819, he voiced strong objections. No such event had ever occurred, he argued, as the 56 signatories added their names as and when they happened to be in Philadelphia. Trumbull’s image was a myth.
When the history of contemporary China is written, one of the key strands will be the economic relationship between the state and the private sector. It is a theme we have been returning to in WiC recently, especially as state-owned firms try to acquire privately-owned rivals.
But history – as Adams pointed out to Trumbull – tends be messy. Even when a trend might look iron-clad, there are events that will offer a contradictory view.
That’s why a change in shareholding structure at Legend Holdings is proving big media news.
Legend is best known as the parent of Lenovo – the computer maker which acquired IBM’s PC business in 2005. The major shareholder has long been the Chinese Academy of Social Sciences (CASS), which first backed entrepreneur Liu Chuanzhi when he founded the company in 1984. As Caijing magazine comments, even though staff held 35% of the company, Legend was classified as a “red hat” firm – ie state-owned – thanks to the CASS stake.
But this week Liu (who is profiled in WiC24, page 6) was able to announce a key change to the shareholder structure.
CASS sold a big chunk of its stake – and hence control – to China Oceanwide, a privately-owned firm.
China Oceanwide, which is mainly engaged in real estate development, is a conglomerate with Rmb16 billion of assets. It was founded in 1985 by Lu Zhiqiang, who was ranked by Forbes as China’s 11th richest man last year. Lu is acquainted with Legend’s Liu as a fellow member of the Mount Tai Club, a networking society for business leaders.
Liu discovered that Oceanwide had increased its cash pile when it reduced its shareholdings in Mingsheng Bank and Haitong Securities. In turn, when Lu became aware that CASS intended to reduce its shareholding in Legend, the Oceanwide boss made what he terms “a lightning decision” to invest. He paid CASS Rmb2.75 billion ($401 million) for a 29% stake in Legend.
The combined shareholding of Oceanwide and Legend’s employees now amounts to 64%. That is significant as it means Legend has been transformed into a privately-controlled firm. Or as Liu terms it: “a no-family-based family business”.
This, of course, brooks the recent examples of state firms casting their eye over private sector businesses.
Many worry about the trend – Zhou Qiren, a professor at Peking University told Caijing that it is “wrong and costly” – which may explain some of the applause that has greeted changes at Legend, where the reverse has occurred.
In fact, the 21CN Business Herald thinks the new company could come to resemble Buffett’s Berkshire Hathaway. Legend’s plan is to invest $1.5 billion over the next five years in promising local businesses (in areas like clean energy and consumer goods) and then list itself (possibly in Hong Kong). Liu reckons Legend’s principal asset, Lenovo, will also benefit. During Lenovo’s acquisition of IBM’s personal computer business, some in the US Congress depicted Lenovo as a state-controlled company, he told the Wall Street Journal.
“After adding China Oceanwide as an investor, we can explain clearly that Lenovo is a totally private company, and this will benefit Lenovo’s international business,” he added. As for Lu, he just thinks it’s a good deal: he predicts his stake will be worth Rmb20 billion in five years.
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