Chinese Character

The secret of my success

Zhu Gongshan’s GCL-Poly manages to unite private and state ownership

The secret of my success

Zhu Gongshan: a well connected guy

Austin Powers billed himself as an “international man of mystery”. He was, of course, a fictional character created for the big screen by Mike Myers. But in China there’s a real-life candidate for the ‘man of mystery’ label. His name is Zhu Gongshan, and for years he has fascinated local media.

He was in the news again recently when he accompanied Xi Jinping – China’s leader-in-waiting – on his tour of the US. On the trip Zhu signed deals to build solar power plants co-financed by American financial institutions. Under the new agreement it’s envisaged Zhu will build more than 1GW of solar power across the US, starting with an initial project to provide 64% of the energy needed by Southern California’s Palmdale Campus – doing so in double-quick time, by October.

Zhu’s firm is GCL-Poly, and according to 21CN Business Herald his seven polysilicon plants have an annual capacity of 46,000 tonnes – ranking its production top in the world. Polysilicon is the main material in solar panels, and Zhu is reckoned to be able to produce it for a lower price than others thanks to his economies of scale. That’s made him very rich – his wealth is estimated to be $2 billion.

However, he is low-key and almost never gives interviews. In a rare exception he met a journalist from the BBC. The 54 year-old businessman proved hard to categorise. He did not flaunt his money like many new-rich tycoons, wearing a “humble” Citizen watch rather than a Vacheron-Constantin or a Rolex. And, says the interviewer, he chose not to invite him to his office, but instead to an anonymous hotel. On top of this discretion, “he spoke to me using the phrases and cadences of a Senior Party official, so when he talked, for example, of his wealth being ‘for society’ – to some extent he seemed to be following the Party line.”

The energy company boss only bristled when asked about Western companies’ attitudes to his success. “Of course, they are envious,” he said. “I have done in a few years what took them (much longer).”

Then again, how Zhu achieved his rapid ascent is the main element of mystery that surrounds him. He is emblematic of a type of businessman little understood in the West – if only because Europe and the US lack such examples. His story melds risk-taking with state capitalism, dynastic family networks with national energy policy; entrepreneurialism with Party connections. As WiC has repeatedly reported, an ongoing trend in China over the past five or more years has been guojinmintui – which literally translates as ‘the state advances as the private sector recedes’. It’s been a major source of debate (see WiC135), the gist of which being: is state capitalism crowding out entrepreneurial businesses? Zhu and his firm are an interesting case – offering a hybrid that appears to marry state and private ownership.

He was born in rural Jiangsu in 1958, probably at the right time. He majored in electrical studies before becoming an electrical salesman in his hometown of Funing in 1978 – the year China began its economic reforms and opening to the world. He eventually set up his own firm, and as his ambitions increased he registered the GCL Group overseas, with the aim of investing in China’s power sector. His first deal: to build a thermal power plant in Taicang.

The year was 1996 and significantly Zhu’s co-investor was Hong Kong Continental Mariner Investment – the largest shareholder of which was Poly Group. In other words, points out South Weekend, his big break or “coming out” was thanks to a state firm, and not just any one. Poly historically had close ties to China’s army as well as to the family of Deng Xiaoping, the nation’s former paramount leader (for example, the current president of Poly is the husband of Deng’s third daughter). So when Zhu’s company became GCL-Poly it was evident to all that it had connections in the corridors of power.

Over the next decade he would build 20 plants – without ever incurring the wrath of China’s five large state-owned power producers. In 2007 he listed GCL-Poly in Hong Kong and became known in China, says South Weekend, as ‘the King of Private-run Power’.

He’d built coal-powered and biomass generators for the most part, but in 2006 he had a business epiphany: the future was in solar energy. He invested Rmb7 billion ($1.1 billion) to found Jiangsu Zhongneng Silicon Technology, to produce polysilicon, the raw material of the photovoltaic industry. His strategy – unlike Suntech and Yingli which made solar panels – was to start at the upstream end of the business and attain dominance there first.

Almost immediately he made a far-sighted decision. At that time the world was facing a ramp-up in demand for solar panels and a shortage of polysilicon to make them. On the spot markets, prices of $500 per kilogram were on offer, but Zhu elected instead to sign eight year supply contracts with grateful customers at prices of up to half the then spot. Analysts calculate he gave up Rmb10 billion of short-term profits, to make a long term bet. It helped, notes 21CN Business Herald, that he could produce the raw material for $20 per kg.

It proved a smart move. During the financial crisis in 2008, other producers got hammered when polysilicon prices plummeted to below $100 per kg. His contracts helped Zhu profitably weather the storm and weed out weaker competitors. He instead used his cashflow to up his capacity – by 2008 he accounted for half of all China’s shipments of polysilicon, remarkable for a new entrant.

In 2009 he took another key decision. GCL-Poly would acquire Jiangsu Zhongneng and then make silicon wafers and begin to build solar power plants. Once again a big state partner would enter the fray to help Zhu achieve his vision. Sovereign wealth fund CIC pumped $710 million into his firm for a 20% stake. (He also got a Rmb10 billion line of credit from Bank of China in 2010.)

The first thing was to establish scale in silicon wafers. Four months after he started production on his Xuzhou-based factory, Zhu was producing his own wafers. Thanks to state investment he also had the funds to acquire capacity – buying Gaojia Solar Energy (Wuxi) for Rmb854 million. By the end of last year, the aggressive push saw GCL-Poly’s silicon wafer production capacity reach 3.5GW, accounting for almost 30% of global supply.

Last year his expansive strategy moved into solar power plants too, with overseas markets part of his vision (completed projects in the US amounted to 4.8MW in the first half). In just over five years, Zhu – who is the firm’s chairman and CEO – has become one of the biggest players in the solar industry. Even with polysilicon spot prices having collapsed to $40 per kg, he has moved downstream, and used his cost advantage to grow stronger at the expense of rivals.

According to Bloomberg, China already accounts for half the world’s solar cells and 45% of polysilicon production. That looks like only increasing. GCL-Poly – which made Rmb3.5 billion ($555 million) of net profit in the first half of 2011 – plans to increase its polysilicon capacity to 65,000 tonnes this year.

The secret of this rapid success, a GCL-Poly insider told South Weekend, was twofold. Zhu “dared to bet big” and the firm had connections: “Whatever things happen in Beijing, Poly will come forward.”

To outsiders, GCL-Poly might look like a typical state-owned firm, growing on the steroids of cheap capital. Evidently, that’s a factor in its rise. But it’s not the whole story. Zhu’s success is not only about his connections – it owes much too to his vision and the boldness of his decisionmaking.

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