The bill, please

Nationality unknown: Zhang

“I’m Chinese and the blood in my body is Chinese,” celebrity restaurateur Zhang Lan told Hong Kong’s Phoenix TV in 2010, adding that she had refused an offer of Canadian citizenship in 1991, despite having worked there for years.

“I will be loyal to my country because I’m Chinese,” she insisted.

But Zhang appears to have had a change of heart. Last week the Beijing Morning Post reported that Zhang’s hukou (household registration) in the capital has been revoked. Hukou permits are cancelled only if the holder joins the army, emigrates or dies. As far as WiC is aware, Zhang is alive and well, and has shown no interest in joining the catering corps. So what’s going on?

Back in September a man named Ma Yi said he had filed a lawsuit against Zhang, claiming that he co-founded her South Beauty restaurant brand. Zhang’s response has been unclear, although state broadcaster CCTV says that the summonses sent by the judicial authorities to her address were all returned as undeliverable.

Then came the news that the South Beauty tycoon may no longer be a Chinese citizen. As further evidence, the Beijing Morning Post reported that Zhang has resigned from the CPPCC, China’s top political advisory body, because it doesn’t allow foreign passport holders as members.

Adding to the mystery, Zhang has avoided public appearances for months, unusual behaviour for a woman who has often graced the covers of China’s gossip magazines. Her son Wang Xiaofei, South Beauty’s president, has denied that his mother is avoiding a court appearance over the dispute. He told reporters that Zhang has not made a public appearance because she suffered a knee injury, for which she is receiving medical treatment. A spokesman for the restaurant chain also refused to comment on her nationality, saying that it is a private matter.

Although Zhang is hardly the first business owner to change citizenship, there is a little more public disgruntlement in the response to her case, as she was often quoted in the press expressing her patriotic spirit with gusto.

The timing is also noteworthy, given that South Beauty is planning to list in Hong Kong in the second quarter of next year, says the South China Morning Post.

Beijing tax lawyer Liu Tianyong told China Economic Net that Zhang’s tax bill would likely halve as a foreign citizen living in China – leading to inevitable speculation that her change of nationality is for fiscal reasons.

South Beauty first expressed interest in listing on Nasdaq in 2006 but it hadn’t even finished the paperwork before it scrapped the plan. Undeterred, it filed an application for IPO once more in Shenzhen last year but this plan was shelved too after authorities tightened criteria for listing applicants.

So is it going to be third time lucky? The South China Morning Post says South Beauty has already delayed an attempt to list in the third quarter of this year due to weak investor sentiment. But the company is hoping that the mood will improve next year.

In the meantime, Zhang will have to deal with a range of questions – and not just about her nationality or the seriousness of the legal challenge. Analysts say some prospective investors have been sceptical about the growth prospects for the upscale restaurant chain. Others wonder how South Beauty maintains uniform quality across its 70 restaurants, worrying that it lacks a standardised food preparation process.

Investors are also reported to be concerned about the restaurant chain’s accounting methods. One problem is that many patrons don’t ask for receipts, which gives restaurant owners scope to manipulate sales figures. “China’s restaurants and franchise operators are often murky in their accounting practices, so [that’s why] regulators are tightening listing rules to make sure their reported profit growth is sustainable and that there are no unhappy surprises after flotation,” an industry insider told Reuters.

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