Economy

Old boy network

Meet China’s up-and-coming business faction from Dongyang

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Dongyang kingpin: Guo

Xu Jiatun was appointed chief of the Hong Kong branch of the Xinhua News Agency in 1983. Becoming China’s unofficial envoy to the British colony, Xu was tasked with winning over the territory’s top businessmen, and organising them into an alliance akin to the Keidanren, Japan’s powerful business lobby.

Xu found it a tall order. The tribalism of the business clans made it difficult to forge a united front. “Hong Kong tycoons are divided into different factions. The Guangdong gang, the Shanghai gang, the Fujian gang… and within the Guangdong gang there are sub-factions from Chaozhou, Panyu… add overseas Chinese from Indonesia, Thailand and Malaysia [and] the webs of connections are further tangled,” he recalled in his 1994 memoir.

Back then the Ningbo faction carried some of the weightiest influences. Hong Kong’s first chief executive Tung Chee-hwa, the shipping magnet YK Pao and the media mogul Run Run Shaw all came from this port city in Zhejiang province.

Also in Zhejiang and about three hours’ drive from Ningbo, another new business tribe is emerging from the unheralded city of Dongyang. However, in this case, its influence is extending across China, and not localising in Hong Kong.

For decades Dongyang had little to make it stand out from China’s 338 other cities. With a population of 800,000 it was mostly renowned for skilled woodcarving and pickling its eggs in schoolboys’ urine (no joke – Dongyang government officials are even lobbying for the dish to be included in a list of China’s cultural heritage). But the city also boasts one of the biggest contingents of private sector tycoons. It is home to five powerful companies including film studio Huayi Brothers and the construction giant Guangsha Group (famous for building Dubai Meydan Racecourse’s grandstand project within 18 months, see WiC68). Moreover, Dongyang natives are now in control of nearly 20 listed Chinese firms.

“Dongyang used to be known as the home of the woodcarving art. Now it is the home of capital,” Time Weekly magazine grandly suggested in an article this month.

Probably the most influential of the Dongyang businessmen is Fosun’s founder Guo Guangchang. Fosun controls six companies listed in China and Hong Kong, with interests spanning from steelmaking to pharmaceuticals. It is also active outside China. “There’s a good chance it will be coming to a country near you soon, buying a company you know well,” the Financial Times predicted in a recent interview, noting further that Fosun has made 12 overseas acquisitions in 2014. The targets have included Forbes magazine, hotelier Club Med (a transaction that is still ongoing, owing to a rival bid from an Italian businessman) and Portugal’s largest insurer Caixa Seguros.

Dongyang also boasts a heavy influence in the entertainment industry. Huayi Brothers is China’s largest listed studio with a market capitalisation of Rmb29 billion (or $4.7 billion – and bear in mind it was worth $1.2 billion two years ago). The movie producer doesn’t need to travel far for trustworthy partners. Also in the city is Hengdian Group’s “Chinawood”, the world’s biggest outdoor film studio facility. At nearly 500,000 square metres in area, Hengdian World Studios have hired at least 300,000 extras for films made there. A good number of them die valiantly in the battle scenes of anti-Japanese dramas (see WiC187).

Zhejiang Huace Film is another movie producer controlled by a Dongyang native. It is now worth Rmb18 billion, after taking over the Shanghai-based producer Croton Media for Rmb1.7 billion in August last year (see WiC205).

WiC has reported extensively on the tribal culture of many Chinese business people. Often, when a local individual succeeds with a business idea, his friends and family join in. The idea then snowballs into the wider community. Think of debt-laden steel traders from Fujian’s Zhouning county (see WiC229), or how entrepreneurs from Putian came to dominate the private hospital industry (see WiC242), or how the good folks of Guangfeng came to be leasìng 70,000 excavators to construction projects across the country (see WiC195).

But the business networking or guanxi among the Dongyang tycoons appears to have taken the group dynamic to a higher level. In this case, Time Weekly has noted, the big fish are helping one another to grow much bigger. Often it means easier access to financing. Hengdian Group and Guangsha both own stakes in Bank of Zhejiang, for instance, while Zhejiang’s businessmen have been particularly active in trying to reinforce their creditworthiness with inter-company guarantees (a practice that at a national level worries the central bank, see WiC157).

Perhaps more importantly, Dongyang tycoons seem happy to share their personal networks too. For instance, Fosun’s Guo and Hengdian World Studios have teamed up with five Zhejiang enterprises including internet giant Alibaba to invest Rmb10 billion in a woodcarving exhibition centre in Dongyang. The project commenced operations last month.

But do Dongyang natives have qualities that make them more successful commercially? Its business gang hails from what is commonly regarded as the country’s most entrepreneurial province. Zhejiang is also home to many of the most successful businessmen in modern-day China (at least, from WiC’s own count – see the second edition of our book, China’s Tycoons). According to Time Weekly, the people of Dongyang also attach even greater importance to education than average. (Over 300 locals aced the imperial exams in the pre-Republican era, for instance, and the city now boasts more than 1,100 doctoral degree holders.)

People from Dongyang are also said to be instinctively entreprenurial when the opportunity arrives. “Whenever Dongyang people have the chance to become the boss, they are never willing to work for others,” Time Weekly suggested.

The risktaker-in-chief is Fosun’s Guo, who founded the company with three university friends in 1992. As the Financial Times put it, the 47 year-old has emerged from an early life of peasant penury. Today he looks like “a cross between a librarian and the migrant worker he might have been”. But Forbes calculates Guo’s wealth at $4.3 billion and he is regularly likened in the media to Warren Buffett. Unlike the Sage of Omaha, Guo made his first buck selling steamed buns to fellow students at Fudan as they left the university library late at night.

Of course, not everyone from Dongyang has the golden touch. Wu Ying built up a successful chain of beauty parlours and hotels. For a brief time she was China’s sixth richest woman. But the high-school dropout was convicted of financial fraud and sentenced to death in 2011 (see WiC104). The sentence was later reduced to life imprisonment after the case became contentious, turning Wu into something of a folk hero across the country.

“In a growing economy the boldness of Dongyang natives make it easy for them to catch an opportunity. But in bad times those who are overly aggressive inevitably go under,” was the view of the journalist who first broke the story of the Wu Ying scandal.

Fundamentally, the maintenance of power and wealth through strong personal networks is a cross-border phenomenon (just think of the ‘old boy networks’ of the West). But the complex system of overlapping guanxi among politicians and businessmen in China can be more influential and more difficult to break down than in many other markets.

For example, executives from the Shengli oilfield – a vast energy complex once run by the now disgraced former public security chief Zhou Yongkang – were clearly hugely powerful in the ruling Party over the past decade (see WiC207). Even qigong grandmasters sometimes serve as a conduit for shared interests (see WiC263). But for overseas investors seeking to navigate some of the hidden depths of China’s commercial landscape, a quick check of where a potential partner or competitor was born is often a good place to start…


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