Steve Schwarzman left Lehman Brothers to start the Blackstone Group in 1985 with $400,000. It took 22 years for Blackstone to go public and the company is now worth $32 billion. Shan Xiangshuang is often as dubbed ‘China’s Schwarzman’, although he has built his own private equity outfit – China Science and Merchants Capital Management (CSC) – in a shorter time.
Shan was born in 1967 in Shandong. He studied accounting at Xiamen University and took his first job at a distributor of textbooks in 1988. He soon relocated to another state firm under the Ministry of Transport which dealt with trading. But the government job was too easy for him. Reports of the time say that he burned his surplus energy by jogging (Shan’s superiors thought he was crazy when they saw him running in the snow) and writing novels (he is said to have finished three in a particularly productive month).
In 1998 Shan left for Shenzhen, joining a securities firm under China Merchants Bank. He put together an ambitious proposal to set up an investment unit combining the resources of five government departments with transport portfolios. His superiors ignored him so Shan used his personal connections to take the idea to Beijing and present it to the Transport Minister. A few months later, the China Communication Investment and Finance Commission was established, with a 32 year-old Shan as its secretary.
Shan had succeeded in capturing the attention of some serious political players, but he wouldn’t stay in the new role for long. In 2000 he set up CSC with Rmb600,000 (less than $100,000). Despite leaving the government ranks, he kept up a strong working relationship with the state sector, which led to seed capital and opportunities from state firms. Early investments included the state-owned audio and video firm China Hualu Group, and Erdos Group, a company with interests in cashmere, coal and electricity. CSC specialised in setting up ‘government guidance’ funds, which worked closely with local governments. “It is a win-win strategy because investing more in these areas to promote local economic development makes it easier for us to raise money from local investors and gain government support,” he told the China Daily.
CSC now has more than $10 billion in assets under management and it went public last year on the Beijing-based New Third Board, an over-the-counter bourse. New Fortune, a local magazine, estimates Shan’s net worth at nearly Rmb20 billion.
Need to know
What does a private equity firm really do? Shan’s response is admirably succinct. “You can only sell an apple for one dollar in a wet market. But an apple is worth 10 times more if it is served in a fruit plate in a five-star hotel. CSC is the five-star hotel,” he says.
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