Chinese Character

Rock star departs

Vanke founder’s retirement casts a long shadow

Wangshi-w

See ya: Wang announces he’s off

Even though Martin Sorrell receives what many deem a meagre annual salary of £1.15 million for running the advertising giant WPP, he famously gets a supersized bonus for his hard work year after year. In 2015, he grabbed headlines for taking £70.4 million as a bonus. After a dispute with the company’s institutional shareholders, he decided to trim it back to a more modest £48.1 million.

Even with the slimmed-down payout, Sorrell, often compared to Don Draper from the TV show Mad Men, remains the FTSE 100’s best-paid boss. In the past five years, he has made over £200 million in salary and bonuses.

Sorrell only owns a small stake in WPP, but he is nevertheless heavily identified with the firm that he has built into a colossus. Wang Shi, one of China’s most famous property tycoons, is similar in this respect – being synonomous with his firm Vanke while owning not much of it. However, the two men’s attitudes to compensation differ markedly. Wang claims not to be motivated by money.

The literal translation of Wang’s name is “king rock” and indeed he has been the cornerstone of China’s most recognised real estate developer for three decades. But unlike his peers such as Evergrande’s Xu Jiayin, who ranked tenth on Hurun’s China Rich List in 2016, Wang is not even in the top 100.

That appears to be deliberate. In 1988, Wang relinquished 40% of his shares in the company and donated the proceeds to Vanke’s charitable foundation. Even now, the senior management of Vanke – including Wang and chief executive Yu Liang – owns as little as 1%, says Time Weekly.

“I believe that is my way of showing self-confidence. That’s me choosing to be just a professional manager [to prove] that I don’t need to be the majority shareholder to control the company,” he explained in a company publication. “And besides, in China, it is very dangerous when you suddenly become very rich.”

With Wang, 66, announcing last week that he will step down as Vanke chairman at the end of June, many are now assessing this enigmatic figure’s legacy.

Why leave now?

The last 18 months have been very eventful, even for an entrepreneur who is famous for his appetite for adventure. Wang climbed Mount Everest (twice), trekked to the North and South Poles and ran in the Boston Marathon in 2013, the year it was bombed. These exploits have made him a rock star entrepreneur in China (he boasts 24 million followers on Sina Weibo). But in October 2015, Wang almost lost control of the company he founded, before seeking government protection by bringing in the state support of Shenzhen Metro to fend off property-to-insurance conglomerate Baoneng’s hostile takeover attempt.

With the state-owned subway operator now Vanke’s controlling shareholder, and having finally scored victory in his long-running power tussle with Baoneng, Wang believes that “now is the best time to go,” according to Beijing Business Today. After his departure, Yu, the current chief executive of the Shenzhen-based developer, will succeed him as chairman.

“I have decided to no longer be nominated as a Vanke director,” Wang wrote in a social media post. “In the future, Vanke will enter a new stage of development. Today, I pass on the baton to Yu Liang and his team, and I believe this is the best time as they are younger but at the same time, fully mature.”

Industry insiders are supportive of the move: “For Wang Shi personally, it is indeed the ‘best time’ to leave: after all, the battle against Baoneng has concluded, which once again demonstrates his role and power as the father of Vanke. With the new ally Shenzhen Metro, inevitably it is time for a new ownership structure. So for Wang to retire to make room for a capable successor, it is a happy ending for everyone,” says China Economic Times.

Wang’s business philosophy

In addition to his extreme sports pursuits, he is also very outspoken, famously declaring that Vanke is one of the very few companies in a corruption-ridden industry which doesn’t pay bribes.

“No entrepreneur ever publicly admits to bribing, but few dare to openly claim they don’t either,” Wang said. “It’s easy not to bribe. But it’s not so easy to keep a business running at the same time.”

In an interview with China Entrepreneur, the former People’s Liberation Army soldier offered a glimpse of his independent style: “After I joined the military I realised that my personality is not the best suited to be in the army. I enjoy attention too much. I also have my own point of view. But when you are a soldier you just obey orders. So after five years in the automobile troops, I decided it was time to go.”

The Guangxi-born entrepreneur founded Vanke as an office equipment firm in 1984 – after making his first fortune selling grain. Four years later, he changed tack and entered real estate, modelling his company after Sun Hung Kai Properties, Hong Kong’s biggest developer by sales.

At a time when China was opening up, Vanke expanded quickly, developing housing projects around the country (a process made easier because it presold its apartment block units, boosting Wang’s cashflow). It held the title of China’s largest developer by sales for more than a decade before it was finally overtaken by Evergrande and Country Garden last year.

Though he wasn’t a natural-born soldier, Wang still learned a few things about management during his time in the PLA. For instance, he believed in creating a system so that no one – including himself – would be so indispensable that the team wouldn’t be able to function without them. Moreover, in a country where many big companies are run like family businesses, Vanke offered a rare example of a corporation that had a fully institutionalised management structure.

“What is most impressive about Vanke under Wang Shi’s era is that he has developed a set of standards and procedures for all of Vanke’s developments around the country. That applies not just to the bidding process, but also in design, construction and down to property management. Vanke gave other developers a model to copy,” wrote one financial commentator on the portal Sohu Finance.

But Wang wasn’t without critics

In the last few years, Wang had been increasingly hands-off with Vanke’s daily operations. After he gave up his position as chief executive to Yu in 2000, he declared that he would dedicate a third of his time to athletic pursuits. Between 2011 and 2014, the businessman also took time off to study at Harvard and Cambridge. This more relaxed management style later gave Baoneng ammunition to call for his ousting, claiming that he wasn’t fulfilling his duties on behalf of the developer.

Wang has stood out in the past because he is one of the very few entrepreneurs to lead a company that has struck a delicate balance between state control and private ownership, says the Financial Times.

Although the state-owned conglomerate China Resources was Vanke’s largest shareholder for a long time (last year China Resources also sold its 15% stake to Shenzhen Metro) its control over the company was limited, possessing just three out of the 11 board seats (see WiC330).

“From the day when I relinquished control of the company, Vanke has embarked upon the dual-ownership (private and state-owned) model. It is something we are very proud of,” Wang told Hexun, a news portal.

However, with Shenzhen Metro now by far its largest shareholder, power has clearly shifted. Tellingly, four out of the seven board directors are related to Shenzhen’s Sasac (the local government holding company for state assets). In other words, Vanke has become a state-controlled enterprise. “Everyone knows that no board director in China is really independent. They are merely figureheads. Vanke’s decisionmaking has now fallen into the hands of Shenzhen Metro,” says Caijing.

For some, Wang’s last ditch decision to bring in the Shenzhen government to fend off Baoneng was a sign of defeat. “It is like a man who has grown up and moved out of his parents’ house only to ask to move back in. I wouldn’t call this progress,” one industry insider told WiC. The FT concurs: “In the end, Mr Wang got the politics right. Unfortunately for his legacy, he will be remembered as much for that as for the business he built.”

Still, the fact that Wang is making a peaceful exit is a luxury that some of his tycoon peers may envy. As Wang himself said a few years ago: “Out of the top 100 richest men in China, I am familiar with the top three. One hasn’t set foot in the country for a long time because he is afraid to come back. The other two are in prison. Of course, there are other rich men in China that are doing well. But for me, I think I have to choose between wealth and fame… and I choose fame.”


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.