Situated at 1,000 metres above the sea and frozen in heavy snow for more than 100 days a year, Yabuli was, till relatively recently, one of the least inhabited places in China’s northeastern Heilongjiang province.
Its fortunes began to change when a winter sports centre was built at the remote spot in the 1990s but even that was turning into a white elephant until 2001, when a fortuitous decision permanently raised its profile. It was in that year that a group of private sector entrepreneurs picked the freezing little town as a venue for their annual Spring Lantern Festival gathering which takes place on the 15th day of the Chinese Lunar New Year.
The idea was inspired by the World Economic Forum and it was hoped that Yabuli would become China’s answer to Davos. The Yabuli China Entrepreneurs Forum has since become an important guanxi-building platform for Chinese tycoons. The news headlines generated by their get-together each year has made Yabuli a household name. Foreign investment has followed, with Club Med opening its first Chinese hotel there in 2010 (the chain’s owner, Fosun’s Guo Guangchang, is one of the directors of the Yabuli Forum), and this has turned Yabuli into China’s foremost skiing resort.
The 18th Yabuli Forum will be held in early March but private sector entrepreneurs have already been having a field day speaking out on China’s business environment. A sprouting debate, set off by an online tirade against government bureaucracy by an early investor in Yabuli, has virtually turned the winter resort into a symbol in the struggle by private business tycoons to fight state capitalism and the dead hand of bureaucracy.
What has happened?
The firestorm was started by a video titled “The Huge Difficulties in Revitalising China’s Northeast”, posted on weibo on the first day of 2018.
It was filmed on New Year’s Eve and featured Mao Zhenhua, a founding member of the Yabuli Forum, who visited the tourist hotspot and unleashed a fierce attack on its local government authority, namely the Yabuli Administrative Committee. His grouse? He claimed it had illegally appropriated land from a ski resort he has been developing.
“They have illegally grabbed 230,000 square metres of our land without a single word of apology,” Mao protested in the video. “We have been here for 22 years. Then they come along. They are the government but they are also a company. They have used their government cover to seize our assets.”
“We have often been threatened with various inspections. One day it’s the police, the next day it’s the food safety enforcement officers and then inspectors in charge of boiler safety,” Mao added in the three-minute rant, which he encouraged onlookers to share online. “Every day, they’ve brought us troubles, but they haven’t done a single thing to help us.”
Mao is not exactly a big-name property developer but the 53 year-old is well known nationally for setting up China Chengxin Credit, one of the first domestic rating agencies (which is now 30%-owned by Moody’s). He is also a professor at Renmin University, an elite college in northwest Beijing.
Yet it seems Mao’s Yabuli connections have propelled his scathing comments into the year’s first Chinese “internet event” (aka incidents that attract exceptionally high online attention). Step forward a host of business celebrities with massive online followings, such as SOHO China’s Pan Shiyi. They shared Mao’s video, which helped his remarks to quickly go viral, stoking an avalanche of support from fellow private sector bosses.
Why does Yabuli matter?
Pan has urged Heilongjiang’s provincial government to intervene and ensure “a level playing field” for private businesses in the rustbelt northeastern provinces, which are known in China as Dongbei.
Wu Yajun, chairwoman of Longfor Properties, also joined the debate and just stopped short of calling out the local authorities for breaching a contract and bringing in state-owned companies to compete with Mao’s company. “He [Mao Zhenhua] turned around the resort from the verge of bankruptcy but once his business showed signs of promise, the local administration authorised other investors to build new hotels and leisure facilities inside his resort,” the female tycoon wrote on her own WeChat account.
Both she and Pan are also directors of the Yabuli Forum which has transformed an annual business summit into something like, as the China Securities Journal put it, “the private club of Chinese tycoons”.
Although a pure free market is not exactly what these private sector bosses have been looking for, the body does position itself as a platform to “promote the spirit of freedom and independence” among Chinese entrepreneurs. Just like the World Economic Forum, the Yabuli Forum now organises high-level conferences throughout the year. A recurring topic of discussion, tellingly, has been the challenge that private sector entrepreneurs face from the growing clout of state capitalism, aka guojinmintui (or “the state advances, private sector retreats”, see WiC230).
Interestingly enough, even a principal objective of the Yabuli Forum – to turn Heilongjiang county into China’s Davos – has been overshadowed by state rivalry. The Chinese government became an official partner of the World Economic Forum in 2007. The Summer Davos Forum has since been held alternately in the Chinese cities of Tianjin and Dalian every year.
Is it only about Yabuli?
Part of Mao Zhenhua’s investment in Yabuli, in fact, was previously owned by Melco, the gaming operator controlled by Lawrence Ho, son of Macau casino magnate Stanley Ho.
Ho junior sold his Yabuli project to Mao in 2010 after a global credit crisis disrupted his ambition to turn Melco into the biggest tourist play in Dongbei. The Ho princeling can now better understand the widely held belief that “people should refrain from investing their money beyond Shanhaiguan”, i.e. beyond the most northern gateway along the Great Wall (a phrase adopted from a famous verse that “spring breeze never passes the Yumenguan”, or the most western gateway).
The popular saying underlines the harsh business environment in China’s northeastern provinces, where the local economy has been suffering from a severe downturn (see WiC293).
Mao’s public attack on Yabuli’s local government, Caixin Weekly noted, is another notable example of how excessive state intervention has been holding back the development of China’s so-called rustbelt. “Investors have long complained about red tape, protectionism and lawlessness in the area,” the magazine said.
Moreover, Mao has also successfully triggered debates about state capitalism more generally.
“The [local] government is acting as a skier and the referee of the skiing competition at the same time. Via Guojinmintui, the state could take away all the profit from the private sector,” an op-ed in the Securities Times suggested.
“I was shocked after watching the ‘Yabuli comments’ of Professor Mao, who has always been a man of scholarly calm,” wrote Fan Wei, a professor at Tsinghua University, in an op-ed of his own in the Economic Observer. “A planned economy is about how to allocate a cake while a market economy sets out to make a bigger one… the government’s ‘visible hand’ has been too busy.”
Are there similar cases?
We reported exactly seven years ago about the rapid rise of Cellon Communications and how the Shenzhen-based handset firm had taken Latin America’s mobile market by storm (see WiC93).
The company’s fortunes have since suffered a dramatic reversal. The reason: a falling out with the local government in Jiangxi’s Gongqing City which, tellingly, is the only Chinese city that is named after Gongqingtuan, or the Communist Youth League (the political faction that has bred senior politicians such as former Chinese President Hu Jintao).
Cellon began to invest in Gongqing City in 2010. It was healthily profitable and the city’s biggest taxpayer until 2013 when the local government stopped banks from lending to the company. Cellon’s local unit eventually defaulted on a loan and according to none other than the Global Times (a Party mouthpiece), its boss Dai Xiaoquan was forced to sell off his stake to a senior Party official of Gongqing City.
Worse still, Dai was sentenced by a local court to two years in prison for tax evasion. His plight – after having been exposed by the TMT Post in October last year – has stoked nationwide rage.
Most of the reports about Cellon have since been taken down by state censors. Yet this month, the outrage brimming from Mao’s video has been permitted to circulate on Chinese social media, uncensored. In fact, more entrepreneurs – who have similarly suffered from malign ‘local’ government intervention – have stepped forward.
Take Wu Hai, founder of the Orange Hotel Group, who caused a sensation in a 5,000-word open letter to Chinese Premier Li Keqiang in which he accused local government officials of trading favours with SOEs while treating private businesses like the “illegitimate children of prostitutes”. The hotelier was subsequently invited to Li’s office in 2015 to brief senior State Council officials.
Surely things have got better? Apparently not. “The local governments could easily accuse private sector entrepreneurs of different crimes from tax evasion, illegal operation to documentation forgery. They could put you in jail for several years or several decades. When you are released the world has changed and all your assets were grabbed by others,” Wu wrote on his weibo this week, pointing out that Chinese bureaucrats are still engaged in “capricious policymaking”.
Will Mao be put in jail then?
Formerly a government official himself in Hubei and Hainan, Mao founded China Chengxin in 1992 but he was put under investigation by the Party’s Central Commission for Discipline Inspection (CCDI) in 1999. At the time, the CCDI was a less fearsome anti-graft watchdog (unlike today) and Mao was able to continue his entrepreneurial pursuits.
You’d rightly conclude it takes a certain bravery nowadays to embark on a public dispute with state officials in China. But while Mao is not related to the late Chairman Mao, a close business ally of his is.
Besides his involvement in ratings agency China Chengxin, Mao was also an early investor in Taikang Life, an insurer founded by Chen Dongsheng, the grandson-in-law of Mao Zedong (see WiC343 for Chen’s profile).
Both Mao Zhenhua and Chen are Hubei natives and both resigned as government officials to start their own business venture following Deng Xiaoping’s famous southern tour in 1992 (they became known as ‘the faction of ‘92’). Chinese media says Mao is also vice chairman of China Guardian, the Chinese auction house controlled by Chen (who became the single biggest shareholder of Sotheby’s in 2016).
Both Chen and Mao are founding members of the Yabuli China Entrepreneurs Forum. (Another key founding figure is Tian Yuan, who set up China’ first futures company in 1992.) On the forum’s official website, they describe themselves as “grass-root entrepreneurs”, or people who founded their business from rags. Yet Chen, who is the Yabuli Forum’s director counsel, is a member of another elite club: the hongerdai group, or children of the Party’s revolution-era figures.
Being a red princeling won’t necessarily exempt one from the wrath of the CCDI’s anti-graft reach. Wu Xiaohui, formerly the chairman of Anbang Insurance and the grandson-in-law of Deng Xiaoping, for instance, has been under investigation since the middle of 2017 (see WiC371) and remains detained. But it does give you more air cover than most, especially if you have the right princeling allies (this can be hard to decipher from the outside but is very obvious to senior Party members who understand the nuances of family loyalties and byzantine favour networks).
The private sector’s fightback…
Appropriately enough, Chen has also spoken out this week in support of Mao Zhenhua. When addressing a business conference in Shanghai, Chen began by suggesting that he, as a member of the Hubei business faction, has to learn from businessmen from Zhejiang.
What are the attributes to be learnt? “Firstly, to love the Party,” Chen suggested uncontroversially, before adding Chinese entrepreneurs should also love their country as well as loving their hometowns.
Chen then went on to draw his audiences’ attention to a directive issued by the Party’s ruling Central Committee in September last year which, in sort of a historical first, recognised the contribution of private businesses and encouraged entrepreneurship. The document might strike most readers as bland but according to Chen it could also be interpreted as a game changer in the relationship between the state and the private sector.
“An angry outburst by Mao Zhenhua, a Yabuli director, has aroused the entire nation on our business environment,” Chen said. “Unexpectedly in less than three days the Heilongjiang provincial government has sent in investigators swiftly. This is huge progress.”
Meanwhile, the Supreme People’s Court of China also issued a circular last week ordering courts nationwide to create “an entrepreneurial and innovation-friendly legal environment” while protecting the “legitimate interests of honest and trustworthy entrepreneurs”.
One landmark case will be the retrial of Zhang Wenzhong, the founder of Hong Kong-listed retailer Wumart, who was jailed for 12 years in 2009 for fraud. Zhang’s first petition was rejected in 2015 but his latest attempt to review his case was granted by the highest judicial body last month. Coincidentally, Zhang was also an active Yabuli Forum member during his heyday.
Over the past 30 years of rapid economic development China has always had a pendulum-like quality when it comes to the relative ascendance of SOEs and entrepreneurs. Perhaps January 2018 will be remembered as a moment when the pendulum began to swing back…
© ChinTell Ltd. All rights reserved.
Brought to you 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.