High water mark

One of the most touted business principles from Wahaha’s founder Zong Qinghou is his insistence that his beverage firm shuns the stockmarket. Like Huawei, Wahaha is one of China’s most valuable unlisted brands. Zong, a Hangzhou native, was named China’s richest man by Forbes magazine in 2010 and 2012. But staying private has seen his ranking slip. And tellingly, his cross-town rival briefly became the wealthiest tycoon in China after taking his company public.

That happened last Tuesday when Nongfu Spring soared as much as 85% on its trading debut in Hong Kong. This valued the bottled water firm at HK$445 billion ($58 billion) – and meant the 84.4% stake owned by its founder Zhong Shanshan was worth $49 billion.

Zhong’s net worth was already inflated by his 75% stake in Beijing Wantai Biological, which went public on Shanghai’s STAR market in April. Buoyed by expectation that Wantai would launch HPV (see WiC478) and Covid-19 vaccines, the pharmaceutical firm’s share price spiked nearly 33 times from its offering price at one point.

Wantai was valued at Rmb87 billion ($12.8 billion) as of last week, taking Zhong’s stakes in the two companies to more than $59 billion in the wake of the Nongfu listing. That saw Zhong surpassing the $51 billion net worth of Jack Ma, founder of internet giant Alibaba and another super-rich success story from Hangzhou.

Zhong stayed atop that ‘China Rich List’ for just 30 minutes, however, as Nongfu’s share price softened at the end of its first trading session. Yet the bottled water brand is still more valuable than Danone, the French giant behind Evian and Volvic (formerly a joint venture partner of Wahaha, see WiC39).

According to a profile published by state broadcaster CCTV last year, Zhong was born in 1954 to a well-educated family (he is about 10 years younger than Wahaha’s Zong and 10 years older than Jack Ma). His grandfather had been an early member of the Communist Party and the first Party boss of Zhuji, a county city of Shaoxing in Zhejiang, in the 1920s.

The family were one of many targeted by radicals during the Cultural Revolution. That meant Zhong was forced to drop out of primary school and take up various labouring jobs, becoming a mason and a carpenter.

Competition was intense when the chaos subsided and the gaokao (the college entrance exam) was resumed in 1977. Zhong fluffed the test twice. But fortunately, his parents still seemed to have political pedigree and Zhong was enrolled in the Zhejiang Radio and Television University, then a vocational training school.

Upon graduation in 1983, Zhong joined the Zhejiang Daily as a journalist, covering the agricultural section. His job allowed him to travel and interview government officials and aspiring entrepreneurs. The experience broadened his worldview and also helped him accumulate invaluable guanxi, which would prove useful over the decades to come.

“The Zhejiang Daily is always in my heart,” Zhong is said to tell young reporters who come to interview him.

In April 1988 the Chinese government announced the establishment of a special economic zone in Hainan. After reading the three pages of policy directives published in his newspaper, Zhong – then 34 – quit his comfort zone and headed south to the island province.

Back then tens of thousands of people were heading for Hainan with nothing but an instinct for the opportunity. At least Zhong had a plan: he would start what was said to be China’s first privately-run newspaper.

The front page of the inaugural edition of his Pacific Post was published on July 1, 1989. It carried stories that included a piece on Hong Kong tycoon Li Ka-shing (who years earlier had proposed massive investment in Hainan to the Chinese government; see WiC405) and an account of Mikhail Gorbachev’s groundbreaking trip to Beijing two months earlier.

“Pacific Post hopes to help Chinese entrepreneurs open a door to the world,” he wrote in his first editorial. “And be a window for overseas Chinese and foreign investors to understand China.”

The plan was a good one but Zhong’s timing was unfortunate. The political climate had turned conservative just before he launched his newspaper (it took Deng Xiaoping’s Southern Tour in 1992 to reboot the era of economic reforms). Zhong burned through all his savings before his new venture could gain much traction.

He stayed put in Hainan, however. His previous experience reporting on agriculture brought him into various ventures, including growing mushrooms and farming prawns. But none of these enterprises worked out, until he met fellow Hangzhou native Zong Qinghou.

At the time Zong had already privatised a canned food plant in Hangzhou and turned it into his own firm, known as Wahaha. Initially it sold a wide range of products including nutritional foods, juices and bottled water. According to 21CN Business Herald, Zhong became an authorised agent for Wahaha’s health supplements in Hainan. But the relationship did not last long. The gossip in local media outlets today is that Zhong was caught by Zong selling Wahaha products in the much bigger Guangdong market.

In any case, Zhong must have come to realise the growth potential of the healthcare market. In 1993, inspired by a popular turtle soup from Hainan, he started another venture selling a supplement said to be derived from turtle parts. The brand, known as Yangshengtang (YST), finally made him a millionaire in renminbi terms. His flagship holding firm is still called Yangshengtang today.

Combining his experience from reporting and learning from several failed businesses, Zhong had become an excellent marketeer. He would design many of the slogans at YST personally, which expanded its range of popular healthcare products into pills used to treat erectile dysfunction. A CCTV business talk show in 2005 even described him as the country’s “most prolific baby bearer” entrepreneur, given his company had born so many units.

In 1996 Zhong turned his focus to the bottled water market. At that time the two dominant players were Wahaha and Danone. He named his new firm Nongfu (which means ‘farmer’). He claimed that the new business was inspired by a visit to the scenic Qiandao Lake (or Thousand Island Lake) in Zhejiang, and thus came up with the slogan that “Nongfu Spring tastes a bit sweet”.

The message was devised as a dagger to the heart of Wahaha’s main product – an industrially distilled water – as Nongfu focused on selling “natural water”, or mineral water, derived the company said from local water sources.

From this point, 21CN noted, Zhong triggered a series of “water wars”, stoking debate on issues such the health benefits of mineral water versus distilled water, as well as safety standards in bottling. The conflicts won Zhong the nickname of “Lone Wolf”, in recognition of his unpopularity in his own industry. But the controversies he courted turned out to have marketing impact. Nongfu Spring emerged as the biggest winner from months of media debate, generating valuable exposure for the new brand.

Nongfu has since branched out into a more diversified range of beverage products and became the leading bottled water provider with 28% of the market by 2018, compared with Wahaha’s 6.8% in fifth (see WiC457). Its market share in tea drinks, functional drinks and juice drinks ranked in the top three in China in sales last year too (see WiC509). All the same, Nongfu’s shares are trading at heady levels in comparison to earnings – about three times the industry average. Its supporters argue that is justified for a leading consumer brand in a high-growth segment. Its prospects look even rosier, they say, as it deploys the IPO proceeds to expand further across the country.

Naysayers question whether Nongfu needed to go public to raise funds at all. The company garnered about HK$8.3 billion in its Hong Kong listing. But prior to the offering, it dished out Rmb9.6 billion in dividends to shareholders with a large chunk going to Zhong. The Hong Kong Economic Times noted that the Nongfu boss is 65 and the dividend payout gave him a major payday, before he turned to “outside money” to fund Nongfu’s continuing expansion.

Time will tell whether Nongfu’s founder will stay at the summit of the China rich lists. The imminent IPO of Ant Group, the financial affiliate of Alibaba, in Hong Kong and Shanghai is set to send Jack Ma well over the horizon in wealth terms, for instance. Plus Wahaha’s Zong may have relented on his longstanding opposition to an IPO. He is reported to be looking to list his privately-held firm too…

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