Cross Strait

Best foot forward

Taiwan’s richest man doesn’t make chips – he manufactures sneakers


Kanye West’s Yeezy sneakers

The story of sneakers begins in 1839 when an American scientist called Charles Goodyear found a way of treating rubber with sulphur. The technique, known as vulcanisation, made for a pliable and resilient material. In the 1870s it was applied to footwear, although the new style of shoes wouldn’t be known as ‘sneakers’ for another 50 years, when an advertiser coined the term for their quieter soles, as if they were sneaking. Today they can be valuable: a pair of Nike Air Yeezy 1 trainers designed by rapper Kanye West sold for $1.8 million at a Sotheby’s auction last month.

“Strange, isn’t it, that a few bits of leather and suede sewn onto a slab of rubber and wrapped in nylon thread could mean so much to so many,” comments Simon Wood in the foreword to The Ultimate Sneaker Book.

For 72 year-old Zhang Congyuan, there is nothing strange about it at all. In fact sneakers have been the focus of much of his career, lifting him to the top of the rankings of Taiwan’s wealthiest people last week. According to Forbes, Zhang’s net worth surpassed $13.8 billion as of May 5, topping the $9.2 billion enjoyed by Tsai Hong-tu and Tsai Cheng-Chiu, who lead Cathay Financial. Foxconn’s boss Terry Gou – probably the best-known of the Taiwanese business tycoons, came sixth with $7.1 billion.

Zhang’s climb to the summit is a surprise in an economy that is better known for its prowess in electronics and chip technology. His company Zhongshan Huali Industrial Group doesn’t even make its own brand of shoes, preferring a path as an original design manufacturer (ODM).

But it was the initial public offering of Huali, in which Zhang and four family members hold a controlling stake, that crystallised his net worth. Huali’s shares surged 201% on debut on Shenzhen’s ChiNext on April 26, giving it a market capitalisation at one point of Rmb116.7 billion ($18.2 billion). That was almost four times the value of local rival Yue Yuen Industrial, and about 90% of leading mainland Chinese sportswear maker Li Ning.

Huali made 195 million pairs of shoes in 2019, versus 322 million for Yue Yuen, but its profits have generally outperformed its peers in climbing at least 18% a year since 2017. It is now the second largest ODM for sneakers, with longstanding relationships with leading brands such as Nike, Converse, Vans and Puma. The manufacture of higher-end sports shoes demands more specialised skills and technology, with new product development often shared between the brand and the manufacturer. Jiemian, a financial and business news outlet, says Huali’s strong performance is also attributable to the offshoring of its manufacturing base away from mainland China. The vast majority of its 21 factories are located in lower-wage economies in places like Vietnam, Myanmar and the Dominican Republic. Less than 1% of its manufacturing team is based in China, whereas Yue Yuen still has 12% of its workforce there. Huali’s IPO prospectus also claimed that its workforce is more productive, with a ratio of 1,665 pairs of shoes a year for each employee, compared to 1,037 for Yue Yuen. That translates to higher gross profit margins of 23%, versus Yue Yuen’s 18.5%.

Zhang’s footwear fortunes date back to the 1970s when he started his business in Taiwan and Guangdong province in southern China. The venture became Liang Hing Industrial, which was listed in Hong Kong. After the introduction of new shareholders, Liang Hing became today’s Symphony Holdings, best known as the trademark holder for the SKINS compression wear brand, the footwear brand PONY and the swimming label Arena.

A restructuring exercise in 2013 saw the footwear business spun off into Huali, with Zhang taking the helm of the new entity. Since 2018 he has consolidated his interests by acquiring new factories, especially in Vietnam, and servicing them with a flurry of trading companies under a family-controlled vehicle in Hong Kong. Huali says it will channel a third of the IPO proceeds of Rmb3.88 billion ($601.1 million) into new production capacity in Vietnam and Myanmar. A fifth of the funds will go towards a new R&D centre in Zhongshan in Guangdong.

© ChinTell Ltd. All rights reserved.

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.