China Economic News

[Wildreamz]

It’s no longer glorious to get rich in China — it’s dangerous

Last month, Colin Huang, founder of ecommerce powerhouse PDD, attracted the usual headlines when he rose to become China’s richest man. But shortly after, PDD surprised investors with a downbeat profit forecast. Its stock plummeted. Huang lost $14bn overnight, and ceded the top spot to Zhong Shanshan, founder of beverage giant Nongfu Spring. Within 24 hours, Nongfu Spring issued its own unexpectedly depressing outlook, and Zhong, too, soon slipped from first place on the rich lists.
On Chinese social media, chatter broke out about whether corporate leaders might be competitively devaluing their own stock prices to avoid the widening crackdown on excessive wealth, which is a centrepiece of leader Xi Jinping’s “common prosperity” campaign. It is not implausible to conclude, wrote one Wall Street broker, that “nobody wants to be the richest man in China” at a time when its government is turning more assertively socialist.
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https://archive.ph/DDU8t

This aligns with my long term view on China since 2021.

Peace.

[Wildreamz]

I reckon it is hard not to get rich when you have the best of both worlds - some sort of state protection (against foreign giants) with a huge local economy, but yet able to get your stock listed elsewhere for "better valuations".

But I disagree it is dangerous for those "founders". These founders are VIP partners to the CCP. An extract from Howard Marks' latest memo "Shall We Repel the Laws of Economics" as below:

China’s private sector is often summed up with a combination of four numbers: 60/70/80/90. Private firms contribute 60% of China’s GDP, 70% of its innovative capacity, 80% of its urban employment and 90% of new jobs.

But nonetheless, it is still dangerous - pretty risky for the folks who invest together with these "founders", since the "structure" doesn't look aligned here.

Interesting. What are your views on the huge slowdown/drawdowns in their top companies (with huge private/foreign ownerships) in recent years, and the "retirement"/"disappearance" of renown founders from these companies (say Zhang Yiming from Bytedance, Jack Ma etc), seemingly all at the same time when the government is pushing for "common prosperity"?

Just a temporary setback or a sea change?

[weijian]

Interesting. What are your views on the huge slowdown/drawdowns in their top companies (with huge private/foreign ownerships) in recent years, and the "retirement"/"disappearance" of renown founders from these companies (say Zhang Yiming from Bytedance, Jack Ma etc), seemingly all at the same time when the government is pushing for "common prosperity"?

Just a temporary setback or a sea change?

Hi Wildreamz,

The last I check, these guys are still immensely rich, may be not as rich as they were but probably still rich enough to appear on Spore top10 billionaires (like that FB founder) if they ever manage/decide to convert their citizenship. They will still do fine.

The Hurun Rich list shows ~800 Chinese billionaires. Are those renowned founders the exception or the norm? As a group, I suspect they will still do fine.

China has had pivotal points in its entire modern history - From Nationalist ending feudal rule, to the Great Purge after the Communists won the civil war, to the Great Leap Forward, Mao's death, Deng's "to get rich is glorious" and finally China entering WTO. So will Xi's corruption purge in 2013 and the current tech purge be the next pivotal points? To be honest, we will probably only know down the road.

[Wildreamz]

The billionaires themselves may do well (no need billions, a couple million will do the trick). But if leading the pack will lead to their inevitable "demise" (disappearance, forced retirement etc.), wouldn't this arbitrarily limit the success of China if its largest and most innovative companies need to sandbag their success?

Is this also a warning sign to avoid the largest, most visible, most transformative companies in China that are most likely to become the target board of future regulations?

[weijian]

hi Wildreamz,

I am sure the billionaires will not do well with a few hundred millions. But a few billion less, is definitely still fine

The world should be more complicated than assuming that innovation, success and "leading the pack, in terms of wealth" are mutually exclusive. It is hard to believe someone who hasn't been successful yet, think about the problems that success will bring. Another way to look at it - do you want to be more worried about your competitor or your regulator? You probably worry about the former more as he will kill you before you succeed, while the latter may mess with you later. Let's also not forget that your competitor also has to play with the same rules.

I do agree with part of your statement below. If history is any guide, it is a huge red flag for OPMI whenever "Mr/Mrs XXX" is declared the top billionaire in China. But then again, things are evolving too. If Mr XXX knows to share his wealth (eg. via donating to employee stock option etc), then OPMIs may have a safer journey. When China first opened up, it needed capitalistic expertise and those HK billionaires were welcomed with open arms. When its needs evolved from capitalistic expertise to control/consolidation of power, then the old (and new) billionaires need to fall in line. So what will China need in the future?

Is this also a warning sign to avoid the largest, most visible, most transformative companies in China that are most likely to become the target board of future regulations?