news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

The news of Zong Fuli's resignation attracted attention from the entire network.

On the surface, this is a conflict caused by management. Zong Fuli's management is not recognized by all parties, but in essence, this is a property rights dispute.

Just imagine, if Zong Fuli is the absolute controlling shareholder in terms of property rights, would she resign voluntarily? Of course not.

But Zong Fuli is Zong Qinghou's successor. Zong Qinghou can control the situation, so why can't Zong Fuli?

Zong Qinghou is able to control because of the huge influence he has established in enterprises, government and society, rather than through property rights mechanisms.

The reason why Zong Qinghou does everything personally is because the property rights relationship has not been straightened out. He needs to work so hard, but Zong Fuli, as a new generation, does not have such history or such ability. What she needs is a simpler and clearer property rights relationship.

The conflict broke out.

The complexity of Wahaha lies in the complexity of its property rights relations.

On the one hand, state-owned assets are the major shareholder in the Wahaha Group's equity, but they do not hold the controlling stake. Zong Qinghou and the employee shareholding association together hold more than 51% of the equity.

On the other hand, within the Wahaha business cluster, there are a large number of companies that are purely private enterprises, or companies that are absolutely controlled by Zong Qinghou and the employee shareholding association.

For example, Hongsheng Group, in which Zong Fuli holds a 98% stake, is responsible for the processing business of one-third of Wahaha's products, but is independent of Wahaha Group. It has 20 production bases, more than 40 subsidiaries, more than 4,000 employees and more than 100 production lines across the country.

In the 2022 list of the top 500 Zhejiang businessmen, Wahaha Group's revenue in 2021 was 51.915 billion yuan, ranking 45th on the list. Zong Fuli's Hongsheng Group had a revenue of 10.421 billion yuan in 2021, ranking 165th on the overall list.

This complex equity relationship has led to today's management conflicts.

But it is not fair that state-owned assets own shares in Wahaha.

Zong Qinghou started his business by contracting a school-run enterprise. During the contracting process, Zong Qinghou personally invested 140,000 yuan by borrowing debt.

At that time in China, individuals could not start a business. If they wanted to start a business, they had to have a state-owned enterprise, which was equivalent to this school-run distribution department. It just issued a license, but the main investor was Zong Qinghou. He personally took the risk, and whether he made money or not, he had to pay the profit to his superiors.

Who would think that this school-run sales department should be the major shareholder now? He did not contribute anything, and just because of policy restrictions, Zong Qinghou could not become the real owner of the company even though he invested.

Several Chinese companies face this historical problem, including Lenovo, which is the so-called red hat company.

All red-hat enterprises have undergone restructuring. During the restructuring process, the government acquired a 51% controlling stake in the Wahaha Group, and two years later, sold 5% to the employee shareholding association, making Wahaha a private enterprise that would not be managed by the government.

Even if the equity was reasonable at the time, Zong Qinghou has made Wahaha so successful. Has the equity changed? From 1999 to now, 26 years have passed, and the state-owned equity has never changed.

In the past 32 years, Wahaha has paid a total of 143.9 billion yuan in profits and taxes, including 74.2 billion yuan in taxes.

Just a simple calculation shows that the government has gained more than 100 billion from this red hat company.

Let’s look at American entrepreneurs.

How much capital has Musk invested in his company? A very small proportion, the vast majority of capital comes from venture capital and post-IPO financing.

But why did he become the richest man in the world?

Because the board of directors motivates him, the better your performance, the more company shares you will be rewarded with.

In just one year, Musk received stock awards totaling more than $50 billion.

Excellent capital will realize that entrepreneurs are the most important assets in an enterprise.

Why did Zong Qinghou set up an off-balance sheet company? Because if he did not do so, he would face a situation where no matter how hard he worked, his incentives would be limited. The long-term existence of such an off-balance sheet company is only possible with the long-term acquiescence of the Hangzhou Municipal Government.

Under the constraint of maintaining and increasing the value of state-owned assets, local governments do not have the courage to carry out such reforms because it may trigger public opinion incidents.

This has caused Wahaha to be in an abnormal corporate equity structure for a long time.

To solve this problem, we need the courage to reform and the ability to face reality.

The key people to solve the problem are the decision makers of the Hangzhou Municipal Government.

Now the problem is obvious:

1. State-owned assets continue to be the majority shareholder, and Zong Fuli cannot truly become the owner and entrepreneur. Everyone plays their own game. Wahaha has lost its true owner, and its performance has plummeted. In the fierce competition for consumer goods, who can state-owned assets beat? Losing is inevitable. If they lose, billions of tax revenues a year will be lost, and jobs will be lost.

If state-owned assets would not lose, then why did so many state-owned food factories go bankrupt back then?

2. With the withdrawal of state-owned assets, Zong Fuli became the real owner, and Wahaha became a clean private enterprise. Zong Fuli is definitely more capable than state-owned assets officials to maintain or even further increase the company's performance. Even if it only maintains the current performance, the government can still maintain sufficient tax revenue and create enough jobs locally.

If Wahaha can get rid of its equity dilemma and its performance keeps rising, then the local government will get more.

Over the past 30 years, state-owned assets have made considerable net profits from Wahaha. After all, it was a company that state-owned enterprises invested in with debt. Even if these shares were given to Zong Fuli at zero price, state-owned assets cannot be said to have depreciated. What's more, state-owned enterprises are definitely willing to pay.

Without resolving the property rights issue, Wahaha has no hope. The withdrawal of state-owned assets is the only solution.