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China’s Richest 2019: King Of Beverages Zong Qinghou Aims To Revitalize Wahaha

When Zong Qinghou travels abroad, he likes to visit local supermarkets. The 74-year-old founder of China’s largest privately held beverage company Hangzhou Wahaha Group isn’t shopping for himself, but doing a little firsthand market research. For example, when Zong visited Singapore in October, he bought boxes of fruit-flavored beer. Staff back in China then study these samples to see if they could be imported into China, or adapted to local tastes.

“Every new product can be used as a reference,” says Zong in an exclusive interview with Forbes Asia on the sidelines of the Forbes Global CEO conference last month in Singapore. Zong, who is chairman of Wahaha, is now under pressure to come up with fresh product ideas to rekindle consumer interest in his company, that he’s spent more than three decades running.

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The tycoon, who was China’s richest man in 2010, 2012 and 2013, saw Wahaha’s sales slide from 78 billion yuan ($11 billion) in 2013 to 46 billion yuan in 2017 before rebounding slightly to 47 billion yuan last year. His ownership of the company still gives him a fortune of $8.2 billion, but he is no longer No. 1, ranking instead as China’s 31st richest person.

One of the main reasons for the decline, say analysts, is that Wahaha hasn’t kept pace with changing consumer tastes in China. Unlike their parents’ generation who grew up drinking Wahaha’s cheap but tasty products such as bottled water and milk drinks costing less than 2 yuan, shoppers today want to spend more for something innovative and new. “Wahaha is still very price-focused, and hasn’t captured the trading-up trend as well as it could have,” says Mark Tanner, founder of Shanghai-based consultancy China Skinny.

A Chinese worker checks bottles of Wahaha purified water on the assembly line at a factory in... [+] Yichang city, central China's Hubei province.

Aly Song/Reuters/Newscom

Zong is unfazed. He vows to lift sales by at least 50% next year, to 70 billion yuan. While he concedes that Wahaha’s products was once perceived as cheap and old-fashioned, he says he’s working to modernize his products. The company, whose name is meant to mimic the sound of a child’s laugh, has recently started a major upgrade. Packaging has gotten a makeover to use brighter and more stylish colors, while ingredients like nuts and quinoa have been added to new yogurt lines to appeal to healthier lifestyles. Wahaha has also expanded into nutritional tablets and meal replacement biscuits, which Zong says are in line with dieting trends. He also plans to increase the current number of 6,000 distributors to 10,000 by year end, to ensure better distribution to every corner of China.

Yet perhaps the most notable change is Zong’s willingness to experiment with social media and e-commerce. In 2014, he famously pronounced at a conference that e-commerce was disrupting China’s “real economy.” The company as a result did not have much of an online presence, even as e-commerce exploded across China. “I don’t think traditional sales channels will change much,” Zong says. “People need to enjoy life, and to enjoy life, they need to go outside instead of staying at home hooked on their smartphones.”

Zong, in fact, still expects most sales to take place in traditional brick-and-mortar stores. That said, Wahaha has started to experiment with digital marketing for its products. A series of videos on the popular app TikTok app shows users posting 15-second clips of themselves pronouncing Wahaha in various humorous ways. The clips have been viewed almost one million times.

Some analysts hope Wahaha can do more of such efforts. Jason Yu, a Shanghai-based general manager at research firm Kantar Worldpanel says, “It is very hard to get consumer attention today, and if you want to do that, you have to engage and interact with them nonstop.”

For example, Wahaha’s competitor in bottled water, Nongfu Spring, has gained market share in part because of innovative advertising. One was a campaign where each bottle of Nongfu Spring water gave the buyer the right to cast one vote online for their favorite candidate in a popular TV talent competition show. Nongfu Spring was number one in China’s bottled water market in 2018, with an 11% share versus Wahaha’s 4% share, according to Euromonitor.

Zong’s ambitions, however, reach beyond China. He wants to start producing and selling Wahaha-branded yogurt and milk beverages overseas, after noticing that some Wahaha products are being exported by third-party traders. In the last few years, Zong has visited Southeast Asia, and identified Indonesia and Vietnam as two locations for factories to produce for local markets. Zong says, however, he wants to find the right local partner first before he moves forward with any overseas expansion.

China, he says, will always be Wahaha’s biggest market. Consumption will continue to grow, he says, as the middle class expands and spends on everything from education to travel. “If we can firmly establish ourselves in this market of 1.4 billion people, we can grow very big,” he says.

Don’t discount Zong. He has overcome many challenges in his long career. The entrepreneur didn’t venture into business until 1987, when he was already in his 40s. He started by selling snacks out of a canteen inside a local school in his native Hangzhou, then start producing and distributing milk. In 1988, Zong launched a nutritional drink for children, which became a national hit. Three years later, he acquired a state-owned factory, with sales reaching 400 million yuan the following year.

One of his biggest challenges was a tumultuous partnership started in 1996 with France’s food and beverage giant Danone. After initial success, the two had a falling out, and Zong eventually agreed in 2009 to buy out Danone’s 51% stake in their various ventures for an undisclosed price, although one media outlet put it at roughly $380 million. “Only cooperation based on mutual benefits and mutual respect can last,” he says of the former partnership.

Then in September 2013, he faced another challenge when he was attacked by a knife-wielding man, disgruntled after Zong turned him down for a job. The attacker managed to cut the tendons and muscle on two of Zong’s fingers, but he was back at work just a few days later.

Another big challenge is succession. Zong’s management style is famously budget-conscious and detail-oriented. He often eats at the company canteen with staff, and is known to fly economy class. He personally approves the purchase of all new company cars.

Naturally, Zong has long been looking at his only child, daughter Kelly Zong, to replace him. She’s had plenty of experience, working at Wahaha since 2004. Now 37, the younger Zong has also tried her hand at entrepreneurship, launching a juice brand, KellyOne, three years ago. In 2017, she attempted to acquire the Hong Kong-listed candy firm China Candy, but was unable to acquire 50% of the company’s voting rights. Kelly said in a social media post at the time that the unsuccessful bid had been a “positive and constructive exploration.”

Kelly Zong Fuli, daughter of Wahaha Groups Chairman Zong Qinghou.

Imagine China/Newscom

Zong says he will hand over the reins to Kelly if she wants them. If not, he will groom professional management. “A lot of young people have studied abroad and have a broader vision, and they may not want to manage their parent’s business,” he says. “My daughter is overseeing some factories. Does she want to take on more? That I don’t know.” His move to do digital marketing, led by younger talent, was seen as a positive step towards a new generation having a greater role in the company.

Zong says there is still time to find good professional managers if Kelly wants to follow her own path. He says Wahaha is considering several for future leadership, without going into detail. He is also not ruling out an IPO, a move that would be a major move for the company down the path of diversifying management.

Whatever path he takes, Zong is clearly thinking about laying the foundations of sustainable success for Wahaha.

This story is part of Forbes’ coverage of China’s Richest 2019. See the full list here

I am a Beijing-based writer covering China’s technology sector. I contribute to Forbes, and previously I freelanced for SCMP and Nikkei. Prior to Beijing, I spent six months as an intern at TIME magazine’s Hong Kong office. I am a graduate of the Medill School of Journalism, Northwestern University. Email: ywywyuewang@gmail.com Twitter: @yueyueyuewang

Source: China’s Richest 2019: King Of Beverages Zong Qinghou Aims To Revitalize Wahaha

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Zong Qinghou is the founder and chairman of Hangzhou Wahaha Group which is the leading beverage company in China. Zong was listed as China’s richest man in 2012. As an NPC deputy, Zong has submitted one motion and 12 suggestions this year. He said deputies have the responsibility to represent the ordinary people. CCTVNEWS reporter Su Yuting spoke with Zong to hear his opinion on China’s economic development. Subscribe us on Youtube: https://www.youtube.com/user/CCTVNEWS… Download for IOS: https://itunes.apple.com/us/app/cctvn… Download for Android: https://play.google.com/store/apps/de… Follow us on: Facebook: https://www.facebook.com/cctvnewschina Twitter: https://twitter.com/CCTVNEWS Google+: https://plus.google.com/+CCTVNEWSbeijing Tumblr: http://cctvnews.tumblr.com/ Weibo: http://weibo.com/cctvnewsbeijing

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China Growth Nowhere Near Official Estimates, Says Morningstar

China’s third quarter growth rate has fallen to 6%, says Beijing. No it hasn’t. It’s more like 3%, says Morningstar’s China economics team led by Preston Caldwell in a report dated October 29.

While Donald Trump and his economic advisor Larry Kudlow try to convince Wall Street today that trade talks are going well and the two sides will still ink their so-called Phase 1 mini-deal this year, investors are noticing something awry in China. Companies are sourcing product elsewhere in modest, yet increasing numbers. China’s usual high fixed asset investment numbers are falling. Economic policy makers could be afraid of debt burdens and don’t want to overstimulate the economy. Growth is slowing. Industrial production is contracting.

To make matters worse, the full brunt of tariffs hasn’t quite been felt fully by China. The average incremental tariff rate increased to about 12% in the third quarter from about 9% in the second quarter. If Phase 1 talks result in no signed agreement anytime soon, Morningstar predicts it would send the average U.S. tariff rate on Chinese imports to over 20% by the first quarter of 2020.

The dollar/yuan exchange rate has helped offset some of the tariff costs. The yuan has weakened by about 5% since the end of the first quarter. For exporters, China is still cheap.

Today In: Money

The bulk of the third quarter decline was due to the consumer durables index component of the Morningstar proxy for measuring GDP. It contracted 4.1% from 3.8% growth in the second quarter. Morningstar analysts believe there is a chance that the locals may be temporarily pulling back on spending in anticipation for new government subsidies. Still, slowing durables consumption matches the trend in place since early 2017. And stimulus has been trickling in since.

Two of the other Morningstar proxy components that brought them to the 3% figure also saw a marked decline in the third quarter. Their power proxy index is now in line with the other index components after being a positive growth outlier for about two years.

But it appears the real drag that brought Morningstar’s number down to 3% is industrial production. Industrial profits are down 5.3% year over year versus August’s contraction of 2%.

“Neither a surprise nor a market mover,” says Brendan Ahern, CIO of KraneShares in New York. “U.S. tariffs are still exacting their toll on export-focused manufacturers.”

The industrial sector slowdown might also be understated, especially if China is over-estimating inflation, Morningstar report authors warned.

Meanwhile, China’s dependence on credit to sustain economic growth has so far thwarted Xi Jinping’s attempts to convince the provincial governments to deleverage. Debt growth remains above nominal GDP growth rates.

“We’re not surprised that China’s economy has failed to recover, given that credit growth stalled after a slight rebound in the first quarter,” Morningstar analysts wrote.

China-bound investors will be watching for solid Singles Day sales on November 11. If they disappoint, emerging market funds who are mostly overweight China could finally start shifting positions.

China’s A-shares have been outperforming the MSCI Emerging Markets Index all year. Only Russia, as measured by the VanEck Russia (RSX) exchange traded fund, is beating the CSI-300, an index tracking mainland China equities listed on Shanghai and Shenzhen exchanges.

Official consumer spending showed a mixed picture in the third quarter. Nominal retail sales grew 7.8% year over year in September versus a high of 9.8% growth back in June. Real retail sales fell only 30 basis points from August.

China’s National Bureau of Statistics’ household survey data suggests that most of the spending went towards education, entertainment, and “miscellaneous services.”

Morningstar said that their own sampling of alternative consumer sales data such as box office revenue, telecom revenue, and air passenger volume suggests tepid consumer services growth. China’s number crunchers are more upbeat on that and Morningstar’s team is not, which brings their forecast so much lower than official figures.

E-commerce giant Alibaba – the company behind Singles Day – announced this week that Taylor Swift will be performing at the Mercedes Benz Arena in Shanghai where the shopping spree will have their telethon-like tally of sales. If Swift can hype Singles Day shoppers to spend, the China consumer bull narrative will remain in tact. If she fails, and Singles Day ends up being mediocre, all bets are on for more stimulus in the months ahead out of Beijing.

Follow me on Twitter or LinkedIn.

Spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.

Source: China Growth Nowhere Near Official Estimates, Says Morningstar

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China released third-quarter GDP figures on Friday showing the economy grew 6.0% from a year ago — the lowest in at least 27-1/2 years, according to Reuters records. CNBC’s Eunice Yoon reports.

Scary! Rising US-China Trade War Tensions Could Take 10% Off the S&P

Global markets continue to digest the impact of President Donald Trump’s Sunday evening tweetstorm. Meanwhile, analysts from some of the world’s biggest investment banks including UBS and Bank of America Merrill Lynch have detailed their forecasts for what a full-on trade war between the U.S. and China would look should the worst happen.

Among the many hair-raising projections is the prospect of the S&P 500 entering a correction by losing 10% of its value, which would almost certainly trigger a long-feared recession. That particular forecast was made by UBS analyst Keith Parker, according to CNBC. Parker specified that key European and American cyclical markets would bear the brunt of the declines.

S&P 500

| Source: Yahoo Finance

“FASTEN YOUR SEATBELT AND DON’T HOLD YOUR BREATH”

There is an old saying that when two elephants fight, it is the grass that suffers. In this case, both elephants will also sustain a significant amount of damage if Parker’s projections hold true. He predicts that a full-scale trade conflict between the world’s two biggest economies will see China shed anything from 1.2% to 1.5% of its GDP, which is equivalent to a drop of between $132 billion and $165 billion.

If China responds to Donald Trump’s threatened 25% tariff with a tariff increment of its own from 7% to 15% on approximately $60 billion worth of American imports, this could see the U.S. shed 0.1% of its GDP, or about $14 billion. In the ensuing scenario, Bank of America projects that China may hike tariffs on U.S.-made vehicles and reduce its soybean imports from the U.S. Meanwhile, Chinese imports of American soybeans have already fallen off a cliffsince 2017, dropping roughly 98% last year as China looks toward less antagonistic partners like Brazil.

According to a Bank of America report also cited by CNBC:

“Fasten your seatbelt and don’t hold your breath. The latest escalation of the trade war was completely unexpected, despite the strength of the economy and the markets. This is evident from the immediate negative reaction of U.S. equity futures to the news.”

As the two elephants knock heads, the amount they are erasing from each other’s economies is equivalent to the GDP of mid-sized nations. European and Asian economies will also feel some pain, according to UBS.

IS TRUMP BLUFFING?

According to the White House, the new 25% tariff regime that could potentially kick off this entire sequence of events will come into effect just after midnight on Friday. Expectedly, markets have been in virtual freefall since Monday, with the NASDAQ and S&P 500 both shedding close to 1% on Monday alone. The miserable market conditions continued through Tuesday, with little sign of respite as investors react with horror at the thought of a damaging 20th-century-style trade conflict between economic superpowers.

Dow

The Dow Jones Industrial Average continues to trend downward following Sunday evening’s shock announcement. | Source: Yahoo Finance

Not everyone believes that the panic is warranted, however. JPMorgan CEO Jamie Dimon, for example, believes that the shock announcement by Trump was nothing more than a way of cornering a formidable opponent and forcing them to negotiate. Speaking to CNN Money’s Poppy Harlow, Dimon stated that regardless of the market’s reaction, Trump will count it as a win because it has become the only successful way of getting the Chinese to the negotiating table on his terms.

Whether this is a considered masterstroke of strategy or simply a typical Trump action, it certainly appears to have done the trick. Chinese Vice Vice Premier Liu He will be part of a trade delegation to the U.S. later in the week, which at the very least is a sign that China is willing to give ground so as to avoid a damaging trade war.

Source: Scary! Rising US-China Trade War Tensions Could Take 10% Off the S&P

Job Cuts And No More Snacks: China’s Internet Companies Brace For Slowest Growth In Years

Peolple walk past a sign for Chinese ride-hailing service Didi Chuxing (AP Photo/Mark Schiefelbein)

Job losses and other cost-cutting measures are beginning to emerge from China’s once unbeatable internet sector.

Games operator NetEase, ride-sharing giant Didi Chuxing and e-commerce firm JD.com are reportedly cutting jobs and reducing employee perks amid faltering growth in the wider economy and increasing regulation of China’s internet companies.

“No matter its Didi, NetEase or JD.com, the only reason for them to do this is business performance pressure,” says Zhang Yi, founder of Guangzhou-based consultancy iiMedia Group. “Their old businesses are fraught with uncertainties, while the new business lines haven’t taken off. It is inevitable to have cut jobs during this process.”

The number of jobs vacancies at China’s internet companies declined 20% in the final quarter of 2018 from a year earlier, according to Zhaopin.com, a Beijing-based recruitment firm. And analysts are expecting to see further pressure down the road, as more internet companies grapple with the country’s sputtering economy.

More On ForbesChina’s Didi Cuts 2,000 Jobs In Business Restructuring

Didi Chuxing is a case in point. Once touted as a national champion that drove Uber out of China in 2016, the company is now cutting 15% of its workforce, or about 2,000 employees. Also gone are the free snacks and complimentary yoga sessions that employees had once enjoyed, as the company reportedly seeks to stem mounting losses. Regulators have been scrutinizing its ride-sharing service following a series of passenger safety scandals. Didi has since issued a public apology, while installing safety measures such as in-app police assistance and sharing vehicle routes with friends and family members. The company is now betting on an international expansion plan as a catalyst for new growth, and says that it intends to hire more people to support that effort.

Other companies have been rolling out new strategies to cope with the challenges. A NetEase spokesperson said the company is “optimizing its structure to stay more focused,” but would not confirm local media reports of “wide-scale layoffs” at its e-commerce, public relations and farming units. Like the rest of the gaming industry, NetEase has to contend with a regulator that has been slow to approve new titles following a 10-month suspension of new licenses in 2018.

Billionaire Richard Liu, founder and CEO of JD.com Inc. (Photo: Billy H.C. Kwok/Bloomberg)© 2017 Bloomberg Finance LP

Meanwhile, a spokesman for JD.com declined to comment on reports that it was in the process of cutting 10% of its senior ranks. Instead, China’s second-largest e-commerce site said it would be hiring 15,000 new employees primarily for entry-level positions at its logistics and customer service units. JD.com’s growth in active customers slowed to 4% in the final quarter of last year, down from 15% in the previous quarter, as competitors like budget shopping service Pinduoduo continued to grab a larger share of the market.

To be sure, not all of China’s internet firms are cutting back. Alibaba’s CEO Daniel Zhang vowed not to lay off any staff this year, stating in a  post on China’s Twitter-equivalent Weibo: “When the economy is bad, the biggest advantage for online platforms is to create jobs.”

More On ForbesThe Reality Of China’s Economic Slowdown

Compounding the challenges faced by China’s internet companies is a slowdown in consumer spending. Beijing is now targeting economic growth of between 6% and 6.5% this year, marking the slowest growth in almost three decades, as government and corporate debt mounts and trade tensions with the U.S. have depressed manufacturing output and consumer sentiment. With China also trying to curb risky funding to reduce financial risks, capital flows to investment funds has been slowing. Private equity firms raised 1.01 trillion yuan ($149 billion) last year, falling almost 30% from 2017, according to Beijing-based research firm Zero2IPO Research.

This means there is less funding available for China’s smaller startups, which are now struggling as investors grow increasingly cautious. “A lot of startups can’t raise money, so they have to cut headcounts,” says Ken Xu, a partner at Shanghai-based investment firm Gobi Partners.

Aware of such struggles, Chinese policymakers recently announced as much as 2 trillion yuan ($298 billion) in corporate tax cuts, and told local banks to grant more loans to private enterprises. But analysts say it remains to be seen if Beijing’s stimulus measures will bring about enough changes as the details still have yet to be clarified.

“They will be helpful, but whether the impact will be as big as people think is a matter of debate,” says Cui Ernan, an analyst at Beijing-based research firm Gavekal Dragonomics. “The job market is likely to remain weak in the first half this year before recovering a bit in the second half.”

Follow me on Twitter @yueyueyuewang

Source: Job Cuts And No More Snacks: China’s Internet Companies Brace For Slowest Growth In Years

New Survey Shows China Not Dead Yet

China’s services sector growth rose for the second month in a row and hit its highest level since June 2018 , according to the Caixin China General Services Business Activity Index, released on Friday. Caixin said that increased foreign demand for Made in China goods and improving business confidence helped. The Index hit 53.9 in December from 53.8 in November and 50.8 in October. While the number is generally flat from November, it is much higher than the third-quarter average and comes at a time when trade tensions remain high.

Source: New Survey Shows China Not Dead Yet

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