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It Helps to ‘Be Rich Silently’ in Polarized China

Times Staff Writer

China’s richest man has amassed a fortune of nearly $2 billion but lives like a frugal accountant.

After leaving his 32-story office tower at night, Huang Guangyu returns to a modest apartment he shares with his wife and two daughters in southwest Beijing. He shuns the golfing craze sweeping China, opting instead for snatches of TV. He says he has no hobbies.

“I don’t know what else to do,” Huang said.

In the United States, Huang’s rise -- from high school dropout to China’s richest man -- would be celebrated as a Horatio Alger story. But in China, where corruption is rampant, many believe that the 300,000 people who became millionaires in the last two decades did it the old-fashioned way: stealing from the masses.

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The 36-year-old Huang and other nouveaux riches here find themselves at one end of the largest rich-poor gap since the founding of Communist China in 1949. Beijing has been confronted with a rising tide of riots by farmers and poor workers upset about losing their land and factories to robber barons. The protests have spawned calls by some intellectuals to stop what they say is capitalism gone amok.

“We have so many mysterious rich people. Others admire their money but they question the morality of it,” said Victor Yuan, a senior analyst at Horizon Research Group in Beijing. “You’ve got to be rich silently.”

Huang, the majority shareholder of retail chain Gome Electrical Appliances, China’s version of Best Buy, knows the other side of the wealth divide. The second of four children, he was born in a predominantly Catholic village near Shantou, a coastal city in the southern province of Guangdong that is renowned for its entrepreneurs.

In an interview, Huang recalled growing up hungry. But he was fed plenty of tales by his mother, Zeng Changmin. She recounted the adventures of their ancestors who traveled to Thailand to trade sugar and beans, and share stories from the Bible.

One story appeared to have left a deep impression on him: Jesus’ parable of the talents, in which a master rewards two servants who invested gifts of money but punishes a third for burying his grant in the ground.

Huang said he attended Mass weekly. He didn’t pray to be rich but wanted to break free from the poverty of his village -- some 300 households that farmed rice and wheat on small plots. People who know Huang said other village children taunted him, his older brother and two younger sisters because they were poorer than their neighbors.

“There were three roads for me,” he said. “Go to school, be a soldier or find your own way to survive.” Studying was expensive, Huang said, and the army didn’t want a scrappy kid like him.

So at age 16, he and his brother set out for Inner Mongolia, traveling for days by train in search of opportunities 1,400 miles north. They hawked radios and small electrical goods. But the pair lasted only a few months, Huang said. With a little more than $100, they headed for Beijing’s bright lights.

When Huang and his brother arrived here in 1986, Mao Tse-tung had been dead for 10 years and China’s embrace of capitalism was taking shape. People were permitted to start businesses, incomes rose and consumers were demanding refrigerators and washing machines.

“Coming to Beijing was a turning point in my life,” Huang said excitedly.

The brothers rented a stall near Tiananmen Square. With no money to buy goods, Huang stacked empty television boxes inside to make their stall look full, said Liu Hongyan, author of a biography of Huang. When shoppers ordered an item, Huang ran out and bought it from another merchant, hauling it back in a three-wheel cycle to sell it at a profit.

Analysts say that some 17 years later, Huang would use the same cunning to catapult Gome to the top of China’s $60-billion retail industry. After Huang established a chain of 120 stores, he chose about 90 of Gome’s most profitable outlets to be listed in a company traded on the Hong Kong stock market. He kept the 30 laggards private so outsiders saw only the rosy side of Gome, according to Wang Jizhou, an analyst with Alliance Investment Consulting in Beijing.

“It was like Huang had two bottles -- one with wine, the other with water -- but investors believed both of the bottles were full of wine,” Wang said.

With about $400 million from the listing and $150 million from U.S. private equity firm Warburg Pincus, Huang has more than doubled the number of stores in the last two years to about 460 in 131 cities. His workforce is 100,000 strong.

Often likened here to Wal-Mart founder Sam Walton, Huang aims to drive sales by offering the lowest price. He cuts out the middlemen and negotiates directly with emerging manufacturers like appliance maker Haier, buying large volumes of merchandise and slashing retail prices so deeply that rivals have trouble competing.

Huang makes no apologies for his success but concedes that Gome’s development has attracted a lot of attention. Many analysts say Huang clawed to the top without special help from government officials.

When Gome opened its largest Beijing outlet in July, more than 100,000 people jammed into the store as big as a Wal-Mart Supercenter, snapping up 21-inch color television sets for $79 and microwave ovens for $36.

It was so packed “you couldn’t move inside,” said store manager Wang Liqun. Despite her closet-size office, the 37-year-old says her pay has risen sevenfold from the $170 a month she was earning 10 years ago as a Gome salesclerk.

Huang’s rivals, though, claim that he uses his market power and influence with manufacturers to squeeze out the competition. Some call him a “price butcher.” Manufacturers complain that Huang can be overbearing, although they say he pays his bills.

Analysts and others familiar with the company say Huang micromanages and often shakes up his senior staff, creating an atmosphere of fear. Gome executives would not comment.

On the backs of Wang’s business cards and those of all Gome employees are Huang’s three cardinal rules: Do not accept gifts from customers. Do not take kickbacks. Do not use your position for personal gain.

Printed at the very bottom is a hotline number for people to report employee misdeeds.

Huang said the rules reflected his religious upbringing.

“The church discipline is quite strict,” said Huang, who has donated money to build a church, kindergarten and senior home in his village. “It’s been very useful in helping me to deal with people.”

Lu Renbo, an analyst affiliated with the State Council, the highest agency of China’s administrative government, said Huang worried his employees would “form their own relationship circles, or as the Chinese say, occupy their own hills.”

Lu attributes Huang’s success partly to good timing. A few years ago, Huang found that he could delay payments to manufacturers, allowing him to take the massive cash his stores generated and invest in real estate. Analysts say Huang, who also controls Eagle Investments, has reaped hefty profit from the booming real estate market by buying and developing office buildings and homes.

By the Beijing Olympics in 2008, Huang hopes to more than double the number of appliance stores to 1,000 and boost annual sales to $15 billion from about $6 billion in 2005. But he faces regulatory constraints and political uncertainty.

Although the government is pleased that private companies like Gome are creating jobs and paying taxes, it faces increasing pressure to narrow the wealth gap. Many people would like to see Beijing take from the rich and give to the poor. The wealthy are often portrayed in the media as tax evaders and crooks who work with party bosses to seize land and strip the assets of state-owned companies.

Shanghai developer Zhou Zhengyi, a onetime noodle and underwear street vendor who used his political connections to become one of China’s richest men, is cited as a prime example. The flamboyant 43-year-old is serving three years in prison for falsifying documents and manipulating stock.

Beijing recently imposed hefty taxes on yachts, expensive watches and big cars. Party leaders are also considering imposing higher personal income taxes on the rich.

Cities such as Beijing and Shanghai, wanting to protect small businesses, have recently placed restrictions on where big-box retailers can open stores. Although the policy will limit Huang’s rivals, foreign chains such as Best Buy have more resources than Gome.

Lu, the State Council official, argues that Beijing, while preoccupied with the wealth gap, should also pay more attention to private domestic businesses like Gome.

“What really matters is that we should nurture our retail giants to fight with overseas wolves,” Lu said. “Many of the state-owned companies are weak, but these private enterprises are wolves themselves.”

Huang said he, too, was concerned about the great wealth divide in his country. But he said he was helping to bridge the gap, not widen it. Huang said he planned to hire an additional 20,000 workers this year.

After 20 years of making his own breaks, Huang said he was not looking for any special favors from the government. But, he said, “I just hope we can at least enjoy equal treatment.”

Cao Jun in The Times’ Shanghai Bureau contributed to this report.

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(BEGIN TEXT OF INFOBOX)

The Middle Kingdom’s top 10

*--* Company Industry Wealth (in billions) 1. Huang Gome Electrical Household appliance, $1.70 Guangyu Appliances/ Eagle Investments property 2. Yan Jiehe China Pacific construction 1.50 Construction Civil 3. Chen Shanda Networking Online games and 1.45 Tianqiao Development Internet portal 4. Ding Lei NetEase.com Online games and 1.25 Internet portal 5. Xu Rongmao Shi Mao Property 1.20 6. Rong Citic Pacific Aviation, civil 1.10 Zhijian infrastructure, property and telecom 7. Lu WanXiang Auto parts and finance 1.00 Guanqiu & Family 8. Zong Wahaha Soft drinks and 0.80 Qinghou children’s clothes 8. Zhu Mengyi Hopson Development Property 0.80 & Zhujiang Investment 9. Chen Pioneer Metals Iron ore trade, iron 0.77 Ningning Holdings and steel & Lu Hui and investments

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Source: Hurun Report


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