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More to come…

April 23, 2007

This past week has been really busy for me as I had a sudden surge in school work and  just finished the 6 month process of determining who my future employer will be after graduation this spring.   I have decided to take a job with a consulting company in Beijing, and I am really excited about it.

Also, I have been reading allot about the Danone/Wahaha dispute in the 21st Century Business Herald (21世纪经济报)which has been putting out great investigative coverage. It seems Zong Qinghou of Wahaha has set himself up quite the mirror company, complete with enterprises listed in the BVI under the name of his daughter who has an American passport and did her udergrad at USC.   By doing this, Zong was able to launder his money and re-invest in  China  as a foreign  enterprise and literally city by city siphoned off business from the JV.

This is why foreign companies contemplating partnerships in China better have one hell of a forensic accounting team and employ 24 hour surveillance on the Chinese management.   No wonder there are numerous “risk investment” consulting companies in China such as Kroll, Control Risks, Hill & Associates and Navigant Consulting, I hear their business is booming.

Stay tuned, I will get some interesting Danone/Wahaha translations up soon.

The story behind the Wahaha Danone JV dispute

April 17, 2007

After reading China Law Blogs post on the Danone and Wahaha Joint Venture dispute, I just had to translate this 21st Century Business Herald article which ran over the weekend. Its details surpass anything reported so far in the western media, and explains in stunning detail how the Wahaha group and its CEO Zong Qinghou went about setting up mirror companies to steer profits away from the JV and into his pocket. Continue reading for the gory details:

[Rushed translation from Chinese]

21st Century Business Herald
Reporter Chen Xiaoying

When Wahaha went under reorganization, Zong Qinghou had to find help, but while Danone became his best partner, it also sowed the seeds of today’s conflict.

Why does Danone all of a sudden want to buy these “Non-Joint Venture Enterprises” (NJVEs)? Why does Zong Qinghou not hesitate to at all costs resist this move? How were these NVJVE’s formed? And how did they become the cake that both sides are fighting over?

On the 11th of April, after both sides refused to budge and a tit-for-tat war of words, Danone finally decided to hold a press conference and open their mouth in defense. At the news conference, Danone President of Asia Area Fan Yimou not only produced evidence and stressed that the Wahaha brand was part of the Joint-Venture, he also criticised Zong Qinghou for “using public opinion to obtain personal interests.”If you look a little deeper past the ruckus and track down the interests and their origins, you can see very clearly how things developed. The fuse that ignited the bomb between the two is not about trademarks, but rather Wahaha’s non-Joint venture enterprises, and Danone’s demand that they be bought for a price of 4 billion RMB in a forced buy-out.

61 “Non-Joint Venture Enterprises” became the cake.

Wahaha’s shareholder structure is extremely complicated, according to this newspapers investigation, there are only over 100 companies that have the three letter name “Wa Ha Ha”. According to Zong Qinghou, among them are: the post-restructuring Hangzhou Wahaha Group Co, 39 subsidiary JV companies with Danone, and there are even more employee (management) stock held “NJVEs”

These NJVE’s began to grow in strength after the 2000 reorganization, Danone’s President for Asia Fan Yimou stated: “Especially in the last 18 months” the NJVEs have had explosive growth. Until present, the total sum of these companies has reached 61 with total assets reaching 5.6 billion yuan, and in 2006 only, total profits reached 1.04 Billion Yuan.

The NJVE’s made Danone furious and they put forward the demand of buying 51% of shareholders rights for a price of 4 Billion yuan.

Why have these enterprises made Danone uneasy and move with such quick action? This newspapers reporter was able to find that the products produced by the NJVE’s and the JV’s are nearly identical, with the only difference being in how and where the products were sold. The products made by the JV are mostly distributed in the coastal areas, and the NJVE products are distributed in the mid and western regions of China. Zong Qinghou’s explanation was that these moves were in order to answer the call of the nation and finish the distribution of their products in the mid and western regions of China.

“The Decision makers at Wahaha wanted to participate in the opening up of the west, hand in hand with the state revitalize impoverished areas including the Three Gorge’s Damn reservoir construction project. But Danone had misgivings about the consumption ability of these areas and didn’t want to carry out investment” Zong Qinghou said in his explanation of the formation of these NJVE’s. Furthermore, according to Zong, the profit margins of the NJVE’s clearly exceeds those of the Joint Venture.

According to an industry insiders explanation:”Actually, the biggest costs in the beverage industry lie in sales costs, especially advertising. Because the products made by both companies are the same, the NJVE’s obviously don’t have to pay for any advertising fee’s, so their profit margins are also a little higher.” Danone and Wahaha were both clearly aware of this point, and both parties talked over profit sharing, but in the end were unable to reach an agreement.

Failing to reach an agreement, starting in the second half of last year both sides started to quietly make their moves

In the past, there have been reporters in the media who have seen copies of the contract Wahaha would give to their dealers. The contract stated, that from November of 2006 they not only have to continue to sign the contract with the JV companies, but they also have to sign a contract with a company named Hangzhou Wahaha Beverage Sales Ltd. Company. Furthermore, besides handling the JV sales companies Gold Card account, the Hangzhou Wahaha Beverage Sales company required them to put the payments for goods into a Gold card account created under the new company. This kind of financial operation is clearly aimed at separating the operation of the JVE’s and NJVE’s and individually settle the sales accounts of the NJVE’s.

In order to resolve the problem of JV companies competing with their NJVE counterparts, Danone decided to take steps on their own and put up 4 billion yuan in capital and buy 51% of Wahaha. But Zong Qinghou and Wahaha were unwilling, and facing Danone’s pressure he angrily rejected this “low price forced buyout.”

Who’s “Non- Joint Venture Companies”?

Now that they are to be included in the buyout, this drags in the problem of ownership with regards to the NJVEs. Now, how exactly did these NJVE’s come about and who after all are the owners?

According to records, the Hangzhou Wahaha Beverage Sales Company was founded on December of last year, with the main stock holder being Zong Qinghou. There are no connections with the Wahaha Group and its Labor Union.

The sole financier of the Hangzhou Wahaha Beverage Sales Company was Hangzhou Hongsheng Beverage Company(杭州宏胜饮料有限公司), which on march of this year changed its name to Wahaha Hongsheng Beverage Group Ltd. Co (娃哈哈宏胜饮料集团有限公司)and put up 3 million RMB in capital. The legal representative of the Hongsheng group is Zong Qinghou’s daughter, Zong Fuli 宗馥莉. Hongsheng’s registered capital is 80 Million RMB and has two shareholders.

One of the shareholders naturally is Shi Youzhen(Zong’s wife)施幼珍, who owns 10% of the company, and the corporate shareholder representative (法人股东)Hengfeng Trade Ltd. Company (恒枫贸易有限公司) holds the remaining 90%. Furthermore, Shi Youzhen is also the number two shareholder of the Wahaha Group. Hengfeng trading was registered in the British Virgin Islands and its legal representative also is Zong Fuli (Zong’s daughter).

The Hongsheng factory was set up inside the Wahaha Xiaoshan(萧山) #2 production base. It produces fruit-vegetable and bottled water beverages. Since its formation in 2003, within a short time Hongsheng’s account accumulated over a billion RMB in profits that were not shared with Danone, and in 2005 it was number 30 on Hangzhou’s list of highest profit earning foreign invested enterprises.

Zong Qinghou in his explanation of these companies, said that Danone acquired similar beverage companies in China and had control over the JV’s commercial secrets. “It brought harm to us.”

Besides NJVE’s producing Wahaha’s traditional beverages, another important component among these NJVE’s is the Hangzhou Wahaha Child’s Wear LItd. Co. (杭州娃哈哈童装有限公司) One of China’s biggest youth clothing companies. Zong Qinghou has previously stated that Hangzhou Wahaha Child’s Wear and the JVE do not have any relation and were exclusively or jointly financed by the Wahaha Group and its Labor Union. From material the newspaper was able to obtain, the shareholders of Hangzhou Wahaha Child’s Wear have been through numerous changes, ultimately ending up in the hands of three shareholders. One is a foreign enterprise named Platinum Net Limited and the other two are Zong Qinghou and his wife. Zong Qinghou holds 65%, his wife 10% and Platinum Net Limited holds 25% whose financier is unidentified.

The helper becomes the competitor

Why did Wahaha hatch out such huge “None-Joint venture Companies” and become the the focus of the conflict? In reality, it is related to Wahaha’s path of reorganization.
Starting in 2000, reorganization led the Wahaha Group down the road of privatization.

At that time, Wahaha and Danone had already set up many joint venture subsidiary companies. For the parent company Wahaha, reform was unavoidable which has become connected to the JV subsidiary companies. According to a document titled “Document 1999 #32”; at that time the net assets of the Wahaha Group were about 700 million RMB. After excluding company housing, real estate projects and awards given for scientific achievements, actual net assets were 500 million RMB.

In an asset evaluation report that was made at the time of Wahaha’s reform, the assessor, Zhejiang Assessment Company clearly noted that in the assessment of the groups assets, Wahaha’s trademark, business reputation, production technology, and liquid assets were not included. Thus at that time, Wahaha’s trademark was not put in the assessment report.

“Because at the time of the JV, Wahaha’s trademark was covertly put into the joint venture, this was not only the premise of the JV but also to decrease the difficulty of the restructuring” A legal professional who was familiar with the restructuring stated. If it wasn’t carried out in this way, Wahaha’s restructuring total of sum of money would have been much bigger, and if the managing level wanted to retain the same shareholding proportion they would have had to put up more capital.

The restructuring documents requested that the groups original sole owner, Hangzhou Shangcheng District Government transfer 49% of the net assets to Zong Qinghou who was to be the leading manager and employee. Zong himself put up about 150 Million RMB which accounted for 29.4% of the shares and the workers and staff members(management) put up 19.6% in capital or 100 million RMB. The actual financing was based upon 81% of the original value. Furthermore, already among the peeled off assets, the awards for achievement in science(“科技成果转化奖) became the source of capital for the companies management. The total sum of these awards totaled 70 Million RMB, of which 80% was given to Zong Qinghou and the remaining 20% was turned into the collective shares of the workers and staff.(management). Although during the restructuring in 2000, Zong Qinghou individually had to pay 60 Million RMB to purchase stock rights which was not permitted to be a bank loan.

Whether it was coincidence or sedulously planned out, at that time it was a win-win for the management of both Wahaha and Danone. Now solely in the hands of Zong Qinghou, shortly afterwards Wahaha was able to get rid of former competitor company Robust (乐百氏) and enter a period of super-speed development.

In may of last year, Zong Qinghou held discussions with the Hangzhou City Bureau of Asset Management to give up their 45% stake in ownership. At that time Zong stated that there wasn’t a timetable, nor would there be any difficulty(in obtaining investment) but in no way was he going to consider foreign investment.

But from the beginning of this year, due to Danone putting forward the plans for purchase of the NJVEs, these negotiations have already stopped.

Some of the opinion has said that when Wahaha went under reorganization, Zong Qinghou had to find help, but while Danone became his best partner, it also sowed the seeds of today’s conflict.

Original article (Chinese)
“Danone’s China Deal Goes Sour: French Food Firm Accuses A Leading Businessman Of Undermining Venture,” – Wall Street Journal
宗庆后的转折点:掌控娃哈哈 - Xinhua

False advertising? Hey, I’m just an actor!

April 7, 2007

From Netease:
On February 10th, the police uncovered Beijing’s biggest pyramid scheme case, exposing the fraud behind the”Yilin is your first choice for a forestation partner”scheme. Ge You acting as the spokesperson in the Yilin ad naturally received the publics questioning, and is now facing a reputation crisis.

Ge You, the Chinese star of movies such as The Banquet, is not the only one facing a PR crisis after doing advertisements for sham companies and unreliable products. In this Southern Metropolis Weekend article, several Chinese celebrities are interviewed and asked how they feel about doing advertisements and being a spokesperson for commercial products in light of recent events.

A famous TV star in China endorsing medicine

In translation: Original Chinese article can be found here.

Read the rest of this entry »

Paulson seems to be playing his cards right

March 24, 2007

Last year US Treasury Secretary Paulson during his September trip to China, made a rare first stop in Zhejiang to meet with then Party Secretary Xi Jinping because he regarded him as a rising star among the communist party. It seems he was dead on.

Today China’s state media officially announced that Xi Jinping will take over from interm Shanghai Party Secretary Hanzheng and will now be the perminent secretary of China’s largest and most important economic center. He also gets a seat on the politburo. Last year former Shanghai Party Boss Chen Liangyu and protege of Jiang Zemin was ousted for corruption charges in a scandal that gripped the country.

It will be interesting to see what this will do for Paulson and his long term China goals. It’s also questionable if his goals can even be long term, after the 08′ presidential elections his own political future is in question as well.



习近平调任上海市委书记 BBC Chinese

Xi Jinping’s biography on China Vitae

Paulson makes “important trip” to china for trade IHT

Media coverage emboldens nailhouse owners

March 22, 2007

It seems in light of all the media coverage of the holdout or nailhouse in Chongqing, the owners have taken drastic measures and plan to stake it out in their house even though local courts have ruled that they must leave the premises by the 23rd. The couple who own the house are demanding that they be given comparable square footage in the new building, but the developer will only agree upon a small monetary compensation. The husband of Mrs. Wuping, whose media interview I just translated, has stationed himself on the island and has stated: “If anyone dares to come up I’ll beat them back down!” The 54 year old Yang Wuping also happens to be a martial arts champion. This was after Mrs. Wuping herself said you need to be patient and “can’t go around speaking carelessly.”

In addition Nanfang Metropolis Weekly ran an editorial saying that the nailhouse in Chongqing could be the first real test of China’s new property law. Link

And according to a recent interview with the head of the Jiulong Hills District courts:  “if they don’t move out automatically they will be forced to evict.” Link

Google and Baidu news are also pulling up hundreds of mainland media outlets that are covering the story.


Things aren’t looking so good for the nailhouse owner, even though the property law is on the books it isn’t effective until October according to a People’s University professor, so they just need to find the will to stick it out for a few more months. Link

pictures from the recent CCP summit

March 20, 2007

Here are some People’s Hall service people taking pictures at Hu Jintao’s and other high-level CCP officials seats. I wonder how this would go over with their superiors?

Store-owner, in search for justice posts wanted posters of student-thief

March 14, 2007

This is what happens when you lose trust in the police. Notice how the article mentions no involvement of the authorities to solve this matter. Although even in a western country they would not be able to do much.

Story (in Chinese) can be read here on Sohu.

Young Girl Caught Stealing Cosmetic Products Videotaped, Store Owner Posts Wanted Posters All Over the City


photo from

A long haired girl with student appearance on Normal University Street stole cosmetic products from a store and was unexpectedly videotaped. In order to make the thief turn themselves in, yesterday the store-owner on Student Street, Fujian Normal University and a few other close-by university campus’ posted huge wanted posters. “Thief Accusation Notice” was written angrily on the cover. The store owner hopes that when the girl who stole the products see’s this she will admit her mistakes and return everything, or else he will make 500 copies of the unblurred pictures and make them known to the public.

Yesterday the reporter went to the store in which the products were stolen from. The store-owner presented the security video tape which depicts the entire process of the girl’s theft.

The time of the recording was 3/11/07 10:49 am, a long-haired girl wearing glasses, a blue windbreaker, and carrying a white shoulder bag walked around the store once and then stopped in front of a counter. The saleswoman thus came forward and started to introduce the products. When the saleswomen left, the girl put a bottle of sunblock back onto the counter and then took another bottle, after glancing around a few times she opened up her jacket and put the suntan lotion inside, once completed she then took another bottle and held it in her hands. When the saleswoman walked back, the girl put the bottle in her hands back on the counter. With two bottles pressed up under her armpits, the girl walked around a few times and calmly left the store.

The same afternoon a storeworker realized they were missing a bottle of sun-tan lotion, after double checking the sales records the storeowner was notified. The storeowned then immediately checked the security tapes of that day and was able to find out what actually happened.

The salesperson from the store said the girl was gentle and quiet, looked as if she was a university student, if they didn’t see the tapes, you wouldn’t suspect she was a thief at all.

If she doesn’t turn herself in, he will publish photo’s depicting her identity.

After watching the video tape, the store-owner immediately wrote the “Thief Accusation Notice” with video-stills from the tape pasted on front depicting the entire stealing process. Yesterday afternoon, the store-owner made seven 60cm x 100cm color copies and then pasted them at the store entrance, student street intersection, normal university and a few other nearby schools caught the eye’s of many, who stopped to read the posters as they walked by.

The store owner taking into consideration the girls future and reputation, also blurred out the face of the girl. The store-owner also said that he hopes the girl will quickly contact him, or else on the 1st of next month he will paste 500 copies of her real picture, clearly depicting her identity at the Cang Mountain campus and other public places.

According to sources, up until 10pm last night, the girl still hadn’t gotten into contact with the storeowner.

Holdout part III

March 14, 2007

So I guess this story was picked up by the Daily Mirror in the UK. Does anyone have a link to the story?

Article in the Pakistan Paper “Daily Times” link Here

Article in the British paper “Metro” link here

Also, there is alot of discussion here on

More translation to come in the next few days. Stay tuned.

Chonqging Holdout Part II

March 13, 2007

In a follow up to my last post “China’s Most Incredible Holdout.”  I have translated an editorial that appeared on 3/11/07 in Nanfang Daily.

Origional can be found here
 In the past we’ve only seen the conceited actions of real estate developers forcing other’s to move their homes, rarely witnessing the kind of action taken here by the holdout in Chonqqing. Originally, there wasn’t a single person in this world that a developer couldn’t touch, but now we’ve finally been taught a lesson by someone who resisted. However what really has made people feel unfortunate is that the individual putting up this fight is not a common person, not a common person preventing the developer’s brutal demolition and relocation according to state law, but rather this unknown person has baffled people with their real ability to do something here. This force can make the Developer grin and bear it, it can even make the housing management flatly deny its existence.  This household resisting eminent domain really is something.

And then I suddenly realized, in the end this incredible of a holdout is probably going to reach an agreement with the developer.  Furthermore, the excessive price the Real Estate businessmen paid for this is ultimately going to land upon the shoulders of average homebuyers.  Whatever the case, be it real estate businessmen or a holdout, with everyone making a big fuss, the unlucky one’s here are the average homebuyers.  The rules of the game revealed here have only made people sigh in outrage.

China’s Most Incredible Holdout

March 8, 2007

The following is a news article translated from Southern Metropolis Daily. This is about a building site in Chongqing that has brought about suspicion on the web forums in China.

钉子户 = literally means “a slug house” but it means someone who refuses to move out from their house. I have translated it as a “holdout,” there might be a better translation but its all I could think of.

The original can be found here.

More pictures here

This must be the sales office building

It might be some sort of historical relic

Maybe people are practicing rock climbing here?

How are they going to build this building? This is a true test of construction technology

They excavated the surroundings to build a moat!

At the beginning of this month, a post titled “history’s most incredible holdout” started circulating on a famous BBS, the content of the post is a picture of a 10 meter deep pit dug around a solitary small two story building, just like a small boat in the middle of the ocean.

Netizens were all shook, either crazily praising “the most incredible holdout” or puzzled as to how anyone would live in there, and how would the building be developed. With regards to the source of the picture, the opinions of the netizens vary. Some people mistook this for last year’s “Most incredible holdout of Shanghai.” Both buildings do have resemblance. Some people also said this is from Chongqing, as they had passed through there in the past few days.

This reporter thus initiated investigation and interview

The isolated island on the side of the light rail

This reporter discovered, the picture first appeared on the internet on the 26th of February. At that time it was clearly written as: “Chongqing City JiuLong Hill District Yangjiaping Pedestrian Street. Author stood on Yangjiaping light rail station and took this picture.” Its possible because of the relative obscurity of the original BBS, and its wide circulation on the web that the original explanation was lost.

Local residents of Chongqing explained that this building is quite famous, alot of people in Chongqing have seen it. If you ride the light rail and pass through Yangjiaping station you are able to see a peculiar landscape: in the middle of a construction site stands a solitary small two story building, the surrounding soil has all been excavated, just like it was built on an isolated island. A chongqing resident then took a picture and named it “China’s most incredible holdout.”

Contractor Temporary Residence? Household resisting eminent domain?

One netizen said this wasn’t a holdout at all, it was actually the contractor’s temporary residence, there were also other netizens who supported this position.

After verification, this was determined as Chongqing city’s “Broadway” real estate construction site currently being put up in the residential quarter. A saleswoman who works for Weilian Real Estate Sales Company stated that the “Broadway” project is already in its second stage, the first stage has already completely been sold, and the small building is a holdout unwilling to relocate. The second phase is currently excavating the foundation; the circumstances are just like what you can see in the picture. For more information I was told to inquire with the developer, but I was unable to get through to their telephone.

Nobody is living in there now.

One netizen revealed, this house used to belong to the Yangjiaping Housing Management Office, according to theory, it’s a state-owned house, but for historical reasons it was rented out to a private leaser. The leaser wanted 200,000,000RMB from the developer or else he wouldn’t move. His family had some background and connections, so the developer didn’t dare take action. As a result this “wonder” was created.

Nevertheless, this netizen’s statement has not been verified. During an interview, Yangjiaping Housing Management Office’s Vice-Secretary Liu Ling indicated the situation was unclear. Furthermore, a worker on duty stated this building is a holdout who has stayed behind.

What the netizens are most interested in is if anyone is living in this building. If there is someone, how do they get in and out? An editor of the Chongqing Morning Report who everyday on his way to work passes through the area said that the building is deserted, there’s no furniture or he hasn’t seen anyone inside, and dug out like this its impossible for anyone to get in.