Contradictions in China, and the Rise of a Family
GUJIA VILLAGE, China — In the 1950s, the Liu family of southwest China’s Sichuan Province was so short of food, they sent one of their youngest sons to be raised by another family.
Today, however, they are one of China’s richest families.
Rising from public scorn during the Cultural Revolution, the four Liu brothers managed to turn a small quail-breeding farm into China’s largest private company, later splitting it into four.
“The difficulties we went through in the early years made us strong,” says 60-year-old Liu Yongxing, a former factory worker who Forbes lists as the wealthiest person in China, with a fortune estimated at $3 billion.
The Lius are China’s first-generation billionaires, born into a world of Mao suits, food rations, price controls and Communist slogans. And the story of how they made their fortune is considered one of the guiding myths of China’s Communist party, a symbol of this country’s transformation over the last 30 years, since its unlikely embrace of capitalism. But their story also betrays the contradictions of modern China — a country where the average factory worker makes less than $50 a week.
“The puzzle is not why the Liu brothers succeeded, but why there are not more like them in China,” says Huang Yasheng, who teaches at the Sloan School of Management at the Massachusetts Institute of Technology and is an expert on Chinese entrepreneurs. “Rural China represents a vast pool of entrepreneurial capabilities and substantial business opportunities.”
As the global economy enters its first drastic downturn since China opened to the world, analysts say this country is searching for a more sustainable path to growth.
Waning foreign demand threatens to stall its economic miracle and Beijing’s leaders are trying to cope with the undersides of growth, like rising inequality and environmental degradation.
“The old game has started collapsing,” says Xu Xiaonian, a professor of economics at the China Europe International Business School in Shanghai, referring to China’s inefficient export-oriented economic model, which can be prone to overheat. “We are now in a transition period. We need to find new ways to do things.”
The hope among economists is that China’s next path to riches will inspire an even larger and more innovative group of entrepreneurs, and tap more of this nation’s impoverished rural areas.
For the Liu family, the journey from there to here was seemingly impossible.
Their road to riches is documented in a small museum they built here in Gujia village, on the grounds of their first feed mill, where photographs show the brothers examining supplies and posing with Chinese and world leaders, like Jiang Zemin, Bill Clinton, Tony Blair and Jacques Chirac.
They also built a memorial about 200 miles east of here in the hometown of their hero, Deng Xiaoping, the former Chinese leader who is considered the architect of China’s economic reforms.
Like many Chinese entrepreneurs, the Lius trace their fortunes back to December 1978, when Mr. Deng presided over the Third Plenary session of the Communist Party. In a critical speech to the party’s elite, he boldly called for more trade with the outside world and said he favored market-oriented reforms. These policies would later come to be called “socialism with Chinese characteristics.”
“It is one of the most substantive speeches I’ve ever read by a Chinese leader,” says Robert Lawrence Kuhn, who just published a book about China’s economic reforms. “Point five said the government would allow some to get rich first. This was radical.”
After decades of isolation and outright hostility to capitalism, China suddenly began loosening state controls over the economy and encouraging its citizens to get rich. What followed was three decades of roaring growth and a export-oriented wealth boom that the World Bank says has lifted 400 million people out of poverty.
Not long before the extraordinary Communist Party meeting in 1978, the four Liu brothers — Yongyan, Yongxing, Yuxin and Yonghao — say they were toiling on farms or in state-owned factories here in southwest China, scorned because of their “counter-revolutionary” family background: they were the descendants of wealthy landlords.
During the decade-long Cultural Revolution, which ended in 1976, their father was condemned to a “re-education” camp. Their mother was officially denounced.
But in 1978, three of Liu brothers won admission to local colleges, and soon they began plotting to make it rich.
At the time, the quiet one, Yongyan, 33, was studying engineering. Yongxing, 30, was good at fixing radios; and the extrovert, Yonghao, 27, was teaching at a technical school.
They had each inherited their father’s interest in science and technology.
Yuxin, who had been sent away from home as a child, was a 28-year-old farmer in Gujia village. But he also teamed up with his brothers to plot a new course.
Their first venture, an electronics company, failed almost immediately, they say, largely because a Communist Party official deemed it too “capitalistic.” Individuals at the time could not own factories or operate in the electronics business. Chinese were encouraged to become “socialist entrepreneurs” not capitalists, which was still a bad word.
Not many Chinese, though, knew the difference. Soon after, the brothers pooled $125 and began raising quails here in Gujia.
At the time, Gujia was one of the region’s most impoverished villages, located 17 miles northeast of Chengdu, the provincial capital. It had no electricity or running water and its houses were small huts constructed with mud and grass. But conditions were good enough to raise quail.
“If you raise quail, you don’t need much feed,” says Liu Yongxing, explaining their choice. “Quails are small. And we didn’t have much land or money.”
Suddenly other villagers began raising quail too, and customers in bigger towns lined up to buy quail eggs. Gujia became the quail-breeding capital of China. And the Liu brothers thrived.
Before long they were among the first in the region to be honored by local Party officials as “10,000 RMB men,” model socialist entrepreneurs who accumulated Chinese currency or renminbi.
“If you did business during the Cultural Revolution, you were the evil capitalist and you would be paraded through the street and people would throw garbage at your head,” said Gao Peineng, 53, the former village chief of Gujia and a longtime friend of the Liu brothers. “But in 1982, the government began honoring what they called the “advanced wealth maker.” They would ride you in a truck with red flowers and a gold medal.”
Liu Yongxing says there were hard times too, like the time they shipped thousands of quail eggs to a buyer, only to have his check bounce, practically bankrupting the family.
But early market chaos gave way to big opportunities.
With agriculture designated as one of the first areas open to market reform, the Liu brothers quickly branched out into the animal feed business.
At a time when many farmers simply fed their animals garbage or scraps, the brothers copied the new feed production techniques of the Charoen Pokphand Group of Thailand, one of China’s first big foreign investors.
The Lius then convinced farmers that buying their feed would make animals grow much faster. They grabbed market share by pricing their feed much lower than Charoen Pokphand. With meat consumption in China soaring, demand for feed skyrocketed.
Between 1978 and 1990, grain output in China rose by more than 30 percent.
“The Liu brothers are very smart and grasped the opportunity early,” says Wan Zhaojun, dean of the Sichuan Animal Husbandry Institute. “Living standards were improving dramatically; meat consumption was going up. This was the golden time for the feed business and they were right there.”
Their success was validated by the Communist Party in 1994, when Song Jian, a government science official, visited their feed mill and declared that “the future of China’s economic reforms will rely on these socialist entrepreneurs.”
Soon after, they adopted a new name: the Hope Group.
The visit was an early sign that government officials were the ultimate arbiters of success, and while the Liu brothers give credit today to the market reforms, they acknowledge in their speeches and their museums that the Party also played a role in their success.
“By 1984, almost all the Sichuan government officials came to our farms,” says Liu Yongxing. “It was like a big advertisement for us."
After rapidly expanding in Sichuan, home to the world’s biggest pig population, they built feed mills all over the country.
By 1992, the Hope Group was so large the Liu brothers decided to split it into four companies, along geographical lines — East Hope, West Hope, New Hope and Continental Hope, allowing each brother to pursue his own interest, and diversifying the family holdings.
Yongxing moved to Shanghai and invested in aluminum, power plants and finance. Yonghao, who runs New Hope was listed in October at No. 4 on the list of China’s richest, with a net worth of $2.2 billion and holdings in real estate, feed and banking. Chen Yuxin (his adopted family’s name) runs West Hope, with the original feed operation in Sichuan and a five-star hotel and retail properties in Chengdu. And Yongyan has a feed and electronics business. The Lius’ only sister, Liu Yonghong, handles all the accounting for the family. Even with billions of dollars, family members and friends say the Liu brothers are frugal and modest. Liu Yongxing flies economy class (even though he’s the richest man in China) and Chen Yuxin doesn’t have a personal assistant.
They insist, like many Chinese entrepreneurs, that they do not show off or indulge in extravagant luxuries.
“It’s ridiculous to show off your wealth,” says Liu Yongxing, sitting in his Shanghai office wearing casual clothes and sipping tea.
The next generation of the family consists of four daughters and one son, Shawn Liu, the only child of Liu Yongxing.
Educated in the United States, at the University of Southern California, and married to a woman from Texas, Shawn, 33, is preparing to take over from his father. Two of the founders’ daughters work with their fathers, helping manage the companies, while another two live in the United States and have no role in the company.
“My goal is somehow to bring the company out to have an international presence,” says Shawn. “If not international, at least southeast Asia. We are now looking at opportunities.”
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