Everyone, not long after Zong Qinghou passed away a year ago, I did two episodes on the controversy surrounding Wahaha’s equity, including the disputes over the Zong family’s inheritance.
At the end of that episode, I said: Because the Zong family and the equity of family businesses are particularly complex, the division of inheritance is not so easy, so the inheritance battle between different family members may have just begun.
I didn’t expect this sentence to come true. Now, the three children of Zong Qinghou’s second wife and Zong Fuli, the eldest daughter, have entered a stage of intense conflict and heated competition over the inheritance. Both sides have filed lawsuits in Hangzhou and Hong Kong.
Hong Kong Litigation Progress
Last Friday, Zong Jichang, Zong Jieli, and Zong Jisheng, the three children of the second wife, filed a lawsuit against Zong Fuli in the Hong Kong court. The case was heard for a day, and these three children of the second wife said: Zong Fuli did not execute her father’s will. Before her father passed away, he instructed Zong Fuli to set up offshore trust funds for these three children of the second wife overseas, with $700 million for each person.
Zong Fuli not only did not execute it, but she also transferred $1.1 million out of her $1.8 billion in HSBC bank in Hong Kong.
Therefore, these three children submitted an application to the court: first, to freeze these $1.8 billion, so that Zong Fuli would not embezzle all the money and transfer it to herself; second, to request the court to instruct Zong Fuli to continue to set up offshore trust funds for these three children overseas in accordance with her father’s instructions.
And Zong Fuli told the court that she had not heard that her father had such instructions, and she did not know how to convert RMB into US dollars. Because didn’t these three children say that they wanted $700 million per person? But is it not enough now, $1.8 billion? Zong Qinghou’s instruction at the time was to let Zong Fuli make up $700 million for each person; you are short $300 million of $1.8 billion, you make up for it. Zong Fuli said she didn’t know how to convert RMB into US dollars.
So the two sides were roughly in this state in last Friday’s lawsuit. This matter has attracted widespread attention from foreign media: because on the one hand, the wealthy family’s grievances, fighting for inheritance, everyone is eating melons; on the other hand, Zong Qinghou previously only publicly reported Zong Fuli as his only daughter, and now the three children of the second wife formally established that Zong Qinghou also has three children born to the second wife through court litigation.
The Identity of the Second Wife’s Children and Public Opinion Shock
Everyone knows that when I did the program last year, I already said: Zong Qinghou’s eldest wife, Shi Youzhen, gave birth to Zong Fuli, and the second wife, Du Jianying, gave birth to three children.
However, people in our country don’t know much about it; on the other hand, after all, it has not been confirmed by legal documents. Now you, the three children of the second wife, sue Zong Fuli, claiming to be Zong Qinghou’s three children, then it is established in legal documents that Zong Qinghou has three children of the second wife.
This news exploded in domestic public opinion. On the one hand, everyone likes to watch the excitement of the wealthy family’s grievances and inheritance disputes; more importantly, Zong Qinghou has always portrayed himself as a “commoner’s richest man”: he only spends 50,000 yuan a year, takes the second-class seat on high-speed trains, smokes a pack of ten yuan cigarettes a day, has only one daughter, Zong Fuli, and is wholeheartedly devoted to the national enterprise Wahaha, working from 9 am to 12 pm every day, what a noble image.
As a result, it is now suddenly discovered that there is also a second wife, and the second wife also gave birth to three children, all of whom are Americans. It is said that there are also third and fourth wives, and some people say that they have also given birth to two children. Then the so-called simple image of the “commoner’s richest man” collapsed?
So many people feel that their patriotic enthusiasm has been hurt. Didn’t they always support Wahaha and Nongfu Spring of this Zhong Shanshan? I saw someone online kick over the Wahaha purified water, feeling unbearable.
I have always felt that Chinese people, including our East Asian civilization and Confucian culture, have a characteristic, that is, they always like to evaluate social phenomena and social problems from a moral perspective. In the past, Zong Qinghou portrayed himself as a “commoner’s richest man”, and they bought it; now they see that he is not a “commoner’s richest man”, and there is a second wife and a third wife, and many people can’t stand it, they are broken, right.
Now many people are saying that they support the eldest wife and this mistress to fight, and support this what the eldest daughter and this illegitimate child to fight. I have to say it’s really a mess.
Key Points of This Issue: How to Pay Attention
But how should we pay attention to this news? Today I’m still going to talk about the story behind this news.
First of all, let me talk about whether Zong Qinghou made arrangements for his property before he passed away? The information I know is that he did. Zong Qinghou held a family meeting before he passed away, and there were notaries on the scene. The distribution of the family’s property is as follows:
First of all, 29% of Wahaha’s shares were handed over to Zong Fuli to inherit; then, the three children of the second wife set up a trust fund overseas, and each person was given seven hundred million US dollars, and Zong Fuli was responsible for this matter.
After this matter was done, didn’t Zong Qinghou pass away? After Zong Qinghou passed away, the family members agreed that Zong Fuli would inherit 29% of Wahaha’s shares. But after Zong Fuli inherited 29% of the shares, she was not very active in the matter of establishing an offshore trust fund overseas, dragging it out.
Then Du Jianying and their family’s three children were anxious, right? So they asked Zong Fuli to execute their father’s will. But Zong Fuli seemed to have no reaction, so they first sued Zong Fuli in Hangzhou; Hangzhou seemed not to accept it, and later, out of desperation, they sued Zong Fuli in Hong Kong.
But the Hong Kong court said that day: because the case had also been filed in Hangzhou, they were worried that the ruling in Hong Kong would affect the ruling in Hangzhou, so they decided to postpone the ruling for two months. The implication is to see how Hangzhou will rule. We don’t know how it will be ruled now.
Wahaha’s Equity Structure and Origin
The more critical thing is, what exactly did Zong Fuli do after inheriting Wahaha? Then I think what’s behind it is more interesting.
After Zong Fuli inherited the shares of the Wahaha Group, we know that Wahaha’s shares have such a structure: 46% is the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou, 29% is Zong Fuli’s, and 24% is the employee stock ownership association. This structure has been fixed since Danone in 1999.
So why did such a structure come about? In fact, it was also to deal with Danone at the time.
But outside the Wahaha Group, Wahaha actually has about 200 suppliers. Of these 200 suppliers, more than a dozen are directly affiliated with the Wahaha Group, and more than a hundred actually have no clear equity relationship with the Wahaha Group.
Most of these 200 suppliers are controlled by the Zong family themselves, divided into two major factions: one is the Hongsheng faction, the Hongsheng faction is the eldest wife Shi Youzhen, including her daughter Zong Fuli; then the other part is the second wife Du Jianying, including the enterprises established by her three children.
These two major factions of suppliers have formed a close relationship with the Wahaha Group, and are actually conducting related transactions. For example, selling water to you at a very cheap price, and then you sell the money, and you keep the money in your own enterprise.
Why did such a pattern come about? In fact, it was a pattern of interests formed when dealing with Danone back then. Because after Danone and Wahaha formed a joint venture, Wahaha was still a state-owned enterprise at the time, and Zong Qinghou did not want to put all the money into the joint venture; because if you put it into the joint venture, what money can the Zong Qinghou family get? Can’t get too much.
Those who have watched our last two episodes know this background, so Zong Qinghou set up a large number of off-balance-sheet enterprises outside the joint venture with Danone, and these off-balance-sheet enterprises then formed related transactions with the Wahaha Group. So didn’t Danone get anxious later?
Later, after Danone withdrew, this pattern was still retained. But at this time, this pattern was not to deal with Danone, but to deal with state-owned shares. Because in the Wahaha Group, 46% is held by the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou.
The earliest Wahaha was 100% state-owned shares, because when it formed a joint venture with Danone, Zong Qinghou only accounted for 29%. Then if all your profits are put into the Wahaha Group, it means that the state-owned 46% of the shares will have to distribute a large amount of money.
The Zong Qinghou family was also unwilling, because their reason was: although it was under the name of a state-owned enterprise when it was established, the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou, did not contribute capital, you just provided a name. Then why should I let you be the major shareholder now and distribute so much money?
So he actually set up such a huge family enterprise off-balance-sheet, and then kept the money in his own, this related transaction enterprise through related transactions. Roughly, it’s such a pattern of interests, a world of interests.
Two Major Problems After Zong Fuli Took Office
Then after Zong Fuli entered the Wahaha Group, she faced two major problems:
The first problem is how to deal with the relationship with her siblings, that is, with her half-siblings; the second is how to deal with the relationship with the state-owned shares of the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou.
First of all, after she entered the Wahaha Group, she basically removed the people who were originally Zong Qinghou’s forces. Isn’t she from the Hongsheng faction? She brought the people from the Hongsheng faction into the Wahaha Group headquarters.
Almost all the people on the board of directors of the Wahaha Group headquarters are from the Hongsheng faction. From production to sales to research and development, these are all people from the Hongsheng faction, and the others are sidelined. The Hongsheng faction has almost taken over the entire Wahaha Group.
At the same time, the headquarters building of the Wahaha Group was closed, and the headquarters was directly moved to the Hongsheng Building in Hangzhou, which means that Hongsheng and the Wahaha Group should be completely merged. This is the first point.
The second point is that she closed the Wahaha Food Research Institute. Why did she close the Wahaha Food Research Institute? The Wahaha Food Research Institute is quite important in the Wahaha Group, and in the past, at the end of each year, they would develop some new products to be launched.
Because her younger brother, Zong Jichang, works in this Food Research Institute. Du Jianying, the second wife, was a college student back then, so the three children were well-educated and all studied at Ivy League schools in the United States. After the eldest son graduated, he returned to China and became a researcher at the Wahaha Food Research Institute.
After Zong Fuli took over the Wahaha Group, she directly cut off this Food Research Institute, and didn’t want it. Then she and Zhejiang University established a Zong Fuli Food Research Fund, investing 70 million yuan, but it seems that no new products have been researched.
People inside the Wahaha Group told me that the only purpose of cutting off this Food Research Institute was to drive Zong Jichang out of the Wahaha Group.
Zong Jichang left the Food Research Institute, and it seems that he also went to start his own business, and left the entire Wahaha Group.
Supplier Shutdown and Outsourcing
This is one aspect. The second aspect, you can pay attention to: Wahaha has closed 18 suppliers in the past year. These 18 suppliers include those from Shaanxi, Shenzhen, Chongqing, and Dali. These 18 suppliers have a common characteristic: they all belong to the Du Jianying faction. In other words, Zong Fuli herself either has no shares in those enterprises, or only holds small shares.
Then someone asked: Is it because Wahaha is not selling well that these enterprises are closed? It’s really not. Because last year, after Wahaha, after Zong Qinghou passed away, didn’t they have a fight with Nongfu Spring? After the fight, didn’t many people have to buy Wahaha?
So Wahaha’s sales were particularly good at the time. Under the circumstances of particularly good sales, she still closed 18 of her own suppliers, and after the supplier in Shaanxi was closed, the employees also protected their rights.
They said that the salary of 5,000 yuan a month was stopped, and after the production stopped, there was no income, so the enterprise arranged for him to sweep the floor in the factory area, saying that you would be paid 1,000 yuan a month before you could find a job. The employees themselves established a rights protection enterprise and demanded the resumption of work and production, but they did not resume work and production, and were directly closed.
In this case, Wahaha hired Jinmailang to do the processing. Jinmailang actually has nothing to do with Wahaha. Then the Wahaha Group would rather hire an outsider, Jinmailang, to do the processing, and would not allow these suppliers of the Du Jianying faction to continue to have related transactions with the Wahaha Group.
That’s actually a well-known fact, that is, to hope to completely cut off the entire Du Jianying faction’s suppliers from the current new Wahaha Group. It’s really ruthless.
The Game with State-owned Shares
This is one aspect. The second aspect is how Zong Fuli deals with state-owned shares.
It is said that the state-owned shares in this part, in the Zong Qinghou era, had actually talked to Shangcheng District, Hangzhou many times. Zong Qinghou hoped that he could buy back this part of the equity, but the two sides had never agreed on the price.
Zong Qinghou was not particularly anxious, why? Because under his special equity design, the proportion of Wahaha Group in the entire Wahaha business empire is actually not high.
By 2022, Wahaha’s annual sales output value was about 50 billion, about 55 billion, and the net profit was 6 billion.
Then what about the Wahaha Group? Its sales revenue is only about ten billion, and the net profit is only 18 million, accounting for only 0.39% of the profit of the entire Wahaha business empire.
In other words, Zong Qinghou believed that: if you, the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou, don’t give me a reasonable price, then I will virtualize this Wahaha Group, and you won’t get any money anyway.
Of course, the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou, has not distributed dividends in recent years. Then this problem was shelved.
After Zong Fuli inherited the headquarters of this group, she also had to deal with this problem. It is said that she also found the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou, to discuss the acquisition, but the two sides also did not agree on the price.
But after all, this is a new disease. Think about it, in the Wahaha Group, Zong Fuli, you only account for 29%, and the state-owned assets supervision and administration commission accounts for 46%, and another 24% is the employee stock ownership association.
Then, under the circumstances that the state-owned assets supervision and administration commission has not agreed, Zong Fuli has set her sights on the 24% of the shares of the employee stock ownership association.
Employee Stock Ownership Association and Dividend Changes
The 24% employee stock ownership association of Wahaha was established at that time in 1999. What was the reason at the time after it was established?
Zong Qinghou said: Everyone should take the enterprise as their home, and the employees are not only working for the enterprise, but also a part of the enterprise. I account for 29%, and the employees of the enterprise account for 24%.
The employees of the enterprise can subscribe for the shares of the enterprise according to your years of service in the enterprise, your position, and your job, one yuan per share, and you can receive dividends every year.
By 2018, there were 11,000 employees of Wahaha who subscribed for these shares, and the dividends were not small, and in 2018, the dividends were 0.8 yuan per share, eighty cents. Think about it, you only subscribed for one yuan, and you get eighty cents every year.
It is said that many employees of Wahaha, the money they receive in dividends accounts for more than 50% of their annual income, which is a very high proportion.
But in 2018, Wahaha reformed the shares: it said that it would repurchase all of them. The repurchase price is three yuan per share. After three yuan per share, it means that you employees don’t have to pay, but I will continue to give you dividends, also called dry stock dividends. Then these shares are still held centrally in the Wahaha employee stock ownership association.
Now, after Zong Fuli took office, she is ready to take action on this stock ownership association.
In 2024, she first asked all the original employees of Wahaha, didn’t you originally sign a labor contract with the Wahaha Group? She now asks these people to directly transfer to sign a contract with the Hongsheng Group.
After you sign a contract with the Hongsheng Group, naturally your salary structure will change: basic salary, position allowance, performance salary, these few do not have dividends.
Then Zong Fuli explained to everyone at the end of the year that dividends are still available, but dividends cannot be distributed in the past according to your position and years of service, but according to performance. The implication is that this dividend has become the performance?
Then many employees felt that their interests were damaged. So some employees of Wahaha started to protect their rights, and at the end of last year and the beginning of this year, 50 people sued the Wahaha Group.
In the process of their lawsuit, they said: the repurchase of shares in 2018 was itself invalid; secondly, Zong Fuli’s method of operation damaged their rights.
It is said that more than 700 people have joined this lawsuit. This lawsuit is still going on in Hangzhou.
Investment Company Equity and Trademark Transfer Storm
According to these people who filed the lawsuit: Zong Fuli asked the employee stock ownership association to transfer their shares in an investment company under their control to herself, and transferred them to Hongzhen. Hongzhen is an enterprise she owns 100% of.
Because the employee stock ownership association can distribute dividends to everyone because it has invested in eight subordinate enterprises through an investment company. The investment company has a total of 13 million shares, all of which were transferred to Hongzhen, that is, Zong Fuli.
What is the transfer price? It’s zero yuan. It was transferred to Zong Fuli without a penny.
That is to say, Zong Fuli hopes that before you transfer this part of the shares to my name, I will first virtualize the shares of the investment company under your shares and transfer them to my name. Then in the future, if you calculate that this share is not mine, then this share itself has no value.
This is the first step. In the second step, in January this year, she again attempted to transfer more than 300 trademarks of Wahaha to the subordinate Hangzhou Wahaha Food Co., Ltd. In fact, the largest asset of Hangzhou Wahaha Group Co., Ltd. is those more than 300 trademarks.
Because these more than 300 trademarks were not allowed to be transferred in the “Da-Wa Dispute” back then, it’s a national brand, which is the most important asset of the Wahaha Group.
Then isn’t Zong Fuli in charge of the headquarters of Hangzhou Wahaha Group now? She directly applied to the State Trademark Office to transfer these more than 300 trademarks to Wahaha Food Co., Ltd.
The largest shareholder of Wahaha Food Co., Ltd. is Zong Fuli. Zong Fuli holds 51% of the shares.
The implication is: when I can’t solve this equity dispute for you, I will first transfer the most important intangible assets of this Wahaha Group to my own holding company. Then when you talk to me in the future, then you have no bargaining capital?
But after this news was disclosed by the media, the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou, went directly to the State Trademark Office to say hello and stopped the trademark transfer agreement.
Summary of “Attacking on Both Sides”
So can you see? After Zong Fuli took office, she was actually attacking on both sides:
On the one hand, she is ruthless to her own family’s half-siblings, trying to get you all out of this group; then she does not execute the offshore trust fund that her father asked them to establish.
For the state-owned shares of the Hangzhou Municipal State-owned Assets Supervision and Administration Commission, she also uses both hands, trying to buy them at a cheap price. If she can’t buy them, I will virtualize and empty out the entire Wahaha Group.
Now Hongsheng herself has also created a trademark like “Wa Xiaoha” and “Zong Xiaoha”, hoping to de-Wahaha. That is to say, if the Wahaha trademark cannot eventually belong to Hongsheng, she will establish a new brand herself.
So what Zong Fuli has done after taking office is roughly these things.
Personal Opinion (1): Behavior and Will
At the end of the program, I would like to express a few of my own opinions.
First of all, I think Zong Fuli, this person, is really a bit ruthless in doing things. Her uncle made a speech about this matter, and he said: Zong Fuli’s mind is not particularly broad, your half-siblings are after all left by your father, your father arranged for this property to be given to them, you should definitely execute it. Not only did you not execute it, but you wanted to take it all for yourself, this kind of ruthless approach is not decent.
And he mentioned that he said that Zong Fuli has been very selfish since she was a child, and does not recognize her relatives – this is what Zong Fuli’s own uncle said when he accepted an interview with the media.
I think this evaluation is actually quite appropriate. Why? Because although you say that the eldest wife and the second wife, this is definitely a competitive relationship, but the siblings, their father arranged for them to make an offshore fund of 1.8 billion US dollars, then this should still be done.
And you have already inherited 29% of Wahaha’s shares, and if you can’t do this part, it’s unreasonable in terms of both emotion and reason.
Personal Opinion (2): Moral Narrative and Personal Experience
On the other hand, aren’t many people evaluating Zong Fuli’s so-called patriotism from a moral perspective, and also saying that she is not married for the sake of this enterprise?
In fact, Zong Fuli is married. She herself is married. Her husband’s original name was Li Lei, and Li Lei’s father was Li Jinai, a member of the Central Military Commission.
Li Lei graduated from Tsinghua University and is engaged in software. In 2005, he became the party secretary of the Kunming Branch of the Kunming Institute of Zhonghe, and in 2011, he became the secretary of the district party committee of Dehong Prefecture, and was once the youngest prefecture-level cadre in the country. Later, he divorced Zong Fuli. After the divorce, it seems that he also became a monk in 2014, but he was investigated by the Discipline Inspection Commission again in 2020.
The marriage of the two lasted not very long. Then, after Zong Fuli divorced Li Lei, she had surrogacy in the United States, first surrogating a pair of twins, and then surrogating a daughter, a total of three children. These three children are also Americans, all of whom are Americans.
Then you think, aren’t you, Zong Fuli, also an American? You claim on the internet every day that you are the daughter of a “commoner” father, and you are worried about Wahaha’s affairs every day and don’t get married, isn’t this also deceiving the public?
And Zong Fuli had a US passport in her early years. Her father had a US card, and she also had a US passport.
This Hongsheng is the so-called joint venture, which is a foreign-funded enterprise, and it uses the tax rate of foreign-funded enterprises, and also uses foreign-funded enterprises to send the money from dividends abroad. And Zong Fuli also had a US passport in her early years, but later she gave up her US passport.
But after all, you once held a US passport in history, and after obtaining a US passport, you established a foreign-funded enterprise in China.
So I think Zong Fuli, this aspect is really not very appropriate.
Personal Opinion (3): The History and Way Out of State-owned Shares
This is the first point. The second point is about the issue of state-owned shares of the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou, and I think this is also a historical legacy.
Because in the past, Shangcheng District, Hangzhou, did not actually contribute capital in the process of establishing this enterprise, and the money was all raised by Zong Qinghou himself.
But after all, Zong Qinghou also enjoyed a series of conveniences brought to him by state-owned enterprises in the process of enterprise development. How should the shares be divided, and how should the equity be valued? I think the two sides should still solve this through negotiation.
But Zong Fuli, by virtualizing and hollowing out the entire Wahaha Group, this method is a bit indecent. If you transfer all those more than 300 trademarks of the Wahaha Group to your own name, and then you completely empty out the entire group, and then you negotiate with the Hangzhou municipal government on this basis, this is actually unreasonable from the perspective of emotion and reason.
I think the appropriate approach is for both sides to sit down and talk about how to value this part.
Of course, I also think that it is not necessary for state-owned shares to hold shares in such a family enterprise. You might as well sell it to her at a price, and after selling it to them, they can do whatever they want, and the state-owned shares will not continue to get involved here. Of course, the problem here is how to reasonably value it.
It should be said that the State-owned Assets Supervision and Administration Commission of Shangcheng District, Hangzhou, is still good to the Zong family. They have not distributed dividends for decades, and have not received a penny, but only came up with the so-called name of state-owned shares. But after all, in the end, when the family is divided, the two sides should still talk about a fair price.
Personal Opinion (4): Use Less “Moral Warfare” to Look at Family Affairs
This is the second aspect. The third aspect, from the perspective of us ordinary people, I think everyone should abandon the kind of view of the internal disputes of these entrepreneurs’ families from the so-called moral perspective.
What the eldest wife is going to take the mistress, what the eldest daughter is going to defeat the illegitimate daughter – the second wife’s family is also married in the United States, and they are also legally married, you can’t say that, it’s just that Zong Qinghou didn’t make this marriage public.
And everyone has already suffered this kind of loss, and now they still use this so-called moral standard to look at this kind of thing, this is actually that you have stepped on a pit in front, and now you are stepping on the second pit.
Didn’t I say, Zong Fuli herself, her children are all Americans. You still use the so-called Chinese and democratic enterprise standards to measure this thing, isn’t that very ridiculous?
Public Value Issues That Should Be of Concern
So what is the real problem that should be of concern here? I personally think that:
How should state-owned assets be valued and evaluated in this process;
Whether Zong Fuli respected the will and the court’s ruling in the process of inheritance division;
Third, how should the rights and interests of those employees in the Wahaha enterprise’s employee shares be protected.
Nowadays, those employees started to demand wages at the gate of Hongsheng in February this year, and Hongsheng is actually very rude to them, saying that there is no such thing; to the employees’ own rights protection committee, saying that there is no such organization, and does not recognize it, and is actually showing a very, very indifferent attitude.
These are the information that truly has public value. The so-called who is the eldest wife, who is the eldest wife, who should have a moral advantage, and who should have a moral disadvantage, I think this is actually not what the public should focus on.
Okay, that’s all for today, thank you all.
