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The Downfall of China's Richest Man

January 09, 2009 9:43 AM

BY BETH LOYD, ABC NEWS Beijing

“To Get Rich Is Glorious” –Deng Xiaoping

Huang Guangyu, 39, has been named one of the “most memorable faces in 2008” by the state-run China Daily newspaper, but not because he is considered the wealthiest man in China with an estimated net worth of $6.3 billion. Once called Asia’s Sam Walton, the shrewd businessman and founder of China’s largest appliance retailer is in police custody in Beijing. He is accused of manipulating share trading in two listed companies -- Sanlian Commercial Co. and Beijing Centergate Technologies -- among several other financial crimes.   

The self-made billionaire and mastermind behind Gome, which boasts 1,300 outlets across China, may not go down alone.  Huang Guangyu was detained on Nov. 24 and shortly thereafter his brother, Huang Junqin, founder and CEO of the real estate giant Beijing Towercrest, was also taken away by police and accused of “economic crimes.” 

Now, Huang Guangyu’s 37-year-old wife, Du Juan, is reportedly under house arrest and under investigation.  She’s served as Gome’s executive director since 2002 and played an important role in setting up a joint fund with Bear Stearns in March of 2007, according to Shanghai Daily. After Huang’s arrest in November, his wife’s whereabouts were “subject to wide speculation” and she was rumored to have fled China. Various reports have said that she was returned to Beijing from an unidentified location outside the city before Christmas and that the police will prevent her from leaving China.      

Gome has been suspended from trading since Huang Guangyu was detained in late November.  Recently, the Hong Kong-listed company fired Huang Guangyu from his executive duties and his wife resigned her post as well. State media have reported that Huang Guangyu is assisting police in their investigation. 

Huang Guangyu’s life is a rags-to-riches story. He was born into poverty in the south and started his empire peddling electrical products in Beijing. He flourished by satisfying a nation of consumers hankering for a convenient and modern lifestyle. Du Juan met him when she was a clerk at the Bank of China and he was a client. They married in 1996. The Shanghai Daily reports that the couple has three children.  In a country with a one-child policy, such extravagances are reserved only for the elite and wealthy.   

According to official reports, authorities accuse Huang Guangyu of price share manipulation, money laundering, illicit asset transfers, tax evasion and bribing officials to gain approval for Gome’s 2006 share listing on the Hang Seng, Hong Kong’s stock exchange. Several senior Commerce Ministry officials have been implicated for alleged graft. 

Information about Huang Guangyu’s private business dealings is scarce. China’s financial disclosure laws lag. And much of his wealth is reportedly spread about in several private companies. Some have speculated that the problems began when Huang Guangyu, faced with competition in the appliance business, began to branch out into real estate and financial dealings. 

Gome Electrical Appliances Holdings says that the matter is “personal” and that the company is not involved with the suspected illegal activity. It has replaced its former bosses with new ones and is trying to regroup and move on. 

Cases of illegal activity and corruption are common in China both among business leaders and government officials. “Guanxi” means “relationships” in Chinese. But in the business world here, guanxi is much more complex.  It is the single most important principle and the key to success.  What it often boils down to is networks of business people and officials exchanging favors.  It can be harmless and legal, but often, just like in any other country in the world, humans can get greedy and carried away.  Some experts say that corruption is the greatest threat to the Communist Party.  Perhaps as a warning to others, Huang Guangyu’s case has been widely reported in state-run media. 

Many of the most prosperous men and women in China try to avoid being honored on the “Wealthiest People” lists because it attracts attention to them and their business dealings.  The China Daily, in its article naming Huang Guangyu one of the “most memorable faces in 2008,” summed it up best:  “A police investigation of the mainland’s richest man, Huang Guangyu, made Chinese rethink trying to become a much-admired business tycoon.” 

With China’s epic rise as an economic powerhouse and the scandals that have befallen it because of lack of structure and oversight, from poisonous toys to tainted baby formula, perhaps his situation is a metaphor for the country that made him so rich.  As the China Daily put it, “His case revealed loopholes China ignored while concentrating on its economic growth.” 

Deng Xiaoping, China’s former leader and champion of the economic period of “reform and opening up,” once said: “To get rich is glorious.” Turns out, it’s a bit more complicated than that.

Read more blogs from Beth Loyd

Read more blogs from the ABC News Staff

January 9, 2009 in Beth Loyd | Permalink | User Comments (8)

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