Fosun CEO Liang Xinjun is not your run-of-the-mill swashbuckling China entrepreneur as Shu-Ching Jean Chen finds out
NOT many private-run Chinese companies are as successful as the Fosun Group. With a presence in pharmaceuticals, private equity, real estate, retail, and media, it is often referred to as the largest private-run conglomerate in China. But Liang Xinjun, Fosun's CEO and one of its four founders, wants to set the record straight. 'In the past, investors viewed us as a conglomerate. We think the more appropriate way of looking at Fosun is as an investment company anchored around an industrial base,' says Mr Liang.
He was at a hotel lobby in Valencia, Spain where he was promoting Fosun at the Horasis Global China Business Meeting - an annual networking event. He sat on a sofa on the fringes of a vast lobby and his business card told you that his English name was Leo. Eloquent and quick-witted, in a plain-talking professional manager's way, Mr Liang does not fit the stereotype of China's swashbuckling entrepreneurs. He rattles off statistics to underline the Chinese boom in domestic consumption and why Fosun's fortunes will be wedded to it.
He ticks off points and numbers as he speaks - sort of like a walking PowerPoint presentation. Why is Fosun not a typical conglomerate? Three factors distinguish Fosun, he says: First, it has steady income streams from its industrial companies; second, it has a big, high-growth investment business, including a private equity arm generating, on average, a 43 per cent internal rate of return, a cash-flow metric, since it started in 2000; third, its asset management unit, with assets under management of 10 billion yuan (S$2 billion), is growing fast. 'We are not just operating in multiple industries,' he concludes.
Fosun, he suggests, is rather like Warren Buffett's Berkshire Hathaway. Mr Liang and his three co-founders want Fosun to create an anchor revenue stream from insurance and asset management to support its investment activity in more fickle lines, following in the footsteps of the Oracle of Omaha.
Mr Liang says that his co-founders, who run the company on an equal footing, share Mr Buffett's idea of value investing, his paranoia of hoarding a massive cash reserve, and his favouring companies with a 'wide economic moat', an absolute advantage against competition. It's not pure talk. 'This year from May, we refused to do several deals in Europe, all because of our concern about meeting cash reserve requirement,' he says.
In addition to Mr Buffett's Berkshire Hathaway, Mr Liang says Fosun also looks up to General Electric (GE), Li Ka-shing's Hutchison Whampoa, and Singapore's Temasek, as well as Carlyle and Blackstone.
He, himself, has gone on several pilgrimages to the finest financial houses and even held meetings with Mr Buffett's executives and his board members. But Fosun stopped short of buying Berkshire Hathaway stock, because 'it is still very expensive'. He has met Jack Welch and GE's finance head several times. 'The time was short, but they were very frank and really very helpful, providing honest answers to our questions. We'll also follow their examples and provide help to other fellow entrepreneurs in future,' he says.
His own journey has covered a vast distance in a short time. It started with an executive MBA programme at Li Ka-shing's Cheung Kong Graduate School of Business, where Fosun chairman Guo Guangchang was also trained. Mr Li, himself, was a cornerstone investor in the Hong Kong initial public offering of Fosun International, the group's main investment holding company.
Should China one day produce its own version of Berkshire Hathaway or GE, Fosun would have a fair chance of claiming that title. That's not simply because of the speed of its growth but also because of its diffused management structure that is very unlike other private Chinese, or Asian, companies. It revolves around a collective arrangement put in place since its founding.
Even before Fosun was established, Mr Liang and Mr Guo founded the predecessor of Fosun in 1992 - a technology consultancy combining the initials of both their names, Guangchang and Xinjun, called Shanghai Guangxin Technology Development.
Three of Mr Liang's classmates in genetic engineering at Fudan University joined two years later. The five formed the Fosun Group in 1994. Chairman Guo stands out for his age who, at 43, is the oldest among the founders and for his different academic training - philosophy.
Over the years, one founder has backed out. Apart from Mr Guo and Mr Liang, those who have stayed the course are the company's president Wang Qunbin, 41, and co-president Fan Wei, also 41. Meanwhile, three minority investors were brought in. The seven members form what is Fosun's core decision-making body.
Fosun's Chinese name denotes 'the star of Fudan University'. In effect, there can be no stars at Fosun, at least not at the board's level. Unlike most Chinese and Asian private-owned companies which revolve around a central family owner, Fosun is no place for egomaniacs. 'We don't like the worship of individualism. That's why division of labour (among founders) in a strict sense does not exist in Fosun,' Mr Liang says. 'If any of us wanted to take the full credit for the company's achievement, it'd have been hard for us to work together,' he adds.
The founders are similar he says and that is just one of the four points he lists to prove this. The others? They are all idealistic; they all understand that if Fosun is successful today, it's not just because of them but also because of external factors; and none of them hankers after material goods.
Recently, the Fosun board debated if the company should buy a corporate jet, like many other business leaders in China have done. But their motive was not about status. It was about looking at their workload and travel time.
'It's not about status. A corporate jet could also be used by our company executives. Our heavy workload is the reason we are considering buying one. For short distance travel, we fly economy. For long-distance, not only we (the founders) fly business, but our executives also do the same to preserve their energy,' he says.
'Having a quality living standard is necessary, but there's really no need to live a luxurious life.' For the event in Spain, he sports a dark Shanghai Tang jacket with a mandarin collar, a haute couture declaration in an understated Chinese way.
By the same token, there is also a bigger, more practical reason for having a collective management. 'It's difficult to find a perfect strongman leader. There is only one Steve Jobs and he is dead. If you want to start another Apple, you cannot rely on finding another Steve Jobs. But you can try and pool together several people capable of having a collective strength of Steve Jobs,' he says.
'The same goes with Fosun. As a small private company from China, we cannot compete globally against all the established giants with one single man at the helm.'
One challenge that the founders face is that they are not trained professional managers. So they simply seek out the right advice. 'In our early days, we had very good teachers. We learnt from Fudan University alumni and later from legendary figures such as Liu Chuang Zhi, founder of Legend Holdings.'
Mr Liang avoids talking about himself. When pushed, he illustrates the group's strength by reverse-engineering his weakness. 'For example, president Wang (one of the four founders) can sit down, focus on one thing for a year. I won't be able to sit down for that long. He'd be better at improving operations than me,' he says. 'His strength is my weakness.'
At home, Fosun is a giant: It is the largest private player in Shanghai - China's most capitalist city; overseas, it is a two- year-old toddler learning to walk. It started investing outside of China only after Mr Liang took over as CEO from Mr Guo in 2010.
Fosun International, the group's core listed arm, is the largest shareholder in companies such as Fosun Pharma in health care; Shanghai Forte in real estate; Yuyuan Tourist Mart in tourism and jewellery retailing; Hainan Mining, China's largest iron-rich lump producer; Jin'an Mining, a gold miner; Nanjing Iron & Steel, a steel maker; and Focus Media, China's largest outdoor digital media operator.
Investment has contributed the most to Fosun International's top line, close to 60 per cent in gross profit in the first half of the year, generating 2.28 billion yuan, followed by industrials' 1.74 billion yuan, about 45 per cent of the total. Asset management, which it started six months ago, already contributed 36 million yuan in gross profit for the first half.
The group also extends its influence through unlisted holdings in financial media, including Forbes China, the Chinese- language edition of Forbes; 21st Century Business Herald, China's largest financial newspaper for high-end readers; and a national business radio station.
The group is laying out a national distribution footprint that rides on China's consumption, with a network of 7,600 outlets in department stores and super markets; 1,341 jewellery shops; and real estate investment in over 14 major cities.
'Every segment of consumers in China is increasing its spending. It's unbalanced because the rates of growth are uneven across these groups. Rural spending is even stronger than in the cities,' Mr Liang says. 'As a Chinese enterprise, Fosun sees an opportunity from this development.'
Domestic consumption, he says, has been growing at 12 per cent in the last 10 years; at 15 per cent for the past five years; and even higher for the past three years, even after stripping out the effects of inflation.
Mr Liang identifies health care, luxury goods, Internet-related businesses, TV and films, as fast-growing sectors in China. 'We will try to find undervalued good Western companies and raise its exposure and move into these high-growing sectors in China,' he says.
It's already on the prowl. Fosun became the single largest shareholder in Club Med, a French leisure resort chain, through an investment made in June 2010. In May this year, it invested in Folli Follie, a Greek fashion outlet, becoming its second-largest shareholder.
Fosun devotes a small team each to help both companies leverage its own distribution channels in China. The results have been spectacular. Club Med saw its China revenue grow 56 per cent year-on- year for the first half of 2011 against an 11 per cent increase overall. Its company profit before tax doubled. Folli Follie has also reported significant jumps in its China and Asia sales in recent months.
But there are constraints that Mr Liang readily acknowledges. 'We haven't got our steady funding sources. We are building them up,' he says.
Fosun has a property insurer, Yong An Insurer, among China's top 10 property insurance companies with an asset size of over seven billion yuan. It is setting up a life insurance joint venture with Prudential that will start next year.
'Our weakness is in our group fundraising ability, compared to our record in investment and in managing operations,' Mr Liang says. 'We grew very fast in the last two years, but we are improving. Our debt structure was 58 per cent in long- term debt as of June (up from 49.8 per cent six months ago). And we'd have to strike a balance of debt between renminbi and foreign currency which is very important because renminbi has a structural appreciation problem.' He adds, 'We are not far from our long-term goals in areas such as sourcing our long-term low-cost financing even though we just started. But we need greatly to raise our ability in making international investments.'
If Fosun succeeds in transforming itself, Mr Liang says it will be like a corporate two-wheeler powered by China's domestic growth but balanced by an international footprint. 'You can compare it to a two-wheeler: one wheel might spin faster; the other might need to catch up. The vehicle might slide to one side at one time. And you need to adjust it from time to time.'
One test of its endurance would be when foreign companies ask it to raise funds in China and source local talent, Mr Liang says. He draws an analogy between Singapore and Fosun, in both having had to excel at home and overseas. 'Singapore will play an important role in the current crisis,' he says. 'This is also our business model.'