---
title: "One Step from IPO, Wahaha Begins Mass Buyback of Employee Shares"
description: "Wahaha Group chairman Zong Qinghou, who long claimed the company was 'not short of money and not going public,' has softened his stance and initiated an internal campaign to buy back employee shares, seen as a precursor to an IPO. The buyback, completed in less than a month, involves repurchasing shares at 3 yuan per share, with employees paying taxes, and is aimed at reducing the number of shareholders to comply with listing regulations."
author: "敬奕步 陆宇婷"
publisher: "New Distribution"
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published: "2018-04-08"
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# One Step from IPO, Wahaha Begins Mass Buyback of Employee Shares

> Wahaha Group chairman Zong Qinghou, who long claimed the company was 'not short of money and not going public,' has softened his stance and initiated an internal campaign to buy back employee shares, seen as a precursor to an IPO. The buyback, completed in less than a month, involves repurchasing shares at 3 yuan per share, with employees paying taxes, and is aimed at reducing the number of shareholders to comply with listing regulations.

"Not short of money and not going public" has long been the mantra of Wahaha chairman Zong Qinghou, but now he has not only softened his stance but also initiated an internal campaign to buy back employee shares.
After years of saying "not short of money and not going public," Zong Qinghou, chairman of Wahaha Group, has gradually relaxed his tone.
On March 24, 2018, the 73-year-old Zong, dressed in black, said during an interview on People's Daily Online, "Wahaha Group is not short of money now. We are also investing in high-tech industries. When we invest heavily in high-tech industries, we may consider going public."
Wahaha Group, which claims to be "not short of money," is a beverage giant among China's top 500 companies, with nearly 80 production bases, over 180 subsidiaries, and 30,000 employees. Its products, including drinking water, eight-treasure porridge, and Nutri-Express, are household names. Since 2010, Zong has topped Forbes' list of China's richest people three times.
However, Wahaha's performance in recent years has not been ideal. According to the "Research and Analysis Report on China's Top 500 Private Enterprises" released by the All-China Federation of Industry and Commerce's Economic Department, Wahaha Group's revenue has been declining since reaching a peak of 78.28 billion yuan in 2013, falling to 45.59 billion yuan in 2016.
In fact, behind the seemingly casual remarks of the former richest man in China, Wahaha has already begun a large-scale employee share buyback, which is seen by outsiders as a prelude to an IPO.
The reason Wahaha's listing issue attracts attention is that it was originally a state-owned enterprise when founded in 1987, and after restructuring and joint ventures, it became a company with full employee shareholding. **However, this all-employee shareholding system, which reflects fairness, has always been the biggest obstacle to Wahaha's listing.**
According to CSRC regulations, except for a few financial enterprises approved by the People's Bank of China, **companies with more than 200 employee shareholders before listing are not allowed to go public.** Companies with union shareholding, shareholding associations, or individual nominee holdings are also not allowed to list unless thoroughly cleaned up before listing.
Buyback Action
Just after the Spring Festival in 2018, Tang Jie, who rushed back to Wahaha's production base for work, heard colleagues whispering about a major event—the company was buying back shares.
Tang Jie, born in the 1980s, is a workshop employee at Wahaha and a migrant worker. He has been with the company for less than three years and holds no shares. However, he told Southern Weekly that several colleagues he knew with more than five years of service had their shares bought back by the company. The buyback storm quietly swept through all of Wahaha.
Li Li, who works at a Wahaha branch in Hunan, recalled to Southern Weekly that she heard rumors before the New Year that "the company would buy back employee shares." Soon, an official document about the buyback was issued and circulated nationwide through Wahaha's internal network.
**In addition to the notice of share buyback, the company also released a template for a share repurchase agreement. According to the notice, employees holding Wahaha shares across the country were to download the agreement template from the system, print it, sign it, go through the process at the corresponding company's office, and finally mail the agreement back to the company.**
A copy of the "Hangzhou Wahaha Group Co., Ltd. Employee Shareholding Association Share Repurchase Agreement" circulating online shows that Party B (the share repurchaser) is the Employee Shareholding Association of Hangzhou Wahaha Group Co., Ltd. Party B pays a total consideration of 3 yuan per share, of which 2 yuan is paid to Party A as a special dividend return, and 1 yuan is the share repurchase price.
Regarding the outside rumor that "Wahaha buys back shares at 2.6 yuan per share," Li Li said, "It's about that price, because taxes are paid by ourselves." After receiving the agreements sent back by employees, the company deducts taxes from the repurchase amount and refunds the rest to employees' accounts. "It's the account where wages are paid monthly. Whatever shares you have, they are bought back at the repurchase price, and the after-tax money is directly credited to your account."
**How many employee shareholders does Wahaha have? On March 9, 2018, a report in China Times stated, 'Currently, the total number of shareholders in Wahaha exceeds 15,000.'**
"That's not an exaggeration. Wahaha has so many employees, and basically all employees with more than five years of service hold shares," Li Li told Southern Weekly.
**Wahaha's share buyback was remarkably fast, completing the process in less than a month.**
Most employees cooperated fully in the buyback. Tang Jie did not hear of any employees at the Xiasha base refusing to cooperate. After working at Wahaha, Tang Jie's biggest impression was that "everyone is very obedient; they do whatever the leaders say."
However, some employees still expressed doubts. The anonymous user who initially posted the "Share Repurchase Agreement" on the workplace app "Maimai" claimed to be a Wahaha Group employee. The user posted a post seeking netizens' opinions: "Wahaha buys back employee shares at 2 yuan per share. Is it too much of a loss?"
The post drew many comments. In replies, the employee revealed that he originally held 40,000 shares. Another anonymous user asked about personnel changes in the company, and the employee replied, "I suggest you ask about the recent turnover rate."
Tang Jie was not aware of internal personnel changes; he only knew that after the New Year, he saw a billboard at the entrance of the second production base in Xiasha recruiting operators, quality inspectors, and forklift drivers. **"In the past year, I haven't seen a recruitment billboard."**
When visiting People's Daily Online on March 24, 2018, Zong Qinghou told the host that Wahaha was recently entering the equipment manufacturing industry and developing robotics technology.
Inside Wahaha Group, a photo of boss Zong Qinghou is displayed. (Visual China/Photo)
First IPO Attempt Failed
As early as the 1990s, Wahaha had an IPO plan, but it ultimately failed.
In 1987, Zong Qinghou, then 42, contracted the Shangcheng District school-run enterprise distribution department, selling soda, popsicles, and stationery. In July of the same year, Zong established Hangzhou Baoling Children's Nutrition Food Factory. Two years later, with the rapid nationwide market success of "Wahaha children's nutrition liquid" with the slogan "Drink Wahaha, eat with a good appetite," the company name was changed to "Hangzhou Wahaha Nutrition Food Factory."
According to Wahaha's official website, in 1991, with the help of the Hangzhou municipal government, the Hangzhou Wahaha Nutrition Food Factory, which had only about 100 employees, acquired the state-owned Hangzhou Canned Food Factory with over 2,000 employees at a cost of over 80 million yuan, creating a story of "small fish eating big fish."
According to the book "Zong Qinghou: The Principle of Universal Gravitation," published in December 2015 with a preface by Zong himself, after 1992, leaders of the Zhejiang provincial and Hangzhou municipal governments hoped to set up several joint-stock enterprise listing pilots, and Wahaha became the "chosen one."
In 1992, Zong Qinghou, on behalf of Wahaha Group, together with Hangzhou Industrial and Commercial Trust Investment Company and Tonglu Wangjia Bee Industry Business Department (predecessor of Zhejiang Jinyi Group), prepared to establish a joint-stock enterprise with "directed offering of registered ordinary shares"—Hangzhou Wahaha Food City Co., Ltd.
Food City planned a registered capital of 200 million yuan, with a par value of 10 yuan per share, totaling 20 million shares. Wahaha Group contributed 40 million yuan from its own reserve funds and other funds, holding 20%; Hangzhou Industrial and Commercial Trust Investment Company held 19%; Tonglu County Wangjia Bee Industry Business Department held 0.5%; and the remaining shares were publicly issued at a premium to internal employees and the public, planning to raise 418 million yuan.
In February 1993, Food City was formally established. This was Wahaha's first attempt to realize Zong Qinghou and his team's ownership of group assets and promote the listing of the joint-stock company. According to Zong's plan at the time, if Food City successfully listed, Wahaha's cadres and employees would gain considerable returns through internal employee shares.
That same year, Guo Wen bought company shares. She recalled to Southern Weekly that all employees could hold shares, but the proportion varied according to position level. At that time, shares were 1 yuan each, and she bought 5,000 shares.
In March 1998, the CSRC formally rejected Food City's listing application. The investigation concluded that Food City's listing materials violated relevant securities regulations, and Food City was punished with a ban on reapplying for three years, while three intermediary agencies were also warned and fined.
Although Food City's listing failed, Guo Wen's bonuses and dividends at the time were still enough to make others envious. She told Southern Weekly that **from 1997 to 1999, she received bonuses ranging from several thousand to 10,000 yuan per month.** Starting in 2003, Wahaha Group arranged housing for a group of leadership-level employees in Wanjia Garden. Guo Wen benefited from the "welfare housing policy." Wanjia Garden is a residential area in Jianggan District, Hangzhou, close to Hangzhou East Railway Station. The community has a kindergarten and primary school, and a vegetable market is not far away.
According to Anjuke website data, the current housing price in the community is about 37,100 yuan per square meter. Aunt Chen, who moved into the community around the same time as Guo Wen, said she bought her apartment in 2002 at about 3,000 yuan per square meter.
In the late 1990s, Wahaha Food City Co., Ltd. attempted to go public but ultimately failed.
Origin of All-Employee Shareholding
By the mid-to-late 1990s, state-owned enterprises underwent a large-scale restructuring wave. Against this backdrop, Wahaha sought restructuring at the group level while forming a joint venture with Danone.
Around the time Food City was established, Zong Qinghou developed products such as sour plum drink, Qinglianglu, and Ping'an cold medicine, but they were not successful. Additionally, the two major projects on Qingchun Road and Xiasha, which were originally planned to be funded by Food City's listing, collapsed with the failure of Food City's listing, and the company fell into difficulty.
It was then that Danone appeared. On March 28, 1996, Hangzhou Wahaha Group Company and Wahaha Food City Co., Ltd., together with Singapore Jinjia Investment Company (70% controlled by Danone and 30% by Peregrine), jointly established five companies including Hangzhou Wahaha Baili Food Co., Ltd.
This cooperation reached an impasse ten years later. Danone claimed that Wahaha had established a series of non-joint-venture companies outside the joint venture, owned by state-owned enterprises and employees, and wanted to acquire 51% of the non-joint-venture companies. However, by 2009, after a series of lawsuits, the conflict ended with Danone selling its stake in the joint venture to Wahaha Group.
After the joint venture with Danone, Zong Qinghou further promoted the restructuring of Wahaha Group.
On October 30, 1999, Wahaha Group submitted a report on the internal employee shareholding plan, and two days later, the Shangcheng District Government approved it. On November 18, the Shangcheng District Economic System Reform Office confirmed the restructuring of Hangzhou Wahaha Group Company into Hangzhou Wahaha Group Co., Ltd.
At the end of that year, Wahaha Group Co., Ltd. underwent equity restructuring. According to the book "Zong Qinghou and Wahaha: A Deep Study of a Famous Chinese Enterprise," published in 2008, after restructuring, the Shangcheng District State-owned Assets Bureau held 51%, Zong Qinghou obtained 150 million yuan in shares, accounting for 29.4%, with funds borrowed from banks using personal credit. Thirty-eight senior executives held 2.3% of shares, and 1,885 formal employees held a total of 89.23 million yuan, accounting for 17.3% of total shares.
According to "Zong Qinghou: The Principle of Universal Gravitation," shortly after, the Shangcheng District State-owned Assets Bureau transferred 5% of shares to the employee shareholding association. Thus, the shareholding structure of Hangzhou Wahaha Group ultimately became: Shangcheng District State-owned Assets Bureau held 46%, and Zong Qinghou, his team, and employees held 54%. After restructuring, Zong Qinghou and the employee shareholding association jointly established several investment companies, continuously expanding investment scale.
In 2013, Zong Qinghou said in an interview with Harvard Business Review: "Formal employees of Wahaha have the opportunity to hold shares after working for one year, and workers have the opportunity after five years. So they are both employees and bosses, with interests tied to individuals."
Zhu Xiaoting, a "migrant worker" who worked as a quality inspector on Wahaha's mineral water production line, told Southern Weekly that basically no one on the production line held shares. "Perhaps because worker turnover is too high, the company seems to have formed an unwritten rule that production line employees find it difficult to hold shares or get promoted."
In May 2013, college graduate Zhu Xiaoting joined a Wahaha factory in Changsha and became a quality inspector on the mineral water production line. Unable to endure the 12-hour shifts with alternating day and night shifts every seven days, she resigned after a month and a half.
Li Li is not a frontline employee; she works in the expansion department of a Wahaha branch in Hunan. She and her colleagues who hold shares have all worked for more than five years, and almost all are outstanding customer managers, regional managers, or employees who have been publicly commended by the company as excellent cases.
Most Wahaha employees cooperated fully in the share buyback.
Virtual Welfare Shares
Although employees bought shares with their own money, they call them "employee welfare shares" because Wahaha has absolute control over these shares. Li Li explained to Southern Weekly: "For example, if you buy 5,000 shares, but if you don't perform well and aren't rated as an excellent customer manager, the company can buy back the shares at any time and give you 5,000 yuan in cash."
Li Li said that the company shares she purchased were a special "welfare" set up by the company to reward outstanding employees. At 1 yuan per share, the minimum welfare is 5,000 yuan, and employees can buy voluntarily. Dividends vary each year, but basically 1 yuan can yield 8 to 9 mao.
Before this buyback, Li Li heard that a former colleague had his shares bought back by the company. He was a veteran employee with over ten years of service and originally held 50,000 yuan in shares. "The company wanted to dismiss him, so they bought back his shares and returned the 50,000 yuan principal."
Retirement or voluntary resignation also leads to share buyback. Zhou Bin, born in the 1990s, joined Wahaha's Shanghai branch through campus recruitment after graduating from university. Because of his excellent performance, he became eligible to buy shares after one year of work. "When buying shares, there was no agreement; a certificate was directly issued."
Due to personal reasons, he has left Wahaha. Upon resignation, the company bought back his shares and also took back his employee ID and share certificate.
"The boss's welfare shares have no basic rights, so why do so many people scramble for them? Because the dividends are too attractive," Zhou Bin told Southern Weekly. The annual return on Wahaha shares is about twenty times that of ordinary bank wealth management products.
"With such high dividends, who cares about rights? It's not important," Zhou Bin said.
Li Li had her shares forcibly bought back but has no complaints. "The shares were not sold to you by the company; they were given to you as employee welfare. So now that the company is buying them back, no one has objections, right?"
"It's useless not to return them to the company. If the company says your performance is poor and doesn't give you welfare, you'll have nothing," Li Li believes the company's prospects are unclear, and it may not be a bad thing for the company to buy back shares at a price higher than the principal.
The Challenge of Employee Shareholding Associations
Like Wahaha, many companies face difficulties in listing due to employee shareholding.
The lucky ones, such as Ping An Insurance, as one of the pilot units for employee shareholding in the Shenzhen Special Economic Zone, designed the employee benefit ownership plan as legal person shareholding. When Ping An's H-shares listed in 2004 and A-shares in 2007, employee-invested shares were retained.
Xujiahui, on the other hand, decided in 2001 to dissolve its employee shareholding and transfer its 24.5% stake. Famous writer Yu Qiuyu took over part of the shares, and when Xujiahui listed in 2011, he gained the opportunity for sudden wealth that should have belonged to Xujiahui employees, sparking controversy.
Regarding Wahaha's share buyback, a lawyer who declined to be named told Southern Weekly that when the CSRC reviews IPOs, it applies the look-through principle, tracing shareholders down to natural persons. According to the Company Law, a joint-stock company must limit its promoters to within 200 people.
In addition, according to the State Council's "Regulations on the Registration and Management of Social Organizations" and the "Letter on Suspending the Registration of Employee Shareholding Associations as Legal Persons" issued by the Ministry of Civil Affairs' General Office on July 7, 2000, civil affairs departments no longer accept registration of employee shareholding associations as legal persons, and such associations no longer have legal person status, nor are they qualified to be shareholders or promoters of listed companies.
**As for whether the buyback infringes on employee rights, the lawyer said that if Wahaha's articles of association had already stipulated that employee shareholders only have the right to participate in dividends, without direct voting or decision-making rights, then individual employees are not shareholders in the sense of the Company Law; the shareholding association is. Therefore, the operation is not illegal.**
As early as November 2009, Yin Zhongli, deputy director of the Financial Market Research Office of the Institute of Finance and Banking at the Chinese Academy of Social Sciences, publicly criticized that under current regulatory policies, Lenovo Group and Huawei, which are the most internationalized companies in China, could never list on the domestic A-share market because they both have large-scale employee shareholding, and employee shareholding is the vitality of enterprises.
Shi Jichun, director of the Economic Law Research Center at Renmin University of China, told Southern Weekly that clearing shareholders is not a necessary condition for Wahaha's listing. However, by doing so, Wahaha **"aims to be clean and thorough, completely eliminating the cooperative elements. The original employee shareholding was a company with cooperative characteristics; now it has become an ordinary company."**
After Wahaha implemented the employee share buyback, where did the shares bought back from employees go?
Southern Weekly called Wahaha Group, and an employee in the external liaison office said the person in charge was out on business, and he could not make decisions, only leaving a message for the reporter.
Zhou Bin told Southern Weekly that during his employment, he never attended the workers' congress or was consulted on company decisions. "The employee shareholding association should be considered an administrative department of the company, presided over by employee representatives, but employees still have no power to participate in company decision-making."
On the Tianyancha website, regarding "Wahaha Group Co., Ltd. Grassroots Union Joint Committee," Southern Weekly found three records:
First, "Wahaha Group Co., Ltd. Grassroots Union Joint Committee (Employee Shareholding Association)" holds 24.6% of Hangzhou Wahaha Group Co., Ltd. When Southern Weekly checked again on April 3, 2018, this shareholding ratio had become "not disclosed."
Second, "Hangzhou Wahaha Group Co., Ltd. Grassroots Union Joint Committee" has invested in Zhejiang Zhenzong Investment Co., Ltd., Zhejiang Qili Investment Co., Ltd., Hangzhou Wahaha Guangsheng Investment Co., Ltd., and Panshi Tiancheng Investment Co., Ltd., holding about 40% in each of the four investment companies. The remaining 60% of shares in these four investment companies are held by Zong Qinghou, who is also the legal representative.
Third, "Hangzhou Wahaha Group Co., Ltd. Grassroots Union Joint Committee" has invested in Hangzhou Xiaoshan Shunfa Food Packaging Co., Ltd., holding 34.53% (when Southern Weekly checked again on April 3, this data had also become "not disclosed"). The other shareholder of this company is Zong Qinghou, holding 65.47%.
Which one is the "employee shareholding association" that employees refer to? Zhou Bin and Li Li cannot tell. Zhou Bin only remembers that when buying shares, the certificate issued by the company was stamped with "Wahaha Group Co., Ltd."
(At the request of interviewees, Tang Jie, Li Li, Zhu Xiaoting, Guo Wen, and Zhou Bin are pseudonyms)
Source: First published in Southern Weekly on April 5
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