Click to read the original article for details. No. 160 Qingtai Street is Zong Qinghou's lucky place. 31 years ago, in 1987, the Hangzhou Wahaha Nutritional Food Factory was established here—in a former school-run factory office building—joining the surging tide of private enterprise entrepreneurship after the reform and opening-up. Image source: VCG Zong Qinghou can be considered a late bloomer. When he founded Wahaha, he was 42 years old, having spent most of his youth during the 'Down to the Countryside Movement' in farms in Zhoushan and tea plantations in Shaoxing. In 1978, the 'reform and opening-up' began, breaking the rigid economic situation in China. That year, 33-year-old Zong Qinghou returned from the farm to his hometown of Hangzhou, took over his mother's position, and became a salesman at a school-run factory. Like many educated youths whose personal lives were delayed, Zong married late—at 37—and welcomed his daughter Zong Fuli at 39. The 'reform and opening-up' was not smooth sailing. Facing policy reversals and shifting trends, Zhejiang businessmen made many bold attempts, some succeeding and some failing. By the time Zong founded Wahaha in 1987, he had accumulated experience in China's nascent business world through selling erasers, electric fans, and popsicles. In an era when the free consumer market was just opening, Wahaha created many classic practices in product development, marketing, and corporate governance: seizing on Chinese parents' awakening health awareness for their children, they launched Wahaha oral liquid, which claimed to improve picky eating; for each new market, they saturated local newspapers, radio, and TV with advertising, quickly building brand awareness. Children born in the 1980s and 1990s are familiar with the jingle: 'Sweet and sour, nutritious and tasty, Wahaha, Wahaha fruit milk.' In 2006, a series of disputes and lawsuits between Wahaha and Danone over their joint venture became known as one of the most influential business battles since the reform and opening-up. 31 years ago, Wahaha started with nutritional oral liquid, and later added bestsellers like AD calcium milk, Wowaiwai, and Nutri-Express. For a long time, Zong led Wahaha single-handedly. In 2004, his daughter Zong Fuli returned from the US after graduation and began participating in Wahaha's management. In recent years, Zong has initiated internal reforms, established a management layer, and attempted to delegate authority to more professional managers. However, despite WeChat's popularity for years, Zong still doesn't use it. As for 'Idol Producer' and 'Produce 101' contestants, Zong hasn't heard of them either. 'There are many aspects of today's marketing that I don't understand,' he says. Over 40 years of reform and opening-up, Wahaha has participated for 31 of them. At No. 160 Qingtai Street in Hangzhou, Zong shared his views with Jiemian News on changes in China's business environment, Sino-foreign joint ventures, and succession in private enterprises.
Reform and Opening-Up and the Founding of Wahaha
Jiemian: When you founded Wahaha Food Factory, you were working at the school-run factory in place of your mother. However, national policies were volatile at the time. Looking back, what made you willing to take that risk? Zong Qinghou: I previously worked on a farm, doing manual labor and farm work. After returning, the city began reforms. In 1987, an opportunity arose—the school-run enterprise was losing money, and the teachers didn't know how to do business. The deputy director of the education bureau in charge gave me this opportunity. For me, it was a platform to showcase my abilities. In the first year of the contract, I said I could achieve 100,000 yuan in profit. At that time, the school-run factory's annual profit was only a few thousand yuan, so they thought I was exaggerating, but I achieved that goal that year. I've always been someone with ideals and ambitions, believing I could do something significant, but I was stuck in the countryside without a chance to demonstrate my abilities. As a salesman for the school-run factory, I often felt looked down upon. The factory had nothing; it wasn't part of the planned economy, so I was determined to build a modern factory and use the contract responsibility system to increase income. After returning from the farm, I earned only 30-40 yuan a month. During those 15 years on the farm, I earned 28 yuan a month. From that perspective, I decided to start my own business. Jiemian: You were 42 when you founded Wahaha. Most people at that age might think their life is set and be unwilling to put their family at risk. Zong Qinghou: I married at 37, and there were many older single youths at that time. Secondly, there was no opportunity to start a business before because everyone was propertyless before the reform. The reform allowed ordinary people to create wealth, which was an opportunity for me, even if it came a bit late. (At that time) you could sell almost anything, and you could start from scratch. For me, that was one of the lucky things in my life. Jiemian: How do you evaluate the changes in China's business environment over the 40 years of reform and opening-up? What were the characteristics of each stage? Zong Qinghou: Wenzhou merchants were the first to do business privately, which was called 'speculation and profiteering,' and they were cracked down on many times. Wenzhou was seen as a typical case of capitalist restoration. But why couldn't the crackdown succeed? The government didn't solve people's employment problems; without income, they couldn't survive, so they did small business to live. Later, the government turned a blind eye because it couldn't solve the problem. At that time, Zhejiang was on the coastal front line, with no major national investment. Zhejiang has seven parts mountains, one part water, and two parts farmland, with no resources—it was a relatively poor area. As the economy gradually grew, the central government saw this model was good, and the Wenzhou model encouraged the development of private enterprises. When individuals were allowed to start businesses, many enterprises transformed into private ones. From initial opposition to later permission, and finally to encouragement and support, private enterprises now account for a large proportion of the total economy. Jiemian: Wahaha is now 31 years old. Many people think Wahaha lacks innovation capability. What's your personal view? Zong Qinghou: If Wahaha were a person, at 30 it would be just mature. Moreover, most of Wahaha's original employees have retired, and now it's mainly young people—including organizational cadres and R&D personnel. We have 30,000 employees, so our technological innovation capability is supported. We've gone through three stages: follow-up innovation, introduction innovation, and independent innovation. Initially, we lacked strength and talent. At that time, most domestic beverages had only one flavor, but I randomly divided Wahaha AD calcium milk into six flavors, giving us a competitive advantage. Another approach was creating concepts. We added vitamin A and D to beverages to promote calcium absorption, which was ahead of its time. Many young people still drink our AD calcium milk. Later, for bottled water, the earliest producers were in Guangdong, mainly making distilled water, which was costly and tasted poor. I introduced automated equipment from the US, which lowered costs and improved taste. I also coined the name 'purified water.' Wahaha's bottled water still holds about 50% market share. Then we moved to independent innovation and developed Nutri-Express. Once we launched it, many imitations appeared but quickly disappeared because they couldn't match our quality. At its peak, we sold over 20 billion yuan a year. Although it declined due to internet influences, it has now recovered. Jiemian: Most first-generation private entrepreneurs made decisions alone, but corporate management in China has changed, requiring more professional managers and scientific management structures. How do you view these changes? What adjustments has Wahaha made? Zong Qinghou: Private enterprises are flexible because the boss has the final say, and that's still true. I once held the positions of Party Secretary, Chairman, and General Manager all by myself. I saw that in state-owned enterprises, the factory director and Party secretary each had their own factions, leading to internal strife and poor decision-making. It's impossible to run a company well that way. Look at the reform period: companies that did well were basically run by one person with absolute authority. If everyone has decision-making power, the company will definitely fail. Once, Zhejiang wanted to send me a deputy manager, but I firmly refused—if they sent one, I'd step aside and let him take over, because I felt it would cause internal friction. Of course, now that the company is large, one person can't have the final say forever. We're continuously delegating authority. Recently, I appointed three deputy general managers to cultivate a management layer and manage through them. In developed countries, companies are mainly managed by management layers, and their incomes can be high. However, in China, the professional manager group hasn't truly risen, and their business skills may still need development.
Corporate Tax Burden and Domestic Demand
Jiemian: In recent years, there have been strong calls for tax cuts from industry and academia. How do you view the current tax pressure on enterprises? What are your expectations for tax reform? Zong Qinghou: For us, it might be a bit better because we're large and profitable, but overall, the tax burden is heavy. The key next step is to boost domestic demand by increasing people's incomes. To raise incomes, we need to lower corporate taxes so companies can improve employee benefits. But with high tax pressure and low profit margins, companies can't increase employee wages. China is said to have 300 million middle-class people, but at least 1 billion haven't reached that level. It's not that everything in China is oversupplied; it's that some people can't afford to consume. Additionally, our education, healthcare, and other industries are unbalanced. Medical care is expensive, education is costly, and real estate prices are high, so people with money are afraid to spend. What if they get seriously ill? What if they need to educate children? Top schools can cost hundreds of thousands a year. So the state must solve this by lowering taxes and increasing labor income. If we can stimulate consumption among these 1 billion people, our economy will see another high-speed growth phase. During the reform, we attracted foreign investment with 'two years exemption, three years half reduction' and a 15% income tax rate. Tax revenue increased, not decreased. If foreign companies can enjoy tax benefits, why can't Chinese companies? After lowering income tax, companies can focus on raising employee incomes and upgrading mechanisms. If people feel secure spending, consumption will rise. Once domestic demand is stimulated, we don't need to worry about trade wars; we can rely on internal consumption. Moreover, the basic economic principle is division of labor and exchange. In primitive society, I hunt, you farm, and I trade beef for your rice. Even in a developed society with various distribution methods, the basic principle remains the same: division of labor and exchange. Once you understand this, our tax revenue won't decrease. If the tax base expands, how can tax revenue decrease? Jiemian: This year, China's economic environment has changed both internally and externally. Are you optimistic about China's economic future? Zong Qinghou: If policies are right, I'm optimistic because China has a large population and market. Secondly, Chinese people are diligent and intelligent. If we liberalize the economy, I think it can still grow rapidly. Others took a century to develop; we did it in just 40 years. If we can invigorate the economy and raise incomes, I believe there will be another high-speed growth phase. Jiemian: We often talk about 'windfalls' or trends. The real economy doesn't seem to be a trend now, from real estate in the 1990s to the internet now. How does Wahaha view chasing trends? Zong Qinghou: I don't really understand what 'windfall' means. To create wealth, you must develop the real economy. Not only should you develop high-tech industries, but also traditional industries. Traditional industries solve people's basic needs for clothing, food, housing, and transportation, and they will always be needed. The key is to upgrade traditional industries, improve product quality, and meet consumers' growing demands, so they can develop forever. Take our food and beverage industry: no matter what, people still need to eat and drink. I think it will always be a sunrise industry. We used to say food safety is paramount, but now I'm shifting to health. With higher incomes and longer lifespans, many people suffer from sub-health. So I want to use the precious heritage of traditional Chinese medicine and modern biotechnology to develop health products that address sub-health issues. This not only increases product value but also meets new consumer demands.
Review of the 'Danone-Wahaha Dispute'
In 1996, French food giant Danone and Wahaha formed a joint venture to develop the Chinese market. For over a decade, the venture performed well. The conflict erupted in 2006 when Danone's then-Asia-Pacific Chairman, Emmanuel Faber, discovered that Zong had established non-joint-venture companies based on state-owned enterprises and employees, using the Wahaha trademark. Faber claimed these non-joint ventures took away market share and profits that should belong to the joint venture and demanded to buy 51% of these companies for 4 billion yuan. The dispute escalated to lawsuits, with 29 cases in China and abroad. Leaders from both China and France intervened. In 2009, Danone and Wahaha reached a settlement, ending what was called the most influential international business battle since the reform and opening-up. The 'Danone-Wahaha dispute' left valuable lessons for Chinese companies: how to protect brand and trademark value, understand domestic and international laws, and ensure joint ventures protect both parties' interests. Jiemian: Many local Chinese beverage and candy companies are 'national brands' and 'childhood memories' for a generation. Over the past 20 years, there have been many cases of foreign companies acquiring Chinese food companies, with varied outcomes. How do you view potential disputes over control and development direction after cross-border mergers and joint ventures? Zong Qinghou: Some companies, after forming joint ventures with foreign partners, lost their trademarks, control, and even laid off employees. So when we negotiated with Danone, we set four principles: first, we control operations; second, we use our trademark; third, no layoffs; fourth, we bear the burden of retired workers, as before social pooling, companies paid retirement wages. But even though Danone agreed initially, it still tried to interfere with our operations. We felt it didn't understand the Chinese market, so we didn't listen and ran the business according to our actual situation. Later, when we wanted to invest and expand, Danone first proposed finding contract manufacturers and then invested in our competitors. As we grew, it had less control over us. We fought lawsuits for over three years, winning all in China, and it withdrew. When forming a joint venture, first, there must be an equal and mutually beneficial relationship, with complementary advantages. Contracts should be clear. Second, protect your own interests, respect Chinese law, and sign contracts accordingly. Third, once you cooperate, honor the contract. If there's a dispute, if you're wrong, improve; if you're right, defend your interests regardless of the other party's tactics. There's still a mentality of worshipping foreign things, thinking Western developed countries are fair and just, but that's not always true. You must fight for your interests. We fought a globally famous lawsuit and won both domestically and internationally. If we'd only won domestically, they might say the judiciary was unfair, but winning both domestically and internationally leaves no room for argument. Jiemian: The 'Danone-Wahaha dispute' is one of the most important business battles in 40 years of reform. Do you think it objectively made Wahaha a more mature and resilient company? Zong Qinghou: During the lawsuit, I guessed it might try to acquire our company. It mobilized many people, from presidents to ministers to ambassadors, even appealing to the Party's top leadership. So we prepared by building factories while fighting the lawsuit. We thought if it took our company, we'd have no place to produce, so we built many factories. After we split, it took its money and left, and those factories became our assets, greatly expanding Wahaha's production capacity. So those two years saw faster growth. It was also after that I was named China's richest person. So it was both bad and good, accelerating our development.
Daughter Zong Fuli
In a recent interview with The Paper, Zong Fuli said she didn't grow up drinking Wahaha. In her early years, her parents were busy with business, so her relationship with them wasn't as close as others. After finishing the second year of junior high in 1996, Zong Fuli went to the US as a young student, majoring in international business at Pepperdine University in Los Angeles. In 2004, she returned to Hangzhou and joined Wahaha—as a second-generation entrepreneur, she has her destiny. In 2016, Zong Fuli registered a new company and launched KELLYONE, a fruit and vegetable juice brand with a seven-day shelf life—Kelly is her English name. Zong Qinghou says he doesn't understand this product, thinking its short shelf life limits its scale. He's not entirely sure what she's doing, but like many fathers with differing views from their children, he's puzzled yet compromising: 'She doesn't need to ask for my approval.' Zong Qinghou and Zong Fuli Zong Fuli's NFC juice brand KELLYONE Jiemian: What are your retirement and succession plans? Zong Qinghou: Complete retirement is impossible. I do so much every day; suddenly doing nothing would be boring. But as I age, I might step back from the front line and do lighter work. We're also strengthening corporate management, cultivating a management layer, including process reform, job regulations, and delegated authority. I hope to complete institutional building within a year or two. Jiemian: How do you evaluate Zong Fuli? Zong Qinghou: Zong Fuli is diligent. She studied in the US from a young age and is very independent. But I think American culture may not fully adapt to China. In the US, the boss is the boss, and employees are employees; you pay them to do a job, and if they don't perform, you fire them. Also, in the US, you don't need to deal with the government. So after she returned, she treated her employees the same way—firing those who didn't perform. But China is different. China is people-oriented. To truly win employees' loyalty, they must respect you from the heart, and then they'll treat the company as their own. Second, in China, you must deal with the government. Even though we have a market economy, you still need to interact with the government; you can't do everything alone. We don't need government support; we were born and grew in the market economy and solve problems ourselves, but some issues require government approval, so you can't avoid dealing with the government. Jiemian: How do you communicate with Zong Fuli? Zong Qinghou: I've given her some factories to manage, and she's also developing new industries like printing and flavors. But she's quite independent, so we don't communicate much. She'd rather I not interfere and let her work independently. Young people are probably similar—they want to show their abilities and think too much parental interference is bad. Unless she has a problem she needs my help with, she won't come to me. Jiemian: Do you have disagreements? Zong Qinghou: Yes, we do. For example, at the beginning, I gave her some factories and some of our best employees. She ended up firing them, and I took them back. She was initially dissatisfied, but she's gradually changing. Source: Jiemian -END-