A Chinese family's hard path to riches

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GUJIA VILLAGE, China: In the 1950s, members of the Liu family in the southwestern Chinese province of Sichuan were so short of food that they sent one of their youngest sons to be raised by another family.

Today, the Lius are among the richest families in China.

Rising from public scorn during the Cultural Revolution, the four Liu brothers managed to turn a small quail-breeding farm into the largest private Chinese company.

"The difficulties we went through in the early years made us strong," says 60-year-old Liu Yongxing, a former factory worker who Forbes lists as the wealthiest person in mainland China, with a fortune estimated at $3 billion.

The Lius are the mainland's first-generation billionaires, born into a world of Mao suits, food rations, price controls and Communist slogans. The story of how they made their fortune is considered one of the guiding myths of the Chinese Communist Party, a symbol of this country's transformation over the past 30 years since its unlikely embrace of capitalism. But their story also betrays the contradictions of modern China - a country where the average factory worker makes less than $50 a week.

"The puzzle is not why the Liu brothers succeeded but why there are not more like them in China," says Huang Yasheng, who teaches at the Sloan School of Management at the Massachusetts Institute of Technology and is an expert on Chinese entrepreneurs. "Rural China represents a vast pool of entrepreneurial capabilities and substantial business opportunities."

As the global economy enters its first drastic downturn since China opened to the world, analysts say this country is searching for a new and more sustainable path to growth. Waning foreign demand threatens to stall its economic miracle and Beijing's leaders are trying to cope with the undersides of economic growth, like rising inequality and environmental degradation.

"The old game has started collapsing," says Xu Xiaonian, a professor of economics at the China Europe International Business School in Shanghai, referring to the inefficient Chinese export-oriented economic model, which can be prone to overheat. "We are now in a transition period. We need to find new ways to do things."

The hope among economists is that the next Chinese path to riches will inspire an even larger and more innovative group of entrepreneurs, and tap more of the impoverished rural areas.

For the Liu family, the journey from there to here was seemingly impossible.

Their road to riches is documented in a small museum they built in Gujia, on the grounds of their first feed mill, where photographs show the brothers examining supplies and posing with Chinese and world leaders, like Jiang Zemin of China, Bill Clinton of the United States, Tony Blair of Britain and Jacques Chirac of France.

They also built a memorial about 300 kilometers, or 200 miles, east of here in the hometown of their hero, Deng Xiaoping, the former leader who is considered the architect of the Chinese economic reforms.

Like many Chinese entrepreneurs, the Lius trace their fortunes to December 1978, when Deng presided over the Third Plenary session of the Communist Party. In a critical speech to the party's elite, he boldly called for more trade with the outside world and said he favored market-oriented reforms. These policies would later come to be called "socialism with Chinese characteristics."

"It is one of the most substantive speeches I've ever read by a Chinese leader," says Robert Lawrence Kuhn, who just published a book about the economic reforms. "Point five said the government would allow some to get rich first. This was radical."

After decades of isolation and outright hostility to capitalism, China suddenly began loosening state controls over the economy and encouraging its citizens to get rich. What followed was three decades of roaring growth and an export-oriented wealth boom that the World Bank says has lifted 400 million people out of poverty.

Not long before the extraordinary Communist Party meeting in 1978, the four Liu brothers - Yongyan, Yongxing, Yuxin and Yonghao - say they were toiling on farms or in state-owned factories, scorned because of their "counterrevolutionary" family background: They were the descendants of wealthy landlords.

During the decade-long Cultural Revolution, which ended in 1976, their father had been condemned to a "re-education" camp. Their mother had been officially denounced.

But in 1978, three of the Liu brothers won admission to local colleges, and soon they began planning to strike it rich.

At the time, the quiet one, Yongyan, then 33, was studying engineering. Yongxing, 30, was good at fixing radios; and the extrovert, Yonghao, 27, was teaching at a technical school.

All had inherited their father's interest in science and technology.

Yuxin, who had been sent away from home as a child, was a 28-year-old farmer in Gujia. But he also joined his brothers to plot a new course.

Their first venture, an electronics company, failed almost immediately, they say, largely because a Communist Party official deemed it too "capitalistic." Individuals at the time could not own factories or operate in the electronics business. Chinese were encouraged to become "socialist entrepreneurs" not capitalists, which was still a bad word.

Not many Chinese, though, knew the difference. Soon afterward, the brothers pooled $125 and began raising quail in Gujia.

At the time, Gujia was one of the region's most impoverished villages, located 27 kilometers, or 17 miles, northeast of Chengdu, the provincial capital. It had no electricity or running water and its houses were small huts constructed with mud and grass. But conditions were good enough to raise quail.

"If you raise quail, you don't need much feed," says Liu Yongxing, explaining their choice. "Quails are small. And we didn't have much land or money."

Suddenly other villagers began raising quail too, and customers in bigger towns lined up to buy quail eggs. Gujia became the quail-breeding capital of China. And the Liu brothers thrived.

Before long they were among the first in the region to be honored by local party officials as "10,000 RMB men" - model socialist entrepreneurs who accumulated Chinese currency, or renminbi.

"If you did business during the Cultural Revolution, you were the evil capitalist and you would be paraded through the street and people would throw garbage at your head," said Gao Peineng, 53, a former village chief of Gujia and a longtime friend of the Liu brothers. "But in 1982, the government began honoring what they called the 'advanced wealth maker.' They would ride you in a truck with red flowers and a gold medal."

Liu Yongxing says there were hard times too, like the time they shipped thousands of quail eggs to a buyer, only to have his check bounce, virtually bankrupting the family.

But early market chaos gave way to big opportunities.

With agriculture designated as one of the first areas open to market reform, the Liu brothers quickly branched out into the animal feed business.

At a time when many farmers simply fed their animals garbage or scraps, the brothers copied the new feed production techniques of the Charoen Pokphand Group of Thailand, one of the first big foreign investors in China.

The Lius then convinced farmers that buying their feed would make animals grow much faster. They grabbed market share by pricing their feed much lower than Charoen Pokphand. With meat consumption in China soaring, demand for feed skyrocketed.

Between 1978 and 1990, grain output in China rose by more than 30 percent.

"The Liu brothers are very smart and grasped the opportunity early," says Wan Zhaojun, dean of the Sichuan Animal Husbandry Institute. "Living standards were improving dramatically; meat consumption was going up. This was the golden time for the feed business and they were right there."

Their success was validated by the Communist Party in 1994, when Song Jian, a government science official, visited their feed mill and declared that "the future of China's economic reforms will rely on these socialist entrepreneurs."

Soon after, they adopted a new name: the Hope Group.

The visit was an early sign that government officials were the ultimate arbiters of success, and while the Lius give credit today to the market reforms, they acknowledge in their speeches and their museums that the Communist Party also played a role in their success.

"By 1984, almost all the Sichuan government officials came to our farms," says Liu Yongxing. "It was like a big advertisement for us."

After rapidly expanding in Sichuan, home to the world's biggest pig population, they built feed mills all over the country.

By 1992, the Hope Group was so large that the Liu brothers decided to split it into four companies, along geographical lines - East Hope, West Hope, New Hope and Continental Hope, allowing each brother to pursue his own interest, and diversifying the family holdings.

Yongxing moved to Shanghai and invested in aluminum, power plants and finance. Yonghao, who runs New Hope, was listed in October at No. 4 on the list of mainland China's richest, with a net worth of $2.2 billion and holdings in real estate, feed and banking. Chen Yuxin (his adopted family's name) runs West Hope, with the original feed operation in Sichuan and a five-star hotel and retail properties in Chengdu. And Yongyan has a feed and electronics business. The Lius' sister, Liu Yonghong, handles all the accounting for the family.

By David Barboza
Published: January 2, 2009