China s property and export slowdown are wiping out fortunes. Yet the fittest will survive, and this developer pair from Soho intends to be among them.
Beijing power couple Pan Shiyi and Zhang Xin beamed at friends and partners at the Hong Kong Stock Exchange on Oct. 8 last year as they joined a string of ten billionaires minted on its grounds in a six-month stretch.
Soho China, the real estate company they founded, had raised $1.9 billion in an IPO, and their 63% stake was worth $3.8 billion. "It was a probably a perfect moment," Zhang recalls.
A year later that glitter is gone from China s stocks and property industry. Soho s stock has dropped 80%, amid a 60% plunge in mainland stocks and a 50% drop in Hong Kong shares in 2008. Last year s No. 1, property developer Yang Huiyan, has lost $14 billion of wealth. Meantime, Cheung Chung Kiu, the boss of C.C. Land, a developer focused on Chongqing, has lost 98% of his fortune (ranked No. 26 last year, he is off our list of 400 entirely). "You can t really believe it," fellow builder Zhang says of the upheaval.
Yet the Soho husband and wife are still standing. Their company s valuation is $1.8 billion, and Pan and Zhang continue to be billionaires. A big reason: Soho at midyear had more than $1 billion in cash on its books, having avoided the high-priced property acquisitions that crippled others as the market turned.
Also important: The duo s brand in China s capital city hasn t lost any of its luster. Soho sold $735 million worth of units in a week in July, a record in Beijing, says the company. Rather than lying low, Pan and Zhang have been out in public, eagerly talking to investors, reporters and bloggers.
If Soho China last year embodied the rise of new money, this year it embodies a new truth: The toughest will win. China s government is pledging stimulus that will accelerate domestic demand. Businesses with some combination of low debt, ample cash and significant domestic or global market share or standing have a good chance to feed off weaker rivals, says Wang Chaoyang, who from Beijing manages about $300 million invested in Chinese stocks. "The very lack of access to cash for smaller companies right now is going to help the bigger ones over time," he says.
Our record number of 66 billionaires on the China Rich List last year capped an explosion of wealth. Property was key: Barriers to entry were low and demand for better homes brisk. Overseas pundits who visited cities such as Shanghai marveled at the number of cranes that were rising above the horizon, and many of the world s top architects have since set up shop.
Yet China s real estate industry has started to fall as the government tightens credit to counter a bubble; there are already ripple effects in the steel business (see "Steel Girder Missing").
The U.S. slowdown, combined with the appreciation of the renminbi and a draconian socialist-style labor law that took effect this year, have further taken the wind out of manufacturing, especially in export hubs such as Guangdong and Zhejiang provinces.
"Exports are going to be hurt badly, and the economy will be lucky to grow by 4% to 5% next year at most," perhaps the worst year since reforms started three decades ago, says Horst Geicke, who manages $6 billion at Vina Capital in Hong Kong.
The consumer stimulus pledged by Premier Wen Jiabao won t be enough to offset the overall export downturn, Geickle says, thus testing a generation of entrepreneurs who have known only boom times. Merrill Lynch predicted that China s growth in 2009 will decline 8.5% to 9%, representing "the fastest slowdown that China has seen since the early 1990s."
Several who are doing well are catering to everyday domestic demand, such as in the Internet sector, clothing or nondairy beverages. Strong pork prices are boosting traditional industries such as agricultural feed--see No. 1 Liu Yongxing and No. 4 Liu Yonghao, back at the pinnacle of Chinese wealth as they were in early 2002. But others are feeling the chill from declining exports and real estate values, like Guo Guangchang s Fosun International.
China s residential property looks tough because transactions are dropping. "We haven t yet seen what will follow--the price drop. It always follows," says Zhang. "We re already seeing the residential developers starting a price war." The problem, she says, is stricter lending by banks.
Soho has stayed successful in part because of the popularity of its brand, especially with previous buyers and investors who have bought condo offices in its properties. "That s the key--when buyers make money with you, they continue to come back with more money," says Zhang. "When we see over 50% repeat customers, that s because they made money with us."
There s also still a lot of interest among the deep-pocketed real estate buyers outside of Beijing to ante up for a place in the capital. As many as 84% of Soho s corporate buyers for projects on the market this year came from three provinces--Shanxi, Henan and Shaanxi--and are profiting from China s energy boom, Zhang says.
The achievements of those who live in those provinces are apparent on our list. Our youngest member, Li Zhaohui of Haixin Steel, hails from Shanxi, and coking newcomer Yao Juhuo and family are from the same mineral-rich province.
Wherever the wealth comes from, the Soho pair hope it will continue to find its way to their real estate. "People here talk about creating a brand, but you have to create the product," Pan says. "You can say whatever you want about our buildings, but they don t look the same."
For her part, Zhang declines to predict when the current down cycle will turn, but promises, "We ll ride with the next wave."
