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SCMP Reporter

Liao Changguang, one of the richest men in Chongqing, plans to do two new things this year - become a delegate to the national parliament and borrow money.

 'I plan to borrow about 30 million yuan (about HK$27.9 million) from the bank,' said Mr Liao, dressed in a dark blue Christian Dior suit he bought in Hong Kong for HK$15,000.

 'We are entering a new stage in our business, from using cash to using external financing. We are planning a share issue for 1999.'  Mr Liao is chairman of Chongqing Cygnet Diet Culture Group, a conglomerate with the logo of a little swan and whose leading product is a patented spicy hot pot.

 His empire includes 35 hot pot restaurants in China and three in the United States, 19 art troupes, two garment factories, a string of three-star hotels and a holiday resort village.

 He wants to make his hot pot chain China's answer to McDonald's.

 Mr Liao enjoys playing the part of a tycoon and his trappings of wealth include 30 cars, among them a Lincoln for himself and a Cadillac for his wife, He Yongzhi, who is president of the group.

 Sitting in the coffee shop of his Cygnet Hotel, he is tall and elegant, sporting a crew-cut.

 He speaks with a strong Chongqing accent, interrupted by puffs on his Hongtashan cigarettes and frequent calls on his mobile telephone.

 The fact that a business with more than 100 million yuan in assets has never borrowed money, although banks were more than willing to lend, speaks volumes about life as a private company under communism.

 In addition to a reluctance to incur debt, banks until recently lent to state companies and not private ones.

 The Communist Party first banned private firms, calling them the tail of capitalism.

 In successive political campaigns they purged former capitalists with the aim of extinguishing whatever entrepreneurial spirit there was in the name of the planned economy.

 From the 1980s, the party allowed them to run small businesses and soak up surplus urban labour.

 But they remained politically suspect and were regarded as a peripheral part of an economy dominated by state companies. How things have changed.

 A recent front page of the People's Daily praised private companies for their huge contribution to the Beijing city economy, employing nearly 800,000 people, and quoted mayor Jia Qinglin ordering officials to stop unequal treatment for the private sector.

 The government badly needs businessmen like Mr Liao because the state sector is crumbling and laying off millions of workers. It is the non-state sector that will provide new jobs for these workers and men like Mr Liao who are becoming China's new aristocracy.

 Banks have also changed their tune. They are courting successful private firms like his because, from the start of 1998, the central bank abolished credit quotas for the big state banks, telling them to lend to any creditworthy company, regardless of who owns it.

 Such an environment will provide a golden opportunity for well-funded and aggressive private companies which can benefit from a largely uncompetitive state sector and pledges from President Jiang Zemin that the private sector should have equal status with other forms of ownership.

 Mr Liao speaks excitedly about his plans for this year - a new hotel in Wuhan, a floating hotel on the Yangtze River, a foreign trade firm, property developments in the area of the Three Gorges Dam and exports of down jackets and cashmere sweaters to Southeast Asia.

 'We are looking at opportunities abroad, in East Germany for example,' he said.

 This month Mr Liao opens a new front in his business strategy.

 He will go to Beijing to attend the annual session of the National People's Congress (NPC), the only private businessman among the 51 delegates from Chongqing and the first time the city has chosen a representative from the private sector.

 He is by no means the richest man in the city, dwarfed by those with major interests in property development, but he has a high profile locally.

 In China, if you do not have a political background, people look down on you.

 His wife is frank about her husband's move into politics. 'We need to invest in politics. My husband is good at dealing with officials.

 'The political risk has greatly diminished. Of the state companies, 70 per cent are losing money, so there should be no risk for us,' she said.

 Most private businessmen in China do not take this view. Experience has taught them to keep a low profile and stay out of the public eye to avoid attracting attention from officials who may impose taxes and payments, legal and illegal, or attack them for political reasons.

 But Mr Liao's business has become so big that he has little choice and the political climate has changed enough so that the risk of taking a high public profile has greatly diminished.

 'To help earn his seat at the NPC, he has donated about one million yuan a year to good causes, such as building schools in remote areas, helping poor families, hiring laid-off workers and sending his dance troupes to perform at army bases,' she said.

 Asked if Li Ka-shing was his model as a man who made a fortune after starting with nothing, he said: 'My model is Deng Xiaoping, who gave me the chance to go into business.' An impeccable answer.

 In Beijing he plans to raise the issue of unequal treatment given to private firms when they try to take over ailing state firms and of not being accorded the same incentives as state firms in similar acquisitions.

 'The policies of the state and city governments are good. They treat us equally with state firms but low- and middle-ranking officials who are too conservative and prejudiced against us do not implement the policies,' he said.

 He has abandoned efforts to take over two state companies because officials of the State Asset Management Bureau refused to approve his acquisition of the land on which they stand.

 For him, the private sector is where the economic growth will be and where tens of thousands of workers laid off by state companies will find work.

 The private sector has grown at a very fast pace and already accounts for one third of Chongqing's gross domestic product, he said. It is most likely that it will account for half within three years.

 City government estimates put the share of the private sector at less than 10 per cent but officials admit many private firms conceal their ownership structure and present themselves as a collective or other kinds of companies to avoid political or official trouble.

 The city government itself admits that one main reason why its economy lags behind that of other cities is an underdeveloped private sector.

 In order to take advantage of these growth opportunities Mr Liao wants to tap new sources of finance, of which bank loans will be one.

 Another is a domestic A-share listing for his hot-pot restaurants in cities all over China to raise between 150 million and 160 million yuan, most likely next year.

 The China Securities Regulatory Commission has approved only a handful of issues by private companies while 30 more have obtained listings by acquiring state firms that were already listed, brokers said.

 Wang Shiyu, president of China M & A Management, which is advising Mr Liao on the share issue, said he was confident of obtaining all the necessary approval for Mr Liao.

 Local government support is very important for these listings.

 'The growth of Chongqing Cygnet will employ many laid-off workers, purchase substantial quantities of farm products and help build a national brand-name, making it the McDonald's of China,' he said.

 Mr Liao's personal story is typical of millions of city people of his generation, who wasted years of their youth chasing Mao's political folly.

 Born into an ordinary family in Chongqing, he was sent for eight years during the Cultural Revolution to a poor mountain village in Sichuan.

 Back in Chongqing, he was assigned to a job in the city's construction bureau.

 In 1982 he and his wife ignored family opposition and sold their house for 3,000 yuan, which they used to set up a hot pot restaurant with three tables in a crowded street in the commercial centre of the city.

 By 1989 they had three restaurants and had developed their formula for success - including singers and dancers to entertain the diners, dividing the pot into two, hot and mild.

 It took them six years to earn their first 100,000 yuan. In 1986, after they had bought a colour television and a motorcycle, they were criticised at an official meeting and accused of evading taxes.

 'Events like that held us back,' he said.

 The group's growth speeded up after Deng's Southern Expedition in 1992.

 It set up hot pot restaurants all over China and started to build hotels.

 Last year, it bought from a Hong Kong company a floating hotel for 18 million yuan, which it plans to park at Wanxian, about five hours by boat down the Yangtze from Chongqing.

 By the end of last year, the group employed 5,000 people and had assets of more than 100 million yuan. It has a company song, composed by a Taiwan songwriter.

 Mr Liao becomes uncharacteristically coy when asked about the profits of the group, saying only that it paid 5.8 million yuan in taxes last year and will pay eight to 10 million this year.

 'Just don't ask me about profits,' he said.

Liao Changguang was born in Chongqing in 1951. In 1968, he was sent to a village in Sichuan to work as a peasant during the Cultural Revolution. He returned to Chongqing in 1976 and worked in the city's construction bureau.

 He and his wife went into business in 1982 with a three-table hot-pot restaurant in Chongqing.

 By 1989, his Chongqing Cygnet Diet Culture Group had three restaurants and 100,000 yuan in assets. In 1992, it had expanded nationwide. Its assets reached 100 million yuan last year.

The policies of the state and city governments are good . . . but low- and middle-ranking officials who are too conservative and prejudiced against us do not implement the policies.

The mainland government badly needs businessmen like Mr Liao because the state sector is crumbling and laying off millions of workers. It is the private sector that will provide new employment.



Chongqing's hot-pot king courts banks, politicians