Mainland's richest man Wong Kwong-yu takes on challenges for the opportunities they offer One-time clothes seller Wong Kwong-yu, named by Forbes magazine last year as China's richest man, abandoned what others have found to be a money-spinner because he found the products were wrapped in mysterious terms regarding quality and texture - altogether too esoteric for him. On the other hand, he found electrical appliances more 'transparent', 'fixed' and easy to understand. So Mr Wong, now chairman of Hong Kong-listed Gome Electrical Appliances Holding, abandoned apparel retailing when he bought his first retail store in Beijing two decades ago and built a retail empire by selling refrigerators and cookers. Mr Wong, 37, is estimated to have a net worth of US$2.3 billion, mainly from Gome and his property flagship, Pengrun Property, a Beijing residential and office property developer. But being a billionaire does not seem to have changed his thoughts about clothes, going by the straightforward black suit, white shirt and pale yellow tie he wore for this interview. He takes a similarly straightforward approach to his ranking among the mainland's richest people. Seeing his enterprises growing in scale and improving in corporate governance is more important to him than any ranking in the race for wealth. A recent Hurun Report, a list of the mainland's richest people, named Nine Dragons Paper (Holdings) chairwoman Cheung Yan as China's richest woman with an estimated US$3.4 billion fortune that exceeds Mr Wong's with room to spare. Mr Wong considers the new ranking positive. 'With this, there will be less pressure on me,' he said. Running the country's biggest electronics retailer as well as his property business gives Mr Wong enough to think about during 14 to 15-hour work days. Gome, not surprisingly, takes up most of Mr Wong's time. 'Pengrun is just an investment for me,' he said. The retail operations require more than sitting at a desk and checking numbers. Everything down to the frontline staff attracts his attention. On his frequent visits to stores, he hands out his mobile phone telephone number to many staff, who send messages to him when they want to call his attention to something. Such communication with employees has become a habit for Mr Wong. 'I get used to talking to staff ... and most of them are willing to share their feelings with me.' Helping Mr Wong with the company's investor relationship affairs is his wife, Du Juan. Mr Wong says the role of Ms Du, an executive director at Gome, is clear and she is not involved in his property business. 'The time for us to go to work is fixed, but not the time to leave the office,' he said. As an old hand retailing appliances on the mainland, Mr Wong knows well how to deal with domestic competition. However, he sees Best Buy, a US electronics retailing giant aggressively expanding in China, as potential competition. Best Buy, taking advantage of China's opening of its market to foreign companies as required by its joining the World Trade Organisation in 2001, raised its stake in Jiangsu Five Star, an electronics retailer with 136 outlets, to 70 per cent recently after buying a 50 per cent interest for US$180 million last year, sources said. New York-listed Best Buy, which opened its first self-branded store in Shanghai in December, plans to open three more such stores in first-tier mainland cities this year, including Beijing and Shanghai. Mr Wong says for now he is not afraid of Gome losing market share to the newcomer because the US retailer's scale is still small in the mainland while 'the quality of our merchandise is not lower than that of Best Buy'. He says it remains to be seen whether the Chinese population will accept Best Buy's charges for value-added services, including installation. Mr Wong has climbed high in a short time. After quitting secondary school at the age of 16, he left his hometown in Shantou, Guangdong province, and followed his brother to Inner Mongolia where he learned the basic skills of trading. A year later, he went to Beijing and took over an apparel retail shop named Gome with 30,000 yuan he had earned in Inner Mongolia and then decided to sell electrical appliances. 'When I opened the first store, I was aiming at five to six stores in major cities, but not a nationwide chain,' he said. The scale of the business remained small in its first decade. 'During that time, the market was very closed and seriously put off outsiders. I was waiting for an opportunity.' That opportunity came in 1999 when Mr Wong opened his first store outside Beijing in Tianjin after becoming aware of the limited choice of appliances available in the mainland retail market. 'Department stores abandoned selling appliances and sold other products that were more profitable,' he said. As he moved to grab the opportunity, Mr Wong knew he would have to tap the capital market to fund expansion and also had to improve Gome's corporate governance. In 2002, he bought 85.6 per cent of Hong Kong-listed Capital Automation Holdings, a small property and investment firm, in a deal that valued the company at HK$161.8 million. Mr Wong later renamed the acquired company China Eagle Group and in 2004 injected 65 per cent of Gome into the main board-listed vehicle in a deal worth 8.8 billion yuan, about 49 times Gome's earnings in 2003. In May last year, the listed company paid 6.98 billion yuan to acquire the 35 per cent of Gome Appliances it did not already own from Mr Wong. Gome, which counts Mr Wong, Morgan Stanley, JP Morgan Chase and private equity firm Warburg Pincus as its major shareholders, last week reported a 64 per cent jump in earnings to 819 million yuan for last year while revenue rose 38 per cent to 24.7 billion yuan. Mr Wong wants Gome, which has 587 stores on the mainland, to be one of the top electronics retailers in the world within five years and the biggest in 10 years. 'Gome will have to reach out to the world. Opening outlets in other countries can be one of the means to achieve that,' he said. While Gome now relies on first-tier cities such as Beijing and second-tier cities such as Hangzhou and Tianjin for immediate growth, Mr Wong says third and fourth-tier cities such as Yangzhou and Taizhou would be the retailer's long-term growth driver as consuming power in those cities is picking up. To consolidate its leading position in the mainland and ease the impact of a price war with its main competitors, Gome acquired third-ranked China Paradise Electronics Retail in November last year for HK$5.2 billion. 'If opportunities arise, we don't rule out more acquisitions later,' he said. Mr Wong also says Gome's parent, Gome Group, has submitted to authorities an application to inject 239 outlets owned by Mr Wong outside the listed unit into the Hong Kong-listed arm in exchange for shares. While going public requires Gome to disclose price-sensitive information such as gross profit margins to investors and competitors, Mr Wong said: 'There is something rivals can't copy. 'For example, our sales team comprises our own staff and salespeople from suppliers. Apart from salaries, we treat all of them equally.' Mr Wong established Pengrun Property, a unit of his Eagle Investment Group, in 1996 and has expanded it strongly since 2002. For him, China's entering the WTO in 2001 did not only bring in challenges but opportunities as well, as 'many companies wanted their offices to look international and professional'. At the same time, residential development in the mainland had not grown fast enough and many mainlanders wanted to buy better flats, something the company was determined to benefit from. Mr Wong aims to list Pengrun within two to three years. 'Pengrun has the scale [for a listing] right now, but we will need to improve its management.' Pengrun, which last year completed construction of about two million square metres of gross floor area in Beijing, teamed up with Singapore asset manager Pacific Star last month to launch an US$800 million mainland property fund. The fund, which has attracted interest from institutional investors in the United States, Europe and the Middle East, will tap into Gome's vast property holdings in mainland cities such as Beijing, Shanghai and Chongqing. In another expansion of Mr Wong's fund interests, his Eagle Investment Group last month formed a US$500 million private equity fund with US bank Bear Stearns to focus on the mainland's booming retail sector. They will be equal partners in the investment. Asked about his secret formula for success, Mr Wong said: 'I'm really into my businesses ... I don't have much entertainment. For me, working on something not so stressful is already like taking a rest.'