China exonerated retail tycoon to pacify entrepreneurs
Zhang Wenzhong in court  Photo: Zhihu
 
Zhang Wenzhong, the Chinese entrepreneur who had built massive wealth through supermarkets chains before the rise of e-commerce giants Alibaba and JD.com, was recently acquitted from fraud and corruption charges for which he was sent to prison 10 years ago.

The Supreme People’s Court did a retrial of Zhang's case and then exonerated him, which is generally interpreted by Chinese observers as a move to reassure the country's private sector that property rights and legitimate interests of entrepreneurs will be protected.


Zhang belongs to the first generation of the country's self-made rich after the beginning of the reform and opening up. He graduated in the 1980s from the Tianjin-based Nankai University and earned his doctorate at the Chinese Academy of Sciences. Later he went to the US to study and was granted postdoctoral degree by the Stanford University, before coming back to start his own business in the 1990s.

It's reported by the local media the entrepreneur was greatly inspired by speeches made by Deng Xiaoping, the then Chinese leader on socialist market economy on his famous 1992 southern tour and made the decision to come back after that.

The high-tech company started by Zhang developed the point-of-sale (POS) system used in retail transactions and to prove that the system was effective, he opened Wumart, the first supermarket in Beijing, by the end of 1994. By the next year, the retailer became a chain with sales of over 0.1 billion yuan annually. Entering the new century, Wumart began to register exploding growth, emerging as one of the dominant retailers with more than 700 outlets across the nation.


In 2003, Wumart Stores Inc. got listed on the Hong Kong stock market, and then embarked on a series of expansion initiatives. The retailer successively acquired its rivals in Beijing Chaoshifa and MerryMart, the fourth and fifth-largest retail chains in the capital city. Based on a China Business Network (CBN) report, in merely two years, Wumart acquired or gained controlling stake in over 400-plus outlets of over 20 domestic businesses.

In April 2006, Wumart Stores Inc. paid 176 million yuan to acquire a controlling 27.7 percent share in Yinchuan Xinhua Department Store, one of the largest and fastest growing retailers in northwest China, from the hands of its state owners, which is regarded as an effort by the supermarket chain to venture into the department store business.

On the list of 30 most successful commercial retailers published by China's Ministry of Commerce in 2006, Wumart took the seventh place, while since the August of that year, events seemed to be taking a downward turn.

It's rumored that Zhang was being investigated by the Central Discipline Inspection Commission, the country's anti-corruption watchdog. Although the management of Wumart had denied the news, on November 12, 2006, Zhang was taken away by officials with the agency and on the same day, he officially stepped down as chairman of Wumart. The trajectory of the retailer changed since then.

Zhang was sentenced to 12 years in prison on charges that included fraudulently obtaining subsidies for technology development. Wumart once received 31.9 million yuan from a government subsidized logistics and information management program.

Prosecutors alleged at the time that only state-owned companies were eligible to apply for the subsidies, so Zhang disguised his company as a subsidiary of a state-owned enterprise to obtain the money.


Zhang's attorney however presented evidence in court proving that by the time Wumart took part in the competition, government regulations disqualifying private companies had already been removed, and besides Wumart, five other businesses in the private sector were included in the program and granted state funding as well.

Only Zhang shouldered the blame. Despite all the controversies surrounding the case, the successful businessman was declared guilty and sent to prison. He recently told btime.com, a Beijing-based news portal, that “if there was no intervention into or influence over the judicial process, I would not have been found guilty by any court. Even some non-professionals could detect flaws and see that it's an unjust ruling.”

The supreme court has overturned the original conviction, saying private companies were eligible for government subsidies at the time because of a policy change which was “in accordance with the country's economic development status and industrial policies.

“Although there were irregular practices, there were no fraudulent acts like forging facts and hiding truth in order to obtain the money,” said the court. Its conviction was the result of “misapplication of the law and should be corrected.”


Before the retrial, Zhang was discharged from prison in 2013 after two reductions on the original sentence of 12 years. No reasons about the abatement of penalty were mentioned by authorities.

In the same year, Wumart began to go downhill with its annual net profit dropping 23.7 percent compared with the figure of 2011, which recorded the first decline since 2008. Also in 2011, Wumart was reported to be forced to shut down four supermarkets, 21 convenience supermarkets, and 24 franchised outlets.

With mounting outside competition, Wumart announced to delist from the Hong Kong stock exchange in October 2015. “I was taken away in 2006, while the decade following embraced booming development of the Internet, Internet of Things, and big data. So, we lost quite a lot of opportunities,” Zhang was quoted by Chinese media as saying recently.

Meanwhile, the entrepreneur also noted Wumart has maintained a good strength even it failed to achieve growth like Alibaba and JD.com did. At present, the retailer owns over 1,000 outlets across north, east and northwest China with annual sales exceeding 50 bn yuan.

Zhang indicated he's ready now to embark on a new journey. “At the end of the day, (we need to) reform the traditional retailing sector with new technology. I believe that based on digitalization, Chinese retailers can catch up with American and European commercial businesses.”

Despite a booming private sector that has helped many amass vast wealth, Chinese entrepreneurs are known to have long complained that they face unfair competition from state-owned companies and have been often encouraged to pay bribes to officials and could be subject to arbitrary convictions, reported CNBC.

A Supreme Court official who declined to be named told thepaper.cn, a Shanghai-based news portal, the exoneration of Zhang reflected Communist Party's desire to “strengthen the protection of the legitimate rights and interests of entrepreneurs.”

The unidentified official admitted there has been unfair and unreasonable treatment of private businesses in some regions of the country, although he suggested when authorities spot “irregular practices”, they should be reviewed in "developmental perspectives".

 


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