China’s Second-Richest Man Says ‘Monopoly’ State Needs More Entrepreneurs

Zong Qinghou, China’s second-richest man, called on the government to increase the role of private business in the economy and said the nation’s prospective next president agrees.

The 66-year-old self-made billionaire who is chairman of Hangzhou Wahaha Group Co (HWGZ). and a member of China’s legislature, said the nation should cut taxes and allow private investment in more industries. When Vice President Xi Jinping “comes to power,” he will encourage the development of private enterprise, Zong said in a March 3 interview.

“The government has become a monopoly company that invests in everything,” Zong said before annual meetings of the National People’s Congress that start today. “The biggest hurdle facing China’s economy now is that the government’s income is too high and the people’s income is too low.”

Premier Wen Jiabao set a growth target of 7.5 percent today for 2012 which was down from an 8 percent goal in place since 2005. He has also pledged to adjust taxes today as the national seeks to end the economy’s reliance on investment and exports that in the past three decades produced average annual growth of 10 percent and fueled social unrest sparked by pollution, corruption and a widening wealth gap.

Personal Income

The World Bank last week said China, where state-owned companies control banking, energy and media, needs to depend more on markets and private business to avoid derailing growth.

“It isn’t realistic to drive the economy by exports or investment now,” said Zong, who is a delegate to the legislature from eastern China’s Zhejiang province, where Xi served as Communist Party Secretary from 2002 to 2007. China should boost growth by cutting taxes to increasing individual incomes, he said. “Ordinary people still lack money,” he said.

Wahaha’s Growth

Zong’s rise to wealth began with a 140,000 yuan ($22,230) loan in 1987 when he and two retired teachers in the city of Hangzhou started their business by selling popsicle, soda and stationery. He built Wahaha, which means “laughing children” in mandarin Chinese, into a beverage maker that had 7 billion yuan of profit last year. The privately-held company may boost that to 10 billion yuan this year on sales of 85 billion yuan, Zong said.

Wahaha’s growth is rare in China, where the 12 biggest publicly traded companies by market capitalization are all state-owned. The government is the majority shareholder in the nation’s four largest banks, its three biggest oil companies and the largest producers of cars, computers, steel, washing machines and milk. Private investment continues to be limited in industries such as tobacco and banking.

Bank Investments

Zong said he plans to propose that the government allow more private companies to open banks and that they be exempted from taxes if they extend financing to small- and medium-sized enterprises. If possible, Zong said he would open a bank because “I have money and my reputation is good.”

His personal wealth was estimated at $10.7 billion by Hurun Report last year, trailing only the $11 billion of Sany Heavy Industry Co. (600031) Chairman Liang Wengen.

Foreign businesses have also expressed concern about the role of state-owned companies in China’s economy. The movement toward a market economy seems to be “pretty much stalled,” Chris Murck, president of the Beijing-based American Chamber of Commerce in China, which counts General Electric Co. and Intel Corp. as members, said in a January interview.

World Bank President Robert Zoellick said last week in Beijing that China’s economic-growth model isn’t sustainable and that the nation needs to rely more on markets and the private businesses.

Vice President Xi

Zong said Vice President Xi, in line to succeed Hu Jintao as head of the Communist Party and President in a process that starts later this year, also believes in the importance of private enterprise as a result of his time in Zhejiang.

Private companies including Wahaha, Alibaba Group Holdings Ltd. (1688) and Zhejiang Geely Holdings Group Co. (175) have fueled growth in the province. Zhejiang, which ranks fifth among China’s provinces and municipalities in per capita gross domestic product, has the smallest gap between rural and urban consumption of any region in China.

“Because he spent some time in Zhejiang, he believes private enterprise is the main direction of economic development,” Zong said of Xi. “I figure when Xi Jinping comes to power, he’ll encourage the development of private enterprise.”

China may pass the U.S. to become the world’s largest economy during Xi’s tenure as president, according to estimates by the International Monetary Fund.

To contact Bloomberg News staff for this story: Michael Wei in Shanghai at mwei13@bloomberg.net; Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.