TikTok, Nongfu Spring, Two Sessions, Xi in Hunan, Middle East money - Week in Review #13

This past week I was in Singapore, attending a data conference. I also used this occasion to visit clients, old friends, and subscribers of this newsletter and/or Baiguan. In those conversations, an idea has been gradually taking shape: Up to now what we mostly focus on is letting foreign observers have a more contextualized understanding of China. But this conversation has to go both ways. We would also want more Chinese people to have a better understanding of the world, and of how the world sees us.

So the rough idea is that we are going to interview our substack subscribers and make it into podcasts that can be published on substack, while at the same time be translated and published on our China domestic channels (to help prepare for this, we have even built the perfect AI tools to instantly turn English-speaking podcast into Chinese, in your original voice). For our guests, this will also be a great opportunity to gain publicity toward the Chinese audience.

If you are interested in being one of our guests in this endeavor, please let me know.

With that, let me start my weekly review.

#1 The Nongfu Spring drama

Who would have forecasted that the pass-away of Mr. Zong Qinghou宗庆后, the founder of one of China’s largest and earliest beverage companies Wahaha, would set off a gigantic PR nightmare for another beverage powerhouse, Nongfu Spring?

To understand this and put it into context, I will separate this section into 4 sub-sections: 1) What happened? 2) which aspects of it are ridiculous, but, 3) which aspects of it actually make some sense, 4) what will be the impact for Nongfu Spring going forward.

What happened?

The whole nightmare started with the pass-away of Mr. Zong Qinghou, a legendary first-generation private businessman. The business he founded, Wahaha, was a maker of staple products ranging from bottled water to popular probiotic drinks that many children grew up drinking.

People expressed sincere grief over Mr. Zong’s death, at the age of 78, both online and offline. However, things take a darker turn when people start to make comparisons with Mr. Zhong Shanshan’s Nongfu, another beverage powerhouse, and its founder, the richest man in China, Mr. Zhong Shanshan钟睒睒. (I know this may be confusing, but the dead businessman is Mr. ZONG宗, while the one left in controversy is Mr. ZHONG钟).

According to Bloomberg:

Users have jumped to criticise everything from Nongfu’s packaging, which some argue has elements that can be associated with Japan, to the business tactics of founder Zhong Shanshan – China’s richest person – including a decades-old debate over the superior quality of its water compared to Wahaha and other brands.

Some have also alleged Mr Zhong’s son holds a United States passport, angering netizens who question the family’s allegiance to China. 

The ridiculous

About the “elements associated with Japan”, this is one of these memes:

Left: a bottle of Nongfu Spring, Right: what some online users refer to as “Japanese elements”

And these are some short video stunts showing people ditching Nongfu Spring in favor of Wahaha:

This is quite ridiculous.

And do you still remember? A few weeks ago I commented on a similar incident, with a very similar stunt related to the “Japanese flag”, done by a KOL which was later censored.

So by now, you shouldn’t be surprised those things happen all the time in China.

Making sense of it

• Karma? I have to admit that Mr. ZHONG has always been a controversial guy in China’s business world. A former journalist who seldom speaks to the public, he is famous for deploying genius but unscrupulous marketing tactics. I remember when I was a kid, our TV programs were flooded with catchy ad phrases, 24/7, from his company: “农夫山泉有点甜 Nongfu Spring is a little sweet”, effectively tying up mineral water to sugar high. We were basically brainwashed by Mr. Zhong in our childhood. Sometimes, his tactics verged on fraud (but he is too smart to be caught). One of his most famous episodes is that he claimed that purified water (which is the main product of Wahaha but different from Nongfu Spring’s mineral water) has “no health benefits for people”. This line is true in the sense that water really does not have “extra” health benefits for people, other than being water. But it is also phrased in such a way as if purified water is unhealthy. (You must marvel at the literary sleight-of-hand of this former journalist! My fellow Substackers, this is how good writers can make stupendous wealth through words) So it’s natural that Wahaha people have always hated Mr. Zhong, but they could do nothing about it. So, in a macabre way, the PR storm after Mr. Zong’s death is a kind of karma, a kind of revenge, for Mr. Zhong. Secretly, even I feel great satisfaction from watching this episode.

• Government’s reaction? This part is very interesting. I have iterated again and again when it comes to public discourses, China’s government is more of a “balancer” role. This balancing act is especially tough when dealing with content in the name of patriotism, which is part of the mainstream ideology. In this specific case, I don’t see the central government weighing in yet on the matter, but the Party newspaper of Zhejiang Province, where both Wahaha and Nongfu Spring are headquartered, wasted no time criticizing online sentiment in an article titled “市场这么大，容得下两瓶水The market is so large, and it can allow two bottles of water”. Do they look like a grandma at pains to dissuade kids from fighting with each other?

• Patriotism? The “patriotism” or the “nationalism” shown by this event can’t be taken literally. I sense that beneath this veneer of “patriotism”, the real substance is more about “class warfare”. Nongfu Spring, which sells mineral water and premium tea drinks, is in a different price bracket from Wahaha’s product. According to data from BigOne Lab, Nongfu is at a 10% - 20% premium over Wahaha in the water segment (interesting, since the buying spree after Zong’s pass-away, that relative premium seems to have fizzled out as Wahaha’s water is sold at higher prices now). So in a way, a lot of people who criticize Nongfu Spring might not be Nongfu Spring’s target client at all. Some of them are just criticizing a brand that’s too pricey for their preference. Also, a key point of criticism is Zhong’s son’s US passport, something people like to associate with the privileged class.

The real impact on Nongfu Spring

Precisely because of the “class” aspect of this incident, I am skeptical of the idea that this will have a material impact on Nongfu Spring’s sales performance. People may be pouring away Nongfu Spring’s water, but I highly doubt these people like to drink it in the first place. Those who are buying Nongfu Spring just to throw away may actually bump up sales a little bit. (Just joking.)

And even if the impact is real, it may not be a good idea to short Nongfu’s stock just yet. Since its IPO in 2022, Nongfu’s stock price has only been fluctuating around a very narrow band, with small trading volume relative to its market cap, and has maintained a very high valuation (40+ P/E). Its stock price movement looks like this:

Screenshot taken from WSJ

This lack of trading volatility is partly because the shareholding of the stock is highly concentrated in the hands of Mr. Zhong, which is also a big reason why it is a guy who sells bottled water, not internet services or EVs, who has made it to the No.1 on China’s richest list currently.

Anyway, if this sentiment persists, it might cause long-term detriment for Nongfu. On this topic, my firm BigOne Lab again has a perfect dataset, which includes branded sales data from a network of over 70,000 supermarkets and mom-and-pop shops in China, the main channels through which soft drinks and bottled water are sold. If you are interested, this will be a great angle to keep a tab on the real-world impact of this bizarre incident.

#2 TikTok

When it comes to China, the biggest topic globally is without a doubt TikTok. The whole world is holding its breath and witnessing history unfolding right in front of our own eyes.

A lot has been said by many other people, and there is not much I can add. And although TikTok is owned by a China-based parent company, the current controversy is essentially an American matter, and I don’t know enough about America to comment on it systemically. As you may sense, I try to be someone who doesn’t talk about things I don’t know enough about.

What I can talk about a little is how the Chinese government (CG) will react to the potential forced divestiture. I agree with most assessments that the CG would not agree to ByteDance selling TikTok.

But I think that is the wrong question to ask.

Most people haven’t realized that we are now in a situation where the CG stands to win, no matter whether TikTok is banned or not. Think about it this way: if TikTok is not banned, then that will be a great success story for China Inc. If however TikTok is banned, then it will be forever pointed to as proof that America is not some land of freedom it always claims to be, that USG regulates freedom of speech as much as CG does. Either way, CG wins.

Moreover, in the grand scheme of things, TikTok itself is far less important to China as compared to the US. Yes, China always wants to have home-grown companies that can have a global cultural impact. But there are way more things to do other than selling spiritual opium in the form of short videos to help achieve that. And no, China does not care about the data of those Americans who post silly videos on TikTok.

This whole episode of TikTok is America trapping itself in a storm of paranoia. So why would CG help to end this paranoia at all? There are no benefits, only political poison to agree to a forced divestiture. So why not sit back and enjoy all the fun?

But that’s just my assessment of CG’s view. On a personal level, I think it’s understandable for America not to trust a Chinese social app, but I believe there are definitely more constructive and more creative ways to manage the differences here. Besides, both China and US share a common interest in regulating internet platforms.

So, America, you can do better than this! Sincerely yours.

#3 The “Two Sessions” and our pragmatic Premier

It has been a rather uneventful “Two Sessions” this year, except for some drama around the decision to cancel the traditional Premier’s press conference. International media are quick to jump at this to point out it is yet again another sign of power consolidation to the Party, that China is, according to Reuters, “heading to an era of isolation”.

Indeed, the Party Secretary-Premier duopolistic power-sharing arrangement that defined the era of Jiang-Li, Jiang-Zhu, and Hu-Wen has irrevocably ended. Which one is better? A single-center power structure or a duo-center structure? I think this is up for some debate, but I will not debate today. What I want to stress is, as I said before, this power consolidation is not about any personal choice (it would be grossly childish to think in that way), but a result of the fundamental structural need of today’s China.

It’s also an illuminating showcase of who Premier Li Qiang is as a person. I have increasingly come to realize that Premier Li is a vastly underrated person. In fact he is both politically and economically savvy. In terms of politics, he knows full well that in the current environment, highlighting himself is not in line with the zeitgeist of political consolidation. On the economic front though, he seems to be quite active and quite shrewd with timing. I am also reminded that the appointment of Wu Qing as head of the securities regulator, is perhaps also a showcase of the Premier’s actual influence in the financial sector, as Wu also worked as deputy mayor of Shanghai under Li.

In short, Premier Li presents us as someone who cares less about the form, but more about the substance.

In place of the Premier press conference, which is mostly a political show, there was a much wider press conference where ministers came forward to explain more technical and detailed stuff. And after all, what substantive talks had 3 decades of premier press conferences brought to us anyway? There is only one such press conference that left a lasting impression on me, which was the 2012 one when then Premier Wen Jiabao effectively proclaimed the political death of Bo Xilai using that occasion.

It is also hard to imagine in today’s setting, such an important political proclamation could be uttered by a No.2, but not the No.1 guy. It’s much clearer today who in China manages the top-level political decisions, and who manages the day-to-day policy implementation.

#4 Middle East money purchasing core China assets from US investors, at a discount

In another sign of the Middle East money taking the place of fleeing US capital, FT reported that Abu Dhabi is looking to purchase stakes in PAG, one of the largest China-focused private equity funds, from its US investors, at an unspecified discount.

As far as I understand, one of the biggest prizes of PAG’s holdings is its controlling stake in AirPower Technologies 盈德气体, China’s largest industrial gas manufacturer, and a masterpiece of a buyout deal in China. Our capital market is still so immature that successful buyouts of such size are quite rare.

Incidentally, PAG’s founder Mr. Shan Weijian, who is also a prolific author writing in English, has been making very publicized bullish comments about the Chinese economy lately. (

Jiang Jiang

at

Ginger River Review

translated two pieces from Mr. Shan, “Is China's economy doomed?” and “Will China continue to grow?”) As someone who has sailed through several business cycles and currently managing over $50b of assets, I think Mr. Shan is someone worth listening to.

Last December I also brought to your attention a similar move of Middle East money taking large stakes in Chinese EV makers. By now this trend has been increasingly clear: US investors are still largely repulsed by Chinese assets, but a side effect is this exodus creates a crater in asset prices that non-US investors are ready to swoop in for the steal.

In some sense, the US and China “conspire” to leave money on the table for everyone else. This is another version of the main idea behind Baiguan’s recent popular essay “The world tastes the sweetness of US-China decoupling”.

More such moves will come. History will prove whether the buyer or seller is smarter in this case.

#5 Xi in Hunan

For his first tour after the “Two Sessions”, President Xi paid a visit to Hunan Province, where he also held a symposium on promoting the growth of China’s “central region”.

The so-called “central region”, credit to Ginger River Review

You can see that none of them are coastal provinces, but they are all more or less neighbors with coastal provinces. For example, Anhui borders prosperous Jiangsu and Zhejiang, Hunan is connected with Guangdong, and Jiangxi with Fujian.

For those already familiar with me, I am a big fan of this region, in particular the Hunan Province which Xi visited. The corporate headquarter of BigOne Lab now is actually in Changsha, capital city of Hunan. A few weeks ago I recounted my story of how local government officials kept working during the spring festival holiday to attract outside investment.

I also made the case that growth in the hinterland area such as Hunan will power the next leg of economic growth in China, which is my ultimate challenge to the “Peak China” narrative. Xi’s tour and the symposium confirm this trend that I have been observing.

This also corresponds with something I have talked about: the Chinese government does not invent new things. They observe trends, and when trends become clear, they jump in to amplify and accelerate these trends. With this concept in mind, you will see that China-watching is not futile. What the Chinese government does is not completely random, and watching for trends intently will help you pre-empt policy surprises.