Restoking the dragon

The world is hailing the Chinese Government’s attempts to stimulate its economy. But as JAMES THOMSON reports, no-one is more excited than China’s super rich – including Australian citizen Shi Zhengrong – who have lost billions this year.

By James Thomson

Australian politicians, economists and business people are hailing the Chinese Government’s attempts to stimulate the dragon economy. But no-one is more excited than China’s super rich – including Australian citizen Shi Zhengrong – who have lost billions this year.

The Chinese Government’s decision to pump $855 billion into its economy to stimulate growth has cheered many Australian economists, politicians and entrepreneurs.

If the world’s fastest-growing economy can keep powering along, then there is some chance that the downturn might not be as painful as first feared.

But no group will be more excited about the stimulus package than China’s super wealthy, including Australian citizen Shi Zhengrong. Since the start of the year, the solar entrepreneur’s fortune has plummeted by a staggering 88%, from $US5.1 billion to just $US626 million.

Zhengrong is not alone – China’s wealthy have suffered a horrible year. According to Forbes magazine’s recent list of China’s 400 wealthiest individuals, their combined net worth dropped to $US173 billion from $US288 billion. The number of billionaires on the list fell from 66 in 2007 to just 24 in 2008.

Despite the inherent strength of the Chinese economy, local equity markets have not escaped the carnage on global markets. In the past 12 months, China’s main sharemarket index, the Shanghai Composite, has fallen almost 65%, while Hong Kong’s Hang Seng index has tumbled almost 35%.

Billionaires in the property and export sectors have been hit hardest. Real estate heiress Yang Huiyan was on top of the list in 2007 with a fortune of $US14 billion; this year Forbes valued her fortune at just $2.2 billion – a big drop, but her fortune was still large enough to rank her in third spot on the 2008 wealth ladder.

Other notable losses included Yan Cheung, the head of Nine Dragons Paper empire. In 2007, Forbes declared her one of the 10 self-made billionaire women in the world. Today, her fortune is worth just $265 million.

There are still grand success stories. For example, Zhou Chengjian’s fortune jumped from $215 million to $2 billion after listed his clothing company, Shanghai Metersbonwe Fashion & Accessories. But for most Chinese entrepreneurs, the Year of the Rat has been a shocker.

For Shi Zhengrong, who is based in China but became an Australian citizen after studying in Sydney in the early 1990s, the rapid deterioration in the outlook for his solar panel company, Suntech Power Holdings, must have come as a surprise.

Back in January, Zhengrong was seemingly on top of the world. Suntech, which is listed on the New York Stock Exchange but based in the Chinese city of Wuxi, was firmly entrenched as one of the world’s largest manufacturers of photovoltaic solar cells, and a clear leader in the booming Chinese solar market.

With oil prices sky high and climate change at the top of political agendas around the world, investors pushed Suntech’s share price to a record peak of $US88.22 in December 2007. Zhengrong, who owns more than 40% of the company, was worth $5.4 billion.

It was a remarkable achievement for the scientist-turned-CEO, who arrived in Australia in 1988 to study physics at the University of New South Wales. Zhengrong quickly switched to solar cell research and later worked at UNSW as a research director after completing his studies.

In 2001, Zhengrong returned to China, lured by the offer of $US6 million in start-up capital from the city of Wuxi. He also chipped in about $US400,000 of his own cash to get the venture off the ground. In 2005, Suntech listed on the NYSE, hitting the boards at $US20 and tuning Zhengrong into an instant billionaire.

Those days must seem like a distant memory. Since the start of the year, Suntech Power has been pummeled by the crash in global equity markets and increasing competition in the solar sector, although the stock did rally just before the election of Barack Obama, who is a big supporter of alternative energy.

In recent weeks, the news has got worse. Analysts including Goldman Sachs, Deutsche Bank and Collins Stewart have savagely downgraded the stock as part of a general shift away from solar companies.

Deutsche Bank’s analysts were particularly scathing, citing concerns about weak outlook for demand and pressure on margins, and slashing forecasts for Suntech’s earnings for 2008, 2009 and 2010, which have been reduced by 6%, 39% and 54% respectively. Suntech’s shares are now wallowing around $US10.

Still, for all this doom and gloom, it’s hard to imagine Shi Zhengrong will give up on his solar dream – the self-proclaimed solar evangelist has invested too much in his company and the solar sector.

“There is now no return road,” he said in an interview in 2006. “You have to make it successful.”