• Tuesday, July 16, 2024
businessday logo


Chinese self-made ‘everyman’


Few people have heard of Li Yonghui or Fincera, his transportation and financial services company, or even Shijiazhuang, the northern Chinese city where he was born into poverty and made his fortune.

He prefers to keep a low profile. But Mr Li’s career, like those of many of his peers, is instructive on at least two levels. It has followed the arc of China’s rise from the “sick man of Asia” to superpower contender. It also illustrates the stubborn dynamism of a new Chinese entrepreneurial class that has thrived over the past decade despite competition from state-owned rivals and an often treacherous regulatory climate.

China is home to thousands of similarly unknown businessmen and women. According to Hurun Report’s annual China Rich List, the number of US dollar billionaires in the country increased by 70 per cent to 596 over the past year alone. Hurun further estimates the combined wealth of China’s richest 1,877 people at $2.1tn.

Fincera’s chairman and chief executive was born in a small village near Shijiazhuang, capital of Hebei province, in 1962. “Food was a problem for us every day,” says Mr Li, the third of six children. “But we didn’t realise that life was hard or feel that we were unhappy because it was the only environment we knew.”

Today Mr Li controls 81 per cent of Fincera, which is known as Kaiyuan in Chinese. The company had revenues of $813m in 2014 but is now in the midst of what Mr Li calls “a critical juncture” as it transitions from traditional truck leasing to a higher margin web financing model. Revenues for the first three quarters of 2015 were $178m, down 70 per cent on the same period in 2014.

Mr Li lives and works in Hebei’s tallest building which, naturally, he built and still owns outright. The top floors of the 245-metre Kaiyuan Finance Center house the Hilton Shijiazhuang, with Mr Li’s daily commute taking him from a hotel suite at the top of the building to his offices and back again.

Mr Li’s offices are large but spare, with few people milling around. It is soon apparent that he is as understated as his surroundings. His low-key demeanour evokes the Chinese phrase, men sheng da fa cai, or “keep quiet and prosper”.

Shijiazhuang is one of China’s most polluted cities and the smog outside is thick, adding to the muted atmosphere. My first impression is that he only agreed to the meeting because he was advised to do so by his son, Spencer Li, a Duke University graduate and Fincera director whom I had met a few months earlier in Beijing. But his natural reticence fades as he tells his story.

As the son of a school teacher-turned- farmer, who returned home to grow his own food rather than face starvation during a famine in the late 1950s, Mr Li was raised in a home where education was valued.

He earned a place at Tianjin University, from which he graduated in 1985 with a degree in optical physics. All but one of Mr Li’s siblings also went to university, a remarkable achievement for a Chinese rural household at that time or indeed today. Mr Li’s degree, however, led only to work at a state-owned tractor factory where he was paid Rmb40 a month. “It was impossible to help my family with that wage,” he says. During his first trip abroad, to Canada in 1994, he was astonished to learn that people could borrow money to buy houses or vehicles and pay back the loan in instalments. When he returned to China he started a truck leasing business, Kaiyuan Auto Trade, in Shijiazhuang.

“There was strong demand for trucks, people just couldn’t get bank loans,” he says. “The truckmakers said if I could help them sell more trucks, they would let me pay later. That gave me time to collect monthly instalments from my customers. We made a lot of money until 1998, when banks started to offer vehicle loans.”

Listening to Mr Li recount his business career, which has ricocheted from truck leasing to property development to internet finance, I am reminded of a character in Joseph Heller’s comic novel Catch-22. Chief White Halfoat is living peacefully when oil is discovered on his land and he is evicted. He moves to a new location where black gold is again discovered and he is again evicted in a cycle that repeats itself as energy companies realise the chief is a human divining rod for oil deposits.

Something similar has happened to Mr Li in his two decades as an entrepreneur: just substitute the Chinese government or its state-owned enterprises (SOEs) for the oil companies that pursued Chief White Halfoat. “The state banks had access to a lot of money at a low cost,” Mr Li says. “They also issued loans even if they weren’t sure that they would be able to recover their principal . . . I couldn’t compete with that. So we chose to leave the sector.”

As Mr Li was crowded out of the leasing industry in the late 1990s, he got into the property game and did very well for about a decade, which was when government officials started to pay more attention to the booming sector. There was a proliferation of what he calls “temples”. Just as people feel obliged to make a donation when visiting a temple, developers had to visit an increasing number of government bureaus to pay fees for various permits.

“There were more and more temples, all demanding something,” Mr Li says. “Government officials knew it was a lucrative industry with a lot of grey areas. Initially, a real estate project didn’t need that many approvals. But now one project needs dozens or even hundreds of approvals.”

The Kaiyuan Finance Center, completed in 2013, was his last property project. As Mr Li looked to reinvent his company for a second time, he decided to have another go at truck leasing. By 2008, the state banks that had piled into the sector in the late 1990s with little regard for repayment risks had been burnt and pulled back, offering new gaps in the market for him to explore.

But as Mr Li built out a nationwide network of 550 leasing outlets, he encountered stiff competition from local “mom and pop” lessors who had lower costs and better local connections with truck drivers. Formerly outgunned by cashed-up giants, Mr Li was now being pestered by thrifty gnats.

Then, two years ago, he had an internet-inspired epiphany. Instead of lending drivers money to buy trucks and bearing the risk as they repaid Fincera over a period of years, why not focus instead on their day-to-day financing needs for expenditures such as fuel and maintenance? “I don’t just want to provide you a service when you buy a vehicle,” Mr Li explains. “I want to provide you services as you use your vehicle. We used to lease more than 1,000 trucks a year. Now I want to provide financial services to tens of thousands of trucks.”

Fincera, renamed in June because of Mr Li’s conviction that China is on the cusp of a new “finance era”, extends a monthly credit to drivers, who spend it at participating service stations. The payments are processed through a web application, with the company charging a small fee on each transaction. He says Fincera is on track to process Rmb20bn (£2.1bn) of payments a year and hopes to scale up to at least Rmb100bn annually before potential competitors — which he calls “ghosts” — take notice.

“I’m not afraid of Baidu, Alibaba and Tencent,” he says, referring to China’s three largest internet companies. “They haven’t realised where the opportunities lie in this industry.”
“Nobody has really noticed me because I don’t do much publicity,” he adds. “I don’t want to summon too many ghosts.”

Culled from FT