Shenzhen TaiTai's Zhu Baoguo on business in China

The 36-yr old is ranked 30th in this year's Forbes list of the 100 richest individuals in China, with assets of $171 million. Shenzhen Tai Tai produces health tonics, recording a net profit of of RMB51 million ($6.2 million) for the third quarter of this year. It has assets ofáRMB2.3 billion.

FA: What is the background to you and your company?

Zhu: I graduated in Chemistry from a teaching university in Henan, then moved to a state-owned chemical company in Xian. In 1992 I set up a small pharmaceutical venture, which has now grown to the present company.

Why did you move to Shenzhen?

Shenzhen is a city of migrants. People come here from all over China. There is a dynamism from the new people which overrides localism and traditional ways of thinking. People do business here without bothering about a person's parentage or where he comes from.

How did you grow the company to its present size?

I have always emphasized good management and incessant innovation. Apart from that, we grew step by step.

But how did you manage to finance growth? It is often said that bank funding in China tends to be funnelled to state-owned enterprises.

Well, that's not so much the case in Shenzhen. Banks here are very willing to lend to multinationals. Next in line they are willing to lend to private companies. I know this not the case for the whole of China, but as long as you can put up some decent assets, a good balance sheet and demonstrate you have got good prospects banks are willing to you.

But even if you don't possess mortgageable assets you can get another reputable company to vouch for you. At the beginning, when we had few assets, we had a company that occasionally acts as guarantor for us and we give them a fee of 2% of the amount we borrow.

So you never had any financing problems?

Well, in 1993 when I had just started this company, two of my original investors, one of them from a Hong Kong company, bailed out on me. I had no assets and no reputation. I had to borrow RMB 5 million from the money lenders and had to pay yearly interest of 32%.

Were you nervous?

I was extremely nervous. But I had no choice, otherwise the company would have died. But sales started to take off and we made profits of RMB 60 million in 1994. So we in 1994 we wanted to pay off the debt. But at that point the lender resisted our attempts to pay it back, since he was enjoying the interest income. However, we came to an to an agreement in the end.

Did you start off the company with the help of your family?

I started the company on my own. I found two large scale investors initially, although they eventually exited. They were sleeping partners and I looked after the day to day operations of the company. It's when they left that I had to raise the money to buy them out.

Given that your market is primarily domestic, have you been held back by local protectionism?

Actually, no. we don't have many problems with that. Previously, we had provincial bureaucrats slowing down our market access, but that's much better now. Our product can't be easily duplicated, so many of the consumers in other provinces desire our products. The main items which run into local protectionism are alcohol and cigarettes, which are heavily taxed and which local government rely on heavily for tax revenue.

Where is your biggest market?

Our biggest market is Shanghai, since that is where consumers have the most money.

Would you be interested in investing in Shanghai, or moving your office is there?

Shanghai is a big city with well-developed infrastructure and business practices. But in spite of that,áShanghai is a city whose economy isástill dominated by huge state-owned companies. I think their thinking is still quite traditional. And we've been in Shenzhen for a long while, so we have good relationships.

What about other companies illegally duplicating your products?

We have special plastic containers made by a German company which are almost impossible for local companies to duplicate. In addition, we are extremely active in pursing companies which try to steal our product. Most duplicators know that in spite of the cost and effort involved in prosecuting them, our special department will do just that.

You've said that you started off without family members. What does that imply for your management team?

I have recruited numerous foreign experts for my business. Next year, we will be hiring some Chinese American scientists to help us in our R&D. In addition, many of our top staff are experts in their fields. The marketing director is from Taiwan, and we also have high level Hong Kongese.

Are these people very expensive by local standards?

Of course, they are lot more expensive than local staff. But I don't see any alternative when it comes to competing with the best of the competition.

Are you concerned with the threat from foreign companies once they can access the Chinese market under WTO rules?

I'm not that concerned. We understand the market much better than they do and we have a good brand name and an established presence. We feel our biggest threat is other Chinese privately run companies.

Would you be interested in listing in Hong Kong or abroad?

We just listed in Shanghai and raised over RMB 700 million. We like the local markets for their high price to earnings ratios. We have plenty of cash on hand so we needn't raise more funds for a while. If we decide to raise our profile abroad we might consider a listing, but at the moment we have no plans.