RETAIL: Shanghai Wins Big With Wanda Group Relocation

Shanghai may be famous for its entrepreneurial spirit, but its track record isn’t quite so stellar when it comes to nurturing top entrepreneurs. That could be starting to change, however, with word that Dalian Wanda Group, one of China’s most dynamic companies, plans to move its headquarters to Shanghai from its current location in Beijing.

As a longtime foreigner living in Shanghai, I’ve always been surprised by the relatively small number of major private companies for a city of our size. We should certainly be proud of some of our city’s most outstanding entrepreneurs, with names like Guo Guangchang of Fosun Group and Spring Airlines (Shenzhen: 601021) Chairman Wang Zhenghua as 2 outstanding examples.
But our city has a relatively weak record for producing these kinds of entrepreneurs, which is a bit surprising since Shanghai is often considered the birthplace of the entrepreneurial spirit in modern China. To date most of Shanghai’s biggest corporations are mostly local companies, many with state-run backgrounds, which is hardly what one would expect from such a dynamic city.

I’ve always been a bit puzzled at why Shanghai has such a poor entrepreneurial record, since we certainly have no shortage of young people with good business ideas. Part of the reason probably lies with Shanghai’s strong focus on finance, which is a highly regulated industry where only the most tenacious private entrepreneurs like Guo Guangchang can succeed.

A list of Shanghai’s largest publicly traded companies reflects that reality. Our top 3 companies are all banks, led by Bank of Communications (HKEx: 3328; Shanghai: 601328), China Minsheng Bank (HKEx: 1988; Shanghai: 600016) and Shanghai Pudong Development Bank (Shanghai: 600000). The next biggest company is car giant SAIC (Shanghai: 600104), which again comes from a traditional, capital-intensive industry that doesn’t really produce entrepreneurs.

The location of a company’s headquarters is highly symbolic, as it represents a wide range of factors needed to nurture such development, from education, to infrastructure and a mature financial system. Shanghai seems to have all of these elements, and in many ways is a leader in many of these areas. Perhaps that’s what’s attracting Wanda and its colorful founder Wang Jianlin to the city.

According to the recent reports, Wanda has already decided to relocate to Shanghai and is currently looking for a place to build its future headquarters. (English article) Its preferred location would be in Pudong, which is where many of the city’s newer and higher growth companies are choosing to set up due to newer infrastructure and more abundant, lower cost land and office space.

Unlike most of Shanghai’s current biggest corporations, Wanda is one of China’s biggest privately owned companies that can be called truly national, winning success in a wide array of businesses. The company’s current assets total 534 billion yuan ($58 billion), and last year it posted a sizable 245 billion yuan in annual revenue.

The company is best known for its namesake shopping malls, which are considered one of the best-run domestic retail chains in China with more than 100 malls. More recently it has also expanded into the entertainment and hotel businesses, building one of the nation’s most successful movie theater chains as it also expanded to the US with a major purchase there.

The company’s good reputation was a key factor behind the success of its 2 major IPOs last year, one for its theater chain and another for its main property arm. Today those 2 companies, Wanda Cinema Line (Shenzhen: 002739) and Dalian Wanda Commercial Properties (HKEx: 3699), have a combined market value of more than $60 billion, following their listings in Shenzhen and Hong Kong, making Wanda one of China’s most valuable companies.

Wanda’s colorful and very wealthy founder Wang Jianlin embodies the kind of entrepreneur that China needs as it makes its transformation from a planned to a market economy. And yet Shanghai is woefully underrepresented on the latest Forbes list of China’s wealthiest individuals where Wang is one of the top individuals. Beijing is easily the biggest home for China’s wealthiest entrepreneurs, with 7 of the country’s 20 wealthiest people living in the city. Wang was among those on the latest list, with a fortune worth $13.2 billion, making him China’s fourth richest man.

Wang would easily become Shanghai’s wealthiest entrepreneur if he moves to Shanghai, bringing a bonanza for the city with the thousands of jobs and other economic benefits that Wanda would provide. Right now the city’s wealthiest entrepreneur is agribusiness tycoon Liu Yongxing, whose $6.5 billion fortune comes from his East Hope Group.

Liu is the only Shanghai resident among the top 20 people on this year’s Forbes list. That puts the city behind not only Beijing in terms of wealthy individuals, but also behind Shenzhen and Hangzhou, with 3 representatives each, and even behind Guangzhou and Foshan, which each have 2 members among the top 20.

As a longtime reporter on China’s high-tech industries, I can personally testify to the lack of major Internet and other technology companies in Shanghai. Two exceptions are locally based Ctrip (Nasdaq: CTRP), China’s leading online travel agent, and Dianping, a top restaurant ratings and group buying site. But none of the country’s “big 3” Internet firms of Baidu (Nasdaq: BIDU), Alibaba (NYSE: BABA) and Tencent (HKEx: 700) are located here, and many other major players like Sina (Nasdaq: SINA), Qihoo 360 (NYSE: QIHU) and NetEase (Nasdaq: NTES) are also located in other cities.

Our city has also failed to produce any major microchip makers, despite pumping billions of dollars into the sector. Many once held big hopes for names like Semiconductor Manufacturing International Corp, or SMIC (HKEx: 981; NYSE: SMI), hoping it could someday rival the likes of global giants like Intel (Nasdaq: INTC) and Taiwan’s TSMC (Taipei: 2330). And yet despite years of effort and billions of dollars in investment, SMIC only has a current market value of about $4 billion – a fraction of Intel’s and TSMC’s $160 billion and $115 billion, respectively.

I generally have a lot of respect for Shanghai, due to the city’s vibrant spirit and its relatively open attitude towards business and individuals. But clearly something is missing in the formula for creating entrepreneurs. Even Wang Jianlin’s decision to relocate here is only a partial success, since his roots go back to his birthplace in Sichuan and development of Wanda in the northeast city of Dalian.

While the city has done a good job by attracting Wanda, it could certainly take more steps to encourage development of other sectors outside of finance through policies like setting aside land and redeveloping areas of the city for development of smaller start-up companies. It could also offer money and other assistance to entrepreneurs. And perhaps most importantly, it should also give these people the space to develop by themselves, which is what such people need the most.