When China’s ‘tuhao’ flaunt their wealth, it could be a bluff

When China’s ‘tuhao’ flaunt their wealth, it could be a bluff

Staff Reporter

2014-01-08

A gold limousine parked in front of a hotel in Chongqing. (Photo/CNS)

A number of billionaire entrepreneurs in China have embraced the derisive “tuhao” label — a new word loosely translated as “nouveau riche” or uncouth wealthy people — after habitually flashing their wealth publicly, but their companies may in fact be steeped in debt, reports the Guangzhou-based South Reviews magazine.The Liansheng Group, which accumulated debt worth 30 billion yuan (US$5 billion) and filed for bankruptcy protection last November, was one such company. The magazine reported that the company’s owner, Xing Libin, spent a reported 70 million yuan (US$11.6 million) on his daughter’s wedding in March 2012.

Although Liansheng was just a county-level coal company, it managed to borrow a considerable sum of money from banks and private lenders due to the wealthy image Xing managed to project, the magazine said.

Local officials revealed that the company had reportedly been late in paying its employees since July 2011, after coking coal prices plummeted from 1,500 yuan (US$250) per tonne to below 600 yuan (US$100). However, Xing donated 5 million yuan (US$825,000) to two schools in June and September that year, and another 5 million yuan to a university in March 2012. The donations tricked many but also led to speculations that the businessman was trying to establish an affluent image so that his company could borrow more.

A trust company report showed that Liansheng’s debts surged from 7.2 billion yuan (US$1.2 billion) at the end of September 2012 to nearly 30 billion yuan (US$5 billion) last November, while the borrowing increased after the wedding of Xing’s daughter.

The magazine said that flashy billionaires commonly operated in cyclical sectors and were easily impacted by an economic downturn, resulting in the need to borrow money to maintain solvency. There are also suggestions that an extravagant wedding and heavy dowry are ways for down and out billionaires to transfer their wealth to their children as it makes it more difficult for lenders to seek repayment.

The practice of obtaining credit by showing off wealth, according to a loan broker in southern China’s Guangdong province, was the result of a lack of a proper credit-rating system for private companies. Since many companies poorly manage their finances, lenders have begun to evaluate a company through other means, including based on the lifestyle of its owner, the loan broker said.

The magazine predicted that billionaires are likely to continue to show off their wealth this year, hinting at a more serious state of their companies’ debts.