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  Public Enemy No. 1: A Chinese Executive Wages War with France's Danone

Public Enemy No. 1 A Chinese Executive Wages War with France's Danone

By Wieland Wagner

Part 2

Wahaha and Danone seemed made for each other at first. The French were happy to rake in the profits in China, leaving management almost exclusively in the hands of their workaholic Chinese partner, who spent 200 days a year traveling around the country and developed relationships into the highest echelons of government. Today Zong is a member of the Chinese Communist Party and a delegate to the National People's Congress.

He also found time to develop his own Wahaha empire -- with Danone's approval, he points out. As a businessman, Zong employed another of Mao's tactics, capturing the beverage market in rural areas first and steering clear of cities, where it would have been more difficult to prevail over bigger competitors.

Zong ran the joint venture like a one-man operation. In 1998, he even challenged American cult brand Coca-Cola when he launched his own version, "Future Cola," which tastes almost like the original and even comes in bottles noticeably similar to those used by the US company. Wahaha has even been selling its version in the US, as China Cola, since 2004.

This hunger for expansion has caused friction, and Zong's once-harmonious relationship with Danone has quickly deteriorated. Wahaha achieved sales of roughly $1.5 billion in 2006, helping Zong make it to 23rd place on the unofficial list of China's wealthiest citizens. But whenever Wahaha planned to introduce new brands into the market, like its cola, Danone was initially opposed, a stance that continues to irk Zong today. He felt that it was especially underhanded of Danone to systematically purchase Wahaha's Chinese competitors.

The French, for their part, insist that it wasn't until 2005 that they noticed that their go-getting partner controlled about 20 supposedly secret companies outside the joint venture. When Danone hired private detectives to shadow Zong, they reported that his parallel companies were making millions of euros in revenues with identical products, thereby weakening the joint venture.

This sort of thing happens a lot in China, and many Western companies react the way Danone initially did. According to Zong, the French quietly began negotiating with him to acquire their own stake in these parallel companies. But Danone was unwilling to pay Zong's prices. The ugly dispute ultimately became public, along with the sort of symbolism this sort of spectacle is capable of producing. Zong milks his supposed bond with Mao to the fullest, waving little red books in public and evoking images of the Cultural Revolution. He peppers his speech with the language of patriotism, blustering that the Chinese people have risen up, and that the days are gone when the imperial superpowers could conquer China.

This red capitalist has mastered the art of appealing to the growing self-confidence of the Chinese. "Our country has more than $1 billion in currency reserves," he boasts, adding that China should no longer leave it up to others "to divide up our wealth among themselves." His quarrel with Danone, initially a minor business spat, has since acquired a more fundamental character.

Chinese patriots are even celebrating Zong on the Internet as a national hero in the fight against "foreign devils." On one blog, "Hulong," a participant writes: "Let us learn from the honorable Zong and fight to the end against capitalists and imperialists like Danone and Coca-Cola."

Danone executive Faber will have a tough time winning the guerilla war over the loyalty of Wahaha's employees and customers. He allegedly left a recent Wahaha board meeting early through a side exit, hoping to avoid running into Zong's supporters demonstrating outside.

The row with the French comes at an inconvenient time for the government in Beijing. More tensions over trade are the last thing it needs. The official China Daily even criticized Zong, writing that any allusions he makes to Chinese national security in connection with his dispute with Danone are "not only irrelevant, but foolish."

This is unlikely to stop Zong. Danone still has the option of appealing to Chinese government ministries, senior party officials and its own embassy in Beijing. But the popular founder of Wahaha has a powerful trump card -- a lineup of influential friends throughout the country.

In February Chinese customs officials in Shanghai seized 118,000 liters of Evian bottled water, a brand Danone owns. The Chinese then took months before announcing the specious reasons behind the action. The French water, they claimed, contained too much bacteria. Danone disagreed.

Translated from the German by Christopher Sultan.