The rise and fall of China’s ‘fentanyl king’ in corruption-fuelled bankruptcy

(By Caixin journalists Wang Juanjuan and Denise Jia)

In January, months before a court would approve the bankruptcy restructuring of his company, Ai Luming, 68, gathered his old friends and partners — the same men who helped him turn 2,000 RMB (US$279) and a urine collection business into a billion-dollar conglomerate — for a private dinner. He raised a glass and spoke with a broken voice.

“I’m sorry,” he said. “If there’s a chance, I’d like to start over.”

By 25 April, the Wuhan Intermediate People’s Court ruled to end Wuhan Dangdai Science & Technology Industries Group Co. Ltd., the sprawling private empire Ai spent 37 years building, approving a plan that handed his core asset, Humanwell Healthcare (Group) Co. Ltd. — China’s undisputed fentanyl king — to state-owned China Merchants Group.

Ai’s rise was legendary. A descendant of a Nationalist general, he drifted alone down the Yangtze River as a student before co-founding Dangdai in 1988. From a ramshackle urea extraction operation, he seized the era’s opening to private enterprise, rolling up distressed drugmakers and listing his flagship firm, Humanwell, by 1997.

At its peak, Dangdai Group owned six publicly traded companies and cast a shadow over sectors that included medicine, real estate and finance. Ai’s mantra: where there is a regulatory moat, private firms can win.

But his ambition soon outpaced prudence — by 2017, debt exceeded 30 billion RMB, and financial engineering became a drug more dangerous than any Humanwell ever made.

By 2022, cracks burst open. Financing products issued to retail investors by Dangdai’s cultural and real estate subsidiaries defaulted en masse, leaving 4,000 families facing losses. Under pressure, Wuhan authorities demanded asset sales and split off key holdings. But the tangled web of debts between Dangdai Group and its securities unit, Tianfeng Securities, proved intractable.

The core prize was always Humanwell, China’s fentanyl kingpin with over 90% of the country’s opioid painkiller market. It was this crown jewel that attracted China Merchants, which in April received approval to inject 11.8 billion RMB to seize control of Humanwell — and, with it, turn the page on Ai’s reign.

Behind the scenes, the rot ran deep. His trusted lieutenant Yu Lei, once a star lawyer and chairman of Tianfeng, saw his protégé Yi Rentao, former chairman of Wuhan Dangdai Mingcheng Cultural and Sports Group Co. Ltd., flee overseas amid embezzlement and money laundering allegations; by 2024, both were caught in a legal dragnet triggered by a corruption scandal involving a former Hubei provincial leader.

As creditors lined up, the maths was brutal: more than 800 billion RMB in confirmed claims, but just 11 billion RMB of assets left as of September. Most small creditors will recover only pennies on the dollar, while old shareholders — including Ai himself — lose everything.

Ai, who spent the past decade retreating into charity work on Inner Mongolia’s grasslands, remains defiant. He told Caixin that he still dreams of new ventures — in animal health or tourism — and insisted the world has not seen the last of him. But those closest to Ai fear he mistakes personal resilience for a license to repeat old mistakes.

“He’s still the man who once howled through the mountains, chasing dreams,” one former partner said. “But this is no longer the 1990s — and Ai may be the only one who hasn’t realised it.”

In 1988, a decade into China’s reform and opening, the private economy had just been enshrined in the Constitution. A wave of college-educated youth began leaving government jobs to “go to sea” — a euphemism for striking out on their own in business. That year, 31-year-old Ai, fresh from receiving a master’s degree in philosophy at Wuhan University, turned down a government job at the Hubei Provincial Communist Party School. He rallied six like-minded Wuhan University classmates from fields like chemistry and virology to start a venture, establishing Wuhan Hongshan Dangdai Biochemical Technology Institute — the predecessor of Dangdai Group.

Their first business was unconventional but profitable: collecting urine from public toilets to extract urokinase, an active pharmaceutical ingredient for dissolving blood clots. Despite its simplicity, the process generated stable cash flow, and the product was exported to Japan. Decades later, urokinase would remain a core revenue source for Humanwell’s Wuhan subsidiary, holding 32% of China’s market in 2024, second only to Nanjing Nanda Pharmaceutical Industry Co. Ltd.

In the early years, Ai and his partners explored various small projects, but none matched pharmaceuticals in profitability. By 1996, they turned to acquiring drugmakers, starting with Yangtze River Pharmaceutical in Wuhan, which was struggling under the costs of upgrading to Good Manufacturing Practice (GMP) standards. Dangdai took over and transformed it into Humanwell, setting the foundation for its pharmaceutical empire.

During this period, Dangdai evolved from a collective to a joint-stock cooperative, expanding registered capital to 28 million RMB. Ai emerged as the largest shareholder with a 22.52% stake. Riding China’s 1996 IPO boom, he leveraged a partnership with the government birth-control agency to secure a listing quota, successfully taking Humanwell public — a pivotal moment that gave Dangdai its flagship asset.

Three years later, Dangdai acquired Yichang Pharmaceutical Group, a state-owned anaesthetics producer unable to fund GMP upgrades. Approved by Yichang’s government, the acquisition birthed Yichang Humanwell, which built its own sales channels and grew revenue into the hundreds of millions. Yichang Humanwell became China’s only enterprise with full licences for fentanyl production from raw materials to finished products, and its profits consistently outpaced the rest of Humanwell Healthcare — earning 2.7 billion RMB in net profit in 2024 alone.

As China’s policies liberalised, Dangdai diversified into real estate, tourism and education. Real estate efforts led by Chen Haichun centred on Wuhan, but projects like Dangdai Tianyu stalled in 2021 amid the sector’s crisis, triggering massive loan defaults. In education, Dangdai built dorms and invested in private universities, but shifting policies forced it to unwind holdings. By the time of the bankruptcy restructuring, only two heavily indebted colleges remained. Despite ventures across industries, pharmaceuticals continued to generate about 70% of the group’s revenue, underscoring the empire’s dependence on Ai’s original bet on medicine.

For decades, Dangdai Group earned respect as a market-driven private firm that revived struggling state-owned companies. But after acquiring Tianfeng Securities, that reputation collapsed. What began as an industrial empire gradually transformed into a highly leveraged financial labyrinth, where risk soon outstripped control.

Having secured a foothold in pharmaceuticals, Ai sought another high-barrier industry where private companies could excel: finance. “I saw big international conglomerates tied closely to finance and thought owning financial institutions would help our industrial growth,” Ai later said. “I didn’t realise industry and finance should develop separately.”

Dangdai’s early financial moves — small stakes in Hankou Bank, Wuhan Rural Commercial Bank, Huatai Insurance, and co-founding Z-Bank — all exited with profits. But Tianfeng Securities proved fateful. In 2002, Ai acquired the small Sichuan brokerage for about 100 million RMB from Hanlong Group, then run by Liu Han, whose criminal activities were not yet exposed.

Tianfeng, limited to a brokerage licence and struggling far from Dangdai’s Wuhan base, faced survival threats as regulators tightened rules. Ai’s protégé Yu, just 28, volunteered to lead. By 2006, Yu was named chairman, and after relocating Tianfeng to Wuhan, he secured a full set of licences within four years. Net capital soared from 294 million RMB to nearly ten billion RMB by 2018, lifting Tianfeng’s ranking from 72nd to 43rd among Chinese brokerages.

Yet as Tianfeng grew, Yu packed it — and other Dangdai entities — with fellow Wuhan University alumni, extending influence across the group. Former employees described him as a powerful but sometimes harsh leader. Public records show Yu held roles in multiple Dangdai affiliates, while his close ally Li Zhengyou chaired Wuhan Tianying Investment Group Co. Ltd., the group’s capital operations platform, reinforcing Yu’s control.

Hidden risks mounted. Before Tianfeng’s 2018 IPO, insiders revealed it owned unrelated assets like Tiancai Financial — a peer-to-peer, or P2P, lender — and stakes in Wuhan Changjiang Crowdfunding Exchange. These were hurriedly sold to Dangdai to clean Tianfeng’s books, but the deals deepened ties: Dangdai assumed bad assets, while Tianfeng financed Dangdai’s bonds, locking both in a dangerous debt loop.

Between 2016 and 2019, Dangdai’s liabilities doubled from under 30 billion RMB to over 60 billion RMB, as asset growth lagged and funding costs soared to 10%. By 2019, internal warnings about excessive financialisation went unheeded. When Yu was detained in early 2020, panic spread across the group. By then, Dangdai and its affiliates were weighed down by more than 19 billion RMB in overdue credit bonds alone, cementing a crisis few foresaw when the empire began its gamble on finance.

Dangdai Group’s aggressive, debt-fuelled expansion became its undoing when rolling over liabilities grew impossible in 2021. “That year, Yu Lei told me things couldn’t go on, that the debt was too big — we might as well declare bankruptcy,” Ai recalled. Shocked, Ai resisted, convinced the company could muddle through. But when China Evergrande Group’s crisis erupted that summer, Dangdai’s main cash hope — the Tianyu real estate project — stalled at launch, and survival slipped away.

By April 2022, Dangdai defaulted on its 500-million-RMB medium-term note. In China’s markets, public bond defaults often trigger full-blown crises. Yet problems had erupted earlier that year as fixed-income products issued by Dangdai affiliates through the Wuhan Changjiang Crowdfunding Financial Exchange defaulted, sparking public uproar. Ai, then 65, returned to lead emergency efforts, while local authorities set up a task force to inventory assets and trace misused funds.

Thousands of investors from across China flooded Wuhan seeking answers after Changjiang Crowdfunding Exchange’s products went into delinquency. According to investors interviewed by Caixin, the government task force confirmed that Dangdai had issued 5.4 billion RMB worth of fixed-income products through the exchange, affecting more than 3,500 investors nationwide.

The exchange had deep ties to Dangdai: originally founded in 2015 by Tianfeng Securities subsidiaries alongside local state capital, it became dominated by Dangdai’s Tianying Investment by 2017, which took a 30% stake, cementing control. Weak regulation made the exchange — like many local exchanges nationwide — a haven for illegal fundraising. Infamous groups like private conglomerate Zhongzhi Enterprise Group Co. Ltd., Cedar Holdings Group Co. Ltd., and Tomorrow Holding Co. Ltd all used similar exchanges to skirt oversight, fuelling a wave of unregulated, high-risk investments.

Dangdai’s own financing products issued through the exchange displayed classic self-financing features: funds were raised ostensibly for investments, but underlying assets were often nonexistent or circularly backed by Dangdai itself or its affiliates. Funds from these products funnelled into a central cash pool used to plug holes across Dangdai’s sprawling empire, especially sports and property ventures. Insiders revealed that even Ai’s 80 million RMB charity donation to Inner Mongolia was drawn from these funds — apparently without his knowledge.

Though Ai claimed he asked his finance chief Li Zhengyou in 2019 whether the exchange’s products risked illegality, Li reassured him they were fully approved. Li, a former Guangxi financial regulator and ex-CFO of Tianfeng, was later detained in 2023 for suspected illegal fundraising. Other key executives at related entities also faced criminal measures as investigators uncovered systemic misconduct.

The largest sinkhole was Dangdai Mingcheng, once hailed as Ai’s crown jewel in cultural investment. After its 2015 pivot from mineral trading to entertainment under executive Yi Rentao, Mingcheng splurged on acquisitions: drama producer Qiangshi Media for 780 million RMB; sports agencies and a Chinese Super League team; and, in 2017, a 3.4 billion RMB buyout of UK’s Premier League broadcaster. Though shares soared and collateralised loans flowed easily, Mingcheng never turned a profit, racking up massive losses from 2019 onward.

Insiders revealed that former Mingcheng chairman Yi set up multiple off-book platforms to funnel funds through Zhexin Financing, using these to buy problematic products within the Mingcheng system and create a false appearance of prosperity. Yi fled to Spain in late 2021. Ai said Mingcheng lost more than ten billion RMB inside and outside its balance sheet during Yi’s tenure. Dangdai is gathering evidence to seek Yi’s extradition from Spain.

When Dangdai Group’s debt crisis erupted, its collapse threatened to engulf Tianfeng Securities. Investors who had bought risky products via Tianfeng’s client managers flooded the brokerage with demands for repayment, as links between Tianfeng, Changjiang Crowdfunding Exchange and Zhexin became clear, sparking fear of contagion across the financial system.

Tianfeng had raced to expand after its 2018 IPO, raising over 14.3 billion RMB through equity and nearly 57 billion RMB in bonds for liquidity and debt repayment. Its net capital multiplied fivefold in five years, and Tianfeng was touted as a model of small brokerage “leapfrogging” growth. But even before Changjiang Crowdfunding Exchange’s products began defaulting, regulators had flagged risks tied to Tianfeng’s entanglement with Dangdai, warning local officials that if Tianfeng fell, the damage could be uncontrollable.

As the crisis went public, the China Securities Regulatory Commission uncovered non-operating fund transfers: Dangdai had borrowed and repaid money at period ends to create the appearance of healthy financials at its listed subsidiaries Humanwell and Wuhan Sante Cableway Group Co. Ltd., while also engaging in extensive related-party transactions with Tianfeng. Regulators tallied more than five billion RMB in questionable flows between Tianfeng and Dangdai, demanding repayment before a state capital rescue.

Struggling under mounting investor claims and bond defaults, Dangdai had no liquidity left. To resolve the standoff, it transferred school shares, Huatai Insurance proceeds, and real estate to Tianfeng as collateral in March 2021. Then, in April 2022, after negotiations led by Yu, Hongtai Group stepped in to acquire Tianfeng’s shares from Dangdai, using those same assets as collateral to lend funds for repaying Tianfeng’s receivables. By October 2022, Hongtai had secured regulatory approval to become Tianfeng’s controlling shareholder.

Yet the rushed asset handover left messy records. While some old shareholders estimated the collateral package at around nine billion RMB, it included complex mixes of pledged assets, real estate, and hard-to-value shares. Funds borrowed against them were used inconsistently, and Tianfeng’s books never fully reconciled, leaving creditor claims mismatched during bankruptcy restructuring. By then, Tianfeng’s market value had collapsed from peaks above ten RMB per share in 2019 to less than 3.2 RMB per share at Hongtai’s purchase. After posting a 1.5-billion-RMB loss in 2022, Tianfeng briefly turned a profit in 2023, only to fall back into the red last year with a 30-million-RMB loss — its recovery still elusive.

At the start of the crisis, Ai still pinned his hopes on slimming down through asset sales. He sold major stakes in four listed companies to state-owned investors in Hubei, but crushing debt and asset devaluation left Dangdai no path to survival. Bankruptcy restructuring became unavoidable.

Those close to Ai recalled his legendary resilience; he initially resisted court-led restructuring, convinced he could pull through. Dangdai consulted with investment bank China International Capital Corp. and Zhong Lun Law Firm, hoping for a private settlement like Sanpower Group’s. The plan proposed partial debt rollover repaid over eight years at 2% interest, with other debts converted to equity — but only around two billion RMB could be raised through asset sales and shareholder clawbacks, enough to cover small claims but far from solving the crisis.

In August 2023, a desperate Ai called Yan Jun, a senior partner at King & Wood Mallesons who had done charity work with him in Inner Mongolia. Yan flew to Wuhan, re-evaluated Dangdai’s finances, and concluded that only judicial restructuring could work. A year later, on 30 September, Wuhan Intermediate People’s Court accepted creditors’ petition to restructure Dangdai.

The key was finding an investor willing to fund the restructuring. By late 2023, Dangdai’s cultural, real estate and education arms had lost most of their value; only Humanwell was worth saving. But bidders faced two hurdles: Dangdai’s remaining stake in Humanwell was small due to forced auctions, and restructuring was estimated to need over ten billion RMB.

Six central and state-owned enterprises bid, five submitting formal proposals: China Merchants’ tech arm, China National Pharmaceutical Group Corp. (Sinopharm), China Resources Pharmaceutical Group Ltd., Hubei Science Technology Investment Group and Yichang Industrial Investment Holding Group Co. Ltd. Among them, Sinopharm already held 20% of Yichang Humanwell, while Yichang Industrial Investment directly and indirectly controlled over 12% of Humanwell shares.

Though Yichang’s local state-owned enterprises (SOEs) wanted control, it lacked financial muscle. China Resources initially offered to merge Humanwell into its subsidiary Double-Crane Pharmaceutical Co. Ltd., but Hubei opposed shrinking its pool of top-tier pharma companies; regulatory worries over market concentration also weakened China Resources’ bid. Sinopharm offered the highest price but proposed a simple buyout of equity without addressing small creditors’ claims.

Insiders said China Merchants entered late but aggressively. After hearing rumours of Sinopharm’s early lead, they realised the opportunity was still open by year-end 2023. Competition among the three central SOEs heated up, with the final bid from China Merchants raised to 11.8 billion RMB. Their balanced proposal offered not just cash but a promise to invest locally in Wuhan’s high-tech zone.

After intensive, confidential negotiations, all five finalists submitted proposals on 30 December. The next day, bids were scored on-site in a process overseen by anti-corruption officials, the court, creditors and notaries. China Merchants ranked first, its 11.8-billion-RMB offer setting a national record for restructuring investment — and the highest in Chinese pharmaceutical bankruptcy history.

On 15 January, China Merchants signed a restructuring agreement with Dangdai and its administrator. They created a complex structure: a new company would own 6% of Humanwell shares, a limited partnership would hold another 6% stake, and two trust vehicles would get the remaining stock. Shares held by the trusts would repay creditors.

According to the plan, creditors with claims under three million RMB would receive full cash repayment; larger claims would only see future returns if Humanwell’s stock rose. For these creditors to break even, Humanwell shares would need to climb 71% from their early 2025 price of 21 RMB — to about 36 RMB. 

In a rare glimpse of personal reflection, Ai recounted his near-death experience during a solo Yangtze River expedition as a university student. Pulled underwater into a giant whirlpool, he thought he would die prematurely with apologies left unsaid. But the river current weakened, his raft resurfaced, and he grasped a rope to survive — a moment he now sees as a metaphor for his lifelong refusal to surrender, even as his decades-long entrepreneurial dream dissolved in bankruptcy.

This article was first published by Caixin Global as “Cover Story: The Rise and Fall of China’s ‘Fentanyl King’ in Corruption-Fueled Bankruptcy”. Caixin Global is one of the most respected sources for macroeconomic, financial and business news and information about China.

Related: Beyond the blame game: Why US-China scientific cooperation on fentanyl is crucial | Chinese academic: Can the US and China really make a deal? | How Guizhou’s big data dream became a corruption playground