China’s policymakers have just elevated the country’s rural revitalisation strategy to new heights of importance. Huaxi Village in Jiangsu Province — once known as the “richest village in China” — has been in the news, albeit controversially.
Last week, a video of Huaxi villagers lining up in the rain went viral. It turned out that they had invested their money with the Huaxi Group, set up by the Huaxi Village Communist Party Committee, but their dividends had dropped from 30% to just 0.5%, and they were worried that there were financial issues with the group. They wanted to cut losses and cash out, leading to a run on the Huaxi Group as hundreds of people queued to get back their principal sums.
The following day, a spokesperson for the village CCP committee confirmed the accuracy of the video but said it was mainly due to cashing out of mature investments, and that it is normal for investors to cash out at the beginning and end of the year. The spokesperson added that Huaxi Village had ample funds for people to cash out.
While this seems to be the end of the story, for Huaxi Village — “where everyone lives in a villa and drives a luxury car” — to be thrust back in the spotlight with unsavoury news after a period of quiet does make one lament: what is happening to the “number one village in the world”?
The rise and fall of Huaxi Village
Located in Jiangsu Province and administered under Wuxi’s Jiangyin City, Huaxi Village was once a miracle of economic prosperity. And no history of Huaxi Village would be complete without mentioning the late secretary of the Huaxi Village Communist Party Committee Wu Renbao. In the 1960s, Wu Renbao led local villagers in industrial development; following China’s reform and opening up, Huaxi Village seized the opportunity to develop its iron and steel industry, achieving rapid growth.
By the early 21st century, there were over 100 companies under the Huaxi Group, including iron and steel, non-ferrous metals, tobacco, and real estate. By 2004, the per capita annual salary of Huaxi villagers had reached 122,600 RMB (S$25,200), nearly 42 times the per capita income of farmers in the country and 13 times the per capita salary of urban residents at the time.
After Wu Renbao passed away in 2013, his son Wu Xie’en took over as Huaxi Village party secretary and Huaxi Group CEO. Other members of the Wu family also hold important positions in the village, inviting criticism that Huaxi Village has now become “a feudalistic world ruled by a single family”.
However, after 2008, Huaxi’s steel industry declined, and overproduction became an increasing problem. In 2013, there were reports that because village-owned enterprises were losing money, villagers (being shareholders) were forced to check into five-star luxury hotels to “boost domestic demand”. Over the past five years, the Huaxi Group has been around 40 billion RMB in debt, while a performance report from January this year showed a first-ever loss for the parent company, of between 390 million RMB to 435 million RMB in 2020.
Amid a worsening debt crisis in Huaxi Village, outsiders are increasingly casting doubt on how the village is run. After Wu Renbao passed away in 2013, his son Wu Xie’en took over as Huaxi Village party secretary and Huaxi Group CEO. Other members of the Wu family also hold important positions in the village, inviting criticism that Huaxi Village has now become “a feudalistic world ruled by a single family”.
Reform or be left behind
It is not that Huaxi Village has made no effort to transform itself. After Wu Xie’en took over, Huaxi Group looked to the finance industry for new opportunities. It began to get involved in banking, securities, insurance, and futures, and purchased shares from multiple listed companies through various platforms. Wu Xie’en’s son Sun Xiyao, upon his return from further studies in 2008, also helped to expand the business into emerging internet industries such as online games, e-sports and mobile reading.
However, based on the current business performance assessment, Huaxi Village’s transformation has not been successful. Not only have the investments in the emerging industries failed to compensate for the losses incurred in the traditional industries, but they have also increased operating costs. Can Wu Renbao's descendants lead Huaxi Village to find the right development path? Does a village run like a family business have a competitive edge in this day and age? There are no answers to these questions yet.
The family-run trait of Huaxi Village is reflected in the passing of the leader’s mantle as well as in the differential treatment of insiders and outsiders. In its prime, it was reported that only a few thousand villagers in Huaxi Village could get luxurious villas and cars — migrant workers had no share in these benefits. Today, different Chinese regions are thinking up creative ideas to attract talents. Can Huaxi Village rely on its existing system to bring in new blood?
... how Huaxi Village reinvents itself, overcomes its credit crisis, and finds a sustainable development path after going through the growing pains of transformation, will surely be a more valuable point of reference.
Huaxi Village was once honoured as a model example of a socialist economy. It is also the pride of the cities of Wuxi and Jiangyin where it is located. After the village had a business management crisis, the Wuxi local government called for a meeting to resolve the problem. Last year, local state-owned enterprise Wuxi Guolian Group even acquired a portion of the shares of Huaxi Group’s affiliated companies for nearly 1 billion RMB. However, people have their doubts as to how much longer Huaxi Village can last under government support.
A run on a financial institution is often due to serious negative rumours shaking the confidence of clients who then rush to withdraw their deposits in droves. A bank run is a sign of credit insolvency of a financial institution that can further exacerbate a cash flow crisis and even lead to bankruptcy. The run on Huaxi Village reflects that this “number one village in the world” is losing its investors’ trust due to its outdated modus operandi, bringing greater challenges to its future development.
Huaxi Village created its old success story during an extraordinary period of development in China. However, to the thousands of villages waiting to be revitalised, how Huaxi Village reinvents itself, overcomes its credit crisis, and finds a sustainable development path after going through the growing pains of transformation, will surely be a more valuable point of reference.
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