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Hope for the future Four Chinese brothers turn a humble trade into a fortune.Pig feed may not be everyone's idea of a glamorous business, but it has helped crown the king of China's private sector. The Hope Group, which was founded by the four Liu brothers from Sichuan province, turned the feeding of hogs into a $1 billion fortune, making the brothers China's most successful entrepreneurs.Having sold their bicycles and watches to raise money, they started farming quails and chickens in their hometown of Xinjin in the 1980s. They soon expanded into the production of pig feed. Today, Hope, with more than 15,000 employees, has 6% of China's animal-feed market and sales last year of $1 billion, up from $820 million the year before. Hope expects to see sales jump to $1.2 billion in 2001 and estimates profits at $100 million. The family has one of the biggest investable pools of self-made capital in the country--at least $150 million, probably much more. Where do China's best-heeled entrepreneurs invest in the future? Each of the four might give you a different answer, and each is pursuing a slightly different strategy--real estate, technology, banking and insurance. But pig feed is where it all started, and it is still the group's main source of cash. In the early 1980s, when Hope was being formed, China's feed industry was underdeveloped. It took a Thai company, Charoen Pokphand, to speed things along in China. In 1979 it produced an advanced feed that cut the time to raise a pig by up to a third, allowing farmers to exploit China's growing market for pork. According to statistics from China's ministry of agriculture, annual pork consumption has tripled to 30 kilograms a person since the early 1980s. Even with tough competition from Charoen Pokphand, the Liu brothers saw their feed business thrive. By 1991 Hope had one factory, worth $12 million, and four bosses, each with his own ideas about where the business should go next. The brothers split the assets but retained common ownership of the Hope brand of animal feed. Two of them, Liu Yongxing and Liu Yonghao, managed the feed business between 1991 and 1995 when it was growing its fastest. By that time Hope had come up with its own product and was building a reputation among small farmers for producing reasonably priced, high-quality products. It helped the brothers more than a little that they had the same rural background as their targeted customers. Hope has tried to keep its operations cheap and simple. It doesn't buy imported equipment, or build smart offices or operate expensive cars. It employs local managers and so can undercut foreign competitors by a fifth and domestic competition by a half, according to Liu Yongxing. They should enable the company to remain competitive even after China's ascension to the WTO brings down trade barriers. Like most of China's private companies, Hope had no shot at bank financing. It grew by reinvesting profits and minimizing costs. Hope has built a network of 140 feed factories across the country. As a rule, the plants are situated about 150 kilometers from one another, minimizing transportation costs and allowing the group to build strong relationships with local governments. By 1995 the two brothers managing the feed business wanted to take it in different directions. Liu Yonghao wanted to diversify; Liu Yongxing wanted to stick to animal feed. They split the business again--26 factories with assets estimated at $100 million--this time along geographic lines. "The split was amicable," Liu Yongxing insists. "I drew a line across the map one evening and asked my younger brother which part he wanted. He chose the South and the West." Now Liu Yongxing runs East Hope out of Shanghai, and his younger brother controls New Hope out of Chengdu, the capital of Sichuan province. Both are still selling under the Hope brand. Liu Yonghao--the best known of the four and the youngest at 50--took his share of the cash flow and the proceeds from a 1998 listing of a New Hope subsidiary on the Shenzhenexchange and invested in real estate, mostly in the industrial and financial centers of Chengdu, Dalian and Shanghai. He and his older brother Yongxing are still investing together in a number of new enterprises. They are the largest shareholders of the Minsheng Bank, China's first private bank, which was listed in Shanghai in November 2000 with a market value of $450 million. The next big bet for the two brothers is insurance. They have invested $16 million in Minsheng Insurance (no connection to the bank). Their plan is to find an overseas partner and gain a beachhead in the potentially lucrative domestic insurance market. A partnership with the Liu brothers could be worth a lot, as the world's biggest insurers line up for a license to sell in China. Aside from the banking and insurance investments with his youngest brother, Liu Yongxing, 53, the second brother, has concentrated on his East Hope feed business. That may soon change. "I am about to invest over $1 billion in a project in the next year," he says, "but I cannot tell you more about that yet." Local press reports speculate that Yongxing may be looking at investing in a primary industry, such as metals or minerals, both of which are currently the preserve of state-owned enterprises. The eldest brother, Liu Yongyan, 56, took his share of cash flow and followed his dream: to build a technology business. A tinkerer by nature, he wrote one of China's first software application programs in 1982. He says ruefully, "Liu Yongxing talked me out of continuing with software, persuading me that the money lay in animal feed instead. Had we continued, Hope might be famous today as a software company."
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