Zong Fuli Hasn't Lost Yet | Big Events with Heavy Investment

Author | Xie Yunzi

Editor | Huang Yida

Before 2009, when Zong Qinghou won the "Dawa Dispute," he probably never imagined that another "property dispute case" that would shock the nation would unfold 16 years later. However, this time, the dispute is more intense and less decent.

On August 1st, the official website of the Hong Kong High Court released a court judgment, confirming that:

The assets in the account of Jian Hao Ventures Limited at The Hongkong and Shanghai Banking Corporation are trust properties in which the three plaintiffs, Zong Jichang, Zong Jieli, and Zong Jisheng, have beneficial rights. The defendant, Zong Fuli, is prohibited from withdrawing or transferring funds from the Hong Kong HSBC account of Jian Hao Ventures. The injunction remains in effect until the lawsuits in the Hangzhou Intermediate People's Court and the Zhejiang High People's Court reach a final ruling.

The judgment also requires Zong Fuli to fully disclose to the three plaintiffs the current balance of the HSBC account. If there have been any asset transfers or dispositions in the account since February 2nd, 2024, she must explain the destination, purpose, recipient, and method of transfer of the assets.

After the release of the court judgment, the news that "Zong Fuli lost" spread like wildfire. However, in fact, the Hong Kong court's judgment is only a temporary measure. Judging from the overall picture of Wahaha's "business empire," the $2.1 billion (approximately 15.094 billion RMB) involved in the offshore trust is just a drop in the bucket.

In 2013, at the peak of Wahaha's prosperity, its annual revenue reached 78.3 billion RMB. Although with the tides of the times and industry competition, Wahaha's market has been shrinking. In 2023, before Zong Qinghou's passing, the company's revenue still reached 50 billion RMB.

From this perspective, it is meaningless to judge Zong Fuli's success or failure at present.

Trust Dispute

By simply translating the Hong Kong High Court's ruling on the trust dispute, we can at least see the following facts:

First, Zong Qinghou did leave a handwritten document to establish a $2.1 billion trust for his three children, including Zong Jichang.

Second, the three children, including Zong Jichang, recognize Zong Fuli's right to inherit Wahaha. Zong Fuli also promised to use Jian Hao Ventures, which she controls, to set up three trusts with a cumulative scale of $2.1 billion for the three siblings.

Third, the court judgment also mentioned that Zong Qinghou made two wills on February 2nd, 2024. One of them concerns his specific overseas assets but does not cover Jian Hao Ventures and its assets; the other concerns his domestic assets in the Chinese mainland. Neither of the two wills names the three plaintiffs or Du Jianying as beneficiaries. Instead, it designates several people, including Zong Fuli, Shi Youzhen, and Zong Qinghou's mother, as beneficiaries.

However, at present, it seems that the agreement has only just begun.

In the documents released by the Hong Kong High Court, Zong Fuli's side claims that the interest generated by the fixed principal of $2.1 billion is the trust asset, not the principal itself. If this is true, it seems to mean that Zong Fuli has the right to decide the term of this trust and even the flow of this $2.1 billion.

However, the judge of the Hong Kong High Court also specifically emphasized that "the lawsuit in this case does not involve the management of Zong Qinghou's estate. The above background only provides a basis for understanding the relevant agreements mentioned later, which refer to the above wills."

"According to the common law system, from the perspective of the trust alone, the probability of (Zong Fuli) losing the case is relatively high. However, this trust and the inheritance of the estate are in a principal - subordinate relationship. The trust lawsuit in Hong Kong also has to wait for a clear ruling from the mainland."

Dong Yizhi, a lawyer from Shanghai Zhengce Law Firm, told 36Kr that from the outside world's perspective, the details of the establishment process and the validity of the trust have not been clearly disclosed. The outcome of the court's decision still needs to be judged based on the basic documents of the trust establishment. "From why Zong Fuli has the right and how she transferred $1.1 million from the trust, to whether the trust establishment process meets legal requirements and whether the trust property is legal, all these may affect the final result."

In other words, the lawsuit in Hong Kong cannot be called a "major reversal." As Anthony Siu, Zong Fuli's lawyer, said, the lawsuit in Hangzhou is the "main event." The lawsuit of the three plaintiffs in the Hangzhou court mainly focuses on the division of 29.4% of the group's equity.

The picture is sourced from the Hong Kong High Court's ruling on the trust dispute

Mystery of Off - system Companies

According to previous media reports, the Shangcheng District Finance Bureau of Hangzhou has confirmed that a special working group has been established to handle issues such as the internal family rights and interests dispute, trademark transfer controversy, and state - owned asset safety after the passing of Zong Qinghou, the founder of Wahaha Group.

In 1999, during the wave of state - owned enterprise reform, Zong Qinghou promoted the company's transformation into a mixed - ownership enterprise. After several adjustments, the current equity structure of Hangzhou Wahaha Group was formed: Hangzhou Shangcheng District Cultural, Commercial, and Tourism Investment Holding Group Co., Ltd., which is 100% controlled by the Shangcheng District of Hangzhou, holds 46% of the shares; Zong Qinghou and Zong Fuli currently hold 29.4% of the shares; and the Wahaha Employee Shareholding Association holds nearly 24.6% of the shares.

The picture is sourced from Aiqicha

Judging from the equity structure of Hangzhou Wahaha Group alone, state - owned assets are the absolute major shareholder. However, this reform did not include intangible assets such as trademarks and production technologies, which laid the groundwork for future asset transfers.

In 2006, the "Dawa Dispute" officially broke out. According to Zong Qinghou's previous statement:

"(Danone) disagreed with our request to set up new factories to increase production capacity at that time. Instead, they asked us to find contract manufacturers. On the other hand, they made large - scale investments and even took control of major competitors such as Robust and Bright."

"In order to maintain production capacity and because it was impossible to find contract manufacturers that met Wahaha's production and quality requirements, the cadres and employees raised funds on their own to build a number of factories. These factories processed products for the joint - venture company and also shared the sales expenses."

Subsequently, Zong Qinghou held high the banner of protecting national enterprises and drove Danone out of Wahaha's business map through non - joint - venture companies. This may be the initial reason for Wahaha to establish off - system companies. Aiqicha shows that there are currently more than 200 domestic companies in the "Wahaha system" controlled by the Zong family. Most of these companies operate around the Wahaha industrial chain, but most of them have no equity relationship with the Shangcheng District state - owned assets.

According to the Economic Reference News, by the end of 2022, the total assets of Wahaha Group (including off - system companies) were 37.047 billion RMB, with an operating income of 51.202 billion RMB and a net profit of 4.767 billion RMB in 2022. In contrast, by the end of 2022, the total assets of the main body of Wahaha Group were 5.807 billion RMB, with an operating income of 1.403 billion RMB and a net profit of 18.7128 million RMB in 2022.

That is to say, the assets of Wahaha Group, in which the Shangcheng District state - owned assets hold equity, only account for about 15% of the entire Wahaha business map, and the net profit only accounts for 0.39%.

Can the "Water" Return to Purity?

In 2024, when Zong Fuli took over Wahaha, she replicated her father's previous actions, but the target to be "kicked out" changed. Putting aside the family forces whose authenticity is hard to distinguish, to some extent, Zong Fuli also pointed the finger at the entire Wahaha Empire: a business model dominated by Zong Qinghou, which was rock - solid but almost impossible to inherit due to various forces.

According to previous media reports, Zong Fuli first carried out a "major reshuffle" of the core management of Wahaha Group and then required all employees of Wahaha Group to transfer their labor contracts to the "Hongsheng system."

Among them, since many old employees are involved in the "Wahaha Employee Shareholding Association," labor disputes have occurred frequently.

Meanwhile, after Zong Fuli took over, Wahaha has been shutting down factories one after another, including Shenyang Wahaha Rongtai Food Co., Ltd., where Zong Jichang and Zong Jieli serve as directors, and Nanjing Wahaha Beverage Co., Ltd., Tianjin Wahaha Food Co., Ltd., Dali Wahaha Beverage Co., Ltd., and Shuangcheng Wahaha Dairy Co., Ltd., where Zong Jichang serves as a director.

The production capacity of these factories is gradually being supplemented by Zong Fuli's "Hongsheng system." According to the official website, Hongsheng Beverage Group currently has 19 production bases and 48 subsidiaries across the country, with 104 modern production lines.

The media once reported that after Zong Fuli took office, she carried out supply - chain reform. One of the most crucial changes was the establishment of a planning center. The "production - supply - sales" links were largely incorporated into the "budget system." Every expense in all links needs to be "budgeted" at the end of the month. This approval process finally needs to be reviewed by Zong Fuli herself and then strictly implemented according to the budget.

Previously, Wahaha also explained the factory shutdowns and employees' complaints and rights - protection actions. To enhance the response ability in the terminal market, it is necessary to adjust and optimize the production and sales layout structure, which has led to the shutdown of some factories. The companies that have shut down have carried out the liquidation process in accordance with relevant legal procedures. At the same time, the recent phenomena such as employees' labor contract transfers, complaints, and rights - protection actions are the short - term pains brought about by the company's internal compliance reform and management optimization.

Not long ago, in July, Wahaha quietly changed its billboard to "Water is just water. Let water return to purity." However, at this time, Zong Fuli has also faced a backlash due to her many bold reforms.

As 36Kr learned, some old employees who have worked at Wahaha for twenty years have had their salaries cut, with a monthly income of less than 2,000 yuan. In the view of some former senior executives who have left the company, this is obviously different from the "family culture" advocated by Zong Qinghou.

A former senior executive who worked at Wahaha told 36Kr that "when Zong Qinghou was in power, the company had absolute balance and cohesion, and employees admired him very much. If an old employee was not competent for the job, he would be transferred to another position instead of being directly fired."

In his view, Du Jianying was one of the "right - hand men" in the early days of Wahaha. He believes that the key to the inheritance dispute lies in the choice of the Hangzhou State - owned Assets Supervision and Administration Commission.

Dong Yizhi further added that during the establishment of the trust, whether the family's assets involve the interests of the employee shareholding association and state - owned assets still needs to be investigated and verified by the Shangcheng District government.

In his view, there are many "historical legacy issues" in the actual operation of the early mixed - ownership reform, which often manifest in the form of shareholder break - ups. Different from Wahaha, currently, state - owned enterprises and central enterprises have diverse forms of introducing non - public capital, such as parallel state - owned asset convertible bonds and shareholding, or the introduction of the preferred stock system. The purpose is to enhance the vitality of the mixed - ownership reform and promote the participation of non - public capital in the reform.

It is a clear fact that there is still no conclusion to the inheritance dispute case of Wahaha.

In the first quarter of 2025, the net growth rate of Wahaha's overall sales revenue remained above 30%. In terms of market share, according to statistics from Mashangying, in the first quarter of 2024, Wahaha's market share in the bottled water sector was about 9.42%; in the first quarter of 2025, this share rose to 17.07%.

However, an old - fashioned topic is that since the Nutri - Express, Wahaha has never created a new blockbuster product. In the "water" market, its old rival, Nongfu Spring, has long been in the first place.

Compared with the currently - concerned trust dispute, a series of reforms being promoted within Wahaha are more substantial. The public is always just an onlooker. For Zong Fuli, victory or defeat lies beyond the trust case. However, referring to a series of actions after she took over, especially the disputes such as channel frictions and internal turmoil caused by the reforms, the expected outcome of the reforms still needs to be observed, and it is hard to be optimistic.

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This article is from the WeChat public account "36Kr Finance." Authors: Xie Yunzi, Huang Yida. Republished by 36Kr with authorization.