Chen Fashu (陈发树), the richest man in Fujian, is taking on Yunnan’s most influential state-owned enterprise and the massive tobacco monopoly that oversees it. In 2009, Chen, chairman of the New Huadu Industrial Group, (新华都集团), spent 2.2 billion yuan to purchase a 12 percent stake in the Yunnan Baiyao Group (云南白药), which produces products like medicine and toothpaste. The company is a subsidiary of the Yunnan Hongta Group (云南红塔集团).
The contract said that the deal required approval from Yunnan Hongta’s parent company China National Tobacco Corporation (中国国家烟草公司), also known as China Tobacco. The contract also stated that the Hongta Group had to inform Chen in a timely fashion if the deal was rejected. After paying, but failing to receive his shares for over two years, Chen has chosen to sue. The case deals with shares worth a record high for China’s legal system.
The lawsuit has added significance since it challenges state-owned China Tobacco, which holds a monopoly over the tobacco industry that accounts for 38 percent of the world’s cigarette sales. The company also functions as regulator over the industry and invests in several other fields. With a net income of $18.7 billion, it was the 18th largest company in the world by profits in 2010.
The Yunnan Provincial Supreme People’s Court didn’t expect so many journalists at the long-awaited court proceedings on Aug 23. It had to temporarily add a few of rows of seats, but many reporters still had to crowd in. This was the first time for the two sides to argue in court. But many were disappointed that neither Chen Fashu nor Li Jianbo (李剑波), the legal representative of Hongta Group, showed up.
There were just four lawyers; two for each side. The core issues were whether Hongta Group purposely delayed fulfilling the contract, whether China Tobacco had the right to reject the deal, whether Chen should get compensation, and whether the deal caused “the loss of state-owned assets.”
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