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Power struggling over China's largest home appliance retailer Gome

Updated on October 18, 2010
Huang and Gome
Huang and Gome

This is a very interesting case about the power struggling over China's home appliance retailing giant Gome.

GOME Electrical Appliances Holding Limited is one of the largest privately-owned electrical appliance retailer in Mainland China and Hong Kong. It was founded by Huang Guangyu in 1987. Huang and his wife hold about 32.47 percent of the company's share, and he was listed as the richest person in Mainland China in 2007. Huang is now serving a 14-year jail term for bribery and insider trading.

Huang has been struggling to control the company with another major share-holder Chen xiao, who has about 1.25 percent of the shares. He proposed to remove current chairman of the board Chen Xiao, and install his sister and lawyer on the board; and cancel the general mandate permitting the company's directors to issue GOME shares. But the Special Shareholders Meeting of Gome, held in Hongkong in September 28th, had vote down this proposal. Chen Xiao is now the chairman of the board of director in Gome. In the meantime, the meeting had abolished the distribution right of the additional shares from the present board of director, which means the equity of Huang Guangyu had been protected. It seems the competition was ended up with the result of win-win game.

Now we may ask, what's the political and economical meaning of this power struggle, can we learn anything from this typical case about the economic system and economic development in China?

First, much more rational than it before that the Chinese investors have become.

While the representative of Chinese entrepreneurship, as well as the fighter against foreign capital which was supported by the most public opinion before the meeting, Chen Xiao was chosen to stay finally since Huang Guangyu started his Gome career from scratch. Comparison to Zou Xiaochun who got a good background of being a lawyer before Chen Xiao had a strength in deeper understandings of Gome and the industry of home appliance in China.

Despite of the direction from the public opinion, the independent thought and judgment of the Chinese investors had showed a positive phenomenon of Chinese economic development.

Second, the legal concept has already won the hearts and minds of the Chinese people.

The reason is that both of the present management represented by Chen Xiao and the major shareholder of Gome were obeying the law and the procedure during the whole time. They all stated what they would respect the final result of the meeting. In addition, the phenomenon of Zou Xiaochun, who used to be a financial layer, was recommended as the new chairman of the board of director shows that much more attention had been paid to the lawful constraints from Huang Guangyu ( now he is in the prison for his economic crime).

Related to the disorder situation when Chinese market economy just begun 30 years ago, it is a great progress that the legal consciousness has been set up in people’s minds.

Third, the rational and grown foreign capital: Bain had showed a good revelation for the direction of the development of Chinese economic system.

Capital Bain, a private capital from American, supplied the exigent financing to the Gome in 2008 when Huang Guangyu was investigated by the Chinese government and the international financial storm was happened. As a consequence, Bain became the second largest shareholder through the debt-to-equity swap after two years. Due to the financing, Bain saved Chinese native company: Gome, meanwhile, earn a fat profit.

It demonstrates a grown ability of international capital operation, which is needed urgently during Chinese economy integrating gradually into the international economy.

It is still a long way the Chinese economy has to go. Therefore, China needs to retain the advancement and sensitivity, and continually form the ability of thinking and judging independently. Only by this way, can the Chinese people realize their self-value and social-value in the coming wave of the new time.

By Cong Zhou


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