Thomas White Global Investing
Emerging Leaders

Emerging Leaders

May 2011

Zhang Xin, CEO, SOHO China


“To be honest, it makes me cringe, and I think most people with my background would feel much the same way.”

— Zhang Xin on being declared by Forbes as one of the world’s 10 self-made billionaire women, May 2011


Before Beijing began preparing for the 2008 Olympics, its landscape mirrored a city living in the past. The Chinese capital’s mostly traditional buildings from the imperial age, and stolid, boxy structures from the 60s and 70s exuded a certain old-world charm, but they hardly reflected the image of the modern, affluent, growth-driven society that China wanted to project. Then the Olympic makeover began, at a breakneck pace. Soon Beijing was turned into one of the swankiest new-age capitals of the world today. The city’s dazzling array of avant garde, futuristic buildings and soaring skyscrapers, especially in its central business district (CBD) and Financial Street, embody the explosive growth China has experienced in the past few years.

A part of the credit for Beijing’s transformation must go to Zhang Xin, a pretty, sophisticated, English-speaking 45-year-old who is CEO of the city’s largest commercial property developer, SOHO China. The Hong Kong-listed company, which is believed to have developed a fifth of the Beijing CBD, is known for creating some of the most iconic structures in the city, such as the recently completed Galaxy SOHO — a commercial building block resembling interlinked cocoons and designed by the celebrated British architect Zaha Hadid. SOHO’s buildings are spread over 20 million square feet of office, commercial, and residential space. Zhang Xin founded SOHO China in 1995 along with her husband Pan Shiyi, currently chairman of the company, taking the firm public in 2007 through one of Asia’s largest commercial real estate IPOs. Along the way, Zhang Xin and her husband also became billionaires. With a personal fortune of nearly $2 billion, the mother of two was recently included on Forbes’ list of the world’s 10 self-made billionaire women.

In fact, Zhang Xin’s story is the quintessential rags-to-riches tale. Despite a deprived, fatherless childhood in the countryside and teenage years spent doing 12-hour shifts in Hong Kong garment sweatshops, Zhang managed to learn English at a secretarial college and save enough to buy herself an airplane ticket to the U.K. She commented in interviews that “England turned out to be a very encouraging place” where she “found ways to get scholarships.” With these grants and endless toiling, she went on to graduate in economics from the University of Sussex and complete her master’s degree in development economics from Cambridge University. She returned to Hong Kong in her first job with a London investment bank. Two other very short stints in Goldman Sachs and Travelers Group later, Zhang realized that her heart was not in investment banking. In fact, she told The New Yorker that she loathed the profession because of its crass, insensitive people who “looked down on the poor and adored the rich.”

Then Zhang’s life took a turn. Perhaps this restlessness and a yearning for the homeland took her back to China, which was then in the process of abandoning orthodox Marxism and wholeheartedly embracing its leader Deng Xiaoping’s philosophy that “to get rich is glorious.” She met a young man, a partner in a Beijing real estate firm, who, within a week of meeting her, proposed not only marriage but also a business venture. Zhang took the plunge. Pan Shiyi was self-made, like Zhang, and came from a background similar to hers, and according to Zhang, “If I grew up with nothing, he grew up with even less.”

The prospects in China’s budding real estate industry looked bright as Beijing had started work on establishing a business district. And Pan Shiyi was keen to use the knowledge and skills he had acquired working with his employer in real estate. Soon after their marriage, Zhang and Pan Shiyi set up Hongshi (red stone), which later became SOHO China.

Apparently, Zhang and Pan Shiyi’s partnership worked beautifully. While Pan Shiyi tapped his local knowledge and connections, Zhang put her education to good use. A few years later, both got lucky as the government began allowing China’s tightly controlled banks to disburse home loans. The couple also envisioned that rapid growth in the country would soon create a class of the neo-wealthy who would seek exclusivity. Over the years, this vision turned out to be the essence of SOHO China’s business strategy. Pan Shiyi and Zhang consistently commissioned the most creative architects and backed their unconventional designs, collecting a mantle full of awards in the process. A case in point was SOHO China’s Commune by the Great Wall project, a block of luxury houses designed by different architects. The development was named “A New Architectural Wonder of China” by Business Week in 2005 and fetched Zhang the 2002 La Biennale di Venezia Special Prize to an Individual Patron of Architecture.

Curiously, though, despite its obvious appeal in the western world, Zhang’s life story is not unusual, let alone unique, in China. Around half of the world’s richest self-made women, according to the Forbes list, are from China and at least one of them operates in the Chinese real estate industry. It is almost as if China creates wealthy, successful, and self-made women just as its assembly lines produce goods for exports. This odd phenomenon has been attributed to several factors, such as the sense of empowerment Chinese women received under Mao, who made famous the slogan “Women hold up half the sky.”

Chinese women today are encouraged to get good educations and start their own enterprises. And so, a generation of women who grew up poor and impoverished during the Cultural Revolution educated themselves against all odds, rose to high positions in large state-run companies, and then used their experience and connections to raise capital for their ventures. As Zhang says in a video interview to the Financial Times, there is no established system in a dynamic marketplace such as China and, therefore, women are free to chart their own way.

Nonetheless, Zhang is different from most other wealthy women entrepreneurs of China. Unlike her typically reclusive and low-profile peers in the business community, she and her husband are considered the “It Couple” and, arguably, the face of China’s real estate industry. Their extravagant parties are as famous as their celebrity friends. Operating in an industry where brand association and high visibility are prized, Zhang has seemingly never displayed any dissatisfaction with having every aspect of her life written about extensively — from her Lexus car and speeches at the Davos World Economic Forum to her cameo appearance in the movie Wall Street: Money Never Sleeps.

What gives people more confidence to operate in this general bubble environment is that the economy continues to grow.

— Zhang Xin, talking about growth prospects in the Chinese real estate space

But the businesswoman, like the business within she is immersed, seems to be going through a period of transition. While Zhang claims that she is a lot less aggressive these days and is leaning toward spirituality, China’s booming real estate industry is grappling with the vexing question of whether it will see a bust soon. After a period of very high growth, the sector is expected to cool down because the government has been implementing every conceivable policy measure to prevent a property bubble. According to conventional wisdom, property demand should wane and prices should moderate due to these measures.

However, Chinese real estate companies continue to sell properties at the prices they demand as real estate remains one of the most preferred investments among the Chinese. Multiple home ownership is becoming increasingly common and the second or third homes are purchased only as investment. Excluding this investment demand, real demand for commercial and residential space is well below the supply from new construction. As a result, whole chunks of office space and residential blocks remain unoccupied and rents are at an all-time low relative to property prices. Some economists believe the low occupancy rates are a sign of an impending collapse in property prices. But middle class and wealthy Chinese remain undeterred and continue to invest in property.

Circumspect, Zhang and her husband have adopted the policy of selling their projects quickly and not holding on to any property. But simultaneously, they have been rapidly expanding their footprint outside Beijing, especially in Shanghai. For Zhang, it seems, holding up half the sky is not enough. She wants the earth as well.

 

 

 

 

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