With its fiercest competitor Zoomlion under media fire because of a Chinese reporter’s arrest, Sany Heavy Industry – China’s biggest manufacturer of construction machinery, may not be smiling. As investors speculate about the financial health of Changsha-based Zoomlion and the strength of its political ties, Sany also saw its stock drop this week—5% on the Shanghai Stock Exchange and 4% in Hong Kong (well, that was  better than Zoomlion’s 7.5%). The wealth of Sany Chairman Liang Wengen, who ranked No.14 on our China Rich List just a week ago with $5 billion, is now down to $4.7 billion. Two other Sany executives on our list, Xiang Wenbo and Tang Xiuguo, each lost more than $30 million.
The storm hit on Tuesday when police detained Chen Yongzhou–a reporter at New Express EXPR -1.27% who questioned the sales, marketing strategies and stock activities of Zoomlion in a series of 14 articles–on charges of fabricating facts and “damaging a commercial reputation.†The arrest was made in a strikingly similar fashion to “shuanggui,†or the practice of putting government officials under supervision. The police asked to meet with Chen, purportedly to discuss his burglarized apartment, then took him away in a Mercedes-Benz, which was later rumored to have belonged to Zoomlion, the Southern Metropolis Daily reported.
The bulk of Chen’s articles appeared after a Sany employee was arrested for stealing Zoomlion business secrets last November. In the same month, Sany relocated its headquarters from Changsha to Beijing, citing Liang’s exhaustion from the stream of negative publicity and “untrue reports.†Later, in a 9,000-word feature, Global Enterprises magazine detailed cases of cut-throat competition between the two companies, the chairmen’s unpleasant interactions, and harm done to Liang’s family. Zoomlion responded by throwing nearly identical daggers at Sany.
Neither party gained much from being at swords points. Both would have been better off channeling their energy into improving sales. Overproduction in 2012 and overly aggressive expansion abroad slowed Zoomlion’s growth from 45% in 2011 to 4%, while Sany experienced a 7% decline in sales. They were again hit severely in the first half of 2013, as the drop in infrastructure projects in China hurt the whole industry. Regardless of who’s the real victim, Zoomlion and Sany both face the same problem: revenue at both is projected to drop some 10% this year.
Follow me on Twitter @Hengshao90.
