Chinese woman's fortune rests on cardboard

U.S. trash has made Zhang Yin the richest person in China.

Zhang started collecting wastepaper in 1990 in Los Angeles and shipping it to China to make the cardboard needed by growing export industries.

Her company, Nine Dragons Paper Holdings, is now China's biggest packaging maker.

Nine Dragon's stock has risen fourfold since its March initial public offering, pushing Zhang's fortune to $4.7 billion.

"Other people saw scrap paper as garbage, but I saw it as a forest of trees," Zhang, 49, told reporters in November in Hong Kong.

"I had to learn from scratch. The business was just my husband and me, and I didn't speak a word of English."

Investors such as Merrill Lynch and Baring Asset Management are betting on Zhang, the daughter of a revolutionary-era army officer.

Chinese companies that make everything from computers to bicycles, demand more and more cardboard boxes. China's exports have increased fivefold to $762 billion during the past decade.

"The company is the leader in the industry," says Lilian Co, a manager of the $2.7 billion Baring Hong Kong China Fund. With 29 million shares, the fund is the company's fourth-biggest shareholder.

"There's an expanding market and a shortage of supply. We still like her story," Co said.

Zhang is the world's richest self-made woman, ahead of Oprah Winfrey and eBay Chief Executive Meg Whitman, according to Shanghai-based Hurun Report, which ranks wealthy people in China.

Hurun in October said Zhang was China's richest person, topping Huang Guangyu, who founded Gome Electrical Appliance Holdings. The magazine estimated Zhang's fortune at $3.4 billion, compared with Huang's $2.5 billion.

Zhang is also a member of the Chinese People's Political Consultative Conference, an advisory body to the government whose role resembles that of a legislative upper house.

Shares of Nine Dragons have fallen 3.9 percent since reaching a record HK$14 on Nov. 22. Credit Suisse First Boston on Dec. 1 rated the stock "underperform," citing concerns it had risen too far from the initial offering price of HK$3.40.

Nine Dragons posted profit of 1.37 billion yuan ($127 million) in the year ended June 30, up 450 percent from a year earlier. Sales were twice those of its nearest competitor, Hong Kong-listed Lee & Man Paper Manufacturing.

Exports shape career

Zhang's career tracks China's economic opening, which, since the early 1980s, has been spurred by consumer goods for export.

Arriving in the then British colony of Hong Kong from neighboring Guangdong province in 1985, Zhang was an accountant at a Chinese trading company that went bust within a year.

"When I lost my job, I had a choice," she recalled, switching easily between Putonghua, China's national language, and Cantonese, the dialect of Guangdong province. Aides say Zhang is uncomfortable being interviewed in English.

"I could return to China or I could find a job in Hong Kong," Zhang said. "A Hong Kong businessman even offered me a salary of HK$500,000."

Zhang turned down the unspecified job offer -- and a salary equal to $64,000, or 10 times Hong Kong's per-capita income at the time -- proving she was no ordinary job seeker.

Her father, Zhang Deen, had been a lieutenant in the revolutionary-era Red Army, giving him influential connections after the Communist Party took power in 1949, says Albert Louie, a Beijing-based risk-management consultant.

Well-placed connections

"Her father's war buddies have played an instrumental role in Zhang's rise, in that they helped her open doors at all levels of government," says Louie, who has studied Zhang's career. "They also helped her build the contacts needed to help many Hong Kong tycoons resolve investment problems."

Zhang said her father left the army to become the general manager of a metallurgy company in Guangdong.

"It was my hard work that helped me achieve my success," she said.

Zhang founded a company with startup capital of 30,000 yuan ($3,842) and began buying scrap paper through intermediaries in the U.S.

Zhang tapped the U.S. market directly in 1990, moving to Pomona, Calif., near Los Angeles, and running a paper-collection company out of her apartment. With her husband, Liu Ming Chung, a doctor born in Taiwan and raised in Brazil, she bought refuse from garbage dumps, building American Chung Nam into the biggest exporter of wastepaper from the U.S.

"Garbage dumps were more than happy to have her haul off the paper for minimum payment," says Xue Xu, a management consultant and professor of marketing at Beijing University. "Her overhead was and remains very low because of this."

Zhang secured low shipping rates because many vessels were almost empty on the return to China, after disgorging their cargoes in the U.S., says Rupert Hoogewerf, publisher of the Hurun Report.

Lumber, pulp shortage

China is short of lumber and pulp after chopping down many forests during Mao Zedong's Great Leap Forward, a 1958-62 industrialization drive that resulted in mass starvation and environmental damage.

"Chinese manufacturers were desperate for scrap paper," Zhang said in November. "All I did was help fulfill a need."

In 1998, Zhang expanded from recycling into cardboard production as demand for packaging increased.

China's use of cardboard may rise to 34 million tons, or 24 percent of global demand, by 2010, making it the world's largest consumer, according to Bedford, Md.-based Resource International Systems, which researches the forest-products industry. The country currently uses about 18 percent of global demand.

Chinese companies are rushing to boost output as U.S. rivals close plants. The country's cardboard-production capacity will increase 53 percent from 2006 through 2008, Resource International estimates.

Nine Dragons, China's biggest producer, plans to add five new factory lines next year, boosting its capacity 60 percent. New plant openings may result in excess supply, cutting prices and profit margins, says fund manager Co.

Rising prices for wastepaper may also reduce profit. Scrap paper is increasingly treated as a commodity in the U.S., pushing prices to $135 a ton from $100 in the late 1990s, according to Herman Woo, a Hong Kong-based analyst at brokerage BNP Paribas Peregrine.

"Her No. 1 risk is government policy," says David Wong, an environmental-science professor at Shanghai Second Polytechnic University. "There is a possibility that the U.S. may restrict the export of scrap paper to China."

Nine Dragons is seeking to diversify its sources of raw material by investing in an Inner Mongolia plant that produces pulp from logs and wood chips.

Typical for Chinese manufacturers, Nine Dragons is a family concern. Zhang, husband Liu and brother Zhang Chengfei own 72 percent. The board includes her son, Lau Chun Shun, 25, who is studying for a master's degree in financial engineering at Columbia.

Zhang's success reflects the growing power of women in the country's thriving economy. There are 48 Chinese women with fortunes of at least $63 million, according to the Hurun Report.

"If you look at the top 35 women on the list, all are founders of their own companies," says Hung Huang, the female CEO of China Interactive Media Group, a Beijing-based magazine and Internet publisher. "Women are playing more important roles in China, especially in the private sector."

Zhang downplays the significance of gender.

"I don't separate women from men when it comes to work," she said. " I can withstand a lot of pressure."

Her expansion into cardboard coincided with the financial chaos of 1997 and 1998, when international investors withdrew capital from Asian markets. As Zhang prepared to build a second production line, her Hong Kong-based banker demanded more security.

"He had originally agreed to the machines, which were imported and brand new, as collateral for the loan," Zhang said. "But he demanded more, so I ended up putting down my factory land as collateral as well, almost everything I had."

That bet paid off.