Succession, Scandal and Bottled Water — the Real Battle at the Heart of Wahaha Court Case (AI Translation)

【周刊提前读】深度：娃哈哈争产案幕后真相 各方缠斗已久不只是宫斗剧

1. In July, a Hong Kong inheritance lawsuit thrust Wahaha, China's renowned beverage company, and its founder's family into the spotlight. Three individuals, claiming to be children of late founder Zong Qinghou, filed to freeze $1.8 billion in assets believed to be held in family trusts, challenging Zong's only publicly recognized child and heir, Zong Fuli (Kelly Zong). The case exposed complex interrelations regarding family succession, company control, state shareholder responsibilities, and the division of Zong’s wealth between domestic and overseas entities, leading to public scrutiny of Zong’s personal life and Wahaha's corporate structure[para. 1].

2. After Zong Qinghou’s unexpected death in February 2024, the succession was presumed straightforward, with his daughter Zong Fuli positioned as his sole heir. At the time, state assets held 46% of the company, Zong Fuli had no direct shares, and Zong Qinghou himself owned 29.4%. Soon after his passing, Zong Fuli applied to inherit her father's shares and began consolidating business control, notably transferring key staff contracts into her own conglomerate, Hongsheng Group. However, these plans met resistance from staff concerned about losing their dividend rights, leading to delays[para. 2].

3. In July 2024, Zong Fuli’s resignation letter circulated online, citing government and shareholder suspicions of her management. Following discussions, Zong was persuaded to resume leadership. By August, she had officially inherited the 29.4% stake, assumed the chairwoman role, and overhauled the board, installing loyalists. The process altered internal governance by changing “board appointment” to “recommendation” mechanisms, intensifying the power contest, especially regarding board seats allotted to the employee shareholder association[para. 3].

4. In late 2024 and early 2025, Zong Fuli expanded efforts to transfer employee contracts to Hongsheng Group and directed Wahaha’s distribution partnerships to her own controlled entities. Employees faced significant pay cuts (20–50%) after these changes, and many began legal actions to regain lost share benefits and challenge the 2018 buy-back of their employee shares by the company[para. 4].

5. The Hong Kong lawsuit revealed three US citizens—Zong Jichang, Zong Jieli, and Zong Jisheng— as Zong Qinghou’s “illegitimate” children, whose mother Du Jianying was a former Wahaha executive. Zong Qinghou left the domestic business to Zong Fuli and arranged overseas trust assets for his other children. The scandal severely damaged Zong’s established public image and highlighted the opaque evolution of Wahaha’s ownership and wealth allocation[para. 5].

6. Historically, Wahaha’s ownership has seen multiple conflicts, such as the well-known dispute with Danone and internal struggles around employee shareholding structures. After Wahaha’s 1999 restructuring, employees became significant minority shareholders (19.6%), with Zong holding 29.4% and the state 51%. Over time, most employee shares were bought back under a “dry share” system, diminishing dividend rights and prompting fresh legal disputes post-succession[para. 6].

7. Over the past decade, Zong Fuli consolidated control by acquiring shares in external (“off-group”) Wahaha companies and shifting profits from these entities to her own holdings, sometimes at zero cost. Notably, through Hongsheng Group, she controlled major sales and production subsidiaries, redirecting profits away from the main Wahaha entity and reducing group-level profits and dividends[para. 7].

8. The family dispute further complicated when Zong Qinghou’s “overseas” children sued in Hong Kong to freeze $1.8 billion in assets, alleging a promised $2.1 billion trust. The assets, held under BVI-registered Jian Hao Ventures (with Zong Fuli as director), became the focus of an international legal battle, raising issues around inheritance law, trust validity, asset source legality, and Chinese capital export regulations. Hong Kong’s court has yet to rule on the trust’s legal status, and the saga, scheduled for further hearings in August 2025, highlights the challenge of splitting vast business and personal wealth in modern Chinese family conglomerates[para. 8].

9. Wahaha’s situation demonstrates the risks of inter-generational transfer in large Chinese family businesses. Experts warn that the case has already reached high-intensity internal conflict and, absent mediation, could escalate to levels damaging both business operations and broader stakeholder interests, with potential knock-on effects for employees, suppliers, and financial partners[para. 9].