In Depth: How Ruyi’s ‘LVMH of China’ Dream Unraveled

[para. 1] Shandong Ruyi Woolen Garment Group Co. Ltd. (listed as 002193.SZ), once promoted as the “LVMH of China,” is undergoing a significant collapse involving multiple countries. This downward spiral is marked by creditors pursuing international assets and increased scrutiny from Chinese regulators, reflecting the company’s dramatic fall from grace.

[para. 2] As of the end of 2023, Ruyi revealed that the number of its shareholders had dropped to 22,980, roughly half of its historical maximum, and its market capitalization had declined to under 1.4 billion yuan ($201 million). These figures highlight the extent of the company’s decline.

[para. 3] Ruyi’s situation serves as a warning about the perils of ambitious, debt-fueled expansion and weak corporate governance. Once seen as a model for building a Chinese global luxury powerhouse, its aggressive overseas acquisitions have instead become a cautionary tale amidst China’s broader push for international corporate acquisitions.

[para. 4] The company started as the Jining Woolen Textile Factory in Shandong in 1972. After 2010, founder Qiu Yafu, known as the “Wool King,” led Ruyi through a spree of international purchases. Over the decade, Ruyi invested more than 40 billion yuan acquiring companies like Japan’s Renown, France’s SMCP Group (owner of Sandro), Britain’s Aquascutum, Switzerland’s Bally, and U.S. fiber maker Lycra.

[para. 5] At its height in 2018, Ruyi controlled four listed entities and managed over 40 brands, but its expansion relied on short-term financing and opaque cross-border channels. When revenues weakened and the Covid-19 pandemic struck, the business model proved unsustainable.

[para. 6] The company’s auditors have refused to offer an unqualified opinion for three consecutive years, signaling grave concerns. Ruyi has defaulted on various liabilities, sparking litigation from creditors worldwide.

[para. 7][para. 8] In November, Australia’s Federal Court froze A$10.83 million ($7.3 million) in proceeds from the sale of a Ruyi-linked property (Larundel Estate in Victoria), due to fears the funds might be moved out of creditors’ reach.

[para. 9] This legal action was prompted by Shenzhen Xinhe Hongshi Investment and Consultancy Co. Ltd., which is owed approximately 392 million yuan. With domestic assets exhausted, this Chinese creditor turned to overseas courts for relief.

[para. 10][para. 11] The Australian company, FWIDA, challenged the legal action, saying the debt required reconciliations going back to 2012, but the judge found their defenses unconvincing. A final court hearing is set for April, with other creditors observing closely.

[para. 12][para. 13][para. 14] Other attempts to recover assets have failed. The Export-Import Bank of China lost a major lawsuit in Australia over a $74.8 million loan secured against Cubbie Station, a major cotton farm. The court noted flaws in Ruyi’s authorization processes and internal governance, stating the lending bank could not simply assume Ruyi’s management was sound.

[para. 15][para. 16][para. 17][para. 18] Ruyi’s credibility further eroded when, after defaulting on a 250 million euro ($292 million) bond connected to its SMCP stake, it tried to transfer millions of SMCP shares for just 1 euro to a company controlled by Qiu Yafu’s daughter. U.K. and Singapore courts later revealed forged signatures and nonexistent bank accounts, ultimately ordering that the shares be returned.

[para. 19][para. 20][para. 21][para. 22] At home, Chinese regulators have ramped up their investigation into Ruyi over governance and reporting issues. The company’s controlling shareholder allegedly funneled hundreds of millions of yuan out via fictitious transactions. Founder Qiu Yafu was banned from corporate leadership roles for ten years. Courts have frozen around 19.42% of Ruyi’s shares, and as of 2024, the group’s overdue bank debt reached 7.5 billion yuan, with bond defaults totaling 3.1 billion yuan.