Recently, the news of Xie Zilong, chairman of the Chinese chain pharmacy giant “Laobaixing”, being placed under investigation by the Chinese authorities has caused a market shock. In fact, Xie Zilong is not the first controlling shareholder of a chain pharmacy to be investigated recently. The chain pharmacy industry in China has been facing successive crackdowns. Some analysts believe that the purpose of the Chinese authorities taking such actions is to seize corporate assets; these pharmacies have touched the cheese of the Chinese Communist Party (CCP), hence becoming targets of the crackdown.
On the evening of July 30, Laobaixing Pharmacy Chain Co., Ltd. (referred to as “Laobaixing”) announced that the actual controller and chairman Xie Zilong had been placed under investigation by the Supervision Commission of Hunan Province.
The announcement did not specify the specific reasons for the investigation, but it emphasized that the investigation matters were not directly related to the company’s business and confirmed that the company had not received any notification from relevant departments nor been asked to assist in the investigation.
Although “Laobaixing” emphasized that other directors, supervisors, and senior management were still performing their duties normally, the market could not ignore the key role Xie Zilong played in the company’s strategic decision-making and daily operations. Following the release of the above information, “Laobaixing” has experienced multiple days of decline in the secondary market. As of the close on August 1, the company’s stock price dropped to 13.49 yuan per share (approximately 1.87 US dollars).
In fact, since mid-July, rumors have been circulating about Xie Zilong’s alleged involvement in a case and subsequent investigation, causing the company’s stock price to continue to decline. Compared to mid-May, the stock price of “Laobaixing” has dropped by 50.4% in the span of two and a half months, almost halving.
Born in 1966, Xie Zilong was a delegate to the 11th, 12th, and 14th National People’s Congress of the CCP. He also served as the Honorary President of the China Medical Materials Association, Vice President of the China Medical Commercial Association, and Chairman of the Hunan Pharmaceutical Circulation Industry Association.
In 2001, Xie Zilong opened the first pharmacy in Changsha, Hunan, named Laobaixing Pharmacy. Over a decade later, “Laobaixing” successfully went public on the A-share market, earning the title of the “first privately-owned pharmacy stock.” At the beginning of establishing Laobaixing Pharmacy, Xie Zilong proposed a slogan of “45% lower than the state-mandated retail price”, breaking through with a low-price model, leading to a more than 20% drop in the overall drug prices in Changsha.
In the following years, “Laobaixing” rapidly expanded along with other chain pharmacies like Yifeng Pharmacy, Daisenlin, and Gaoji Health. In June 2022, “Laobaixing” entered the “Ten Thousand Stores Club”, marking a new development stage.
Today, “Laobaixing” has become one of the leading domestic pharmaceutical retail chain enterprises in China. As of the end of 2023, the company’s chain network (excluding alliances) covered 18 provincial markets and more than 150 prefecture-level cities nationwide, with a total of 13,574 stores opened nationwide. In 2023 alone, the company added 3,388 new stores.
In 2023, “Laobaixing” achieved a total operating income of 22.437 billion yuan (approximately 3.112 billion US dollars), a year-on-year increase of 11.21%. In the first quarter of 2024, the company’s operating income was 5.539 billion yuan (approximately 768 million US dollars), a year-on-year increase of 1.81%.
According to the data from the Chinese enterprise business information platform “Qichacha,” Xie Zilong and his wife hold 26.12% of the shares of Laobaixing Pharmacy through Laobaixing Medical Group (referred to as the “Medical Group”), with Chen Xiulan personally holding 1.78% of the shares of Laobaixing Pharmacy.
Hu Liren, a former Shanghai entrepreneur living in the United States, believes that many private enterprises in China are facing the issue of being “nationalized” by the CCP. He stated that this is a major trend, similar to the “public-private partnerships” promoted by the CCP in the 1950s, leading many business owners to be investigated.
On August 2, in an interview with a reporter from Dajiyuan, Hu Liren stated that the goal of the CCP taking these actions is to seize the equity of these enterprises. The CCP also encourages local governments to investigate companies for tax collection, which is essentially a liquidation of entrepreneurs. He believes that the larger the scale of the enterprise, the higher the risk they face, and eventually, all the assets of these enterprises will be taken by the CCP, which is their ultimate goal.
Former Beijing lawyer and Chairman of the Canada’s Federation for a Democratic China, Lai Jianping, also told Dajiyuan’s reporter that the announcement released by “Laobaixing” did not disclose the specific reasons for the investigation but emphasized that the matters involved were not directly related to the company’s business, leaving room for speculation.
Lai Jianping mentioned that the mention in the announcement of the matters being “not directly related to the company’s business” may imply three possibilities for the reasons behind Xie Zilong’s investigation. The first is ordinary criminal offenses such as fraud or theft, which officials typically would explicitly state, but since neither the announcement nor mainland media mentioned this, it indicates that Xie Zilong may not be involved in this aspect of issues.
Secondly, Lai Jianping believes that the reasons for the investigation may involve political factors, such as “anti-party” or “anti-social” elements. When the CCP cracks down on individuals, they often label the subject with baseless accusations. Since the CCP has not clearly stated Xie Zilong’s specific charges yet, this could mean that relevant accusations are still under consideration, making political reasons another possibility.
The third scenario is that Xie Zilong’s pharmacy operation model has harmed the interests of the CCP. His low-priced pharmacies penetrated the market, affecting the medical and pharmaceutical industries controlled by the CCP and earning both fame and fortune. The CCP has felt threatened by the low-price pharmacies in economic, political, and public opinion aspects, hence the crackdown.
Xie Zilong is not the first controlling shareholder of a chain pharmacy to be investigated in recent times. In July 2023, Ke Jinlong, one of the controlling shareholders of the large pharmaceutical retail chain listed company, Daisenlin, was also placed under investigation, yet this news was officially announced only in March of this year.
On the evening of April 12, a statement released by Daisenlin showed that Ke Jinlong was found guilty of corporate bribery and sentenced to three years and six months in prison, along with a fine of 500,000 yuan (approximately 69,400 US dollars). Daisenlin also faced a downturn as a result.
In May of this year, one of China’s listed chain pharmacy companies, Yifeng Pharmacy, known as the “first pharmacy chain stock,” was summoned by the CCP’s National Medical Insurance Bureau. The bureau noted that Yifeng Pharmacy had engaged in issues like the tampering of drugs and excessive prescription practices, violating the use of medical insurance funds.
In fact, this year, many industry insiders in China believe that retail pharmacies are a key area for market regulation.
Hu Liren expressed that retail pharmacies are a focal point themselves because the CCP continuously raises the prices of drugs, and low-priced pharmacies have had a significant impact on the entire drug market, causing high-priced drugs to lose market share. This is the true purpose behind the CCP’s crackdown on these pharmacies. In reality, not only are pharmacies subjected to such crackdowns, but similar strategies are being implemented in other industries by the CCP.
Lai Jianping mentioned that these chain pharmacies have indeed touched the CCP’s “cheese.” They have formed a competitive relationship with state-owned medical and healthcare enterprises, encroaching on their interests, making them targets for the authorities. The CCP is infuriated by this and hence cracks down on these pharmacies, which is the fundamental reason behind it.