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‘To get rich is no sin,’ but it certainly was a frenzy
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AT the end of 1991, Zhang Xiong invited several good friends to dinner at his home. Over the meal, an old college roommate started complaining about his job. He worked in a local bank, where his assignment was to meet a sales quota on newly issued subscription warrants.
“What are those? I’ll buy some!” Zhang said, agreeing to help his friend meet his quota.
Each warrant cost 30 yuan (US$4.88); Zhang’s monthly salary was just over 400 yuan back then.
He bought 10 warrants. Two months later, he was offered several thousand yuan for them.
Like many daring but financially naïve Chinese at the time, Zhang had taken an unwitting first step toward becoming rich.
“To get rich is no sin,” Deng Xiaoping told American journalist Mike Wallace during a now-famous TV interview in 1986. “However, what we mean by getting rich is different from what you mean. Wealth in a socialist society belongs to the people. To get rich in a socialist society means prosperity for the entire population. The principles of socialism are: First, development of production; and second, common prosperity. We permit some people and some regions to become prosperous first, for the purpose of achieving common prosperity faster.”
About two months later, Deng presented a stock certificate in the Flying Happiness Acoustic Co to John Phelan Jr, then chief executive of the New York Stock Exchange, who was visiting China with a group of finance industry honchos.
Flying Happiness shares, first issued in 1984 in Shanghai, were the first stock in the People’s Republic of China that was tradable and transferable.
Their issuance preceded the re-establishment of the Shanghai Stock Exchange by six years.
“Nobody knew then what a stock was,” recalls Wang Zhi, founder and chief executive of a San Francisco-based venture capital firm. “But I did, and I really wanted to seize the opportunity. It was a time when opportunities just came and went. Somehow, I just believed it would work!”
Wang’s father worked as an errand boy in the old Shanghai stock exchange in the 1940s and often talked with his son about the market. Wang, who immediately found the concept of stocks attractive, managed to get a relative to transfer some of his corporate shares to his name for about 100 yuan. It was more than his monthly income at the time.
“It was a huge risk,” Wang says.
But a risk well taken. He made a few thousand bucks on the purchase — money that became part of start-up capital when he went to the US in 1989.
The reopening of Shanghai Stock Exchange in 1990, after a closure of four decades, unleashed a “get-rich-quick” frenzy.
Stock prices, in the absence of any daily ceiling, surged ever higher. People lined up and fought for shares whenever a new stock was issued. To avoid such chaos, the exchange adopted subscription warrants.
For each initial public offering, warrant owners qualified for a lottery to purchase new stock.
“The lottery idea wasn’t popular,” recalls a scalper surnamed Wang but better known as “The Rib.”
“The initial offering price was usually 5 to 8 yuan, while a warrant cost 30 yuan, which was big money back then,” he says.
“The Rib” was introduced to scalping by an older friend in January 1992, just before the lottery started and subscription warrants suddenly became hot commodities. Two million warrants were sold.
“My friend recruited a group of young kids like me and asked us to go to all the different trading offices to find people with warrants and buy up as many as possible,” says “The Rib.” “We traded in units of 100 warrants because with 100 warrants, you at least had a good chance to buy shares. The closer to the day of lottery, the more expensive the warrants became.”
He says he always regrets that he didn’t grab some warrants for himself.
“That’s probably why I’m still a scalper today,” he says. “And my older friend, who was smart enough to save 50 warrants for himself, made around 50,000 yuan in a few months. At that time, people who had 10,000 yuan were considered rich.”
Indeed, in those days, getting rich was no sin and no trouble for those willing to take risks.
“Making money was easy as long as you had the courage and cash,” Zhang recalls. “I had no idea what a warrant or a share was when I bought those 10 warrants from my friend. Amazingly, I was offered 3,000 yuan only two months later. I sold them thinking I had made a lot of money, only to learn that I would have made even more if I had waited.”
The cowboy atmosphere of the stock exchange prompted a debate about whether share trading was appropriate policy in China’s socialist framework.
In 1992, Deng, who had resigned as top leader, took what has become a famous tour of southern China. There, he stressed the importance of economic transformation and voiced support for the stock exchange.
“Stocks and the stock exchange — whether they are good or not, dangerous or not, capitalist or not, socialist or not — we must try it,” Deng said during the tour. “We try it and we see whether we are right. If we are, we open it even further. If we are wrong, we correct it.”
Those words created a big stir. Both the Shanghai and Shenzhen exchanges rose like rockets in the next two years. Share in Yuyuan Garden, with an IPO price of 50 yuan, shot above 10,000 yuan at their peak. People called that period “stock craziness.”
Zhang, who had made almost half a million yuan by the end of 1993, quit his factory job to start his own business. He recently handed the company over to his son-in-law.
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