China’s Former Richest Man Owes His Employees Months of Pay

Huang Guangyu, GOME founder in Beijing, in an undated photo. (The Epoch Times Photo Archive)

GOME Electrical Appliances, a household appliance retail giant in China, used to be an industry legend. At the end of 2021, it had 4,195 stores in operation in China. However, things have changed and its current financial situation is shaky.

Nearly 100 employees blocked GOME’s headquarters in Beijing on the evening of Dec. 6 to demand the company’s founder Huang Guangyu pay them the salaries earned. A number of employees and Huang’s security guards clashed physically, according to China’s news portal Phoenix.com.

The report said that more than 20 representatives of the employees met with Wei Qiuli, vice president of GOME Electrical Group, and demanded the salaries that were not paid from September to November, as well as half-yearly bonuses and performance bonuses that were owed. But Wei complained that the company had long informed its employees that it was unable to pay salaries from June to December, and sent a letter of commitment to employees, whoever was willing to stay shall sign, and those who cannot accept the delayed salaries would go through a settlement procedure according to the labor laws.

GOME’s employees reportedly protested for eight hours, and the situation only eased when the police intervened. But as the issue remained unsolved, the employees did not leave.

The Epoch Times called GOME Electrical Group multiple times, but the company has not responded as of press time.

GOME’s delayed payroll was the number one trending topic on China’s social media platform Weibo on Nov. 3, with 400 million reads a day. This is because GOME was once known as the “King of Retail” in China, and its founder Huang Guangyu was named the “richest man in China” several times.

The GOME Legend

Huang was born in a poor rural village in Guangdong in 1969. He failed to finish junior high school and followed his older brother to seek work when he was 16. The brothers began by selling small electrical appliances such as radios and electronic watches in Guangdong and other regions.

In 1987, the brothers opened a small store that was under 100 square meters (1,076 sq. ft) in Beijing and put up the “GOME Electrical” sign for the first time.

In those days, large home appliances such as refrigerators and color TVs were scarce commodities in China. Through diligence and the approach of selling more at a lower price, they quickly opened up the market.

Later, the elder Huang switched to real estate, while Huang Guangyu stayed with GOME Electrical and kept expanding his business. By 1999, GOME had spread to 88 cities across China.

In 2000, through his acquaintance with celebrities in the Hong Kong capital market, Huang Guangyu started his capital operation in the financial circle. This led to a rapid attainment of wealth, but also laid the groundwork for future disasters.

In 2004, GOME was successfully listed in Hong Kong, and at the age of 35, the Hurun 100 named Huang Guangyu the richest man in China. Then in 2006, Time magazine named Huang Guangyu as one of the 100 most influential people in the world. From a poor rural boy to the richest man in China and one of the most influential people in the world, Huang Guangyu’s life story back then was truly legendary.

Huang is famous for saying that the Hurun 100 list is “a wanted list, whoever is on it is unlucky!” This statement became a truth for him. In November 2008, Huang was arrested on a number of economic charges. That year, he was still at the top of the Hurun 100 list, with assets peaking at 43 billion yuan (about $6.17 billion).

A year and a half later, Huang was sentenced to 14 years in prison for illegal business operations, insider trading, and bribery, fined 600 million yuan (about $86.08 million), and had 200 million yuan (about $28.7 million) confiscated.

After Huang was imprisoned, his wife Du Juan began managing GOME. Under fierce market competition, GOME’s market share was gradually taken over by competitors, and internet e-commerce was quietly on the rise. By the time Huang was released from prison in 2021, the world had changed dramatically. According to the official “China Home Appliance Market Report 2021,” GOME was in fourth place as a home appliance retailer that year, with a market share of 5 percent.

Multiple Troubles

Upon Huang’s release on Feb. 16, 2021, GOME’s stock price skyrocketed. Two days later, at a meeting of company executives, Huang said, “We will strive to restore the company to its original market position in the next 18 months.”

Huang then made drastic changes in his company. First, he launched the entertainment-based retail store platform “True Happiness,” which included interactive games and a live-streaming function, in an attempt to enter social e-commerce. He also launched “Beautify Your Home,” a platform that focuses on home improvement.

Although GOME invested a huge sum of money in these two businesses, they have not made much inroad on the e-commerce platforms. China’s internet business is now relatively mature, and the Chinese economy is in general decline under the impact of the COVID-19 pandemic.

Beautify Your Home was founded at a time when China’s real estate market was weak, the cost of raw materials was rising, and there were a large number of competitors. As of July this year, the entire Beautify Your Home business has been suspended, according to China’s news portal Sina.

GOME’s offline business is also not doing well. According to GOME’s 2022 interim report released on Sept. 27, the company had a total of 3,825 stores, of which 562 were closed and 192 had been opened in the first half of the year, which was a net decrease of 370 stores. As a result of store closures, GOME withdrew from 60 cities and towns.

The interim report also showed that GOME’s revenue in the first half of the year was 12.11 billion yuan (about $1.74 billion), down 53.5 percent year-on-year.

In addition, GOME’s debt gap is huge. By the end of June, GOME’s total assets were 74.47 billion yuan (about $10.68 billion) and its total liabilities were 58.57 billion yuan (about $8.40 billion), with a balance sheet ratio of 78.65 percent. Of this, 22.9 billion yuan (about $3.29 billion) is due to be repaid within one year. The company’s cash and equivalents amounted to only $2.41 billion ($346.88 million). Meanwhile, the company’s cash flow from operating activities in the first half of the year was only 55.35 million yuan (about $7.94 million).

Despite Huang’s best efforts to cope with the monetary crisis, GOME has run into various problems, including significant layoffs, lowering employee salaries, delayed salary payments, and loss of senior staff.

Current affairs commentator Zhang Sutian told the Epoch Times on Dec. 9 that GOME’s original sales tactics are outdated, but it’s not the right time to go into online trading. China’s economy has long shown signs of recession, the land-sale based economy is wobbling, the real estate industry is in trouble, the local government debt is alarmingly high, and the United States and Europe are treating the Chinese Communist Party as a threat. That is to say, while GOME has its own problems, the rapid deterioration of China’s economic environment is one of the major factors for GOME’s failure.