The Fall of D'Long

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Case Details:

Case Code : BENV009
Case Length : 13 Pages
Period : 1996-2007
Pub Date : 2007
Teaching Note :Not Available
Organization : D' Long Group
Industry : Diversified
Countries : China

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

The scandal had a ripple effect that was felt not only across the entire group but also by the Chinese economy as a whole. It turned the spotlight on the rigid banking structure in the country and the banks, which did not extend loans to private corporate investors (Refer to Exhibit I for a note on financing private companies in China). With only limited sources of finance being available to them, several private companies in China resorted to obtaining finances through trusts and investment companies to run their businesses. The Chinese government, on its part, tried to bail out D'Long by providing loans amounting to US$ 1.8 billion.

According to David Chen, former chief of Hartcourt Company's4, investment arm, "The government should take the blame. It's time for policymakers to consider why this has happened - lack of transparency for investors and lack of scrutiny into bank lending."5

Background Note

The origins of D'Long date back to the year 1986, when four brothers (Tang Wanchuan, Tang Wanxin, Tang Wanping, and Tang Wanli) in Xinjiang Uyghur Autonomous region in the northwest of China, started a photograph development service. The brothers traveled from Xinjiang to Guangzhou, where developing photographic films and printing photographs was cheaper.

During each trip, they got hundreds of rolls developed and were able to earn a significant amount as profits. In 1986, the brothers incorporated Xinjiang Delong Company (XDC), which was the parent company of the group. Wanxin was named the CEO and Tang Wanli the Chairman of XDC.

In the year 1992, the Tang brothers moved to Xi'an Shaanxi province, and began buying up the shares of local companies. In 1994, the brothers acquired a discotheque in Beijing called JJ's. The profits they earned from the discotheque were used to fund their subsequent business interests in making tomato paste, building truck engines, cement production, and manufacturing electrical equipment...

Excerpts >>

4] Hartcourt Companies Inc. is mainly engaged in selling desktops, monitors, PC components, and peripherals in China. The company is among the fastest growing IT distribution and retail companies in China.

5] Peter S Goodman, "China's Revolutionary Tactic: Bailout,"Washington Post, August 26, 2004.


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