Succession, scandal and bottled water – the real battle at the heart of Wahaha court case

IN THE heat of a Hong Kong summer, a courtroom clash over a billionaire’s estate sent shockwaves through China’s corporate landscape and poured fresh fizz into one of the country’s most legendary homegrown brands.

When three previously unknown individuals, claiming to be the children of the late Wahaha founder Zong Qinghou, filed suit to freeze US$1.8-billion-worth of trust-linked assets, the legacy of China’s so-called “Water King” turned from a succession fairytale into a full-blown family drama.

At the centre of the storm is 42-year-old Zong Fuli, long regarded as the sole heir to her father’s empire and one of China’s most high-profile “rich second gens”.

Overnight, she found her grip on Wahaha’s crown threatened, not by competitors or regulators, but by half-siblings from overseas and ghosts from her father’s past. With litigation erupting and speculation mounting, Zong faced scrutiny not only of her legitimacy and business authority but over the narrative that once seemed watertight.

Wahaha, the bottled water giant once known for its clean-cut nationalism and wholesome family branding, was suddenly China’s juiciest soap opera. Questions rippled across the market: Who truly controls Wahaha? What skeletons were buried beneath its boardroom carpet? And how did a brand built to quench thirst become ground zero for one of China’s messiest inheritance battles?

The began after the death of Zong Qinghou in February 2024. His daughter Zong Fuli, backed by a notarised will, appeared to be the natural successor. She moved swiftly to claim her father’s 29.4 per cent stake and began urging senior staff to move from Wahaha to her own beverage group, Hangzhou-based Hongsheng Beverage Group.

But resistance emerged. Many employees baulked at signing new contracts that would jeopardise their rights under Wahaha’s longstanding employee stockholding platform, a cornerstone of the company’s egalitarian ethos.

Then came July, and with it a bombshell: a resignation letter from Zong Fuli leaked to Chinese social media. In it, she claimed that government-linked shareholders and the Hangzhou district government had questioned her leadership, leaving her “unable to fulfil her duties”. The letter went viral. Markets panicked. And within a week, negotiations behind closed doors led her to rescind the resignation. But the damage was done.

Public curiosity about Wahaha exploded into open speculation. Did Zong Fuli truly have the boardroom backing she claimed? Was the state-owned capital, the largest shareholder, plotting a silent coup? And who were these new heirs from America with their eyes on Zong Qinghou’s offshore assets?

New claimants, old power struggles

By mid-August, Zong Fuli had regained some ground. She was formally named chairman of Wahaha Group and took control of the board. She quickly initiated high-level personnel changes, updated to the company’s bylaws, and pushed forward the integration of Wahaha employees into her Hongsheng empire, even if it meant slashing salaries by up to 50 per cent and moving offices eight kilometres across town.

The historic Wahaha Tower in Hangzhou, once a bustling symbol of corporate pride, now echoed with emptiness, locals have begun calling it “the employee graveyard”.

Meanwhile, more than 50 lawsuits were filed by disgruntled former employees, all demanding restoration of their stock rights. Then came the real twist: court documents filed in Hong Kong named the three foreign challengers to the succession, Jacky Zong, Jessie Jieli Zong and Jerry Jisheng Zong, all US citizens claiming to be Zong Qinghou’s children from his relationship with Wahaha’s once-powerful executive Du Jianying.

Du, a behind-the-scenes powerhouse in Wahaha’s early days, was vice party secretary, second only to Zong himself. She owned shares in several companies indirectly tied to Wahaha’s operations and faded from public view after resigning in 2008. Her children’s legal challenge reignited longstanding rumours: Was Zong Fuli ever the only true heir, or just the one in the spotlight?

As tabloid speculation met corporate intrigue, Wahaha’s “national champion” image began to fade. Was Zong Qinghou really the faithful husband and self-made tycoon the media had lionised for decades? And just how much of the empire had been quietly parcelled out behind the scenes?

By the time the inheritance lawsuits were unsealed in Hong Kong, it was clear: Wahaha was not just facing a family feud. It was confronting a full-scale legacy audit, one playing out in courtrooms, boardrooms, and social feeds alike.

For Zong Fuli, what started as a seemingly smooth handover has morphed into a high-stakes survival test. And for the business world, Wahaha’s drama is a reminder that in China’s sprawling family empires, the real succession struggle often only begins after the patriarch’s final breath.

Power shift, quiet exit

Before the lawsuits cracked open Wahaha’s carefully curated legacy, Zong Fuli was cast as the unquestioned heir. But within the company walls, old-timers tell a different story. Long before Zong Fuli entered the scene, it was Du who wielded power, running the company’s operations and often seen greeting officials on behalf of Zong Qinghou.

Du, born in 1966, was 21 years younger than Zong and more than just a trusted lieutenant. After the company’s 1999 restructuring, she was the second-largest individual shareholder behind Zong, owning 0.73 per cent of Wahaha’s shares.

But when Zong Fuli returned from her US education and joined Wahaha in 2004, a slow power shift began to take place. Du receded from the company’s frontline. By 2008, she had resigned her management roles, retaining only a symbolic board seat,and  then two years later she launched her own investment firm.

Meanwhile, Zong Fuli cut her teeth on Wahaha’s children’s clothing and personal care divisions, both of which underperformed, before taking control of Hongsheng Group, a private firm that quietly absorbed key Wahaha operations.

Her father deployed veteran staff to help her succeed, and by 2018, as his health declined, she was visibly stepping up, first as head of public relations, then as vice-president of sales. By 2021, she was officially installed as general manager of Wahaha.

With Du out of the picture and Wahaha’s performance holding steady, Zong Fuli’s succession seemed secure. But as the courts are now revealing, the story was never that simple.

Phantom shares, real tensions

At the heart of the family conflict is the company’s employee shareholding platform, once a symbol of worker empowerment and now a lightning rod for lawsuits and lingering resentment.

Back in 1999, the employee stockholding plan looked like a visionary move. Workers, managers and executives were granted access to shares at favourable terms, with allocations tied to job function, tenure and performance. Zong Qinghou retained a controlling 29.4 per cent stake, state capital held 51 per cent, and the rest, nearly a quarter, was collectively owned by thousands of employees through the scheme.

At its peak in 2018, more than 11,000 employees were part of it, and dividends from these shares accounted for up to half of many workers’ annual income.

But that same year, Zong Qinghou launched what he called a “second reform”: staff shares were bought back, at a 3x premium, and replaced with “dry shares”, which gave employees dividend rights but stripped away actual ownership. Zong was now its sole stakeholder, a Wahaha veteran said.

The arrangement held until Zong Fuli took over. When she pushed employees to transfer to Hongsheng, many found that doing so meant losing their dry share dividends, which for many meant a 50 per cent cut in income. Promises of performance-based bonuses did little to quell the unease.

Veteran employees began questioning the legality of the 2018 buyback, and more than 50 lawsuits were filed, with workers demanding reinstatement of their original ownership.

Meanwhile, the shareholding platform’s influence diminished. Though still technically entitled to recommend three of Wahaha’s board members, most now appear aligned to Zong Fuli.

Efforts to manage the optics have had limited effect. At a town hall meeting, Zong Fuli promised to maintain dividend payments and announced record pay increases for frontline workers during the 2024 Chinese New Year celebration. For many veteran staff, it was too little, too late.

Profits off the books

Behind the headlines, a quiet transformation is reshaping the company: a shift of profits and control from Wahaha Group into a network of privately held “off-the-books” companies, now under Zong Fuli’s command.

Insiders point out this is not entirely new. Wahaha’s off-structure ecosystem, factories, distributors, and sales companies, not listed under the Group’s formal ownership, began under Zong Qinghou. But since his death, Zong Fuli has moved aggressively to absorb these entities into her personal empire. In one 2024 deal, the employee platform handed over a 34.53 per cent stake in a key packaging company, free of charge.

Among the crown jewels is Zhejiang Qili Investment, which holds equity in a dozen factories and sales hubs across China. Zong Fuli inherited her father’s stake and months later acquired the employee platform’s share, becoming the sole owner.

She then folded major regional sales arms, companies such as Hangzhou Wahaha Qili Foods Group and Hangzhou Wahaha Honghui Food & Beverages, into Hongsheng and another of her companies Hangzhou Hongchen Marketing, cutting Wahaha Group out of substantial downstream profits.

The most glaring example came in the bottled water business. Once a reliable revenue stream, it now sells its product through Xuner Chengtong Trading a third-party distributor fully owned by Hongsheng. Margins are routed outside Wahaha’s balance sheet.

Production costs average 1.6 yuan  (S$0.29) to 1.7 yuan per bottle. Xuner buys at 2.75 yuan and resells for seven yuan, a significant spread now invisible to Wahaha’s accounts. After this restructuring, revenues for the bottled water business fell by more than 60 per cent.

Alarmed by the drain, Hangzhou’s district finance bureau ordered a third-party audit of 18 affiliated beverage companies, including the water division. This probe is still going on. Meanwhile, a proposed transfer of the “Wahaha” trademark to one of Zong Fuli’s companies was abruptly halted after internal resistance. Trademark records confirm the name still belongs to Wahaha Group.

In the end, while the spotlight remains fixed on the inheritance feud and courtroom theatrics, the real game-changing shift may be happening in the background, where profit centres are quietly migrating out of public view, leaving behind a shell of the once-mighty empire Zong Qinghou built.

Trusts, secrets, showdown

Just as Zong Fuli moved to tighten her grip on Wahaha’s sprawling domestic empire, the bombshell lawsuit landed in Hong Kong, threatening to expose Zong Qinghou’s offshore holdings. In December 2024, Jacky, Jessie and Jerry Zong filed a suit seeking control of a US$1.8 billion HSBC account they say was promised to them in handwritten instructions and verbal assurances made by their father.

The account is held by Jian Hao Ventures, a British Virgin Islands shell company whose sole director is Zong Fuli. She assumed the role weeks after her father’s death, at the same time as she was moving to claim his domestic shares via notarised inheritance.

The plaintiffs argue that Zong Qinghou issued handwritten instructions a month before his death, instructing aides to establish trusts for each of his three children with Du, worth US$700 million each. Their lawyers say the HSBC account was intended to fund these trusts. Zong Fuli, they alleged, has already transferred more than US$1 million out of it, and they are demanding an injunction to freeze the rest.

Zong Fuli’s legal team contests the claim, saying no formal trust structure was ever created. But Yang Xiang, a civil and commercial law expert, said that in Hong Kong, oral trusts are legally recognised. If the siblings can prove Zong Qinghou clearly intended to establish the trust, even informally, the court may still validate its existence, he said. The case is currently limited to freeze request with a hearing scheduled for Aug 1.

Complicating matters further is the anatomy of offshore trusts themselves. Typically set up in the British Virgin Isles, Hong Kong or Singapore, they allow wealthy families to pass assets discreetly across generations. These arrangements often involve complex corporate layering. Experts say if Jian Hao is a “bottom-tier” company in a longer offshore chain, Zong Fuli’s role could technically bypass trustee oversight – at least until challenged in court.

For now, Hong Kong courts are not ruling on the trust’s validity, only on whether to freeze the HSBC account. But regardless of the outcome, the case is peeling back the curtain on how China’s ultra-wealthy navigate succession, secrecy and offshore power plays.

It’s not a first for the Zongs. Back during Wahaha’s infamous war with Danone in the 2000s, at least 10 offshore companies tied to the family were named in asset-freezing orders. Among them: Ever Maple Trading, a British Virgin Isles-registered company that today owns 100 per cent of Zong Fuli’s Hongsheng Group. The roots of this offshore maze run deep.

And those roots now raise tough questions. Where did the offshore money come from? Were proper tax and forex compliance procedures followed? If not, legal experts warn, any trust, no matter how cleverly built, could be “pierced” by authorities, especially if public assets or national interests are involved.

It is not just about the money. This lawsuit is strategically aimed at unravelling Zong Qinghou’s carefully designed cross-border inheritance blueprint, Yang told Caixin. With lawsuits now active in both Hangzhou and Hong Kong, this is a coordinated assault from Du’s side, he said. “This is more than a claim. It’s a challenge to the entire succession plan.”

Meanwhile, Zong Fuli is not sitting still. As she consolidates domestic operations, she is also rebranding. Companies once named after “Wahaha Changsheng” are being renamed under the “Hongsheng” label. Curiously, “Chang” and “Sheng” happen to be the given names of her two half-brothers.

The legal hierarchy here is unforgiving: in most jurisdictions, trust arrangements trump wills. And if no trust or valid will is proved, Chinese law grants equal inheritance rights to both marital and non-marital children. Which makes this battle as much about legacy as it is about legality.

At stake is not just Wahaha’s fortune, it is its future. Tsinghua University’s Family Business Research Center has rated this conflict a level 6 to 7 on its proprietary “family war” severity scale, signalling a destructive phase already in motion. If left unchecked, it could escalate into a level 8 or 9 conflict, where both sides seek mutually assured destruction and the company itself becomes collateral damage.

Let’s hope it does not go that far. But as of now, the taste left behind is not sweet. CAIXIN GLOBAL