The strained relationship between Brilliance China’s top four executives and the Liaoning Provincial Government stems from fundamental issues regarding the parent company’s management rights and the annual 10 million yuan allocation tied to the Yangon Times. These disputes have made it difficult for the executives to adjust their positions under the new ownership.
At the end of August, Su Qiang, President of Brilliance China (1114, HK), appeared at the Zilan Hall of the Great Wall Hotel in Beijing. This was his first public appearance following rumors that high-level executives were planning to collectively sell shares and resign. The media had been buzzing with speculation, and Su Qiang’s appearance aimed to address these concerns. His demeanor was notably stiff and uncharacteristically formal, as he delivered a scripted speech lasting around six to seven minutes. He focused on topics related to industrial development, but notably avoided any mention of the "share disposal" or "resignation" rumors. After finishing his remarks, he glanced at the host, who quickly announced, “We are busy and moving forward.†The press conference ended abruptly, leaving many questions unanswered about the future of Brilliance Group and its current leadership.
From October 2003 to July this year, the four senior executives, including Wu Xiao’an, Chairman of the Board, and Su Qiang, sold their shares. These individuals had previously been part of Yang Rong’s team, the former chairman of Brilliance China. Since then, they have almost no remaining shares, except for share options granted by the Liaoning Provincial Government. This move caused a sharp drop in Brilliance China’s stock prices in both New York and Hong Kong markets.
On August 2nd, Brilliance China issued a statement in both Hong Kong and New York, clarifying that the four directors had not resigned and that their share sales were due to “personal reasons.†However, on the same day, the company lost nearly 1 billion yuan in market value overseas. At the same time, trading volume surged to record levels.
According to sources close to Brilliance China, the executives had initially planned to exercise their share options and sell them. However, at the time, interest rates were low, and there was a flood of hot money in the market, making it an ideal moment for Brilliance to issue convertible bonds. The management ultimately decided to comply with the company’s plan. However, due to the terms of the convertible bonds, they could not buy or sell shares for three months—until February of this year. After that, the company released its performance results, and the executives were again unable to trade. As a result, the opportunity was missed, and the share price fell further, worsening the situation.
The Financial Times also reported that the four senior executives had already resigned and returned to Shenyang, Liaoning Province, where new negotiations were underway. A preliminary agreement was reached: Su Qiang and others would remain in their positions until the end of the year to maintain investor confidence. However, this did not resolve the underlying tensions between the two sides.
According to a source close to Brilliance Group Chairman Yang Baoshan, the fundamental conflict between the four executives and the Liaoning government had been brewing for years. In June 2002, when Liaoning formally took over Brilliance assets and promised the so-called “professional manager†conditions, the seeds of conflict were sown. “This is a structural problem,†the source said.
Over the past two years, the four executives had consistently held more power, influence, and higher salaries than the parent company. “The parent company has always been an empty shell,†the source explained. One of the most significant issues was the lack of control over the parent company, with the four executives continuing to receive 10 million yuan annually plus incentives during the Yangrong era. Despite the transfer of Brilliance assets to Liaoning, the company under Su Qiang’s leadership remained largely unchanged.
Communication between the four executives and the Liaoning government was poor. Even after the official takeover, meetings between Yang Baoshan and Su Qiang were rare, and the executives often skipped important meetings initiated by the parent company. Another structural issue was the exorbitant salaries and bonuses received by the four executives. According to Brilliance China’s annual reports, their compensation increased dramatically over the years. In 2001, their annual salaries ranged from 2 to 2.5 million Hong Kong dollars. By 2002, despite a 28% drop in profits, their salaries doubled to 5–6 million Hong Kong dollars. In 2003, they earned between 8.5 and 10 million Hong Kong dollars annually, with bonuses nearly doubling from 12.65 million to 23.16 million Hong Kong dollars.
These high pay packages created tension within the parent company, where even the chairman, Yang Baoshan, earned only 4,000 yuan per month. The Liaoning government began to change its stance toward the four executives, raising concerns about the potential loss of state-owned assets.
One key change was the refusal to allow the executives to exercise their share options. In December 2002, Huachen Group acquired a 39.4% stake in Brilliance China, becoming the largest shareholder. It also promised the four executives the right to subscribe for new shares. If exercised, this could have brought them 100–200 million Hong Kong dollars each. However, the option remains unfulfilled because the Liaoning government has not approved the transfer.
In October 2003, Brilliance Motors signed a deal with Citigroup to issue $170 million in convertible bonds, raising $164 million net. Citigroup also purchased shares held by the four executives at 2.65 Hong Kong dollars per share. This sale effectively nullified the 9.44% shareholding option that the executives had hoped to realize. The incident escalated into a “sell-off resignation,†further straining relations.
Liaoning is now trying to introduce new shareholders to break the existing power structure between the four executives and the parent company. This will likely reduce the executives’ influence and control. Regardless of whether they remain in their positions, the sudden share sales have become a powerful tool for the major shareholders to exert pressure. The final outcome may be revealed by the end of the year.
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