Zong Qinghou, chairman of Hangzhou Wahaha Group Co., poses for a portrait in Beijing, China, on Tuesday, March, 1, 2011. Wahaha plans to open 100 department stores in small cities. (Nelson Ching/BLoomberg)

Twenty-five years ago, when Zong Qinghou was 42, he made his living selling soft drinks and popsicles to schoolchildren. He says he earned about $8 a month — less than a third of China’s average wage at the time — and was so broke that he once slept in a tunnel under the streets of Beijing rather than spend money on a hotel.

Today, Zong, 67, is still selling soda — and lots of other things — as the wealthiest man in mainland China. His net worth of $20.1 billion as of Oct. 5 ranks him No. 30 in the world, according to the Bloomberg Billionaires Index. Supermarkets stock the juice, soda and bottled water his Hangzhou Wahaha Group produces, and doting Chinese parents buy his baby formula and children’s clothes.

Even in a country that has exploded in wealth, Zong stands out. His rags-to- riches tale is remarkable not just for its trajectory but for the way he has thrived amid China’s seemingly impossible conflation of capitalism and communism.

Zong, who didn’t attend secondary school, lived on a farm commune from 1964 to 1978 during Mao Zedong’s Cultural Revolution. He read the Communist revolutionary’s books on leadership and learned about enduring through struggle. After Deng Xiaoping, the architect of China’s drive toward a market economy, came to power, Zong took over a grocery store with two retired teachers and a $22,000 loan from relatives.

Frugal and autocratic

Now Wahaha’s chairman, Zong remains a frugal and autocratic manager. He often sleeps in a sixth-floor office at Wahaha’s gray headquarters in Hangzhou, the capital of Zhejiang province. For lunch, he heads downstairs to the canteen, furnished with plastic-topped tables, where he eats the same food as his workers.

“When you are poor, you’ll have to think of ways to be better off,” says Zong, recalling his early years.

People passing him on a street in Beijing don’t give the nation’s top billionaire a second glance. He certainly doesn’t advertise his wealth. He’s dressed in a dark jacket and slacks and plain black shoes, all made in China. He has no bodyguards.

Zong’s sole nod to his status is his $48,000 Vacheron Constantin watch, which he bought in Switzerland to replace an old Rolex.

“Other people say Rolex is for the newly rich,” he says, smiling.

Zong is prospering amid China’s booming economy and burgeoning middle class. In the past 30 years, growth has averaged 10.1 percent a year, lifting hundreds of millions out of poverty.

Wahaha, which roughly means laughing baby in Mandarin, attracts these new consumers. Flavored, nutritionally enhanced milk caters to families with young kids, while mineral water and iced green teas target adults.

Wahaha generated $11 billion in sales last year, with a 7.2 percent share of China’s soft-drink market. Zong estimates that earnings at his closely held Wahaha will rise to $1.6 billion this year from $1 billion in 2011.

That would make Zong even richer. He and his wife, Shi Youzhen, and their daughter, Kelly Zong, hold about 80 percent of the company. Zong disclosed the stake to Bloomberg News in September, more than doubling previous estimates of his wealth. (The Bloomberg Billionaires Index operates under the rule that billionaire fortunes are inherently family fortunes.)

Zong joins four other mainland Chinese billionaires in Bloomberg’s list of the world’s 200 richest people. Wang Jianlin, 58, chairman of property developer Dalian Wanda Group, is the second wealthiest, with a net worth of $9.1 billion as of Oct. 5. Robin Li, 43, chairman and chief executive of search engine giant Baidu, is third with $8.4 billion. Ma Huateng, 41, of Tencent Holdings, the country’s largest Internet company by market value, is fourth with $7 billion. Fifth place is held by China’s richest woman, Wu Yajun, 48, of Longfor Properties, who is worth $6.4 billion.

Turbulent history

Zong, older than these moguls, was born in 1945, a pivotal year in modern Chinese history. World War II had just ended and the nation was convulsed by civil war among Mao’s Communists, Chiang Kai-Shek’s Nationalist Party and independent armies led by regional warlords. Zong’s grandfather worked for a warlord, which hurt the family’s status after the Communists took over in 1949.

In the late 1950s, Mao ordered 700 million people into a state-controlled worker program dubbed the Great Leap Forward. By the early 1960s, the Great Leap had failed, and China was plunged into famine. Soon Zong, like millions of young Chinese, was forced to join a farming commune before Mao launched his second campaign, the Cultural Revolution.

“For a long time, I couldn’t even afford food and clothing,” Zong says of his years on the farm. “I climbed from the very bottom of the society.”

Zong’s time on the commune ended only after Mao died in 1976 and China gradually adopted the more liberal policies engineered by Deng. Zong went to work as a salesman for consumer-goods companies as the country suffered shortages in the staples that Chinese were clamoring for: meat, bicycles and TVs.

One of the companies that Zong sold for was a beverage maker that ran a shop owned by a grade school in Hangzhou. He and two retired teachers took over the store in 1987, the first step in creating Wahaha. Zong bought ads on China Central Television and in state-owned newspapers.

“In some small towns, Wahaha became a well-known brand within two weeks after the first commercial,” he says.

Zong made a profit of $15,991 that first year, about 50 times China’s gross national per-capita income at the time. He spent the next 21 / 2 decades expanding from China’s cities to rural areas, where income was rising and competition was less fierce.

Zong named daughter Kelly to head Wahaha’s nascent international business in 2010. So far, that includes small exports to South Korea and Britain. Kelly, who holds a bachelor’s degree in business from Pepperdine University in California, says she’s working with investment banks to find food and beverage deals in Europe and Australia. She also runs a third of Wahaha’s 60 factories in China. Zong says she’ll take over when he retires, although he has no plans to do so.

Now that he’s a billionaire, Zong says, he wants to help other Chinese prosper.

“People who get rich early should help the rest get rich,” he says, referring to words attributed to Deng.

Looking forward

Zong has been a delegate to the National People’s Congress, China’s highest legislative body, for nine years. He says he has talked about private enterprise playing a greater role in the economy with the country’s probable next leader, Vice President Xi Jinping.

Xi will likely take over from Hu Jintao as president next year. Zong has proposed to lawmakers that private companies be allowed to open banks and be exempt from taxes if they extend credit to small businesses. Xi may be a kindred spirit, Zong says.

“Xi believes private enterprise is the main direction of economic development,” Zong says. “He experienced hardships when he was young and working in the countryside, which gives him a profound understanding of the lower class and ordinary people.”

Zong is optimistic that policymakers are on the right track, even though China’s economy has slowed for seven straight quarters as of the end of September. Premier Wen Jiabao, in office until March 2013, wants to boost domestic consumption, playing into Zong’s vision for Wahaha.

“It isn’t realistic to drive the economy by exports or investment” Zong says. “The biggest hurdle facing China’s economy now is that the government’s income is too high and the people’s income is too low.”

As China transformed itself into the world’s second-largest economy, Zong never considered he’d wind up as his country’s richest person.

“I just swore I’d have a decent factory one day,” he says. “My wealth has been accumulated one yuan at a time.”

The full text of this Bloomberg Markets article can be read in its December issue.