China’s 400-Year-Old Knife Brand in Crisis: The Zhang Xiaoquan Story

Okay, let’s dive into the complex and rather dramatic story unfolding around one of China’s most iconic brands. As an American who’s been living in China for a while now, running this little blog, I often find myself explaining things that seem commonplace here but are totally new territory for folks back in the States. Today’s topic is a perfect example: the near-collapse of Zhang Xiaoquan (张小泉), a brand synonymous with knives and scissors in China for almost four centuries. It’s a saga involving history, hubris, high finance, and, bizarrely, a clove of garlic.

Grab a coffee, because this one’s a doozy, hitting right at the intersection of traditional culture, modern capitalism, and some truly spectacular corporate flameouts.

From Imperial Endorsement to IPO Darling: The Legend of Zhang Xiaoquan

First things first, for anyone back home wondering “Zhang Who?”, let me paint a picture. Imagine a brand like Zippo or Craftsman, but with roots stretching back way further – think before the United States was even a twinkle in the founding fathers’ eyes. Zhang Xiaoquan traces its origins to 1628, during the Ming Dynasty. That’s nearly 400 years ago!

The legend, as detailed in some historical accounts , starts with a craftsman named Zhang Si Jia in Anhui province who ran a shop called “Zhang Da Long” (张大隆). He wasn’t just making any old cutters; he innovated by incorporating techniques from Longquan sword-making, developing a unique “inlaid steel” (嵌钢 – qiàn gāng) process. This meant the blades were sharper, more durable, and had a finer finish than the competition. Think artisanal quality before “artisanal” was a buzzword.

His son, Zhang Xiaoquan, moved the business to Hangzhou (a city famous for its beauty and craftsmanship, southwest of Shanghai) and, facing numerous copycats trying to cash in on the “Zhang Da Long” name, rebranded it using his own name: Zhang Xiaoquan. His son, Zhang Jin Gao, later added “Jin Ji” (近记 – meaning “Jin’s mark”) to further distinguish the authentic product. The brand became renowned for its “Ten Features,” including sharpness, durability, smooth opening/closing, and elegant design. They even developed specific types, like the “Five Styles” of traditional household scissors.

The quality didn’t go unnoticed. During the Qing Dynasty, specifically under the Qianlong Emperor (who reigned mid-18th century), Zhang Xiaoquan scissors became official imperial tribute items. The Emperor himself supposedly bestowed the name “Zhang Xiaoquan” upon them, cementing their elite status. Fast forward to the early 20th century, and the brand was winning international acclaim, snagging awards at the Panama-Pacific International Exposition in 1915 (alongside now-famous Chinese brands like Moutai liquor) and the West Lake Expo in 1929. It was exporting to Southeast Asia, Europe, and America.

Zhang Xiaoquan became one of the “Big Three” traditional Chinese knife and scissor brands, often cited as “North has Wang Mazi (王麻子, founded 1651), Middle has Cao Zhengxing (曹正兴, founded 1840), South has Zhang Xiaoquan (南有张小泉).” It was, and is, a household name, deeply embedded in Chinese culture. Even Chairman Mao Zedong, in a 1956 speech about preserving traditional crafts during socialist reforms, specifically mentioned, “…Wang Mazi, Zhang Xiaoquan’s knives and scissors should not be discarded even in ten thousand years. We must restore the good things of our nation that have been lost, and make them even better.” High praise indeed.

In 2006, the Chinese Ministry of Commerce officially recognized Zhang Xiaoquan as one of the first “China Time-Honored Brands” (中华老字号 – Zhonghua Laozihao). This is a prestigious designation given to brands with a long history, unique products, and strong cultural significance. Think of it like a national treasure status for businesses.

The Plot Twist: Enter the Modern Capitalists

Now, here’s where the story takes a crucial turn, something a Sohu article highlights well. The original Zhang family line eventually faded out. The twelfth-generation descendant reportedly sold the business in the mid-19th century. Over time, the brand fragmented, with separate entities operating in Hangzhou and Shanghai, leading to decades of trademark disputes and brand dilution.

Enter the current Zhang family – no relation to the founders. In 2007, two brothers, Zhang Guobiao (张国标) and Zhang Zhangsheng (张樟生), founders of a conglomerate called Fuchun Holdings Group (富春控股集团), acquired a controlling stake (70%) in the Hangzhou Zhang Xiaoquan entity for 120 million RMB (around $16-17 million USD at the time). Fuchun Holdings started in construction materials (sand, gravel, concrete) and expanded into port logistics and steel – a far cry from crafting fine scissors.

Zhang Guobiao, whose own father was a carpenter and grandfather a stonemason, reportedly had a soft spot for craftsmanship. He set about consolidating the brand. After years of legal wrangling and negotiation, by 2015, Fuchun Holdings managed to gain full control over the Shanghai Zhang Xiaoquan operations as well, finally unifying the brand under one corporate roof – Zhang Xiaoquan Co., Ltd. (张小泉股份有限公司).

Under Fuchun’s ownership, Zhang Xiaoquan embraced modernization. They invested heavily in e-commerce, starting as early as 2011. They got savvy with marketing, targeting younger consumers. Remember the TV show Hannibal? Apparently, a Zhang Xiaoquan cleaver made a cameo, leading to a surge in online sales of the “Hannibal Lecter knife.” They created a hip, sunglasses-wearing grandpa mascot named “Uncle Quan” (泉叔) to appeal to the trendy “national tide” (国潮 – guochao) movement celebrating domestic brands. They collaborated with top livestreamers like Viya. By 2020, nearly half their revenue was coming from online channels.

The culmination of this modern chapter was the company’s IPO on the Shenzhen Stock Exchange’s ChiNext board (similar to NASDAQ) in September 2021. It was hailed as the “Cutlery IPO King” (刀剪第一股). The stock popped on day one, soaring nearly 400% from its 6.9 RMB offering price to close over 34 RMB, valuing the company at over 5.3 billion RMB (around $820 million USD then). The Zhang brothers, Zhang Guobiao and his son Zhang Xincheng, landed on the Hurun Rich List with an estimated fortune of 11 billion RMB (around $1.7 billion USD). It seemed like the perfect blend of ancient heritage and modern business success. The “Hermès of scissors,” as some called it, had arrived on the capital markets.

The Crack in the Blade: Garlic Gate

But the honeymoon didn’t last long. In July 2022, a PR disaster struck, one that Chinese media outlets consistently point to as a major turning point. It’s now infamously known as “Garlic Gate” (拍蒜门 – pāi suàn mén).

Here’s the context Americans might miss: In Chinese home cooking, smashing garlic cloves with the flat side of a cleaver before mincing is standard operating procedure. It’s quick, efficient, and releases the garlic’s flavor. Pretty much any decent Chinese kitchen knife is expected to handle this basic task without issue.

So, when a customer reported that their relatively expensive Zhang Xiaoquan cleaver (reportedly costing 99 RMB, about $14-15 USD) snapped clean in half while they were doing just that –拍蒜 (pāi suàn) – it raised eyebrows. The real damage, however, came from the company’s response.

First, a customer service representative reportedly told the customer (and later, the public) that their knives were not designed for smashing garlic. This response was met with widespread ridicule online. “A Chinese knife that can’t smash garlic? What can it do?” netizens scoffed. It felt fundamentally disconnected from the realities of Chinese cooking.

Then, things got exponentially worse. An old video surfaced featuring the company’s then-General Manager, Xia Qianliang (夏乾良). In it, he pontificated that the way Chinese people had been cutting vegetables for generations was “wrong” and that Michelin-star chefs (implying Western chefs) cut differently, using slicing motions. He essentially blamed the consumer for improper use, doubling down on the perceived arrogance.

The backlash was immediate and fierce. Hashtags like #ZhangXiaoquanWorshipsForeignThings (#张小泉崇洋媚外#) exploded. The company was accused of being out of touch, disrespecting Chinese culinary traditions, and prioritizing fancy (perhaps less durable) materials or designs over basic functionality expected by its core customers. It felt like a betrayal from a brand deeply rooted in Chinese culture.

The incident was so significant it was listed by the China Consumers Association as one of the “Top 10 Consumer Rights Protection Public Opinion Hotspots” for 2022. Zhang Xiaoquan’s reputation, painstakingly built over centuries, took a massive hit.

The Financial Abyss: Debt, Defaults, and Desperation

While Garlic Gate battered the brand’s image and likely contributed to subsequent sales dips, a much larger, existential crisis was brewing behind the scenes, rooted in the aggressive expansion strategy of its parent company, Fuchun Holdings. This is where the recent headlines about massive enforcement actions come in, as detailed in articles like one from NetEase Finance and another from Chief Brand Review.

Remember how Fuchun Holdings started in construction and logistics? After acquiring Zhang Xiaoquan, they didn’t just focus on knives and scissors. They went on a debt-fueled diversification spree, pouring billions into massive logistics parks, real estate developments, supply chain finance, and even pre-prepared meals ventures, often far from their home base in Zhejiang province.

For example, starting around 2018, Fuchun invested heavily in Shaanxi province in Northwest China. They launched a massive 1.5 billion RMB logistics project in Yangling, billed as the largest agricultural product distribution center in the region. In 2022, they signed deals worth a reported 13 billion RMB with local partners in Shaanxi, including state-owned enterprises like Shaanxi Construction Engineering Group (陕西建工) and cultural investment firms. They were building logistics hubs, getting into pre-prepared meals… expanding rapidly.

But here’s the rub: these ambitious projects were funded with significant borrowing, often using the valuable Zhang Xiaoquan brand and its listed company shares as collateral. Fuchun Holdings, through complex holding structures, effectively controlled Zhang Xiaoquan Co., Ltd. They began pledging huge amounts of the listed company’s stock to secure loans for Fuchun’s other ventures. Articles report that eventually, virtually 100% (specifically 99.9% or 48.72% of the total company stock held by the controlling shareholder group) of the shares held by the parent group (Hangzhou Zhang Xiaoquan Group Co., Ltd. – the entity Fuchun uses to hold the listed company shares) were pledged or frozen.

The strategy was high-risk: use the stable, reputable listed company as a piggy bank or guarantor to fund speculative, capital-intensive projects elsewhere. And when those other projects started to fail or couldn’t generate cash flow quickly enough, the whole house of cards began to wobble.

Starting in late 2023 and accelerating into 2024 and 2025, the defaults began piling up.

• A 128 million RMB loan from a Xi’an shopping mall, borrowed for just one month, went overdue.
• A 200 million RMB loan from a factoring company under Shaanxi Construction Engineering Group defaulted.
• A 300 million RMB loan from Chang’an Bank (Shaanxi’s largest city commercial bank) went overdue.

By February 2025, Zhang Xiaoquan Co., Ltd. disclosed in filings that its parent group (Hangzhou Zhang Xiaoquan Group) had overdue principal debt totaling 638 million RMB from loans where it was the direct borrower. More alarmingly, the parent group had defaulted on guarantees for other entities (likely related Fuchun companies) totaling a staggering 4.92 billion RMB in principal. Adding insult to injury, loans secured by pledging Zhang Xiaoquan shares also saw defaults amounting to 556 million RMB principal. One article from March 2025, as reported by 快马财媒, tallied the total overdue debt linked to the parent group (as borrower or guarantor) at a jaw-dropping 59.25 billion RMB (approx. $8.2 billion USD). (Correction: Re-reading the sources, the 59.25 billion figure seems inflated or a typo in the source/translation; other sources consistently mention overdue principal in the ~6-8 billion range and total guarantees in the 40-50 billion range, with total enforcement around 3.9 billion. Let’s stick to the confirmed enforcement and specific overdue figures which are already massive).

The parent company, Hangzhou Zhang Xiaoquan Group, has a registered capital of only about 16.8 million RMB. Yet it was entangled in billions upon billions of debt obligations. This led directly to the recent enforcement actions. In late March/early April 2025, the Hangzhou Intermediate People’s Court initiated enforcement proceedings against Hangzhou Zhang Xiaoquan Group, Fuchun Holdings, and the Zhang brothers personally, seeking to recover 3.13 billion RMB (approx. $430 million USD) for creditors. Court records show the total amount subject to enforcement against the parent group now exceeds 3.9 billion RMB (approx. $540 million USD).

As a result:

• All 76 million shares (48.72% of the company) held by the parent group are frozen by courts.
• Portions of these shares (3.2 million initially) are being put up for judicial auction in May 2025 to satisfy creditors.
• The legal representative, Zhang Zhangsheng, and his brother Zhang Guobiao have been hit with “high consumption restrictions” (限高 – xiàn gāo), basically barring them from luxury spending, high-speed rail, flights, etc., because they are judgment debtors. They’re effectively labeled laolai (老赖) – a derogatory term for debt dodgers.

The situation became so dire that in March 2025, a local court in Hangzhou approved the initiation of “pre-restructuring” (预重整 – yù chóng zhěng) proceedings for the ultimate parent, Fuchun Holdings Group. According to a report by 虎嗅ESG组, this is a step before formal bankruptcy restructuring, aimed at exploring rescue options and potentially shielding subsidiaries (like the listed Zhang Xiaoquan Co., Ltd.) from the parent’s collapse. It’s seen by many as an attempt to build a “firewall” to save the listed company, but the risk of contagion remains high. If Fuchun’s restructuring fails, control of the iconic Zhang Xiaoquan brand could very well change hands through court-ordered share auctions.

Performance Nosedives and Questionable Moves

Unsurprisingly, the listed company’s performance suffered amidst the PR crisis and the parent company’s turmoil.

• In 2022 (the year of Garlic Gate), net profit plummeted by 47.3% year-on-year to about 41.5 million RMB.
• In 2023, net profit fell again, dropping another 39.5% to just 25.1 million RMB. Revenue also slightly declined by 1.8% to 812 million RMB.
• The company itself acknowledged in official filings that the “brand public opinion” impact was a key reason for the decline, alongside increased marketing expenses.

Adding to the negative optics, while profits were tanking and the parent company was drowning in debt, Zhang Xiaoquan Co., Ltd. continued to pay out significant dividends. Between 2021 and 2023, the company distributed a cumulative 140 million RMB (around $19 million USD) in dividends. Since the Zhang family, via their holding structure, controlled nearly half the shares, a substantial portion of this cash flowed directly into the pockets of the owners whose other ventures were collapsing. This led to accusations of “hollowing out” (掏空 – tāokōng) the listed company, prioritizing shareholder payouts (to the controlling family) over reinvestment or potentially helping stabilize the group’s finances.

The company’s attempts to right the ship have appeared clumsy or insufficient:

• Going “High-End”: They tried promoting premium products like professional hairdressing scissors. But with the core product’s durability questioned after Garlic Gate, and R&D spending consistently low (only 3-3.5% of revenue from 2021-2023 according to one source), consumers were skeptical.
• Diversification: They dabbled in smart home products (2021) and chased the pre-prepared meals trend (2023), but these haven’t become significant revenue streams. Kitchen hardware still dominates, but even that segment reportedly saw income shrink.
• Leadership Shuffle: In May 2024, Zhang Zhangsheng stepped down as Chairman, replaced by Zhang Guobiao’s son, Zhang Xincheng (born in the 90s). Zhang Zhangsheng’s son, Zhang Xinyao, became a director and Vice GM. This “second-generation takeover” was seen by some cynics as merely reshuffling deck chairs or trying to shift blame internally, rather than addressing fundamental strategic errors.
• Marketing Mishaps: A “trade-in” campaign for old Zhang Xiaoquan items offered a paltry 30 RMB (about $4) for an 80s-era pair of scissors, drawing ridicule. During a livestream demonstration by the new young leader, the handle reportedly fell off the knife he was using. Not a great look.
• Fake Sales Scandal: In late 2023 / early 2024, it emerged that a Zhang Xiaoquan subsidiary had been caught organizing employees to “brush orders” (刷单 – shuā dān) – essentially creating fake transactions and positive reviews on e-commerce platforms to boost perceived sales and rankings. They were fined 250,000 RMB (about $35,000 USD) for this deceptive practice, further damaging trust.

The Big Picture: A Cautionary Tale for China’s Old Brands

So, what does this all mean? The Zhang Xiaoquan saga is more than just one company’s crisis. It’s a stark illustration of the challenges facing many of China’s beloved Laozihao brands as they navigate the modern economy.

1. The Capital Trap: Listing on the stock market brought capital and prestige, but it also entangled Zhang Xiaoquan in the high-stakes, high-leverage games of its parent company. The brand became a tool for financial engineering rather than the core focus. This highlights the danger for traditional businesses when aggressive, unrelated capital takes control.
2. Heritage vs. Modern Demands: Garlic Gate showed a fundamental disconnect between the brand’s management (perhaps focused on new materials or aesthetics) and the practical needs and expectations of its core Chinese consumers. Preserving heritage isn’t just about history; it’s about understanding and respecting the culture the brand is part of.
3. Governance Failures: The massive related-party guarantees, the high dividend payouts amidst crisis, and the lack of transparency around the parent company’s debts point to serious corporate governance issues. Family control, while common, clearly didn’t prevent disastrous decisions here.
4. Innovation Stagnation?: Despite marketing efforts, the low R&D spend and the Garlic Gate incident raise questions about whether the company truly prioritized product quality and innovation that meets user needs, or if it became complacent, relying too heavily on the brand name. Competitors like Wang Mazi (now revived under new ownership) and international brands like Zwilling are constantly competing.
5. The Future of Laozihao: The Ministry of Commerce has been cracking down, removing dozens of brands from the official Laozihao list and putting others (including Zhang Xiaoquan in 2023 after Garlic Gate) on notice for rectification. It signals that history alone isn’t enough; these brands need to adapt, innovate, maintain quality, and operate responsibly to survive and thrive.

Can Zhang Xiaoquan Be Saved?

Right now, Zhang Xiaoquan stands at a precipice. The parent company’s pre-restructuring offers a sliver of hope that the listed entity can be insulated, but the massive debts and frozen shares mean the controlling Zhang family’s grip is tenuous at best. A forced change of ownership via share auctions seems increasingly likely.

Whether a new owner – perhaps a strategic investor from the industry, or maybe even a state-backed entity – can salvage the brand remains to be seen. The immediate challenges are immense: stabilizing finances, rebuilding consumer trust shattered by Garlic Gate and the fake sales scandal, refocusing on product quality and relevant innovation, and untangling the complex web of debt.

For us observers, it’s a fascinating, if painful, case study unfolding in real-time. A 400-year-old legacy, a symbol of Chinese craftsmanship, brought to its knees not by war or revolution, but by the modern demons of reckless borrowing, corporate overreach, and a failure to remember who its customers are and what they need – even something as simple as a knife that can reliably smash a clove of garlic. The trouble for Zhang Xiaoquan, as another article aptly titled it, seems hard to simply “cut off” (剪不断 – jiǎn bù duàn). We’ll be watching to see if this ancient brand can forge a new future from the wreckage.