“My generation is very lucky,” said Feng Jun.
Feng, the chief executive of Aigo, a large Chinese consumer electronics company, is a classic Chinese entrepreneur: starting with US$31 in his pocket, he has built a business whose products are a staple of urban China, including digital cameras, MP3 players and a new iPhone-like all-in-one device. Before telling me his Horatio Alger story, though, he had something he wanted me to understand.
“My mother and father went through the Cultural Revolution,” Feng said. “They had no chance.”
“When I was in grammar school, the Cultural Revolution ended. When I graduated from university in 1992, that was the year of real reform. Deng Xiaoping (鄧小平) encouraged students to go into business and become entrepreneurs. Before then, if you wanted to be an entrepreneur, you would sink like a stone. But after that, anyone could be an entrepreneur,” he said.
I spent two weeks in China, hardly enough time to begin understanding the place — as if a country as vast and varied and complex as China can ever be truly understood by a foreigner. But as I headed back to New York, Feng’s quote stuck with me. It resonates with so much else I saw and heard.
First, it helps explain why most of the Chinese chief executives I met — every one a company founder — were in their 30s. Though Feng began his company 16 years ago, he is still just 39, and absolutely brimming with entrepreneurial enthusiasm.
You hear constantly that China is a country of young people — the average age is 33 — but you really see it in business, where just about everybody seems to be under the age of 40. For people over the age of 50, sadly, as Feng said, they had no chance. The risk-taking impulse, and so much else, was crushed by the Cultural Revolution.
Second, it’s a reminder just how quickly China’s economic rebirth has taken place. Mao Zedong (毛澤東) died in 1976. Four years later, the country’s first special economic zone, explicitly created to encourage entrepreneurial capitalism, was established in the southern city of Shenzhen. What China has done in less than three decades is nothing short of astonishing.
As Byron Wien, the chief investment strategist for Pequot Capital Management, wrote last summer, “Nothing I have read, heard or seen will dissuade me from my view that China has made more economic progress in the last 30 years than any country in history.”
It is impossible to visit today’s China and disagree.
Third, modern China surely shows that trickle-down economics is not just supply-side propaganda. Deng, the driving force behind the move to capitalism after Mao’s death, famously said, “To get rich is glorious.” And goodness knows, lots of people have gotten rich.
But look at what else happened: motivated by the prospect of wealth, people started companies. And as those companies succeeded, millions of new jobs were created. In Shanghai — a place with more entrepreneurial energy than any place I’ve ever visited, including Silicon Valley in the 1990s and Houston during the 1980s oil boom — you can practically see wealth being created before your very eyes. If Shanghai doesn’t make you a believer in the power of capitalism to improve lives, nothing will.
RAW DEAL
Yes, in much of China, the deal is still a pretty raw one for most laborers, who live far from their families, working under arduous conditions for low wages. And like most first-time visitors, I was appalled by the pollution, especially in Beijing. (Are they really going to run a marathon there?) But even these problems are beginning to get attention, as the country moves to higher-value products, and as the environment becomes a public policy priority, thanks in part to the Olympics.
But can it last? There are, undeniably, signs of a bubble economy — wheeler-dealers everywhere, Internet companies with no real business models, private equity and venture capital rushing in helter-skelter, rising inflation, a volatile stock market that moves on rumors and hot tips.
There is a gold rush mentality, a powerful sense that you have to do a deal right this second, or somebody else will snatch it out from under you. These are attributes I also saw in Houston and Silicon Valley — and, well, you know how those booms turned out.
Yet who can really argue against China’s continued growth? It’s been mainly the coastal cities that have prospered so far. There are hundreds of millions of people in other parts of China where capitalism is just starting to take root. In a country of more than 1.3 billion people, “only” 162 million use the Internet (as of last year) and what they see there is strictly censored. In a country with 20 percent of the world’s population, China only accounts for 2 percent of world consumption. Forget about exports — the growth of the domestic economy alone should keep China’s economy from stalling out.
Plus, of course, China has well over US$1 trillion in foreign reserves — most of it in dollars, thus propping up our own consumption habits, thank you very much — which it can spend to unleash entrepreneurial instincts in the rest of the country. The government defines progress almost entirely in economic terms. Surely, such progress will leach beyond the big coastal cities, as the prospect of “glorious” riches loom.
Here’s another impression I came away with. Inch by inch, the intellectual property situation seems to be improving.
Admittedly, this is hardly obvious. Counterfeit goods are everywhere; even at the Great Wall, I was offered some great deals on fake Rolex watches. Cheap, pirated CDs and DVDs are equally ubiquitous. It doesn’t take more than a few days in China to see why Western movie and music company executives tear their hair out.
On the other hand, in the last few years the government has issued edicts calling on companies and government agencies to use — and pay for — licensed software. Lenovo, the Chinese company that makes the ThinkPad laptop, has been a leader in pushing the government to do more in this regard.
Alas, enforcement is still lax, but about a year ago, the government also mandated that computer manufacturers preload a licensed operating system instead of simply taking it; many of the big manufacturers now do so.
Indeed, a number of big, publicly held Chinese companies, which five years ago would have used pirated software, now buy legal, licensed products from software vendors.
SOFTWARE
Including, of course, Chinese software vendors, like Caxa Technology. Do potential customers sometimes steal Caxa’s software?
Yes, said Yi Lei (雷毅), the chief executive. But most big customers are buying his product, and using it legally.
“The rapid growth of Caxa shows that we are succeeding,” Yi said.
Hence the real reason that China is likely to start respecting intellectual property: China now has some skin in the game. More and more, it is not just Western companies with intellectual property to protect; Chinese companies like Caxa and Lenovo also need to have their intellectual property protected.
In addition, many Chinese companies talk about wanting to instill a culture of innovation, rather than slavishly copying the innovations of others. But innovation is impossible without intellectual property protection. After all, what’s the incentive to invent something new if your competitor can steal it with impunity?
I saw recently that Gucci won a big lawsuit — in China — against a Chinese company that was using its logo illegally. And Andrew Rothman, a China analyst with the investment firm CLSA, noted in a paper in September that “last year, China passed the US to become the world’s most litigious country in terms of intellectual property disputes.” Most of the lawsuits, he added, were brought by Chinese companies against other Chinese companies. I never thought I’d see the day when an uptick in litigation was a sign of progress, but there you go.
My last interview in China was with a teacher-turned-businessman named Michael Yu (俞敏紅). He is the founder and chief executive of New Oriental, a Kaplan-style company that he began in 1993 and has since become the largest private education company in China. In 2006, it went public, transforming Yu into a billionaire.
On the day I met him, he was wearing a flannel shirt, jeans and sneakers. At 45, he was the oldest chief executive I met in China.
The interview was one of the most enjoyable hours I spent in China. Yu, it turned out, had been through a lot to get to this point — he’d been run out of Beijing University after a public humiliation, had struggled to get a government license to start his first school and had had to slay many dragons along the way. His was hardly a get-rich-quick story, and Yu told it without an ounce of braggadocio.
“Michael built a business before he did an IPO,” said New Oriental’s chief financial officer, Louis Hsieh (謝東螢).
Though he professed to be a poor manager — “that’s why I hired these guys,” he laughed, pointing to Hsieh and another executive — Yu had the qualities you yearn to see in any company leader. He clearly cared deeply about his company and its mission.
“We didn’t just do this to get rich,” he said. “We are doing it to enrich other people’s life. The IPO is a dot on the road. You do not change your road because you have money or because you have an IPO.”
China has plenty of problems: Tibet, pollution, political repression, the Great Firewall, you name it. Even so, it is hard not to be optimistic when you meet someone like Yu. If he is the future of Chinese business, then that future is very bright.
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