The Sage of Zhongguancun | China Unlocked

By Yuan Yanan

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The global headquarters of Lenovo Group in Phase II of Zhongguancun Software Park in Beijing.

Nearly 40 years ago, Zhongguancun was a non-descript peripheral village in Beijing’s Haidian District. Now, considered China’s Silicon Valley, Zhongguancun has become a fully developed technology hub nurturing both native and international scientists and technology experts. Liu Chuanzhi launched his business there and witnessed the transformation of Zhongguancun.

When tracing the development of China’s IT industry, Liu Chuanzhi is a name that will inevitably come up. Founder of Lenovo Group, Liu is hailed as a business “godfather” in China. His story mirrors the evolution of the country’s reform and opening-up. Now at the age of 75, he is a legend of Chinese business.

“Lenovo is a legend and a flagship brand of Zhongguancun,” declared Lei Jun, founder and CEO of Chinese tech giant Xiaomi. “Almost everyone who works here was inspired by Mr. Liu and his career.”

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Liu Chuanzhi, founder of Lenovo.

Leaving the “Ivory Tower”

Before venturing into business, Liu was engaged in research on magnetic recording at the Institute of Computing Technology under the Chinese Academy of Sciences (CAS) in Zhongguancun for more than 10 years. Even though he won prizes for his research, Liu was not satisfied with the job.

“I felt like my life as a researcher was a fraud,” recalled Liu. “In the Soviet-style planned economy, there was very little interaction between research institutes and enterprises. If we made a new research achievement, it was never going to be implemented. All we could do was write papers about it. Then the research papers would get you promotions and awards.”

Furthermore, Liu’s salary was only 78 yuan per month, and the wages of most researchers at CAS hardly rose between 1970 and 1984, in Liu’s memory. The seven people in his family shared a 12-square-meter room. “I could endure a life of poverty, but I couldn’t stand wasting my time and achieving nothing,” Liu said.

Before 1978, China’s private sector had been swamped by a tidal wave of collectivization for more than 20 years. Private ownership had been banned. But things began to change after 1978. At the Third Plenary Session of the 11th Central Committee of the Communist Party of China in 1978, Chinese leader Deng Xiaoping called on the Party to shift focus of work to economic development. That moment effectively launched China’s journey to reform and opening-up.

Liu realized spring had arrived for Chinese scientists. After finishing a 1984 inspection tour of developed countries, the vice president of CAS Zhou Guangzhao encouraged researchers to launch their own businesses and “transform scientific achievements into productive forces.”

“Mr. Zhou hit the nail on the head,” Liu said. Even though the new policy enabled people to own a business, most scientists at CAS didn’t dare take the risk. But Liu was determined to leavethe “ivory tower.” “If research does not create value for our country, our work is a waste of time,” he thought.

In 1984, Liu left CAS and launched his own company at age 40. Alongside 10 colleagues, Liu established New Technology Development Company under CAS Institute of Computing Technology, the predecessor of Lenovo, in the institute’s gatehouse in Zhongguancun with an office space of less than 20 square meters.

In the early years, Liu had to hawk electronics to pay wages. All employees including Liu himself toiled away as vendors on Zhongguancun streets. They pedaled flatbed bicycle carts to sell various commodities including digital watches, refrigerators and personal computers.

A few scientists had similar experiences. They smashed “iron rice bowls” in favor of setting up shops in Zhongguancun to pursue more value-added lives. With CAS and universities such as Tsinghua University and Peking University nearby, Zhongguancun was a natural destination for many IT startups.

Conducting business was never easy for Liu. Once he lost 3 million yuan to a con at a time when such a sum was massive. The horrible incident almost destroyed Liu’s health. “We seemed to face a life-or-death crisis every year,” Liu recalled. But with hard work and perseverance, the company ultimately survived.

First Branded PC

As development of computer industry gained steam in the United States in the 1980s, computers were still distant from the radar of most living in China. Liu still saw the business opportunities and cashed in reselling PCs and other IT products made by IBM, AST or HP.

Most personal computers were imported and equipped with English operating systems. Liu introduced a Chinese Insertion Card developed by Ni Guangnan, a scientist at the Institute of Computing Technology, in 1985. The Chinese Insertion Card provided association input method. When users input a Chinese character, associated characters that could be used to complete words would pop up. The program greatly improved input efficiency and soon became the company’s flagship product.

Over the next three years, it generated profits of 12 million yuan, which became Liu’s first windfall. As an ambitious businessman, Liu knew he wanted to develop a domestic branded PC for Chinese consumers. In 1990 when his first 286 computer was produced, Liu’s dream came true. Lenovo was no longer a reseller. But even greater challenges were to come.

When China opened its market wider in the early 1990s, foreign computer brands including HP, IBM and Compaq began to swarm the country. Many domestic PC manufacturers collapsed in the fierce competition. Lenovo was also pushed to the limit. Liu set up a new department and adjusted their marketing strategy to replace direct sales with distribution channels. These efforts gradually shifted Lenovo’s weak position to one more favorable. In 1996,

Lenovo finally topped sales of foreign PC brands for the first time. The Chinese brand’s growth shifted into high gear. Lenovo was sensitive to consumer demand. When foreign brands were dumping 486 computers in China in 1993, Lenovo released its first 586 Pentium computer at a relatively low price so Chinese consumers could opt for a cutting-edge PC over an older model from the U.S. In 1999, Lenovo’s new PC made internet access much easier. By then, more and more Chinese people could afford a domestic PC to surf the internet. Liu’s company changed the landscape of China’s IT industry.

By 1999, Liu’s company was the largest PC manufacturer in Asia, and the population of high-tech companies in Zhongguancun was 6,690, earning nearly 105 billion yuan. Zhongguancun was already becoming China’s Silicon Valley.

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On June 5, 2013, Lenovo opened its first U.S. manufacturing plant for PC production in Whitsett, North Carolina.

Becoming International

After becoming the top PC producer in the Chinese market, Liu led Lenovo towards internationalization. A highlight of the shift was the acquisition of IBM PC.

“When IBM came to us wanting to sell its PC division, I was the only person on the board of directors who liked the deal,” Liu recalled. “No one thought a company like ours valued at just US$3 billion could acquire such a major brand.” After careful search and help from consulting firms, they realized that Lenovo had a good chance to make it work and the rest was history.

In 2004, Lenovo acquired IBM’s personal computer division for US$1.75 billion. Liu still remembers the press conference vividly: “So many journalists packed into the conference to witness that moment. After we signed the document, one of them said to me, ‘Mr. Liu, you made the right choice!’”

“That day, I thought of the times I would attend meetings with IBM managers as an agent of foreign distributors wearing my father’s suit and sitting in the back. I never could have imagined I would one day acquire their business,” he added. But the flowers and cheers from that day were still not enough. “If we failed, Lenovo could have fallen deeply in debt or even folded.”

Liu’s greatest worries arrivedin 2009. Against the backdrop of the world financial crisis, divergence on development strategy between Lenovo head Yang Yuanqing and the manager of IBM PC caused losses of more than US$96 million in the third fiscal quarter. It was the first loss for Lenovo in 11 consecutive quarters. In 2009, Liu had been retired for four years. But as founder of Lenovo, he decided to reclaim his position as chairman of Lenovo to save his company from crisis.

In fiscal year 2010, Lenovo Group’s total sales increased to US$16.605 billion and its profits to US$129 million, completely offsetting the losses. In fiscal year 2011, Lenovo’s annual revenue was US$21.59 billion, up 30 percent year-on-year. Net profit was US$273 million, up 112 percent year-on-year, with Lenovo’s share of global emerging markets jumping into the first place. But maybe Liu is most proud of Lenovo Group being ranked 449th on the 2011 Fortune Global 500 list.

Some thought Lenovo’s nosedive was irreversible. But Liu was the person to fix disasters. “Lenovo is my life,” he told the press. “I have to make sure it’s a great company.” He knew that the financial crisis was only the fuse. Lenovo’s problems were in management. The need for people from different cultural backgrounds working together effectively was another big problem. Through reorganizing management, reshaping the enterprise culture and adjusting marketing, Lenovo regained profitability in only six months. Across the 30 years of IT in China, Lenovo’s case is most popular for study by young entrepreneurs.

Now at 75, sharing his experience with young entrepreneurs is an important mission for Liu. As with many startups, most are short of funds and managerial experience. Liu has been known to provide both. He has also invited other successful businessmen such as Jack Ma to talk to young CEOs. Many startups have thrived and become successful thanks to Liu’s help. iFlytec CEO Liu Qingfeng managed to transform into a businessman from a scientist thanks to Liu’s guidance, and iFlytec is now an AI leader in interpretation.

Inspired by Liu’s legend, many young people have found space in Zhongguancun to start up companies. No longer a village, Zhongguancun has expanded to 488 square kilometers in northwestern Beijing. Companies including Nokia, Motorola, Sony Ericsson, Microsoft, IBM, Sun, Oracle, BEA, Alcatel Lucent and Google have offices in Zhongguancun or elsewhere in Beijing.

Without China’s reform and opening-up, Liu’s success would have hardly been possible. “The policy of reform and opening-up broke the shackles of Chinese people,” Liu opined. “I have been fortunate to live in this great era.”

“There are two kinds of people in society: those who just want to make a living and those who desire achievements,” Liu explained. “The latter will dedicate much more to the development of the country.” Liu seems to be of the latter.

Layout by Tian Yuerong

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