Tea with Liu Chuanzhi

飞雪寒冰

The elevator doors open on the 10th floor and I’m ushered past a generic reception area and down a hall lined with framed photographs of various moments in the short history of China’s biggest computer company, Lenovo. The photographs are amateurish: some are fuzzy enlargements, some have a reddish tint, and others were taken too close with a flash. Most were chosen because they captured the presence of a powerful government official; Lenovo may be a public company, but it remains firmly rooted in the state.



At the end of the hall, my escort pauses at a plain brown wooden door. A brushed metal plate on the door is stamped with the number 1001. There are no other markings. She taps and opens it and I follow her through a small, crowded, windowless office, its surfaces spilling with papers. A man behind a desk rises but we are already headed through another door to meet the grandfather of China’s high tech revolution, Liu Chuanzhi.

飞雪寒冰

He is standing and smiling. He offers his hand, mumbles a token greeting in English and steps back to wave his guests through. The office behind him is another world: soft and airy, with recessed lighting, pale silk-lined walls and welcoming armchairs covered in creamy white leather. Gauzy beige blinds are drawn low over a wall of windows. A spray of white orchid’s arc from the corner of a large desk stacked with books. A place in each book is marked with a pale silk ribbon.



Mr. Liu himself is understated and discreet, dressed in a dark sports jacket and slacks, a crisp white shirt opened at the neck. He is wearing well-polished shoes, a domestic brand of rubber-soled loafers. His eyeglasses are thinly rimmed in gold. At 64, he looks trim and prosperous but that’s about all.



Certainly, there is nothing to hint of his long journey from the dim halls of the research institute that once stood on the grounds where this office tower now stands, nor of the personal and political battles that he fought to reach room 1001.

飞雪寒冰

While he sits comfortably at the top of a global company, his rise comes from a remarkably small geographic base: Zhongguancun, once a quiet neighborhood outside of the Chinese capital where court eunuchs were laid to rest together with the private parts they kept preserved in a jar. Beijing’s university quarter grew up around the neighborhood and the China Academy of Sciences was eventually established there. It was a leafy, low-rise landscape in 1970 when Mr. Liu arrived from an obligatory year laboring on farms in Guangdong and Hunan provinces.


He was bright and ambitious but China wasn’t yet ready for bright and ambitious types, at least outside the realm of party politics. Scientific research was like living in a room with no doors.

“Findings weren’t used for commercial products,” Mr. Liu recalled, now seated in one of the armchairs. “They just sat idle in the Academy unknown to the rest of the world.”

飞雪寒冰

An aide brings tea; covered cups of hot water with bright green, tightly curled leaves floating on the surface. The leaves are a superior grade of Long Jing, China’s most famous variety of tea.



It is easy for people outside of China to underestimate - or even forget - the impact of Deng Xiaoping’s rise to power. But for many Chinese, Mr. Liu among them, it was a watershed event in their lives.



“My friends and I were worn out by the Cultural Revolution and frustrated by the political struggles,” he said, remembering how Mr. Deng spoke promisingly of science and technology. “After Deng Xiaoping came onto the scene, we felt hope for China to become a nation, but we were still at a loss as to what we should do.”



In 1984, the academy’s president, Zhou Guangzhao, pushed the academy’s institutes to set up companies and commercialize research. Mr. Liu was among the first to leap on the idea.



“That’s was when my life’s second phase took off,” he said. “At a time when the Chinese economy was still largely planned, I learned how to build up my own company, to transform technology into products and to stay competitive with foreign firms. I studied management theories and applied them. I found meaning in life from doing these.”



Mr. Liu motions to an aide for a small remote control and at the touch of a button the beige fabric covering the windows glides up, letting the late afternoon light spill into the room. He rises, motioning toward a white construction wall and a row of trees below.

飞雪寒冰

“My apartment was over where those trees are,” he says, pointing. “No new houses had been built since the Cultural Revolution, and so people just crammed into the buildings as the population grew. Three other colleagues and I, scientists ten years older than me, lived a 12-sq-meter room the size of a bicycle shed. I can’t even call it a house because the walls were just a single layer of brick and couldn’t keep us warm.”



He sits back down and crosses his legs, revealing a glimpse of long underwear above his ankle; the weather outside is mild and the temperature in the building a steady 70 degrees, yet old habits die hard.



The little house became a home after he married and his colleagues moved out. Eventually seven people lived in the 12-square-meter room, including his children and parents-in-law. He chuckled as he told about one time when someone jostled a clothesline strung across the room and a pair of socks dropped into the soup cooking for dinner.



He has moved just four times since those days, “all in this neighborhood,” he says.



He pauses to drink some tea and the room fills with the hushed sea-like sound of traffic outside, punctuated by muffled clanking from a construction site.



Mr. Liu and his colleagues began by selling imported computers to the local market - he often tells of wearing an old business suit that had belonged to his father for his first meeting with representatives from IBM. Before long, the fledgling company was manufacturing motherboards and soon introduced its first homegrown product, the Han card, which allowed PC users to work in Chinese characters.



The company eventually started making its own PCs, becoming the country’s largest computer manufacturer, and in 2005 it bought IBM’s troubled personal computer business. The purchase catapulted Lenovo into third place in the world, behind Hewlett-Packard and Dell of the U.S. and Acer of Taiwan. (It slipped to fourth place after Acer bought the U.S.’s Gateway late 2007.)

飞雪寒冰

That’s when Mr. Liu stepped down as the company’s chairman, turning the keyboard over to a protégé, Yang Yuanqing. The company hired an American as president with hopes of building China’s first major global brand.



It didn’t turn out that way: the president, William J. Amelio, poured money into marketing - he spent hundreds of millions of dollars on campaigns tied to the 2008 Beijing Olympics - but there was little product innovation to back up the hype. The PC industry was becoming a commodity business, with margins thinning as manufacturers competed on price.



Then the global economy started its swan dive and Lenovo’s sales plummeted 20 percent in the final quarter of last year. Its profit fell 48 percent. Mr. Liu was called back to stabilize the company.



Mr. Liu had been spending most of his time on Legend Holdings’ real estate and investment businesses, both of which he readily admits are more profitable than making PCs (Legend Holdings’ real estate company, Raycom Real Estate Development Co., built the tower that houses Lenovo’s headquarters and is developing the rest of the former institute’s grounds).



“I never decided to be just a businessman who runs a PC company,” Mr. Liu said. “I want to be a businessman who runs a large and profit-making company.”



He says that Lenovo’s profit growth will be limited if the company focuses only on producing hardware.



“There is a niche in developing software that link up computers with mobile phones. This integrated technology, or mobile-computer interface, opens up the chance for manufacturers like Lenovo to develop its own software and to be a pioneer in the field,” he said. “This is what we’re going after.”

飞雪寒冰

But PC sales are the problem at hand and Mr. Liu finds himself in much the same position as the country’s leaders: faced with a shrinking market overseas, he is hoping the domestic market can pick up the slack.



“If the government can raise wages and lower taxes, people will have more disposable income to buy food, clothes and TVs. If they have greater purchasing power, Chinese factories now exporting products overseas can produce for the domestic economy,” he said.



He said that the company will focus on selling less-expensive computers in China for the time being. Lenovo’s push, he added, will be centered on a computer that costs around 3,000 yuan - or about $440.



In 2000, Lenovo sold 2 million computers in China, which accounted for 27 percent of the market. In 2007, the company had about the same market share but sales had grown to 10.7 million computers.



“Among the 8 million new computers sold, half were sold to small towns and villages,” he said, leaning forward in his chair and gripping the armrest as he makes his point. “That explains the market potential.”



Computers are replacing bicycles and television sets as rural status symbols in China and, perhaps more importantly, are an increasingly necessary item in the dowry a man presents to his bride. But there is also growing use of the Internet in China’s countryside thanks to massive government investment in a nationwide broadband network a decade ago.



“An orange wholesaler can get information on orange prices in the northeast by going on the Internet,” Mr. Liu says. “That puts him in a better negotiating position when he goes to sell.”



Mr. Liu seems confident that enough of China’s vaunted 4-trillion yuan stimulus package will seep down to the average Zhou for spending on computers to rise. But he cautioned that for a more fundamental shift to domestic driven growth, the Chinese economy needs structural reforms that will create wealth in the countryside and unleash consumption.

飞雪寒冰

“For a healthier Chinese economy, we need to have domestic demand and consumption to be the main generator of our GDP,” he says.



The twin stars in this constellation, he says, are relaxation of the household registration system and land reform.



While there is a huge floating population in Chinese cities, people remain tethered to the countryside by a registration system that determines everything from where their identity cards are issued to which schools their children can attend.



Not until this system is relaxed can there be a permanent population shift from the impoverished countryside to cities where jobs are more plentiful and wages are higher.  



The second step needed is the privatization of land, which would allow those rural families that remain behind to buy and sell land or borrow against it, creating wealth beyond the near sustenance farming that now occupies their time.



“Land reform, if possible, will encourage urbanization, and therefore stimulate further consumption for our computers,” Mr. Liu said, lifting the porcelain lid off his tea cup and setting it on the table beside him.



Mr. Liu uses China’s beleaguered dairy industry as an example. One cow can produce up to 20 kilograms of milk a day, he explains. Dairy farmers sell their milk at around 2 yuan per kilogram to milk-collecting stations, so they get around 50 yuan per day for each cow they own.



“At this rate, one has to raise 20 cows to break even, and one needs 2,000 cows to really make a profit,” he adds. But with the small plots they have now, each farmer can only raise a few cows.

飞雪寒冰

He lifted his cup and blew across the surface of his tea, scattering the leaves, before sipping.



If entrepreneurs could amass land, he continued, they could industrialize dairy farming and smaller dairy farmers could become dairy workers and their incomes would rise.



Like many others who see the same solution, Mr. Liu pressed for such strategic reforms during the recent National People’s Congress. But China today does not have a Deng to force through such radical change.



“The next day, the National Development and Reform Commission came back to me with a reply,” he said blandly, adding that they “completely ignored the question.” He took another sip of tea.



These are the sorts of things he talks about with his peers. They are wealthy men of extreme entrepreneurial talent who nonetheless are politically impotent: party politics still dominate decisions in China.

飞雪寒冰

He mentions Jack Ma, founder of the online global trading company, Alibaba Group, as man in whom he confides. He also spends a couple weekends a year with an exclusive entrepreneurs’ club called Tai Shan, named after the sacred mountain associated with sunrise, birth, and renewal. There are currently just 15 members.



Otherwise, Mr. Liu has adopted the trappings of a corporate chairman as he waits for China to change.



He goes golfing with his brother and son on the poetically named Ten Thousand Willow Golf Course, a tightly packed system of fairways and greens on a nearby swatch of land surrounded by highways and high-rises. He plays a couple times each winter at a course in Guangdong province, near Lenovo’s original factory and where a friend owns a villa.



The books on his desk speak of a curious, eclectic mind: Barak Obama’s The Audacity of Hope and A Conversation between Two Generations of Military Men, a book about the Sino-Japanese war by the son of the late General Zhang Aiping.