Sunday, June 4, 1989

Success in Beijing's Silicon Valley

(Written for the International Herald Tribune after my third visit to China. It was scheduled to be published on June 4th, but this did not happen due to the Chinese government's crackdown on the student rebellion.)

Wan Runnan, founder of Stone Group, and a
"most wanted" fugitive after June 4th, 1989.

In Beijing's Silicon Valley, the spirit of freedom and enterprise has given rise to new kinds of Chinese companies and leaders. The Stone Group, nick-named "China's IBM", is one of them.
-Our success is the success of market economy. For China, Stone's way is a way out, says its founder Wan Runnan.
China's new entrepreneurs challenge the country's ossified economic system as radically as the students challenge its ossified political system.

A group of researchers left their secure jobs at the Chinese Academy of Science (CAS) in 1984. With a 20,000 yuan loan they started up their own company employing 64 persons. The first product was a computer printer made by the Japanese firm Mitsui to which Stone added computer software to handle Chinese characters. Soon they struck a deal with Mitsui where the Japanese supplied the hardware and the Chinese the software. It worked out well and in the summer of 1987 the two companies started a joint-venture.

Stone's most famous product is an electronic typewriter which can handle both Chinese and English. Stone controls 80 percent of the Chinese market by selling about 20,000 units a year.
An electronic typewriter may not sound like much, but just imagine a country where almost everything has to be written by hand! This was the case in China until recently, and the promise of Chinese character word processing was one of the reasons why the Microcomputer Revolution became so popular here.

Stone Groups headquarters in Beijing's Haidian District.

Like International Business Machines (IBM), Stone started outside the field of computers. Today Stone is one of China's leading computer companies. It is a mother company with 20 specialized subsidiaries, four joint ventures with foreign companies and three joint ventures with domestic companies. Two thousand people work for the Stone Group - half of them in Beijing.
The reputation of its management has grown so much that it was offered to take charge over the largest computer and electronics company in the Yunnan province, the Yunnan Electronics Factory (YEF) with 900 employees. And so it did last February. Stone gets 40 percent of YEF's above-plan profit.

The core of the emerging Stone conglomerate is Stone Group Ltd, which employs about half of the total staff. This company had a turnover of 317 million yuan in 1987 which more than doubled in 1988, when it reached 700 million yuan.

It is also one of China's new stock companies and recently began sell stocks to the public.
-We are aiming for the world market and want to attract investments, says Li Yichuan, Stone's P.R.-manager. It is a better way of managing the company and the public supervision leads to better management. The ownership will also become clearer.

This ownership question poses a problem, according to Mr. Li. He explains that it is difficult to piece it into the accepted formula for a "non-government collective enterprise".
-It is owned by all employees. We are trying to solve this sensitive question through stocks as you cannot come out and say that it belongs to a "so-called non-government collective".

Who really controls the company? Is it the president or the Communist party secretary?
-We don't keep two parallel systems. The president is also the leader of the party, says Mr. Li. We don't have any labor unions, because we have harmonious relations within the company.
An employee at Stone makes about twice as much as other workers in this country who earn an average of 120-400 yuan per month.

What more than anything else separates Stone from other Chinese companies is its corporate culture. The published annual report (in itself a rare thing in China) reflects this vividly:
-Stone's superiority lies in its independent and responsive policy and management which takes market trends and needs as its guide. Furthermore, resources are allocated to where the economic benefit will be the greatest, and our personnel are placed where they can be put to maximum use.
-State-run enterprises have few or none of these characteristics, the report continues.
And under the headline "The key to success" we read "At Stone any mistake is tolerable except that of supressing talent".

43 year old Wan Runnan is the man behind Stone's philosophy. After graduation from the famous Qinghua University in 1970 he was assigned to work for the department of Computer Science at CAS. He has studied this subject in both Japan and the United States. According to one report, he is good for 30,000 yuan per year, making him one of China's best paid managers.
-Stone group has three advantages, says Wan Runnan, when asked about the secret of its success. We have a rice bowl made of mud instead of the iron rice bowl, that is, everybody in my company has to work hard to get a good salary.
-Secondly, we put great emphasis on the market. It is still controversial in China whether we should have market economy or planned economy. Stone's success is the success of market economy. Stone's way is a way out for the Chinese economy.
-Thirdly, we pay great respect for talented people. We have a lot of them in China, but they are held back by the old system, which makes them stupid and lazy. With us, however, they are clever and hard working.

Would you like Stone to be like IBM?
-IBM is very successful, especially in computers. I went to an IBM seminar before I started this company. I was greatly impressed by their management methods and products, but we have specific conditions in China and cannot copy them. We must have our own understanding.

Stone Group is based in the Haidian District, north-west of Beijing. I visited the area for the first time in May 1985 although there was no talk then of a Silicon Valley. Professor Wu Jikang, who built China's first computer in 1958, took me for a walk down Haidian Road. We visited a couple of unimpressive computer stores which sold imported personal computers, home-made IBM PC-clones and Chinese manuals for computer software. I was more impressed by an advanced mainframe built by the Institute of Computing Technology (ICT), which he was heading.

Professor Wu Jikang and the writer in May 1985.

A computer store in Beijing's Silicon Valley 1985.

In March of this year I again visited the Haidian district and could hardly recognize the place. There were computer and electronicscompanies not only along Haidian Road, but as far as the eye could see. According to the official magazine Beijing Review, this is now the country's largest computer market.

The Central Government last year passed new laws giving new companies in the Beijing New Technology Industrial Development Experimental Zone (BEZ) considerable tax breaks.
The interest in this area is nothing new. The government has invested ten billion yuan (1 dollar=3.71 yuan) here since 1949. As a result you find 80,000 researchers and technicians as well as 50 universities and 138 research institutes within the zone.

What is new, however, is the effort to break through the walls which prevent productive cooperation between research and industry in China. Many scientists start up new businesses or work for new institutes dedicated to the commercial exploitation of scientific research. No less than 11,000 researchers and technicians are working in the area's 640 hi-tech companies, compared to 3,800 and 150 respectively about a year ago.

The turnover of the area's companies was 18 million yuan in 1984. It reached 900 million in 1987 and last year it leaped 56 percent to 1.4 billion yuan (380 million dollars). Exports quadrupled in 1988 to 13 million dollars.

There are, however, those who dislike the talk about Silicon Valley. One of them is Li Yun, the reform-minded president of Beijing's Computer Factory No. 3, located in eastern Beijing.
-Silicon Valley?! Hah! They just sell something that they bought abroad from some other sellers. Silicon Valley (In California) produces and develops products. Here they don't develop or produce anything, says Li Yun.

But Gao Jian Yu, vice manager for Syntone Corporation, one of the leading computer companies on Haidian Road, defends Beijing's Silicon Valley.
-In the beginning we had very little experience, so we had to start by getting into the market. Now we have developed more than 80 different new products, and one of them, a sensor, won a gold medal at a Technology Fair in West Germany in 1987.

Hans Sandberg

Footnote 2007: Wan Runnan landed on the Chinese government's "most wanted" list after the crackdown on June 4th because of his support for the student protest, but he managaed to flee the country.

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