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Another Side to Liu Chuanzhi
Summary:"It's just like two athletes running towards the finishing line, each in their own lane. Each of them should only by worrying about running as fast as they can. But, it's when one runner slows down and then tries to think of ways of stopping the other runner getting ahead, this is what I can't accept."


By Li Xiang (李翔)
Issue 557, Feb 20, 2012
Business Review, page 44
Translated by Zhu Na
Original article:
It's the evening of Nov 13, 2011 and Liu Chuanzhi (柳传志), the recently retired Chairman of Legend Holdings and one of China's best known business personalities, is at an intimate dinner in Washington which is being held in honor of a visiting delegation from China. The dinner is being hosted by Juliana Glover, an American political consultant and co-founder of the Ashcroft Group.

Other people at the event include Mark McLarty, a former White House Chief of Staff for US President Bill Clinton.

Liu Chuanzhi, a glass of red wine in his hand, is talking to three U.S. politicians through his interpreter.

"It's just like two athletes running towards the finishing line, each in their own lane. Each of them should only by worrying about running as fast as they can. But, it's when one runner slows down and then tries to think of ways of stopping the other runner getting ahead, this is what I can't accept."

Similar to other parties at which U.S. politicians and economists will mix with Chinese entrepreneurs, economists and politicians, the conversation is dominated by talk of the exchange rate, economic recovery and unemployment problems in the U.S. and what role debates about China will play in the lead up to the U.S. presidential election.

Liu, in his role as head of the delegation, has encouraged all the entrepreneurs that have travelled with him to the U.S. to talk candidly on these issues.

As for how Liu himself sees the current state of affairs, he says the U.S. should focus on solving its own problems, namely the excessively high cost of labor, rather than focusing on the appreciation of the Chinese currency, hoping that this will solve America's problems.

In the debates taking place in the lead up to the 2012 U.S. presidential election, China has found itself in the cross-hairs, becoming a target that everyone wants to hit.

At this small dinner party in Washington, it's Liu Chuanzhi who finds himself in the cross-hairs.

Although he finds it difficult to communicate in English, it's obvious that he has a strong desire to talk with others. Before arriving in the U.S., Liu had just announced his intention to resign as Chairman of the Lenovo Group. Despite the fact he was about to step down, as Lenovo is one of the most well-known Chinese companies in America, Liu found himself the center of attention at the party.

Liu found himself surrounded by both American and Chinese guests, as he held forth through his "international secretary" explaining why China is not a selfish monster and how the U.S. had its own problems.

An American asked Liu whether Lenovo Group had expanded its procurement of parts in Mainland China?

The real meaning behind the question was: whether Lenovo Group will shift orders, procurement and employment opportunities to China like many other multinational companies such as Caterpillar have done.

Liu's answer surprised him. Liu said if looking at the raw numbers, Lenovo Group had indeed increased procurement from China, but this was because Lenovo Group's business has expanded rapidly over the past few years to become the world's second largest PC producer. However, looking at it from what proportion of the company's parts were sourced from China, there hasn't been any change.

Fox example, the CPUs are still being sourced from America's Intel, and hard drives are still provided by a manufacturer in Thailand.

After answering this question, Liu said to the U.S. politicians who were listening, now I would like to share my point of view.

He said, after Lenovo Group purchased IBM's PC business, it still kept close to 3,000 employees in the U.S.,  "among these staff, an ordinary white-collar worker's wage is six times that of their colleagues in China, and the gap for blue-collar workers [between U.S. and China] is even bigger. After Lenovo purchased the company, they could have continued to layoff staff in order to reduce costs. But the company chose to find other ways to cut costs. Due to the rapid increase in sales growth, the company has actually been able to raise the salary of it's U.S.-based staff."

After he told this story, Liu added, "But we cannot guarantee other companies will also do this. Therefore, the cost of labor in the U.S. is a big problem. You must consider how to solve this problem."  

But, if U.S. leaders did nothing to solve soaring labor costs, and still hoped to maintain employment in the U.S. by putting restrictions on China and other countries with low labor costs, then this is like an athlete who doesn't concentrate on running as fast as he can but instead tries to impede his competitor in the next lane.

It was at this moment that Liu revealed another aspect of himself, he wasn't simply a business guru talking up the internationalization of the Lenovo Group or waxing lyrical about the company's grand plan, he was instead a member of the Chinese elite with his own views on China-US relations and broader trends in the global economy. Similar to Akio Morita, the co-founder and chairman of Sony who also co-wrote the book The Japan That Can Say No.

Liu earnestly told those Americans who were willing to listen that excessively high labor costs are a problem for the United States, while Europe's problem is an excessively generous welfare state. China also has its own problems, but in his opinion, the U.S. and Chinese governments have a strong desire to fix their own problems, but the governments of many countries in Europe are not making any kind of systematic attempt to implement the reforms that are needed.

During his 12-day trip to the U.S., Liu led a delegation from the China Entrepreneur Club (中国企业家俱乐部).

The delegation was made up of some of the most well known figures from the mainland Chinese business world, including Fosun's Guo Guangchang (郭广昌), Hu Baosen (胡葆森) of the Henan Jianye Group, Feng Lun (冯仑) of Vantone Real Estate, Huang Nubo (黄怒波) of Zhongkun Group - who recently made headlines when he attempted to lease large tracts of land in Iceland, Wu Yajun (吴亚军) of Longfor Real Estate, and TCL's Li Dongsheng (李东生) and others.

The delegation's schedule included a visit to the Brookings Institution, the Council on Foreign Relation and other think tanks. The delegation also met with former secretaries of state Colin Powell and Madeleine Albright and leaders of large corporations such as JPMorgan Chase's Jamie Dimon and Facebook's Mark Zuckerberg.

Below we offer an abridged translated of the EO's interview with Liu Chuanzhi.

The Economic Observer: Why are you willing to be the head of an NGO (referring to the China Entrepreneur Club)?

Liu Chuanzhi: To put it rather high-mindedly, as you yourself have seen, entrepreneurs themselves need an organization that can represent the interests of the business community and speak in a clear voice to both government and ordinary people. I think that it's very important to speak clearly, we should also let ordinary people feel that China is not a country where every businessman is a crook and that there are some entrepreneurs who are trying to do the right thing.

Entrepreneurs are a very important part of Chinese society, they are the group which has the greatest need for stability of the country; they are also the beneficiaries and promoters of China's reform and opening-up policies. Whether this group is a positive force or not, is related to the overall social situation. So, we really do need a good organization to voice these opinions.

EO: Is there any difference between visiting the United States as part of a delegation and as an individual?

Liu: When people come as individuals, it's always related to conducting their own business activities. Who would just visit the U.S. government and NGOs because they had nothing better to do? Aside from those who are looking to build their reputation and make a name for themselves, nobody would do this.

But when you come as part of a group it's not the same, because one of the aims of the group is to tell people what Chinese entrepreneurs are like. I guess that no one has come with any direct commercial requests, but it's possible that after learning about this group of people and getting to know them, some new business opportunities might come about in the future. These entrepreneurs have already reached a certain level, so they're not coming along in order to achieve short term goals.

EO: From your experience meeting with people from America's political and business fields, what is it about their understanding of China that you find unacceptable?

Liu: I am often in contact with business people. American business people are still quite concerned about practical problems, they're not so concerned about macro problems. For macro issues, for example when meeting with U.S. politicians this time, we all tried to avoid these issues.

As to whether the RMB will appreciate or not, we support the idea of China gradually doing this itelf, we're not willing to have others force us to do it. If the RMB exchange rate drops to 5 yuan to the dollar, this would definitely have huge repercussions for China. I particularly advocate promoting economic growth through encouraging domestic consumption. So the new industries I am entering into now are all consumer-focused industries.

Honestly speaking, the current appreciation of the RMB has almost no impact on the Lenovo Group. This is because the Lenovo Group both sources and sells products in China and abroad. We also have a very capable CFO, so our foreign exchange is very balanced.

But the entire country wouldn't be able to take it. There are so many people who rely on manufacturing for a living. If you force us to do it, are you sure it will work? Aren't you just making trouble for us?

It will certainly arouse among the Chinese people, including the business community, a great resentment towards foreigners.

No one wants to be forced to do something.

Another thing is, when it comes to the Chinese government, although it may have its various weaknesses, I don't believe the government has gone out of its way to cause trouble for the United States without any reason. So I don't think they should always treat us as the virtual enemy. This isn't a role we want to play.

Of course, it's not worth taking them on, but to some extent, we can share with them the sentiments of ordinary Chinese people. I think they will respect our opinions, because we do not represent the government. But if our tone is too forceful, then people are likely to suspect that we might be backed by officials.

EO: When you met with the former Treasury Secretary Robert Rubin and others, the topic of Huang Nubo buying land in Iceland came up. Did this surprise you?

Liu: Of course. We didn't want this to come up. I think that all the people in charge of the U.S. media, especially political papers like the New York Times, are not very friendly towards China. This is mainly because they don't understand [China].

In 1997, a reporter from New York Times interviewed me. At that time Lenovo had little influence in the international arena. He acted like a high-ranking official, he talked to me with his legs up on the table in front of him - he talked to me like this (imitating the action), so I also immediately put my legs up too.

How can you have a conversation like that - there's nothing to talk about.

At that time, I thought this really was the face of an old imperialist, a kind of arrogance. He probably didn't consider it possible that China could develop so quickly over the years that followed.

I particularly hope that the media can listen to the views of China's non-official representatives. Of course, they may be more willing to hear the opinions of those people who talk about democracy and human rights.

In fact, I have a point of view that I think is very important. China does indeed need reform and improvement, we do need to gradually make changes so that some of our values that are in conflict with the commonly-accepted values can be accepted by everyone.

But this is a gradual process, just like the foreign exchange reform, if it's changed suddenly, ordinary people can't accept it, that's what will cause things to go wrong.

For example, last time I talked at the China Europe International Business School, I said the decline of European competitiveness is because of excessive welfare, this is something ordinary people certainly do not want to hear.

If we were currently in a system that afforded one-person-one-vote, I am sure everyone would support a high level of welfare and the division of the property. People might argue why do we need to protect private property, we can divide it up first and then protect it later, which is fully possible. This would suddenly pull China into a hopeless scenario.

EO: Professor Zhang Weiying (张维迎) once said that one of the disadvantages for private Chinese enterprises investing overseas, is that due to China's national image abroad, the media and the public think that behind these companies lurks the country. Do you agree?

Liu: I partially agree. Firstly, because of the different political systems, China's image has become that of the "other". So, that means even if we do the same thing, they [other countries] will still be especially cautious.

They feel that in democratic countries, leaders who have been elected will not engage in actions that go too far beyond the pale, but if non-democratic countries operate in the same fashion, they will act in a very cautious manner.

Secondly, it's also because the Chinese economy is developing, but political and social reforms are not taking place at the same pace, resulting in a lack of business integrity. The western way of thinking was already to be careful with us, if you add to this that our reforms aren't going well, at this time, companies looking to invest abroad will easily be misunderstood and suspected by others.
... When our companies are really going to acquire and merge with international companies, while it is achieving commercial purposes, we must pay attention to the company's image. If everybody does this, it will make the situation a little better.

Sometimes companies may only focus on how to lower costs after the merger, how many staff do they need to layoff, move their factories to China, if they just act like this, then there will be problems.

EO: When you meet with the western media and ordinary people from the west, are there still people who think that the Chinese government is behind Lenovo?

Liu: Last time a reporter from the German magazine Der Spiegel asked me a question like that. He asked me very clearly, is your company a state-owned enterprise, would you make a decision that would be harmful to your customers?

Then I told him that we are a truly global company. In our shareholding structure, the large shareholders accounted for one third of the shares, and among these big shareholders, only one third is owned by the state. In Lenovo Group, from the board of directors and management level to the general staff, no one would believe we would do anything to infringe business ethics.

There was a European staff member at the interview, a senior marketing director of Lenovo in Europe, she also found it very ridiculous.

EO: How is it possible that a journalist from such a well-known magazine could think this about a company like Lenovo? Why is there such a misunderstanding?
Liu: There are still a lot of people who don't understand China. Actually, that reporter can speak fluent Chinese, and has a pretty good understanding of China.

We adhere to principles in nearly everything we do, but as long as there are one or two things contrary to the principles, then it will cause great trouble.

To give a concrete example, Coca-Cola's acquisition of Huiyuan was rejected by the Ministry of Commerce, what kind of impact will this have on China's investment environment and image?

Because of one or two of these kind of incidents, people start to form a lot of strong opinions.


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