Liu Chuanzhi

Liu Chuanzhi
	柳传志
Born	April 29, 1944 (age 82); Zhenjiang, Jiangsu, China
Nationality	Chinese
Citizenship	People's Republic of China
Education	Xidian University (radar engineering, 1966)
Alma mater	People's Liberation Army Institute of Telecommunication Engineering (now Xidian University)
Occupation	Entrepreneur, business executive
Years active	1970–2019
Employer	Chinese Academy of Sciences (1970–1984); Legend Holdings
Company	Lenovo; Legend Holdings
Title	Founder of Lenovo; former chairman of Legend Holdings
Successor	Yang Yuanqing (as Lenovo chief executive)
Known for	Founding Lenovo; described as the godfather of Chinese entrepreneurship
Awards	Time 25 Most Influential Global Executives (2001)
Children	3, including Liu Qing
Parents	Liu Gushu
Relatives	Liu Qing (daughter), president of DiDi

Liu Chuanzhi (柳传志; born 29 April 1944) is a Chinese entrepreneur who founded Lenovo, now the largest personal computer manufacturer in the world by unit sales, and subsequently built its parent company Legend Holdings into a diversified investment group. He is frequently described in the Chinese press as the godfather of Chinese entrepreneurship, a designation reflecting both the age of his company (Lenovo was founded in 1984, at the outset of China's enterprise reforms) and his willingness to speak publicly on political questions that most of his contemporaries avoided.

Liu founded Legend, as Lenovo was known in China until 2003, with ten other engineers from the Institute of Computing Technology of the Chinese Academy of Sciences, operating from a room of about 20 square metres on a loan of 200,000 yuan from the academy. He was 40 years old, earning 100 yuan a month, and had spent the previous fourteen years as an engineer-administrator on Chinese mainframe projects whose output, in his own account, was filed away rather than produced.

The company's first significant transaction, an attempt to import televisions, failed. It recovered by performing quality inspections on computers for buyers, then developed a circuit board allowing IBM personal computers to process Chinese characters (the Legend Chinese card, its first substantial success) and began assembling computers under its own brand in 1990. Liu obtained permission to open a Hong Kong subsidiary in 1988 and moved there with five colleagues; Legend listed in Hong Kong in 1994, raising close to US$30 million in an offering that was heavily oversubscribed.

He handed the chief executive role to Yang Yuanqing in 2001 and remained as chairman, and it was under this arrangement that Lenovo acquired IBM's personal computer division in 2005: making Liu, in the framing widely used at the time, the first Chinese business leader to take over a major American operation. He stepped down as chairman of Legend Holdings in 2012, returned to lead its 2015 Hong Kong listing, and retired in 2019. His daughter Liu Qing is president of DiDi.

Background

Chinese science under the planned economy

The frustration that produced Lenovo was institutional rather than personal, and Liu described it in terms that apply to Chinese research generally in the period before 1984.

Under the planned economy, research institutes were funded to produce results, not products. The Institute of Computing Technology had developed China's first electron-tube computer and its first transistor computer, and Liu worked on the Number 757 mainframe. In each case, as he put it, the institute produced one machine and then moved on to develop something different; the work was filed away. There was no mechanism connecting a laboratory to a manufacturer, and no reason for anyone in the institute to consider whether what they built could be made in quantity or sold.

Funding for the Academy of Sciences was simultaneously being reduced as the state's priorities shifted, and institutes were encouraged to generate income. The spin-off enterprise, of which Legend was among the earliest and much the most successful, was the instrument.

Zhongguancun

The district of Beijing in which Legend was founded, Zhongguancun, contained the country's densest concentration of research institutes and universities, and by the mid-1980s an unregulated electronics trade had grown up around them. The area's popular name at the time was Swindlers Valley, a reflection of the practices of the traders who imported, assembled and resold equipment there.

The reputational problem this created was substantial for a group of academy scientists entering commerce. Chinese intellectual tradition regarded trade as beneath scholarship, and the private entrepreneurs of the 1980s were drawn largely from people without other options. "The lowest thing you could do in the early '80s, as a scientist, was to go into business," Liu said. "China had a strict planned economy and there was barely room for a freewheeling company like ours."

Early life

Family

Liu was born on 29 April 1944 in Zhenjiang, Jiangsu province, into a family with unusual financial connections on both sides. His paternal grandfather headed a traditional Chinese bank and sent Liu's father, Liu Gushu, to study in Shanghai; Liu Gushu abandoned scholarship after passing an examination for employment with the Bank of China. His maternal grandfather had served as finance minister to the warlord Sun Chuanfang.

Liu Gushu was what was later termed a patriotic capitalist, working secretly for the Communist Party before the 1949 revolution. After the Communist victory the family moved to Beijing, living in a courtyard house in a hutong in the Wangfujing district. Liu Gushu joined the Communist Party, became a senior executive of the Bank of China, and later worked as a patent lawyer and chairman of the China Technology Licensing Company, a background that proved directly useful to his son four decades later.

Education and the Cultural Revolution

Liu applied to train as a military pilot on leaving school in 1962 and passed the examinations, but was declared unfit for service because a relative had been denounced as a rightist; his father's revolutionary credentials notwithstanding.

He entered the People's Liberation Army Institute of Telecommunication Engineering, now Xidian University, in the autumn of 1962. His political and class background was again held against him: judged unsuitable for the most sensitive subjects, he was assigned to radar, through which he received his introduction to computing.

Labelled an intellectual element during the Cultural Revolution, Liu told classmates in 1966 that the revolution was a terrible idea and was sent to a state rice farm near Macau in Guangdong, and from there to a farm in Hunan for reform through labour.

He returned to Beijing in 1970 to a post as engineer-administrator at the Computer Institute, where he worked on the Number 757 mainframe. In 1984 he resigned to become a cadre in the personnel office of the Chinese Academy of Sciences, and left later the same year to found Legend.

Founding Legend

Beginnings, 1984

Liu was 40, with a growing family and an income of 100 yuan a month, when he approached his superiors at the academy. His immediate superior arranged a loan of 200,000 yuan, and Liu and ten colleagues began work in a room of roughly 20 square metres.

Liu's principal condition was autonomy, and he negotiated it before starting. "We were totally immersed in the environment of a planned economy," he said. "I didn't care that the investment was small, but I knew I must have control over finances, human resources and decision-making." His superiors granted the request immediately.

He also devoted continuing attention to the relationship with the academy and with local officials and party cadres, on the judgment that the greatest risk to the enterprise was not commercial failure but administrative interference. The judgment proved correct: a large proportion of the enterprises founded in the same period were absorbed, redirected or shut down by their sponsoring bodies.

Early failures

The founders were scientists and engineers with no commercial experience, and their early ventures reflected it. The first significant transaction, an attempt to import televisions, failed outright, apparently to a fraud. An attempt to market a digital watch also failed.

The group rebuilt within a year by performing quality inspections on computers for buyers: unglamorous work that used the one thing the founders unambiguously possessed, technical competence, and that put them in contact with the actual demand in the market.

Liu identified the disagreement that shaped the company's subsequent approach as one between himself and the chief engineer. "He felt that if the quality of the product was good, then it would sell itself. But I knew this was not true, that marketing and other factors were part of the eventual success of a product." Legend's later strength in distribution and service, rather than in engineering, followed from Liu's side of that argument.

"We were mainly scientists and didn't understand the market," he said of the period. "We just learned by trial-and-error, which was very interesting, but also very dangerous."

The Legend Chinese card

Legend's first substantial success was a circuit board enabling IBM personal computers to process Chinese characters. The product addressed a genuine technical obstacle: personal computers and their software were designed for alphabetic scripts, and Chinese input and display required additional hardware.

The card established the company commercially and gave it a brand. It also gave Legend a relationship with the foreign manufacturers whose machines it complemented; the company served as Hewlett-Packard's distributor in China for more than a decade, an arrangement Liu described as formative. "Our earliest and best teacher was Hewlett-Packard," he told The Economist.

Legend began assembling and selling computers under its own brand in 1990.

Hong Kong

Liu obtained government permission to establish a subsidiary in Hong Kong and moved there in 1988 with five employees. His father was already in Hong Kong and supported the venture through mentoring and by facilitating loans.

The operation was run with severe economy. Liu and his colleagues walked rather than using public transport to save money, while renting hotel rooms in which to hold meetings in order to maintain appearances with counterparties.

Public company

The 1994 listing

Legend listed on the Hong Kong Stock Exchange in 1994, raising close to US$30 million. Analysts before the offering praised the company's management, brand recognition and growth prospects while expressing concern about its profitability. The issue was heavily oversubscribed; the shares reached HK$2.07 on the first day of trading and closed at HK$2.00.

The proceeds funded sales offices in Europe, North America and Australia, expansion of production and research, and additional working capital. The Hong Kong and mainland business units were merged in a secondary offering in 1997.

Learning to be a listed company

Liu has described the company's initial understanding of a public listing as limited to raising capital, with little appreciation of the obligations attached.

Before the 1997 secondary offering he announced the company's intentions to mainland newspapers, and regulators suspended the stock for two days in response. The pattern repeated until he learned to choose his words in public.

His first investor roadshow in Europe was, by his own account, a shock. He was offended by the sceptical questioning until he understood what it represented. "Before I only had one boss, but CAS never asked me anything," he said. "I relied on my own initiative to do things. We began to think about issues of credibility. Legend began to learn how to become a truly international company."

Succession

Liu placed Yang Yuanqing, whom he had promoted to run the personal computer division at 29, in the chief executive role in 2001, retaining the chairmanship. He had watched Yang for a considerable period before the earlier promotion: "He had clear goals, was broad-minded and straightforward. We trusted him."

The division of responsibility between an executive chairman who had founded the company and a chief executive half his age proved durable, and survived the strains of the IBM acquisition and the losses that followed the 2008 financial crisis, when Liu returned to the chairmanship for a period while Yang resumed as chief executive.

The IBM acquisition

Lenovo's purchase of IBM's personal computing division, agreed in December 2004 and completed in May 2005 for approximately US$1.75 billion including assumed liabilities, was executed by Yang but undertaken with Liu as chairman, and it carried a personal significance for him that he described repeatedly.

"I remember the first time I took part in a meeting of IBM agents," he said. "I was wearing an old business suit of my father's and I sat in the back row. Even in my dreams, I never imagined that one day we could buy the IBM PC business. It was unthinkable. Impossible."

Liu was candid about the risks, which he enumerated as three: whether clients would continue to buy from the new owner; whether employees would continue to work for it; and whether conflict would arise between the Chinese and Western management. All three were live concerns, and the third had defeated most comparable transactions.

The acquisition made Lenovo the third-largest personal computer manufacturer in the world overnight and the largest by 2013.

Management and business ethics

Liu has described his early management style in blunt terms. He behaved, he said, "like a kind of dictator" and spent a great deal of time shouting.

Corruption was the problem he treated most severely. He had five executives imprisoned for it, at a time when the practice was widespread in Chinese enterprises and when prosecution was neither automatic nor expected. His view, expressed consistently afterwards, was that a company operating in an environment where the rules were unclear had to enforce its own with unusual rigour, because the alternative was to become indistinguishable from the traders of Swindlers Valley.

Discipline extended to conduct. Arriving late for a meeting was punished by standing in silence before the assembled group; Liu accepted the punishment himself on three occasions.

The style relaxed as the company matured, and Lenovo became an employer of choice for Chinese engineers and managers educated abroad, a position it could not have reached under the regime of its first decade.

Legend Holdings

Diversification

Liu built Legend Holdings, Lenovo's parent, into a diversified investment group with interests extending well beyond information technology. Its principal assets came to include Lenovo itself, the venture capital firm Legend Capital, the private equity firm Hony Capital, the distribution business Digital China, and the property venture Raycom.

He described the ambition without understatement, telling the BBC that his vision was for Legend "to become an industry in its own right" and that he wanted it "to become the top enterprise across industries: not only in China, but in the whole world", while acknowledging that the objective was extremely ambitious and might have to be left to his successors.

His stated intention was to concentrate Legend's assets in information technology, real estate, services, coal processing and agriculture, with agriculture identified as the next strategic area of development. He regarded the sectors serving Chinese consumers as offering the largest opportunities, and was explicit that overseas investment would be undertaken only where it fitted something the group was already doing in China. Forbes suggested that he was attempting to build a Chinese equivalent of General Electric.

Joyvio

Joyvio is Legend Holdings' vehicle for investment in food, in which the group has invested more than one billion yuan, pursuing vertical integration from farming through to retail. Its first product was blueberries, and the range was extended to kiwifruit in November 2013; one variety was named the Liu Kiwi in his honour. The move into food was Liu's own initiative.

Listing and retirement

Liu stepped down as chairman of Legend Holdings in June 2012, having concentrated in the preceding years on the group's growth and on assembling its core assets in preparation for a public offering.

He led the offering himself, and Legend Holdings listed on the Hong Kong Stock Exchange in 2015 after receiving regulatory approval in June of that year. He stated an intention to float the stock on a domestic Chinese exchange before retiring, and resigned as chairman of Legend Holdings in 2019.

He served as a senior adviser to Kohlberg Kravis Roberts & Company.

Political views

Liu is unusual among prominent Chinese business figures in having spoken publicly on political questions, and he has criticized his contemporaries for not doing so. "When it comes to the inappropriate actions the government takes, businessmen don't have the courage or capacity to go against them," he said. "Second, they lack the social responsibility to care for the whole world, and what they do is to mind their own business."

In an interview with Caijing in October 2012 he advocated what he termed elite selection of political leaders: "I'm not sure how practical it would be to have universal voting in the near future. I hope the country's leaders could be elected by the elites of the society."

His most consistent concern has been the rule of law. "My biggest worry is an unlawful world," he said. "I tell my employees to be careful all the time; don't disrespect the government or bribe anyone: even so, I'm still not at peace because there are always some corrupt individuals coming along to cause problems." The position is consistent with his treatment of corruption inside Lenovo, and reflects the experience of building an enterprise in a system where the boundaries of permissible conduct were undefined.

Public service

Liu served as a delegate to the 16th National Congress of the Chinese Communist Party and as a deputy to the 9th and 10th National People's Congress.

Time named him one of the 25 most influential global executives in 2001.

Personal life

Liu is married and has three children. His daughter Liu Qing, known in English as Jean Liu, was a managing director at Goldman Sachs before becoming president of DiDi, the Chinese ride-hailing company, making the family one of the few in Chinese business to have produced senior executives in two successive generations of technology companies.

Assessment

Liu's standing rests on priority as much as scale. Lenovo was founded in 1984, before most of the companies that now define Chinese technology existed, in an environment where the legal form of a private enterprise was unsettled, where commerce carried social stigma among the educated, and where the principal risk to a business was administrative rather than competitive.

The specific achievements attributed to him are the negotiation of genuine operating autonomy from the Chinese Academy of Sciences at the outset; the survival of the tariff liberalization of the early 1990s that eliminated most domestic competitors; the construction of a distribution and service network that displaced the foreign brands in the Chinese market; the identification and promotion of Yang Yuanqing; and the enforcement of internal standards of conduct at a time when the surrounding practice was otherwise.

Critical accounts note that Legend's origins as an academy spin-off gave it advantages of access unavailable to purely private founders, and that the ownership arrangements through which a state-funded enterprise became a listed company controlled by its managers have never been fully transparent, a criticism applying to a large part of the Chinese enterprise reform generally rather than to Lenovo specifically. Liu's public political statements, though unusual for a Chinese executive, have been characterized by some observers as carefully bounded, advocating rule of law and elite selection rather than anything the state would regard as a challenge.

References

External links