Tide Players: The Movers and Shakers of a Rising China

by Jianying Zha

  Zhang, too, felt trapped in his job at the village grocery store. “It was a depressing time,” he told me. “I could see no direction.” Trying not to be idle, he bought a lot of secondhand books and read at random. One day, a line from a book struck Zhang with the force of revelation: “The degree of one’s misfortune is determined by one’s understanding of it.” “I can’t remember the title or the author, but this sentence suddenly lifted the lid on me,” Zhang told me. “I decided to be an optimist. I was already at the bottom, so be it!” He got up at six every morning and jogged ten kilometers along the country road, wearing shorts even in the dead of the winter. “I’d feel exhilarated all day. I was always cheerful. And if people asked me about my family, I’d tell them: my father was a Communist Party official!”

  In 1976, Mao died and the Cultural Revolution ended. Two years later Deng Xiaoping was reinstated, and he started steering China on a path of reform and openness. Still, people moved gingerly in the early thaw. Zhang was the only one among his siblings to grasp the implications of these changes. He wrote letters to Deng Xiaoping and other top Party officials, asking them to reconsider his mother’s case: “I didn’t tell my brothers; they’d think I was a troublemaker!” To win sympathy, he wrote about his parents’ early work for the Communist Party when it was still an outlawed organization and operated underground. He also conceded that his mother suffered mental illness when she criticized Mao. Months passed. Finally, a call came from the Public Security Bureau: he was asked to go to an office at the Banbuqiao Prison. There, he was asked some questions and then sent home to wait. Three months passed without news. He renewed his mailing campaign. “Every week I sent a batch of letters to all the offices. There were so many wronged cases, and so many were seeking redress. I knew only the persistent ones might have a chance.”

  It finally happened. In January 1980, the Beijing municipal court revised the verdict on Wang Peiying: she was not a counterrevolutionary since she made her anti-Mao remarks while suffering from a mental disease. It was only a partial rehabilitation but still a huge breakthrough. A month later, the seven siblings received their compensation from the government: 7,000 yuan.

  Zhang’s heart was heavy when he got his share of 1,000 yuan. “Deep down I sensed that my mother was an extraordinary woman, and this is her blood money,” he told me. “I was not going to spend it buying a TV set or furniture like my siblings did. I felt I must do something with it that is worthy of her life. In fact, all through the years of my expanding business, this feeling drove me ahead like an invisible whip over me.”

  In the end, he divided the money into two parts. He had just started dating a young woman introduced to him by a friend, and when they decided to marry, Zhang spent 500 yuan on their wedding and honeymoon trip. “I used the remaining 500 yuan as the start-up fund for my business.”

  Later that year, Zhang made his first attempt. He bought alkaline soda, clear paint, silver powder, brushes, and cloth wipes; packed them into an old army bag; and went out to the street on a Sunday, hawking with a signboard: CLEAN AND PAINT GAS STOVE FOR 0.8 YUAN. He was a pleasant-looking young man dressed in clean clothes, and people opened their doors to let him into their kitchens. After working many hours on that hot August day, he made the following calculations: he had cleaned and painted ten stoves, collected eight yuan, and, after the cost of tools, cleared a profit of two yuan, not taking into account his labor. “It was my first and last of day of doing that,” Zhang grinned at the memory.

  His next venture was making lamps. Turning his own kitchen into a workshop, and using an assortment of materials acquired from various places—flat pans, weaving spindles, wires, and bulbs—Zhang cobbled together several floor lamps and took his creations to a local farmers’ market. He was pleased to find buyers, at six yuan a lamp. A couple of department stores also placed orders: stores were so poorly stocked back then that they lacked even such crudely manufactured goods. With the help of his brothers, Zhang made sixty lamps in the same fashion and sold them all. He cleared a profit of 160 yuan. It was a big confidence boost: he had received the market’s first confirmation of his entrepreneurial potential.

  But the lamp project didn’t last long. Sales slowed down and Zhang realized that such a low-craft product had only limited appeal. Searching for other opportunities, he learned from a friend about an overstock of electronic parts at a research institute. Zhang had always been good at making things with his hands—in his idle years he used to cut furniture for friends and assemble transistor radios—and he knew he could make an audio amplifier from these parts. So he bought some parts cheaply, made an amplifier on the family dining table, and took it to a store. Receiving a positive response, he immediately bought more parts and made more amplifiers. This time it was a real hit: within a month, the store sold a hundred amplifiers that had taken Zhang a month to make. Orders poured in. Demand grew so high that soon Zhang couldn’t do it in his spare time. This was the moment he had long awaited. In December 1982, against all his relatives’ warnings that he shouldn’t toss away the “iron rice bowl,” he quit his grocer job. “I decide to resign because this work does not fit my ideal,” he wrote in his letter of resignation. His monthly salary then was 41.5 yuan (about $8).

  Free at last, Zhang registered his own company, Zhang’s Electronic Processing Shop. He and his wife then lived in a thirty-square-meter, two-room apartment. Again, he turned their home into a workshop, moving the bed into the kitchen and the kitchen out into the hallway. He hired workers, training them and paying them piecemeal. Mostly young peasants from the villages outside the city, they were pleased to find a job that paid seventy to eighty yuan a month and worked hard. Zhang himself worked the hardest: he supervised everything, biked across the city to purchase the best and the cheapest parts and tools, and read all the available professional audio journals. He was happy. He had found a direction and was taking his life into his own hands.

  By the end of 1983, over fifty stores in Beijing were selling Zhang’s amplifiers. His monthly profit reached 2,000 yuan, and it would triple in the next four years.

  To widen the scope of his business, Zhang began making and installing audio speakers. He rented a warehouse on the outskirts of Beijing. Rent was cheap, and the over-2,000-square-meter space was fine for manufacturing purposes, but the surroundings were less than ideal: it was right next to a pig farm. Every time clients came to pickup an order, a cloud of flies would descend on their cars.

  In time, Zhang saw that manufacturing was not as good a business in Beijing as sales: the profit margin was low and the cash-flow cycle was long. He decided to focus on selling electronic parts and small items. In 1986, he opened his first store in Lingjing Lane, a central location. It was a hole in the wall, but sales were brisk since it carried hot items like pocket-sized calculators, which Zhang bought cheap from Guangdong. Zhang sold these for just 8.8 yuan, and customers lined up. Before long he had about 50,000 yuan saved up in the bank. In the 1980s, the Chinese called their first new rich wan yuan hu, “the ten-thousand-yuan household.” Given the average income level at the time, it was really like calling someone a millionaire. Zhang seemed to have joined their rank in the blink of an eye.

  One day in late 1986, a call came from the municipal Bureau of Industry and Commerce: Zhang was asked to “come have a sitting down.” He got nervous. The bureau possessed the authority to close any business at will. Sure enough, he was told that he had “violated rules” by opening two stores under the same name. Chinese laws at the time dictated that no private business operation could have a branch: “chain store” had too strong a “capitalist” ring. Apologizing, Zhang shut down the offending store right away.

  Luckily, government policy changed a year later. Branch companies were now permitted. “You can’t imagine how mixed I felt when I heard this news,” Zhang said.

  He immediately set about expanding. In the early 1990s, karaoke became popular in Chinese cities, especially among businessmen and the newly af
fluent. Zhang cashed in on the trend, shipping whole containers of karaoke machines by freight train from the south. They sold well and the money was good. By 1993, he had a hundred employees and over ten million yuan in annual sales. But he felt restless and ready for something new. While researching the market, he noticed that all the audio stores in Beijing were either small or tiny, ranging only from a dozen square meters to fewer than a hundred square meters, and none of them carried everything a customer would need. A new vision came to Zhang: people would welcome a big store that carried all the brands and all the parts in one place. That would make shopping much easier and more convenient!

  Excited by this idea, Zhang decided to “go big.” After a round of careful investigation, he settled on a location: a large Westside shopping center on Yuquan Road. He rented a 4,000-square-meter space and stocked it with all the available brands, local as well as international. He named the store Dazhong Dianqi (Dazhong Electronics); it was the first one to carry that name. It was a giant leap, and a bold bet. But Zhang was in for a cruel shock. After the store opened in July 1993, few customers showed up. Sales remained sluggish for the rest of the year. The well-lit, well-stocked store stood quietly, attracting little business. The daily cash flow was not even enough to pay for the sales team and electricity. It was the worst setback Zhang had suffered. His anxiety was such that for weeks he could not sleep; he lay awake night after night, trying to figure a way out of the disaster. He thought about closing the store. “If it reached a point where the loss became unbearable, I’d have to eat it and go back to my little downtown store,” Zhang recalled the experience with a laugh. “But then I imagined the expression on the faces of all those little bosses sitting in their little stores. To lose face like that, it’s even more unbearable!” He decided to persevere.

  Luckily, through advertisements and customers, word about the big store on Yuquan Road gradually spread; sales picked up after six months. The store became known as China’s first audio superstore, and Zhang rented more space and diversified supplies. In addition to audio products, the store soon carried TV sets, air conditioners, refrigerators, and the like. The new formula proved successful. Zhang and his crew were also getting savvier in marketing their goods: their ads grew more ingenious and popular, as did their special sales and floor displays. Steadily, the Yuquan store built a reputation as a one-stop shopping destination that boasted variety, reliability, low price, and good service. Within a few years the store space stretched to over 10,000 square meters, carrying over 20,000 types of goods. Zhang knew with satisfaction that he was no longer just a “little boss” selling audio parts.

  The upgrading was important in another sense as well: Zhang now had a good formula, a brand name, sufficient capital, and an experienced crew. He was in a position to create a chain, and he moved to do just that. His business entered a period of explosive growth. In 2000, there were just six stores in Beijing carrying the sign of Dazhong Dianqi. In 2003, their number climbed to thirtytwo, representing 50 percent of Beijing’s market share. In 2004, the number of stores jumped to sixty-eight, covering metropolitan Beijing, all its surrounding counties, and a few in three nearby cities. The biggest of them, opened in 2002 near the CCTV tower just off the third ring road, took up a whole building of 20,000 square meters and boasted an equally large parking lot outside. Today, with annual sales of over one billion yuan since 2004, it is still the largest and most profitable electronic-appliance store in China. By the end of 2005, Dazhong’s annual sales were reaching ten billion yuan, the top dog by far in Beijing. With a good tax record and a great reputation among customers and employees alike, Zhang was considered a model entrepreneur. He became a deputy to the People’s Congress and served on several government committees.

  Perhaps Zhang was too absorbed in his own rapid expansion to notice certain changes that were taking place elsewhere. While he was plowing deeply into the Beijing market, three other chains—Yongle in Shanghai, Suning in Nanjing, and Gome in Beijing—were also moving aggressively. Each had established its brand name locally and then looked for new markets, conquering them rapidly to form interregional chains. Gome’s Huang Guangyu led the trend. Originally from a small rice-farming village near Shantou on the southeast coast of Guangdong, Huang first traded goods in Inner Mongolia, then set up his first market stall in Beijing when he was just eighteen. In 1999, after consolidating his local stores into the Gome chain, he started opening stores in other cities. This expansion was followed by that of the Suning and Yongle chains. At that time, the three chains’ national market shares were not yet very high—a combined total of 3 percent in 2000. But the race heated up very quickly. Soon they were waging price wars in all major cities, setting up shop on each other’s turfs, pushing into new regions, and crushing smaller stores along the way. Within five years their combined market shares had risen to 13 percent. By 2005, all three were listed on the Hong Kong—or Shenzhen—stock exchange. Gome emerged as the fastest growing of the three, with 400 stores and 40 billion yuan in annual sales. Suning claimed second place, with 37 billion yuan in sales and fewer than 300 stores. Yongle was half the size of Gome: 200 stores, 20 billion yuan in sales. But Huang, nicknamed “price butcher” among retailers, had more leveraging capital than all his rivals because he had also become a player in the real estate business.

  Number four was Dazhong. Danger hovered around Zhang as the three giants inched steadily toward him. But while they raced to put flags on new territories, Zhang actually scaled back in order to strengthen his dominance in the capital markets. Perhaps because nearly all of Dazhong’s staff was from the Beijing area, the few stores he opened in other cities had not done very well. So, it was not until 2005 that the mantra of “be big or be dead” (不做大, 勿宁死) finally hit him, and Zhang made cautious plans to go national. He dispatched a dozen delegations to various provinces to check out possibilities. The investigation, however, revealed a grim picture: while Dazhong maintained a solid lead in Beijing, it was dwarfed nationally by the three giants, who had already taken up position everywhere. Zhang realized with a sinking heart that he was encircled!

  Looking back on how things led to Dazhong’s eventual decision to to sell, the Hu Kai incident seemed to be an early signal. Hu Kai was the younger brother of Hu Rong, one of Zhang’s high school classmates. Like the Zhang family during the Mao decades, the Hu family was tossed to the bottom of society after their engineer/professor parents were labeled “rightists.” Hu Kai worked a string of lowly dead-end jobs in the provinces and returned to Beijing in the 1980s with no college degree and no career prospects. Hu Rong came to Zhang’s office, asking him to give her brother a chance. Zhang took Hu Kai in, starting him off as a buyer. Hu worked hard and soon showed his talents. Zhang groomed and promoted him steadily. Hu became an office manager, a division director, and finally the company’s CEO. When Dazhong entered its period of explosive growth, Hu played a central role. A gifted negotiator and meticulous organizer, Hu could clinch a deal, renovate a space, and open a new store—all within a week. And he had Zhang’s complete confidence. One day in 2004, after finishing three rounds of negotiations, Hu felt an uncomfortable tightness in his chest and went home to rest. He died of a heart attack the next morning. He was fifty-three.

  Hu Kai’s death hit Zhang hard. “We had a perfect understanding between us about business,” Zhang told me in his office recently. “We’d trade a few words in the morning, and I could leave the dayto-day operation to him and not worry at all. It was smooth.” After Hu died, Zhang was compelled to oversee everything himself. By then, he had been in business for over twenty years, his company had about 20,000 employees, and the scale of the enterprise cried out for a new management style and new blood. Yet, as in many private companies in China, certain calcified cultural habits were not easy to shake off. According to some of Dazhong’s senior deputies, the company had always relied on Zhang’s business instincts and initiative: the big boss points, they follow. But the situation had changed
since 2002: it was as if they had boarded a fast train and realized only in the escalating speed how unprepared and understaffed they were. The decision-making process was too casual and impromptu. The mechanism of checks and balances was lacking. The company sorely needed more skilled managers.

  And then there was the issue of Zhang’s career burn-out. For many years his workweek consisted of three elements: Monday- Wednesday, ordering stock; Thursday, advertising; Friday, boosting company morale; Saturday, sales reporting and accounting. “Same routine, year after year,” he admitted to me. “I was getting tired of it.”

  Hu Kai’s unexpected death reminded him of his own mortality and age. “People said he died of exhaustion,” Zhang told me. He himself was no longer a young man. Was he ready for more cutthroat competition down the road? For many Chinese businessmen, a typical solution would be passing the baton to a son. But Zhang’s son, an only child, showed no interest in taking over the business. Zhang had sent him to Australia for a college education, and after graduation had put him to work at one of his superstores, starting with unloading trucks and stocking the shelves. “But he’s not an ambitious type,” Zhang said to me. “He’s not greedy at all about money.” Zhang’s wife, Lou Hongguang, a thin, graceful woman with meek eyes, was trained as a graphic designer but later was persuaded by her husband to work as his company’s accountant. After an employee embezzled some money, Zhang wanted a family member to be in charge of the books and taxes. But Lou is a shy person with no appetite for business. “I guess our son takes after me in temperament,” she told me with an air of apology. (Lou owns a minor percentage of the company but no longer works for it. These days she’s a stay-at-home spouse and plays cards with friends.)