Taking on the World : China’s Mou Qizhong Plans to Make His Firm a Global Leader
Mou Qizhong is known in China for excess. Not personal extravagance, mind you, but a philosophical excess of the sort that would lead one to advertise a new venture as “the biggest business opportunity in human history.”
The wealthy Chinese entrepreneur (no longer an oxymoronic concept) is a legend within his own country for taking to heart Deng Xiaoping’s slogan “To get rich is glorious.”
Mou remains, like many of Asia’s wealthy, a relative unknown in the West. But that may be about to change.
He is laying the groundwork for an ambitious plan to expand his Beijing-based conglomerate into a global giant, creating at least a dozen new ventures in the United States and recruiting several hundred new employees to work at home and abroad. And that’s just for 1996.
At a conference in January, Mou announced his goal to turn his company into one of the world’s 10 largest enterprises by 2005. His Beijing-based Land Economic Group, which is involved in barter trade, telecommunications, real estate and a host of manufacturing ventures, is the sixth-largest (in asset size) private company in China.
Mou’s overseas expansion scheme, which he described during a recent visit to New York, Los Angeles and San Francisco, invites skepticism from those who have watched China’s newly rich and powerful falter when they try to take their home-grown expertise into the international marketplace.
The heart of Mou’s latest venture is the Chinese government’s campaign to privatize the state-owned companies that are the backbone of the Communist economy. He establishes the new companies as joint ventures based in the United States or other countries, repackages them as foreign entities, and uses them to reinvest in the mainland to exploit China’s tax breaks and other preferential treatment of foreign investors.
“I think to change the ownership of such enterprises using new technology and new management skills is the biggest commercial opportunity in the history of mankind,” Mou said in typically understated fashion.
Mou will need all the political capital he can get to succeed in turning the cream of China’s 13,700 large and medium-size state-owned firms into profitable privately held operations.
Nick Lardy, a China specialist at the Brookings Institution think tank in Washington, warned that China’s privatization campaign has faltered badly, largely because of the huge pension liabilities and other debts carried by the state enterprises. He cited one estimate that the average Chinese state-owned firm has debts equal to 75% of its assets.
“The balance sheets of some of these companies are a horrendous burden,” he said.
Mou agreed that the biggest problem facing state firms is the huge welfare responsibilities they must shoulder in addition to operating a business. Those include providing employee housing, medical care, education and retirement benefits.
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But by spinning off the productive part of the state firms and infusing them with capital and technology from the West, Mou believes, he can provide a healthy return for his investors and also help resolve one of China’s most tenacious economic problems. He claims to have turned 38 state firms into stock-ownership companies last year and has plans to privatize 150 more this year.
Jinshu “John” Zhang, a Los Angeles attorney representing Mou, said Land Economic Group buys a majority interest in the profitable part of the state firm and leaves the social welfare responsibilities to the government. Some shares in the privatized firm are distributed to employees, giving them a personal stake in their firm’s profitability.
Land Economic Group lists the East Sichuan Salt Group, a salt producing company, and the Changzhou Pharmaceutical Co. in Jiangsu province, among its successful privatizations.
“I think he has admirable vision,” said Mickey Chiu, the national director of the Chinese practice for KPMG Peat Marwick. “Whether or not he can accomplish it remains to be seen.”
But Chinese observers caution against writing off Mou’s ambitions too quickly, given his record at turning sow’s ears into silk purses--or, more accurately, shoes and clothes into passenger planes.
It was a 1992 barter trade of 500 railroad cars of Chinese goods for four Russian Tu-154 airplanes that catapulted Mou--who narrowly escaped a death sentence during the Cultural Revolution and was imprisoned for profiteering in the 1980s--from relative obscurity into the ranks of the Chinese nouveau riche. From there, the Sichuan native used his business acumen to build Land Economic Group into one of the country’s best-known private enterprises.
Mou built his reputation on what he calls “assembling the market.” He operated as a middleman in barter deals that traded on China’s strengths as a low-cost producer of goods and agricultural products and on its insatiable appetite for capital, technology and high-priced foreign products.
With the earnings from barter, he expanded into real estate, the stock market, aviation and telecommunications. He is a partner in Sichuan Airlines and recently formed a joint venture to provide air cargo service in Shenyang.
In 1994, he teamed up with a Russian partner to purchase two low-orbiting commercial satellites that provide transmitting ability for Asian broadcasting companies going after the Southeast Asian market. Mou has plans to launch two more satellites in 1997 and is considering starting his own broadcasting network.
During Mou’s recent trip to the United States, he also put out the word that he wants to buy one or two small investment banks, preferably in Southern California, to help funnel U.S. funds into the Chinese market.
Don’t expect to see this Chinese entrepreneur profiled on “Lifestyles of the Rich and Famous,” however. Mou, who rides around Beijing in an “ordinary Audi,” shuns luxury hotels, expensive suits and fancy restaurants. When his staff tried to persuade him to rent a limousine to attend a Manhattan reception, he insisted on being delivered in the company van.
Mou reportedly enjoys the support of Chinese leader Deng Xiaoping and the now-discredited reformer Zhao Ziyang. But in an interview in Los Angeles, he downplayed the role his political connections have played in his success.
“Without Deng Xiaoping’s reformist thinking, there would have not been any non-state-owned businesses nor would there be any Land Economic Group,” he said. But “besides political support in the broadest sense, the Chinese government has not given us any special support.”
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There is no doubt that Mou has enjoyed the Communist Party’s blessing. Last year he was recognized by the Chinese government as one of China’s “10 Best Private Entrepreneurs” and China’s “Reform Hero.”
Mou, who attracted large crowds for his speeches at UCLA and Stanford, is vigorously recruiting Chinese expatriates to return home and help manage these operations.
He said he is willing to pay competitive salaries to the best and brightest of the overseas Chinese, citing his recruiting slogan: “American pay and socialist benefits.”
Mou, who starts his day at 5 a.m. and works a seven-day week, sets a high standard for his employees, who are expected to follow him onto the tennis court, up the mountain and back home for business meetings. He lives with his wife in Beijing; his three children attend school in New York and Washington, D.C.
The payoff to Mou’s employees is a good salary by Chinese standards, annual bonuses and the opportunity to share in the company’s success through stock options. The average annual pay at Land Economic Group is $6,000 to $7,000 a year, eight to 10 times the average for China.
“In China I worked for North China Electricity Group, a state-owned company, and I was very bored,” said Jack Duan, 28, the managing director of Land’s New York office. “Every young person in China wants to make more money. So I left that company to come into Land Group because Mr. Mou has given me the opportunity to carry out my objectives.”
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Profile: Mou Qizhong
* Personal: Born in 1940 in Sichuan province, China. Former glass factory worker. He was sentenced to death in mid-1970s for “counterrevolutionary activities,” but the sentence was commuted. Imprisoned again in 1983 for profiteering after making money selling cheap consumer goods; released after a year. Founded Land Economic Group. Designated China’s “Reform Hero” in 1995.
* Home: Beijing
* Family: Married with three children
* Title: President, Land Economic Group, China’s sixth-largest private company. Employs 500 and has offices in China, the U.S., Canada, Hong Kong, Singapore, Vietnam, Germany, Italy and Russia. The company reportedly controls more than $1.1 billion in assets and has net assets valued at $108 million. Subsidiaries include Land Commerce Satellite Co. and New York-based Roosevelt China Capital Corp.
* Other posts: Executive director, China Policy Science Study Institute; deputy chairman, commerce and industry committee of the Asia-Pacific Economic Cooperation forum; advisory professor, Shanghai Finance & Economy University.
