The Hindu Business Line : China’s road king

Quality is the rice bowl”, white Chinese characters on red banners proclaim from above, while below, dozens of uniformed workers scurry about efficiently to the steady hum and clatter of a car assembly plant in the background.

The slogan is a tongue-in-cheek reference to China’s famous “iron rice bowl” where the communist State once promised all workers cradle-to-grave employment in State enterprises.

At the Lifan Group’s new sedan factory located in the southwestern city of Chongqing’s special economic zone, the slogan isn’t alone in blending capitalist values with communist form.

The Group’s founder and President Yin Mingshan is one of China’s greatest entrepreneurs, his story imbued with the fight and heroism of legend. But as one of the country’s leading businessmen, Yin is also known for his astute politics, which seamlessly blend communist party doctrine with the capitalist pursuit of profit.

Since 2003, Yin has acted as deputy chairman of the main advisory body to the government of Chongqing municipality, the first private businessman in China to have been awarded such a high position. He also serves as a committee member of the chief national advisory body, the Chinese People’s Political Consultative Conference.

Yet, as Yin is quick to point out, he isn’t actually a member of the Chinese Communist Party (CCP).

Early troubles

“It’s difficult to understand the business and political landscape in China for an outsider,” the 69-year-old says, eyes twinkling.

Indeed, given his personal history, understanding both Yin’s motivation and success requires some effort. When only 20 years old Yin was expelled from high school for espousing “rightist views” (even today he remains unclear what exactly he said that landed him in trouble) and three years later he was labelled a counter-revolutionary and jailed.

It was almost 20 years later in 1979 that he was rehabilitated. At that time Yin received a letter from the CCP explaining there had been a mistake; however there was no formal apology or compensation.

But despite the enormity of having lost most of his youth behind bars, Yin refused to be broken or bitter. “My time in jail only strengthened my resolve to succeed,” he says.

A statement backed up by the fact that a quarter of a century later, Yin is today one of China’s richest men, the head of a company that boasted sales revenues worth some 10.3 billion yuan ($1.3 billion) in 2006. His personal fortune, currently estimated at around $180 million, is nothing to sneeze at either.

Back in the 1980s, Yin recalls, he found it impossible to find a job given his personal history. At the time the only option for paid employment was in State-owned enterprises. However, in retrospect, his unfavourable job prospects turned out to be a blessing because he was allowed to start a small private book-selling business.

Talent for money-making

Yin’s innate talent for making money helped turn the business profitable despite the fact that government policy was still relatively hostile to private enterprises.

In 1992 he was able to start a small motorbike spare parts company with a grand total of nine employees including his wife and son and an investment of 200,000 yuan ($25,000).

But despite these humble origins and in spite of having entered the overcrowded motorbike market relatively late, by the end of the decade, Lifan was one of the biggest manufacturers of motorbikes and motorbike engines in the world.

Today Yin’s company is considered to be China’s number one privately owned motorcycle manufacturer in addition to being the nation’s top exporter of two-wheelers and their engines.

What was the secret of Yin’s success? “Learning from Chairman Mao,” he replies promptly, the eyes behind his large glasses betraying no sense of irony.

“Mao taught us to only take on those enemies you can be sure to conquer. If your enemy is stronger than you, then you should run away. He also taught us to consolidate power in the countryside first before tackling the cities.”

Thus, in order to take on his more well established competitors in the motorcycle business, such as Japanese heavyweights Honda and Yamaha and domestic giants like Jialing and Jianshe, Yin proceeded to apply Mao’s philosophies to his business model.

Accordingly, he started by selling his motorbikes in the countryside and second- and third-tier cities rather than the swish metropolises of Beijing and Shanghai. By doing so Yin was able to avoid head-on confrontation with his competitors in the big cities which Lifan would have found difficult to withstand in its early years.

‘Copy first, innovate later’

Yin is also open about the fact that in the beginning he flagrantly copied designs and stole technology from more advanced companies. Later, when Lifan had grown stronger, he began to innovate on his own and today the company holds close to 4,000 patents.

“At the start of a business sometimes you have to copy to learn, that’s just the way it is,” says Yin, shrugging his shoulders unapologetically.

It is perhaps no surprise then that in its 15-year-long history Lifan has often been sued, most famously by Honda for using the name Hongda for some of its motorbikes. Lifan lost that lawsuit and was fined 98,000 yuan ($12,250) in damages but his days of copying are long over, says Yin. “These days Lifan is more often than not the plaintiff rather than defendant on copyright and patent cases,” he smiles.

Lifan’s main challenge on the road to success, however, was not lawsuits but simply ever-narrowing profit margins. Yin wasn’t the only Chinese entrepreneur who had sniffed an opportunity in China’s burgeoning two-wheel vehicle market. By the late-1990s there were over 1,000 motorbike factories in China producing around 15 million units annually — a situation that led to vicious price wars to the point where domestic profits were virtually obliterated.

Exporting success

In response, Yin diversified his empire into mineral water, wine, sports shoes and even a football club, but, more importantly, decided that exports would be the way ahead. He thus began to sell his mobikes in Vietnam where they were a big hit and by 2006 was selling some 400,000 units a year in over 125 countries.

“Lifan only sells around one-third of its output overseas but two-thirds of our profits come from exports,” he explains.

In 2006 the Lifan group reported export revenues to the tune of $329 million. The company currently has three factories overseas in Vietnam, Thailand and Bulgaria with plans to start another in Turkey by the end of this year.

Lifan’s latest foray is into the car market and it is thus in his new sedan factory, where cars priced at $9,000 roll off the assembly line, that the interview with Yin took place. Cars are already being sold to Egypt, Iran, Saudi Arabia and a handful of Latin American countries he says.

Once again Yin’s strategy is to consolidate his hold on less developed markets before launching an assault on the developed markets of the US and Europe.

To help him achieve this ambition Yin has been bidding to buy a Daimler-BMW car engine plant in Brazil. His plan is to take the plant apart piece by piece, transport it halfway around the globe to China and then thousands of kilometres inland to Chongqing before putting it back together again in his hometown. Yin says the plant is so sophisticated that the effort of moving it will be worth it for the technology it will offer Lifan.

His plans have however been thwarted, for the time being at least, by the Brazilian government which while happy to allow the sale of the plant is less willing to permit its relocation to China.

Nonetheless, Yin remains optimistic. “If they (the Brazilian government) change their mind, we are still interested,” he concludes.

Speed-breakers in India

Stasis seems to be an anathema to Yin. Even during the interview he is barely able to keep still, getting up several times and walking across to a white board where he draws diagrams and writes down figures in a frenzy of explanations.

Lifan is currently in talks with an Indian company for setting up a joint venture in India to make cars and motorbikes, Yin reveals. He is unwilling to disclose the name of the company although he does admit that earlier discussions with the Tata group were inconclusive.

“It’s difficult to negotiate with Indian companies,” he sighs wearily. “The talks proceed at such a slow pace and your country is still not as open as ours to foreign investment.”

Then smiling he adds, “Your (India’s) roads are slow, your negotiations are slow, everything is slow except for your dances.”

Unexpectedly this pronouncement is followed by a full-throated word-perfect rendition of Awaara. “Raj! Rita!” Yin exclaims in nostalgic delight, reeling off the names of the lead characters from the movie. “For so many years it (Awaara) was my favourite film,” he beams.

On the way out of the factory another large red banner flutters over the exit. “No quality, no job. No customers, no boss”, it says.

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China’s road king