How a toppled giant rose again
Shi Yuzhu | Saturday, 12 July 2008
For an indication of Shi Yuzhu's ambition, one need look no further than the name of his company: Giant.
An online game developer, Giant Interactive was founded just four years ago. Since then, Mr Shi has parlayed the success of its first game, ZT Online, into an $887m initial public offering (IPO) on Nasdaq. This year, ZT Online became the most popular game in China - at its peak it had 2.1m people playing at the same time.
This sort of achievement, however, is familiar territory for the 46-year-old entrepreneur, who is among China's richest with a $3.7bn fortune, according to last year's Hurun Report. But two decades after he launched his first venture, the affable, lanky former student of mathematics from eastern China may finally be moderating his ambitions.
In 1989, Mr Shi and a friend took Rmb4,000 and set up his first company - also named Giant. It was a software company that sold programs translating computer operating systems from English into Chinese. The program was so popular that, by 1991, Giant had mushroomed into a sprawling conglomerate with interests in garment manufacturing, property development and health supplements, as well as its core software business.
His success made Mr Shi the poster boy for China's new entrepreneurial spirit, even though Giant was technically owned by an employee's collective and operated under the authority of local officials at Zhuhai, a city neighbouring Hong Kong and Macao.
This ownership structure created huge problems for Mr Shi. When he wanted to spend Rmb250m building an 18-storey building in Zhuhai called the Giant Tower, Zhuhai officials saw the building as an opportunity to create a landmark. They gave cheap land to Giant on the one hand and made the company revise the building's plan on the other. Blueprints were redrawn until Giant was building a 72-storey apartment complex that would be China's tallest construction upon completion.
The building was never finished. Construction dragged on until the Asian financial crisis struck in 1998. By then, Giant was already on the verge of collapsing under the weight of its many businesses, as well as the cost overruns associated with the Zhuhai tower.
"We had no bank loans and we couldn't get any bank loans," Mr Shi recalls. "Yes, the financial crisis was a reason but also, internally, the company got too big."
At Giant's fall Mr Shi became a public symbol of the evils of capitalism - its rampant excesses and reckless risk-taking.
Having pre-sold all the apartment units in the skyscraper to investors from Zhuhai and Hong Kong before the bust, his company owed those investors a total of Rmb250m. But instead of filing for bankruptcy, and folding the company, as many of his similarly out-of-luck contemporaries had done, Mr Shi took on the debt himself, promising the buyers that he would repay the money. All he needed, he told them, was time.
"I begged the Hong Kong courts not to let my Hong Kong-incorporated company that was pre-selling the flats go bankrupt, because if that happened, I wouldn't have been able to return the money," he says, adding that this course of action meant he instantly became "the poorest man in China".
"If I had another episode in my life where I didn't repay the money, no one would ever trust me again, no banks would lend me money, and I could never go back into business."
To make good on his promise, Mr Shi had to restart his business. He decided that diversification was a mistake. "We were young. My team and I were just in our early thirties at the time and we didn't understand. In fact no one in China had understood. Everyone had thought diversified holdings was the way to go," he says.
"Now I realise that not only can you do only one business at a time, your company should focus on getting just one product right at a time."
With Rmb500,000 borrowed from a friend, Mr Shi travelled to the eastern Chinese province of Jiangsu and went back to selling health supplements. He marketed a melatonin hormone supplement as "Brain Platinum" and promoted it as an aid for mental faculties and sleeping. Spending Rmb150,000 on advertising, he bought time on local television channels and sold Brain Platinum aggressively as a gift item.
Business took off immediately. By the end of the first month, Mr Shi says, sales reached Rmb400,OOO and he had expanded to three cities. Within six months, he had monthly sales of Rmb3.0m.
Mr Shi took the business nationwide, moving his headquarters to Shanghai and expanding his marketing budget by advertising on 300 television stations. "We became the favourite customers of CCTV [the state-owned national network]. Most products only advertise for two to three years, but we have been advertising for a decade now and every year, the budget is a little bit more," Mr Shi says.
Every Chinese -New Year through that decade, Mr Shi conducted the advertising equivalent of a carpet bombing campaign, running the same 30-second spot across the nation three times an hour. Every year, the adverts would have just one spoken line, which translates roughly as: "This Chinese New Year, the only gift I will accept is Brain Platinum" (it is much snappier in Chinese).
By 2001, just three years after he became China's poorest man, Mr Shi had repaid his debts and still had money left over. Those who had shunned him now came knocking on his door. "A lot of banks suddenly came to ask me whether I wanted to take out a loan. They said they didn't need any collateral - just my word that I would pay them back."
A year later, Mr Shi sold part of his stake in the health supplement business to a group of investors. This gave him about Rmb700m, which he invested in two mainland Chinese banks, Minsheng bank and Huaxia bank. After three years, those stakes had appreciated to about Rmb10bn and now form the bulk of his wealth, says Mr Shi.
With all his cash invested and his businesses running smoothly, Mr Shi suddenly had a lot of free time on his hands. He started playing online computer games, often for as long as 10 hours a day. The idea for founding his own games company came, he says, when he found flaws in the games he played.
While he thought he could do better, though, there is also the sense that Mr Shi had finally found his ideal occupation, making games for enthusiasts like himself. "A lot of Chinese companies say they want to go abroad or become international. Not me," he says. "The number of online gamers in China is going to be bigger than the entire US population ... why not just do this well?"
Old ambitions, however, die hard. Mr Shi says he will not settle for a place at the top of China's market,
"My goal is not just to become the biggest online game company," he says, "but bigger than the number two, three, four and five combined."
...................................................
Under syndication arrangement with FE
An online game developer, Giant Interactive was founded just four years ago. Since then, Mr Shi has parlayed the success of its first game, ZT Online, into an $887m initial public offering (IPO) on Nasdaq. This year, ZT Online became the most popular game in China - at its peak it had 2.1m people playing at the same time.
This sort of achievement, however, is familiar territory for the 46-year-old entrepreneur, who is among China's richest with a $3.7bn fortune, according to last year's Hurun Report. But two decades after he launched his first venture, the affable, lanky former student of mathematics from eastern China may finally be moderating his ambitions.
In 1989, Mr Shi and a friend took Rmb4,000 and set up his first company - also named Giant. It was a software company that sold programs translating computer operating systems from English into Chinese. The program was so popular that, by 1991, Giant had mushroomed into a sprawling conglomerate with interests in garment manufacturing, property development and health supplements, as well as its core software business.
His success made Mr Shi the poster boy for China's new entrepreneurial spirit, even though Giant was technically owned by an employee's collective and operated under the authority of local officials at Zhuhai, a city neighbouring Hong Kong and Macao.
This ownership structure created huge problems for Mr Shi. When he wanted to spend Rmb250m building an 18-storey building in Zhuhai called the Giant Tower, Zhuhai officials saw the building as an opportunity to create a landmark. They gave cheap land to Giant on the one hand and made the company revise the building's plan on the other. Blueprints were redrawn until Giant was building a 72-storey apartment complex that would be China's tallest construction upon completion.
The building was never finished. Construction dragged on until the Asian financial crisis struck in 1998. By then, Giant was already on the verge of collapsing under the weight of its many businesses, as well as the cost overruns associated with the Zhuhai tower.
"We had no bank loans and we couldn't get any bank loans," Mr Shi recalls. "Yes, the financial crisis was a reason but also, internally, the company got too big."
At Giant's fall Mr Shi became a public symbol of the evils of capitalism - its rampant excesses and reckless risk-taking.
Having pre-sold all the apartment units in the skyscraper to investors from Zhuhai and Hong Kong before the bust, his company owed those investors a total of Rmb250m. But instead of filing for bankruptcy, and folding the company, as many of his similarly out-of-luck contemporaries had done, Mr Shi took on the debt himself, promising the buyers that he would repay the money. All he needed, he told them, was time.
"I begged the Hong Kong courts not to let my Hong Kong-incorporated company that was pre-selling the flats go bankrupt, because if that happened, I wouldn't have been able to return the money," he says, adding that this course of action meant he instantly became "the poorest man in China".
"If I had another episode in my life where I didn't repay the money, no one would ever trust me again, no banks would lend me money, and I could never go back into business."
To make good on his promise, Mr Shi had to restart his business. He decided that diversification was a mistake. "We were young. My team and I were just in our early thirties at the time and we didn't understand. In fact no one in China had understood. Everyone had thought diversified holdings was the way to go," he says.
"Now I realise that not only can you do only one business at a time, your company should focus on getting just one product right at a time."
With Rmb500,000 borrowed from a friend, Mr Shi travelled to the eastern Chinese province of Jiangsu and went back to selling health supplements. He marketed a melatonin hormone supplement as "Brain Platinum" and promoted it as an aid for mental faculties and sleeping. Spending Rmb150,000 on advertising, he bought time on local television channels and sold Brain Platinum aggressively as a gift item.
Business took off immediately. By the end of the first month, Mr Shi says, sales reached Rmb400,OOO and he had expanded to three cities. Within six months, he had monthly sales of Rmb3.0m.
Mr Shi took the business nationwide, moving his headquarters to Shanghai and expanding his marketing budget by advertising on 300 television stations. "We became the favourite customers of CCTV [the state-owned national network]. Most products only advertise for two to three years, but we have been advertising for a decade now and every year, the budget is a little bit more," Mr Shi says.
Every Chinese -New Year through that decade, Mr Shi conducted the advertising equivalent of a carpet bombing campaign, running the same 30-second spot across the nation three times an hour. Every year, the adverts would have just one spoken line, which translates roughly as: "This Chinese New Year, the only gift I will accept is Brain Platinum" (it is much snappier in Chinese).
By 2001, just three years after he became China's poorest man, Mr Shi had repaid his debts and still had money left over. Those who had shunned him now came knocking on his door. "A lot of banks suddenly came to ask me whether I wanted to take out a loan. They said they didn't need any collateral - just my word that I would pay them back."
A year later, Mr Shi sold part of his stake in the health supplement business to a group of investors. This gave him about Rmb700m, which he invested in two mainland Chinese banks, Minsheng bank and Huaxia bank. After three years, those stakes had appreciated to about Rmb10bn and now form the bulk of his wealth, says Mr Shi.
With all his cash invested and his businesses running smoothly, Mr Shi suddenly had a lot of free time on his hands. He started playing online computer games, often for as long as 10 hours a day. The idea for founding his own games company came, he says, when he found flaws in the games he played.
While he thought he could do better, though, there is also the sense that Mr Shi had finally found his ideal occupation, making games for enthusiasts like himself. "A lot of Chinese companies say they want to go abroad or become international. Not me," he says. "The number of online gamers in China is going to be bigger than the entire US population ... why not just do this well?"
Old ambitions, however, die hard. Mr Shi says he will not settle for a place at the top of China's market,
"My goal is not just to become the biggest online game company," he says, "but bigger than the number two, three, four and five combined."
...................................................
Under syndication arrangement with FE