Book excerpt: How Lenovo founder sent Sunac founder to prison

Office politics at Zhong Guan Village, China's Silicon Valley, in the early days.

Pekingnology is privileged to publish an excerpt of the upcoming book Zhong Guan Villiage: Tales From the Heart of China’s Silicon Valley, due June 24, 2022. The publisher is Alain Charles Asia Publishing.

Zhong Guan Villiage 中关村, in Haidian District, Beijing, is home to China’s enterprising tech sector, producing the likes of Lenovo, Baidu, ByteDance, and more.

With unprecedented access to the key figures behind the rise of Chinese tech giants, Ning Ken 宁肯 delves into more than five decades of history and reveals the hidden triumphs and disasters that forged the “Silicon Valley of the East.”

Formerly the executive deputy editor of the Chinese literary magazine ‘Shiyue’ 《十月》, Ning is now a professional writer at Beijing Lao She College of Literature 北京老舍文学院. Born in Beijing in 1959, Ning is also a visiting professor at Beijing International Studies University. He has won many Chinese literary awards including the Lao She Literature Award 老舍文学奖 and the Lu Xun Literary Award 鲁迅文学奖.

Zhong Guan Villiage: Tales From the Heart of China’s Silicon Valley is translated by James Trapp from Ning’s book 《中关村笔记》 published in March 2017.

This excerpt sheds light on the office politics in Leveno’s early days and tells the story, starting from early 1990, of how Liu Chuanzhi 柳传志, founder of the Chinese multinational technology company Lenovo 联想, sent Sun Hongbin 孙宏斌, then Liu’s employee, to prison.

Sun later went on to establish and lead Sunac China Holdings 融创中国, one of China's largest real estate developers. Sun has naturalized as a U.S. citizen.

Not that it relates to the excerpt, but Sunac this month missed the deadline for coupon payments on a $742 million offshore bond and said on May 22 that it does not expect to make payments coming due on other bonds, adding to a wave of defaults in China's debt-laden property sector.

Liu, born in 1944 in Zhenjiang City, Jiangsu Province, was a legend in the Chinese business world. In 1967, he graduated from the Chinese People’s Liberation Army Military Telecommunications Engineering College and founded Lenovo in 1984.

In doing so he broke through the traditional thinking that kept the minds of scientific researchers in shackles and entered a uniquely Chinese path for the high-tech manufacturing industry. He pushed through Lenovo’s unprecedented purchase of IBM’s worldwide PC business in 2005, lifting it onto the world stage.

Liu was successively president of the Lenovo Group, chairman of the board, and honorary chairman. In February 2009, he resumed the position of chairman of the board, helping the company to navigate through a very difficult period, and turning the situation around. Under his leadership, the Lenovo Group achieved complete success against its foreign competitors and became the world’s leading PC business.

Liu is the father of Jean Qing Liu 柳青, Co-Founder, Director, and President of Didi 滴滴, the Chinese ride-hailing giant in the process of delisting from the New York Stock Exchange after irking the ire of Chinese regulators and coming under a regulatory review.

Zhong Guan Villiage: Tales From the Heart of China’s Silicon Valley also documented Didi’s early days, including its triumph over Uber and the Chinese river Kuaidi. But that’s not in this excerpt.

Don’t forget to pre-order the book Zhong Guan Villiage: Tales From the Heart of China’s Silicon Valley on Amazon if you find it interesting!

Pekingnology thanks Daniel Yang Li of Alain Charles Asia Publishing for presenting this opportunity.

In the spring of 1990, Liu Chuanzhi convened a management training class. Ostensibly it was to give everyone a chance to discuss the question,

“Fundamentally, what kind of company does Lenovo want to be?.” In reality, Liu Chuanzhi wanted to settle the problem of Sun Hongbin, the manager of the Corporate Development Department. In his introduction to the class, he talked about the Lenovo Corporate Report produced by the company’s Corporate Planning Department itself, which had shaken the whole company, and which criticized the department’s manager Sun Hongbin for his gravely self-centered attitude.

He had also read in advance the proposal in the Corporate Report that all Corporate Planning Department managers should have the authority to hire and fire and make appointments in branch offices and so on.

During the class, he said firmly that the Enterprise Department could not have its own set of rules but was subject to the management system approved by the chairman’s office.

Sun Hongbin had no sense of impending danger and even objected to the criticism. His achievements were outstanding, and the Corporate Planning Department was held in high esteem in the company, quite exceptional, in fact, so it has to be said that Sun had grounds for his arrogance.

After the training session had finished, Liu Chuanzhi went to the Corporate Planning Department officially to further admonish Sun, but he wasn’t there. Liu Chuanzhi was fully aware of Sun’s achievements, but he was critical of the ‘secret society’ element of his management, and the fact that he lacked a ‘big team’ attitude and subconsciously favored a ‘small gang’ approach.

As a result of this, what alarmed Liu Chuanzhi was that when all this was raised in the class, there were some people who stood up and said, “Chuanzhi, we are not a secret society, but you say that is how we are organized. Can you be more specific? We are directly responsible to Sun Hongbin, and if he curses us out we listen, but what has it got to do with the chairman?”

Liu Chuanzhi had not expected that.

When one man had finished talking, another one took up the complaint until it all descended into a free-for-all. There was no way the meeting could continue, so it ground to a halt. Liu Chuanzhi was astounded to discover that the nature of the problem was not at all as he had thought.

He looked up to the heavens and sighed.

Why was he sighing? Was it because he had realized he wasn’t as smart as he thought he was? With things having progressed this far, it was no one else’s problem but his own. Prompt action was needed, bold and ruthless action, or it would be very bad for the company. What was the explanation for the Corporate Planning Department being in open revolt like this? If he was too lenient, that could, contrary to expectation, actually end up being harmful to his employees.

This was a serious lesson for him, and very timely.

Liu Chuanzhi sought out Sun Hongbin and tested the water by suggesting he cut himself off from the problem employees.

“I can’t fire them,” Sun Hongbin said.

So that’s how it was. Liu Chuanzhi wasn’t surprised, and asked Sun Hongbin softly, “Xiao Sun, do you want me, or do you want them?” He wasn’t holding back but going right to the root of the matter. His tone was very cordial, as to an old comrade-in-arms but it was, in fact, an ultimatum.

Sun Hongbin replied, “I want them…”

After a moment, he went on to explain, “If I were to fire them, what would that do to my reputation in the department? I would lose my authority and wouldn’t be able to do my job. But if there really was a problem with them, of course, I would fire them.”

He continued, “In my judgment, there is nothing wrong with them; you just don’t understand them. All they did was give you their opinion, so how fair is it for them to be in fear of the sack? You should have another think about it.”

Sun Hongbin had joined Lenovo before Yang Yuanqing, arriving in 1988. At that time, Liu Chuanzhi was busy with affairs in Hong Kong; before he put up HK$300,000 for a joint venture company, he specifically spoke to several management-level personnel, “From now on, Lenovo not only wants to recruit more young people, it also wants to be bold about promoting them. There is nothing wrong with getting the promotions wrong, but not promoting them and not nurturing them, that certainly would be wrong.”

He had his eye on Lenovo’s future, so a large cohort of recent graduates and even some youngsters, who had not yet graduated and were still studying, joined Lenovo and, following the company’s rapid development program, they too developed rapidly, so that between 1988 and 1990, a cohort of ‘baby-face managers’ appeared, the most consequential of them being Yang Yuanqing and Guo Wei.

The third one was Sun Hongbin.

In 1990, in a breach of the normal rules, Sun Hongbin was appointed director of the Corporate Planning Department. His authority covered the 18 subsidiary companies he had opened all around the country. The old guard at Lenovo had had no part in that process, so the top men in all the subsidiary companies were essentially all Sun Hongbin’s appointees.

This meant that Sun had a lot of clout with those companies. But Lenovo’s subsidiary companies, as well as being under Sun’s direction, also had to maintain good relations with every department of the Lenovo Group, the latter circumstance being much more important than the former. However, the senior management at the group discovered that their authority over the subsidiary companies was gradually being eroded, and they began to keep Liu Chuanzhi informed about what was going on with Sun Hongbin.

Eventually, they requested that Liu Chuanzhi return to Beijing from Hong Kong on the grounds that Sun Hongbin was becoming too influential, that a clique was forming, that cracks were forming in the company and Lenovo was being damaged. It was then that the ‘training class’ was convened.

On his return, Liu immediately initiated an investigation and quickly discovered that the problem was far from imaginary: the staff at the subsidiary companies around the country owed their jobs to Sun Hongbin, and their finances were not under the control of the group to the extent that some people wanted Sun to lead a breakaway from the group to set up an independent company.

To begin with. Liu Chuanzhi didn’t take this too seriously, thinking that, although Sun was a little out of control, he was still a man of exceptional abilities and Liu believed that if he transferred him to where he himself could keep an eye on him, he would have ways of making him grow up and come to his senses.

If he continued not to recognize when he was well off, it would still not be too late to deal with him. Sun Hongbin was a tough, tenacious street-fighter of a man and, although Liu Chuanzhi was well aware of this, he had a maxim that if he had to choose between a mediocre but generally good man and a capable man with faults, he would always choose the latter. In fact, he would even go looking for such people. Liu considered it was a skill to be able to use dangerous men.

Sun Hongbin went further than Liu Chuanzhi expected, obliging him to re-examine his attitude of valuing talent over everything else.

Sun rejected Liu’s overtures, and the next day his Corporate Planning Department held a meeting at Peking University’s Shaoyuan Restaurant.

News of the potential sackings had got around and the members of the department were all fired up and furious. Sun himself was in an excited state as he sat and drank his wine. Some people said they should just make off with the company’s money, while others said they should immediately set up on their own and take the department’s funds with them.

Whatever they said, the Corporate Planning Department was still part of Lenovo, not Sun Hongbin’s personal fiefdom and someone reported the affair to the still somewhat undecided Liu Chuanzhi.

For the last time, Liu summoned Sun Hongbin to see him. Sun’s Corporate Planning Department office was on Zhongguancun Avenue, in the same building as Stone. Previously, if there had been any issues, Liu Chuanzhi had gone to the department, but not this time. He ordered Sun Hongbin to go to the old Lenovo offices on Kexueyuan South Road.

When Sun arrived, Liu Chuanzhi was unaware that a number of his subordinates had followed him to the headquarters building. Both sides had made their preparations, but neither side knew what the other had done. Liu Chuanzhi was alone in the chairman’s office, not accompanied by any of

the company’s senior figures, so it was one-on-one, in a very tense and highly charged atmosphere.

It was reminiscent of a scene from The Godfather.

Modern materialistic China was all there, but what was missing was any form of culture or art.

Liu Chuanzhi didn’t beat about the bush but told Sun Hongbin that he knew all about the meeting at the Shaoyuan Restaurant.

Sun brazenly admitted it all.

“But that is not the way I see things,” Sun Hongbin said.

“You are already beyond my leadership. You will have to go it alone!” Liu Chuanzhi replied.

Liu said Sun could choose any subsidiary company he liked to go off to.

“There’s no need. I’m leaving,” Sun replied.

The two of them had an equal sense of honor and were equally streetwise. There was a lot of subtext to what they both said, and neither believed things were as simple as they presented them. Neither agreement nor refusal was straightforward.

But no matter what was said, Liu Chuanzhi was meticulous both in virtue and in sense of duty.

On the afternoon of 7 April, Liu Chuanzhi made his move. He gathered together all the personnel of the Corporate Planning Department and announced that he was dismissing the two most vehement members of the ‘Shaoyuan Revolt’ and he was freezing the accounts of all the subsidiary companies under the control of the Corporate Planning Department.

He was asking officers from the Public Security Bureau to ensure the company’s security. He himself was taking charge of the Corporate Planning Department and Sun Hongbin was to leave his current post to go to the Business Services Department.

This was equivalent to declaring a state of emergency. The mood in the room was very solemn, and the two men whose sacking had been announced joined the rest of the departmental staff in folding their arms in front of their chest as a gesture of protest at Liu Chuanzhi.

Cigarette smoke coiled around the room as several people lit up. Sun Hongbin gave a loud shout, “Put your arms down!” Everyone unfolded their arms and dropped them to their sides.

He gave another shout, “Put your cigarettes out!” Everyone extinguished their cigarettes. There was another shout, “Stand up!” Everyone stood up, like a phalanx of Spartan warriors.

The next day, Liu Chuanzhi received a secret warning that some people in the Corporate Planning Department were intending to make off with the company’s money and telling him to be on his guard. Liu Chuanzhi knew that there were at least Rmb17 million in funds held by the subsidiary companies under Sun Hongbin’s control.

And if those people really did make off with them, it would put the company into both a financial and reputational crisis. He alerted the Chinese Academy of Sciences’ security office.

【Pekingnology: At a time when China’s economy was far less liberalized, Liu started Lenovo within the state-controlled CAS.】

Obviously, this kind of situation did not just fall under the company’s remit as it involved the breaking of criminal law, so Liu Chuanzhi also made a report to the Public Security Bureau and to the police. At the same time, he sent 20 people out on an urgent mission to sequester the funds of all the subsidiary companies.

For the next few days, Lenovo assigned a powerfully-built young bodyguard to protect Liu Chuanzhi who was instructed not to leave his side at any time.

With all preparations made, the group went ahead with a meeting. Sun Hongbin still tried to defend himself, reluctant to admit any mistakes, but as soon as the final decision was announced that he was “suspended from duties to examine his conscience”, he was escorted out of the company office.

Initially, they took him to the Xiyuan Guesthouse under the supervision of at least two people. Sun Hongbin was at liberty to eat and sleep as he wished, and his guards said to him, not entirely joking, “What a character you are! You eat like a horse and sleep like a baby!”

Sun replied, “I’m tired. I’m so tired every day. I don’t often get any time to myself.”

A few days later, some of his men heard the news and they went over to where he was staying. The guards and the rescuers confronted each other with makeshift weapons in their hands, and it looked as though everything was about to kick off. Sun Hongbin stood in the doorway and berated his men in a stern voice, ordering them to leave at once.

On hearing this, the men immediately did what they were told. One of them still refused to accept what was happening and went back to the office. Although he was a southerner, he had the unruliness of a northerner. He started mouthing off any old how and even threatened to “cut off the arms” of the traitors in the company. It wasn’t Liu Chuanzhi’s job personally to intervene with this crazy supporter of Sun Hongbin, but he had infuriated him. Liu was a man of diverse character and was quite willing to use underhand tactics in a just cause.

The next day Liu Chuanzhi seized the initiative and stopped the man who had made the threats on Zhongguancun Avenue and, although he wasn’t actually dressed in black, his sturdy build did give him something of the air of a gang boss. He said to the fellow, “You need to be clear about something: violence never outweighs what is right, and from today on if anyone in the company starts something, I will hold you responsible.”

The man stiffened and shot Liu Chuanzhi a look. Liu Chuanzhi went on, “You can stop trying to play the tough guy with me. Who do you take me for? Let me ask you something. Suppose you are walking along the street and suddenly get knocked over by a bicycle. Do you think that’s the kind of thing that might happen? After you’ve been knocked over, the two of you start a fight and both get taken to the local police station. The man who ran into you is quickly released, but you have to spend time in the cells. Do you think that is the kind of thing that might happen? If there are three men following you everywhere, night and day, would you be afraid?”

The man’s face went paler and paler as he listened, and he said on the spot that he wanted to leave Lenovo and wouldn’t be involved in anything ever again.

Liu Chuanzhi immediately began to feel a little ashamed and wondered just what he thought he was doing. But, at the same time, it felt good; it felt good because he had personally faced down violence. It felt a little as though he was fighting for his life, but then that is what enterprise in business is all about, fighting for your life over everything.

Early one morning on 28 May 1990, Sun Hongbin was detained by the Haidian police. Ten days later he was formally arrested and charged with misappropriation of public funds. 【Pekingnology: It could be argued that the funds of Lenovo, which legally was NOT a fully independent private company, were “public.”】

The Public Security investigation discovered that he had diverted Lenovo money into another company and the sums involved were far from negligible.

Sun Hongbin defended himself, saying that he had had no intention of “using public money for personal gain”; it was just that the company’s financial regulations were too inflexible and the procedures too complicated, and he simply wanted some liquid funds to “ease the way” for the company to do business.

The investigation discovered no absolute proof that showed that Sun Hongbin had actually been corrupt in the use of this money but, even so, the movement of public money without the proper permission did constitute a legal problem.

【Pekingnology: Perhaps you have heard of the so-called “sins” of China’s first-generation private entrepreneurs. The line was not always clear for them, and many started private companies under the umbrella of some state entities. Back then, they perhaps violated quite some opaque and outdated Chinese rules inherited from a strict command economy.

Some private companies’ roots in state entities have come back to haunt them, even in recent years. Some Chinese leftists accuse them of stealing from the state. And some Westerners deplore the private companies’ ties to the state.】

On 22 August 1992, after a long-drawn-out 27-month stay in the Haidian detention center, Sun Hongbin received the court’s final verdict: he was sentenced to five years’ imprisonment for misappropriation of Rmb 130,000 yuan of public funds.

The all-powerful Sun Hongbin became a convict, spending most of his time sharing a cell with more than 30 other people and introducing him to a whole different society. His life consisted of crossing off the days, one by one.

Because he was a graduate of Tsinghua University – there weren’t many graduates in prison in those days, let alone Tsinghua graduates – his fellow prisoners were amazed by his arrival and he received a fair degree of respect in the cell. He also learned quite a lot of underworld slang.

After four years, on 27 March 1994, Sun Hongbin was released after serving his sentence and, as he walked out of the prison gates, he saw the sun again for the first time as a free man.

What did he get out of prison? Moderation, cool-headedness, and the ability to consider problems like a philosopher. He didn’t stay in Beijing long after he got out and he did not stop to drink and chat and talk about prison life with the folk who had been waiting expectantly to see him.

He had said goodbye to the past and he went back to Tianjin that same day.

Whilst in prison he had planned his future as a property developer. He experienced a lot of twists and turns in his quest for the appropriate license but that did not pose any real problems for him. In the end, he decided on ‘Shunchi’ as his company name, ‘SunCo’ in English, which sounds as though it is short for ‘Sun’s Company’.

Before Sun Hongbin was released, he met Liu Chuanzhi outside the prison on one occasion. One of the training officers in the prison sent him out to buy some computer software. He found someone who had links with Liu Chuanzhi and told them that he wanted to see him.

It had been four years, but Liu Chuanzhi hadn’t forgotten Sun Hongbin. He met him in a Sichuan restaurant at the top of the New Century Hotel. He didn’t bring any bodyguards or take any protective precautions.

After four years, the two men looked at each other for a while; there was nothing of the chairman or the criminal in their gazes, just time and the man. Sun Hongbin told Liu Chuanzhi about his plans to become a property developer. Liu asked him coolly what he had going for him and Sun, equally coolly, explained his thinking. Wine broke through any awkwardness, and Sun went on to express his remorse.

He clinked Liu Chuanzhi’s glass, “I used to have the mistaken idea that if I hadn’t done what I did, I wouldn’t have been me.” He took a mouthful of wine and looked at his former boss. “Later I thought about it again, and finally saw that wasn’t the case. In fact, you don’t need to change your essential character, you just need to analyze your circumstances so you see them a bit more clearly and understand them better, then you have a chance of not messing up.”

Liu Chuanzhi sighed softly and chinked Sun Hongbin’s glass.

Sun went on to say he had been thinking about these things every day for the three years and 10 months he was in prison, and now he had the chance to meet and talk them through.

It sounded like an apology and it sounded like someone speaking their true mind. It sounded like Lu Xun’s poem, “When we have experienced many troubles, the relationship between us still exists.”

It was an unimaginable scene, and unique in the lives of both Liu Chuanzhi and Sun Hongbin, one of them only just into his 30s and the other already past 50. Liu Chuanzhi commented regretfully to Sun Hongbin that it couldn’t have been easy getting through his time in prison,

“Remember these words, Hongbin, and repeat them to others whenever you like: Liu Chuanzhi is your friend. If you ever need any help, I myself, Chairman Li and Chairman Zhang, will all offer it. We would even buy shares if that…”

But Sun Hongbin tactfully declined Liu Chuanzhi’s offer, as he did all offers of financial aid from his newly-returned friend. He wanted to start from scratch and, indeed, it was not many years before he had restored his own financial security as he prospered in the property development marketplace.

Liu admired Sun Hongbin as he would admire a lofty mountain peak whilst still recognizing its dangers. Liu understood quite well: he did not fear danger, but he did his best to avoid it.

***

Don’t forget to pre-order the book Zhong Guan Villiage: Tales From the Heart of China’s Silicon Valley on Amazon, due June 24, 2022, if you find it interesting!