More than three decades after China began its economic reform, the country now faces a situation in which 99% of its small-and-medium-sized enterprises may go out of business in the next decade.
Such bold predictions come not from international critics but courtesy of a home-grown business legend by the name of Yan Jiehe.
Dubbed by the media as ‘China’s No. 1 Madman’ and ‘Dark-Horse Tycoon,’ Yan has an extraordinary CV that spans teaching, working for failing state-owned enterprises and building a construction company that later became one of the largest private sector employers. More recently he has concentrated on business mentoring, as well as offering his business opinions through the media.
Yan is the youngest of nine children born in 1960 to a schoolteacher couple in the city of Huaian, Jiangsu Province.
During the Cultural Revolution Yan’s parents were persecuted and his family was forced to move to a poor village, where they survived on rice husks normally fed to pigs.
Yan followed in the footsteps of previous generations of his family and stayed on to teach languages after finishing secondary school, before attending university in Nanjing. After graduating, he was quickly promoted to become an administrator.
A few years later, in 1986, he quit the civil service position to join the business world. Perhaps he felt that he had blotted his copybook professionally by fathering a second child. It was in contravention of the one-child policy but fulfilled his mother’s wishes. “The struggle for power and money gives never-ending worries, but a family brings a lifetime of a joy. It is the best form of wealth that never depreciates,” Yan recalled of his mother’s words.
Yan was a dutiful son. When his mother was diagnosed with a terminal illness in her early 70s, he hired four helpers to look after her around the clock. She lived on to just shy of 90 years old.
In the following years, Yan helped turn around seven failing state-owned enterprises.
“There is no loss-making business, only managers who are incapable,” he later noted.
In 1992, he founded his first construction company with capital of Rmb100,000 ($14,600) but initially had problems securing contracts. He travelled to Nanjing when he learned that city officials were planning to build motorways around the city. He finally won a contract to build three culverts. At completion, Yan had to cover losses of Rmb80,000.
But his work was so impeccable that Nanjing city officials decided to award him with Rmb30 million worth of further contracts, and profits of Rmb8 million.
With that success, Yan began to win bigger government infrastructure projects, including works on the highway connecting Jiangsu and Shanghai, the Beijing-Shanghai Expressway and the Jiangyin Suspension Bridge.
He was also the first to adopt the build-transfer (BT) business model in China where his company would front the capital required for construction and hire the workers. The projects, once finished, were handed over to the government, which would then pay back in instalments.
Such a model, Yan said, allowed him to deal directly with local officials, avoid competitive bidding processes and yield lucrative profit margins averaging 35%.
By now Yan had built a reputation as the country’s biggest contractor, hiring hundreds of thousands of workers. His company, China Pacific Construction Group, continued to expand and by 2005 became one of the top ten privatefirms. He had acquired more than 30 state-owned companies and his empire grew to include 46 enterprises. In 2005, his wealth ballooned to Rmb12.5 billion, ranking him second on Hurun’s Rich List, trailing Gome’s Huang Guangyu (see WiC36).
In 2007, Yan stepped down from the helm of China Pacific Construction, keen that others take on the task of leading the firm.
“If you look into history, the rise and fall of the Kingdom of Shu was down to one person – Zhuge Liang (a famous strategist during the period of the Three Kingdoms). I do not wish to become Zhuge Liang,” he said in an interview with the Manager’s Daily. Yan’s wife Zhang Yunqin now heads the firm.
Yan has since returned to his original calling of teaching, giving speeches and writing books on business management. He has set up a think tank called Huatuo CEO Summit Organising Committee, which gathers influential business and political figures in seminars, and offers business advice to SMEs in cities across the country.
He is also offering free “consultation clinics” two days each month to entrepreneurs – dangling the tantalising prospect that he might even invest in their businesses. Perhaps inspired in part by Donald Trump’s The Apprentice, he says his motivation is simple: he’d like to become famous. He certainly has Trump-like chutzpah, having told People’s Daily: “My biggest failure is not to know what failure is.”
Some of his advice has a homespun flavour. For example, last month, he used arithmetic metaphorically when offering his advice to an exporter at an event in Dongguan.
“Your business needs to undergo subtraction. That will make you more specialised and not blindly look for scale,” he lectured.
According to Yan, to ‘add’ is to grow bigger; to subtract is to become more specialised; to ‘multiply’ is to become stronger; to ‘divide’ is to achieve quality.
In fact, Yan, who snubs traditional business schools (if not a preference for oversimplified concepts, apparently), is paving the way for bigger plans. He wants to build a business school of his own in five years.
“I want to stress real examples, and help businesses solve practical problems. I am not cultivating qualifications, but nurturing calibre,” he said. “Good things will stand the test of the market, as the market provides the ultimate endorsement.”
And what kind of long term advice has he been providing for the new generation of entrepreneurs under the current economic circumstances?
Yan believes people should exit property businesses, which have enjoyed good returns because of the government policies to bolster the economy and invest in infrastructure.
“The bosses of property businesses had better watch their back, and get hold of their account receivables…Once we see a slowdown in our economy, the property sector is heading downhill for the next decade”, he warns.
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