Internet & Tech, Talking Point

The case for the defence

STAR Market listing signals new era for China’s original “Mr Internet”

Edward-Tian-Main-w

‘Remembering Leningrad’: Tian is staking his future on China’s mushrooming cybersecurity sector

About 20 years ago Edward Tian was one of the most talked-about CEOs in China. In an economy dominated by state-owned enterprises run by dyed-in-the-wool Party cadres the US-educated ‘technopreneur’ won plaudits for helping to found China Netcom in 1999. In doing so he became the most high-profile boss of a state-owned enterprise (SOE) to be recruited from the private sector.

With a belief that technology was going to transform China’s economy and make it more open to the world, Beijing-born Tian was able to bridge the divide between the state-controlled and private sectors. He had guanxi – that is to say a crucial nexus of personal relationships – with insiders in the Chinese government, who trusted him. But he also had experience of the wider world, with the skills to convey the concerns of his governmental stakeholders to powerful international investors.

Tian’s own company AsiaInfo was also one of the most celebrated Chinese internet firms of the time. Offering IT networks and billing software for local firms including the largest SOEs, AsiaInfo went public on the Nasdaq with a bang in early 2000. In the dotcom era its shares were seen as an attractive gateway to China’s internet sector as its economy started to open up following the country’s accession to the World Trade Organisation.

Tian has largely retreated from the limelight in recent years – so much so that many of the latest generation of internet bosses might not even have heard of him. Indeed a cybersecurity spinoff by AsiaInfo on Shanghai’s STAR Market this month doesn’t seem to have grabbed that much attention either. Yet Tian’s comeback is an interesting one in signalling how the internet industry has changed over the last two decades. From promoting an open, more vibrant internet to becoming a safeguard for online security, Tian’s latest offering also hints at some of the underlying trends in Sino-US relations.

What is AsiaInfo’s newest equity offering?

When AsiaInfo went public in New York in 2000, it was positioned as China’s first ever internet and tech IPO. Compared to content providers such as China.com and Sina, Tian’s firm was less glamorous. But it offered important services that were deemed much more important to many of its major clients, such as telecom giants China Telecom (now China Mobile) and China Unicom.

Despite the implosion of the dotcom bubble, AsianInfo held on to much of its value, reaching a market capitalisation of more than $3 billion at one point. In June 2000 the Wall Street Journal reported that one of the investors in the company was a Shanghai venture capital fund headed by Jiang Mianheng, the son of former Chinese President Jiang Zemin. Company executives, however, swiftly denied that the connection implied regulatory favour.

AsiaInfo started to fall off investors’ radar with the rise of internet titans such as Alibaba and Tencent. It was taken private in 2014 by a consortium led by Citic Capital that valued the company at about $890 million. It subsequently went public again in Hong Kong in late 2018 and as of this week was worth about $1.8 billion.

In 2015, Tian acquired the China business of Trend Micro and grew it into an offshoot called AsiaInfo Security. This cybersecurity unit was the entity specifically spun off on Shanghai’s STAR Market tech bourse this month. After raising about Rmb5 billion, it has been trading at a market capitalisation of close to Rmb15 billion ($2.4 billion), roughly the valuation at its offering price.

“Tian Suning [aka Edward Tian] has come back. He’s still in the [internet] industry,” news portal Jiemian noted, adding that the veteran dealmaker was the latest tycoon to enter the increasingly crowded field of cybersecurity.

Who is Tian Suning?

Tian was born in China’s capital city in 1963. Both of his parents were Russian-trained ecologists who worked in the China Academy of Sciences (CAS). Having met in Leningrad in the 1950s – when Sino-Soviet relations were still warm – the couple named their son Suning, which can be translated into ‘remembering Leningrad’.

Tian graduated from Liaoning University (located in the city of Shenyang, China’s then hub of heavy industry) with a Bachelor’s degree in environmental biology in 1984 and then earned a Masters at CAS in 1987. More than 80% of his classmates elected to travel abroad for further study. Tian joined the herd and secured a doctoral degree at Texas Tech University in Lubbock.

“I spent a lot of time on Texas ranches wearing a cowboy hat and digging post holes,” he told Dallas Morning News in 1995.

Tian’s research focus was environmental protection but he soon became fascinated by the idea of the “informational highway”, after attending a speech by a certain Al Gore.

He soon penned his own internet vision for China and had his article published by the state-run Guangming Daily in 1993. In the same year Tian founded AsiaInfo with the financial backing of a Dallas-based real estate investor originally from Hong Kong.

The start-up soon shifted its business focus to China, where the government was desperate to speed up the spread of internet infrastructure. Between March and July 1995, the number of Chinese computers connected to the internet jumped from 400 to 6,000, Xinhua reported at the time. AsiaInfo started to win a number of major contracts to meet this spiking demand, including the buildout of China Telecom’s ‘Chinanet’, as well as a number of provincial intranets.

Tian was one of a number of contributors that played a central role in making sure the country had an open web connectable to other parts of the world instead of an “intranet” exclusively for domestic users.

One of the pivotal moments in this quest came in 1997, TMT Post reported, when there was opposition from some quarters that the internet could pose a serious threat to China’s national security. Critics of the rollout wanted to create something more specifically Chinese, with minimal integration with the wider world.

But the central government in Beijing eventually decided against building out a huge ‘China intranet’ after lobbying from industry experts such as Tian, who dramatically presented decisionmakers at a high-level meetings with ministers with a copy of the Bill Gates’ book The Road Ahead. (Although Tian got his way, there were compromises, including the eventual rollout of restrictive software known as the Great Firewall.)

Why did Tian choose to join the state firm China Netcom?

AsiaInfo’s New York listing in 2000 could easily have been considered as a crowning moment for Tian’s young career.

However, at 37, Tian opted to leave the company he’d founded (although he remained a key shareholder) and took a path that no one had considered before.

Investors were shocked in 1999 when news broke that the Chinese government was setting up a third state-owned telco, China Netcom, to take on the duopoly of China Mobile and China Unicom. Netcom counted the China Academy of Sciences and the Shanghai municipal government as its major shareholders. Jiang Mianheng was also a board member and, according to the Wall Street Journal, the former Chinese president’s son was instrumental in pushing for Tian getting the role of chief executive at the new telco.

Back then most of the bosses of the top-tier SOEs were Communist Party stalwarts in their mid-50s or older. Tian’s appointment was seen as radical change of direction and many commentators hoped that it marked the beginning of a wider shake-up throughout the state sector.

Tian’s international exposure meant that his web of connections wasn’t confined to China either. He introduced John Thornton to other senior officials at Netcom, and appointed the former Goldman Sachs president as a board member. With advice from Thornton (now co-chair of the China-US Financial Roundtable), Netcom was also one of the first state-owned enterprises to set up a corporate governance committee.

Prior to Netcom’s IPO in Hong Kong in 2004, it also introduced a number of foreign minority shareholders, including Rupert Murdoch’s News Corp. Talk was rife that the Chinese telco was planning to acquire the core asset of PCCW, operator of Hong Kong’s erstwhile colonial telecoms monopoly. Netcom eventually bought a 20% stake in PCCW in 2005, although Tian would leave Netcom a year later to set up his own venture capital firm China Broadband Capital (CBC), which also counted PCCW as a start-up investor.

What’s China’s ‘Mr Internet’ doing now?

Tian’s goal for Netcom was to create a Chinese telco with global reach. Indirectly this objective was achieved. Going into the 3G era, the company was merged into China Unicom, which has been rapidly growing its overseas presence in countries signed up to China’s Belt and Road Initiative (BRI).

Tian’s seven-year stint at Netcom might have enhanced his connections in China’s political world but it also came with a huge opportunity cost. According to PE Daily, in conversations with local journalists Tian has lamented that one of his biggest regrets was missing out on the opportunity to create a Chinese internet heavyweight comparable to the likes of Alibaba and Tencent.

More recently he has been trying to make up for some of that lost ground with investments his venture capital firm CBC has made. PE Daily has reported it was one of the earliest investors in China’s cloud computing industry, for instance. Its portfolio includes the Nasdaq-listed Tuya, which has been valued at more than Rmb100 billion at previous junctures.

However, the listing of AsiaInfo Security in Shanghai marks a move into another area: cybersecurity. As always, Tian’s company has sourced much of its business through referrals from its well-connected founder. PE Daily reckons that China Mobile and China Unicom are its two biggest clients, accounting for more than 60% of its revenues, which reached Rmb1.3 billon in 2020, with annual growth of nearly 20%.

AsiaInfo Security has also drawn deep on its other government-linked relationships, winning contracts as a service provider at important gatherings such as the Two Sessions (China’s annual parliamentary gathering), Belt and Road Summits, as well as Shanghai’s Import Expo (another key initiative of President Xi Jinping). After another fundraising round in July 2020, it notably still retained SOEs such as the People’s Daily and the Chinese Academy of Sciences as its pre-IPO investors.

In the face of international concerns about cyber attacks, as well as the escalating tech race with the US, the Chinese government has classed cybersecurity as one of the country’s most strategically important “pillar industries”. In a three-year action plan announced in July last year, the State Council said it will roll out policies to encourage the development of new giants specialising in cybersecurity. The document estimates that this will represent a market opportunity of Rmb250 billion annually by as soon as next year.

China is not alone in feeling insecure. In May last year, American oil pipeline system Colonial was paralysed by a ransomware cyberattack. Operators were forced to pay $4.4 million to hackers to restore operations (millions of US households were affected by the outage). Just imagine if the same were to happen to PetroChina or Sinopec? Indeed, shockwaves were also sent through global internet firms late last year after a major security vulnerability was reported in the popular open-source logging tool Apache Log4j2. Many Chinese firms were impacted, with 21CN Business Herald reporting that the Chinese government even suspended an information sharing partnership with Alibaba’s cloud computing unit for its failure to promptly report the threat.

The market is huge but AsiaInfo Security is also competing with a series of local rivals. Qianxin, founded by a former executive at the antivirus software firm Qihoo 360, listed on the STAR Market in 2020. In an internal memo earlier this month, Qihoo also told staff that it was refocusing its entire business on the digital economy, including the lucrative ‘to-government’ cybersecurity segment.

The sector is already attracting interest from many of the leading private equity houses, including Sequoia China and Hillhouse Capital. “If a cybersecurity firm is a ‘hospital’, China only has a few general clinics able to treat even the common diseases from the last 20 years. This is not enough in the digital economy,” PE Daily assessed. “The successful IPO of AsiaInfo Security is going to be followed by many ‘specialist hospitals’. A herd of venture and private equity firms have been flocking to the market.”

Tian may have missed out during China’s period of internet ‘offense’ to the likes of Jack Ma and his Alibaba ecosystem but perhaps he is among the best placed today to capitalise on and capture a key share of the cybersecurity pie in Beijing’s new era of internet ‘defense’…


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