The Bright Jewel of the East
The world tour had brought them to Shanghai. “Welcome to Shanghai, the bright jewel of the East.”
Waiting to greet Yoo Jae-won and Tiffany upon their arrival was none other than Ma Huateng, CEO of Tencent. His welcome was warm and natural, yet the scene was oddly incongruous. After all, this was supposed to be a purely personal honeymoon for the newlyweds.
The reason Ma Huateng had appeared was simple: a single remark from Tiffany. “Since we’re traveling the world anyway, why not take a quick look at local companies and partners? It’s your first time abroad outside of America and Korea, after all.”
Thinking back, the only time Jae-won had left the country was to receive the Fields Medal in Switzerland. Adjusting the honeymoon itinerary to include visits to overseas business sites was entirely feasible. Their route was soon redrawn to begin in Korea, then proceed through China, India, Europe, and Russia.
While companies worldwide scrambled to enter China, ID Group remained conspicuously silent. Even as the world fixated on the rising giant and scrambled for countermeasures, ID Group showed no particular interest. Discussions about relocating production facilities—already underway among Korean firms—never advanced beyond Choi Kang-wook’s level.
China’s greatest advantage lay in its globally competitive, low-cost labor. The government actively courted foreign factories with generous incentives: fifty- or even hundred-year leases at rock-bottom prices, tax breaks, and even covering relocation costs. ID Group had far more labor-intensive operations than outsiders realized—packaging plants, hardware divisions at Android Inc. producing keyboards, joysticks, and mice, and assembly lines for T-Touch Phones, NewEgg 3 consoles, and iWorks workstations. Most of this work was still done in Korea, with some in the United States.
Compared to the world’s most expensive labor markets, China’s wages were practically free. Yet ID Group had never seriously considered entering China. The reason was straightforward: Jae-won knew the government’s aggressive courtship of foreign capital was nothing more than a rattlesnake’s tail luring prey. China’s economy would soon rank second globally, but it would never qualify as an advanced nation. The hallmark of advanced nations was predictability grounded in common sense—break the law and face consequences. That held true in Europe, America, and even Korea. Not in China.
The bulk of ID Group’s assets consisted of intellectual property. The Android operating system generated enormous value every year, yet it was invisible software. Even when packaged, illegal copies on counterfeit CDs functioned identically once installed. China produced more of those illegal CDs than anywhere else. ID Group had repeatedly requested that Chinese authorities crack down on piracy and punish the manufacturers. No meaningful punishment ever followed, and production never declined.
Korea had its share of pirated discs, but getting caught there meant ruin. The absence of punitive damages in the past had allowed offenders to disgorge their profits and still face additional, punitive-level compensation. China’s legal system was not merely incomplete; its leadership structure itself was a vortex of uncertainty. Countless firms that had trusted Chinese guarantees of vested interests later wept blood as policies flipped overnight, forcing desperate exits.
China had lured factories with cheap land not out of charity, but to acquire technology. Jae-won saw through every move, yet he had no intention of abandoning the Chinese market. Its economic power, now on par with America’s after successful reform and opening, was too significant to ignore. ID Group’s policy was to extract maximum benefit through indirect channels, such as the partnership with Tencent. That made the relationship with Ma Huateng the critical first button—and meeting him first upon setting foot in China was only natural.
“I’m sorry we made you travel so far.”
“Not at all. Our connection with you is hardly ordinary, Chairman. This is the least I can do.”
Ma Huateng waved both hands dismissively. The long journey applied to him as well; Tencent’s headquarters was in Shenzhen, at the southern tip of China, not Shanghai. He had flown in specifically to meet them. Given how heavily Tencent’s portfolio leaned toward ID Group, the effort was understandable. Its core businesses were games and messaging. Warcraft and StarCraft dominated the former, while QQ was little more than ID Talk with a different skin—three products in total. Yet Tencent was the fastest-growing IT company in China, thanks to Warcraft’s extraordinary success there.
“Thanks to your foresight, Chairman, the Warcraft compilation has set a new sales record.”
“Oh? That’s impressive.”
While Jae-won responded calmly, Ma Huateng was visibly excited by the figure of twenty million units. Meeting Jae-won in China was already momentous, but the relentless sales figures had far exceeded his expectations. China was notoriously reluctant to buy legitimate software and often failed to grasp why it should. Warcraft, however, offered compelling reasons: multiplayer and official ladders. Blizzard’s single-player campaigns were excellent, but the heart of the experience lay in multiplayer, which required a legitimate copy to access Battle.net.
PC bangs had played a hidden but vital role. Chinese PC bangs dwarfed their Korean counterparts—most exceeded one hundred seats, many held two or three hundred, and some mega-centers surpassed a thousand. Facilities were often poor, yet they thrived. These establishments ran cracked Android operating systems while stocking legitimate game copies. The final driver of sales was flawless localization. Both Mandarin and Cantonese—text and voice—were perfectly supported, and in-game items and skills were calibrated to Chinese sensibilities. The result was a historic twenty million units sold.
Jae-won’s relative composure stemmed from knowing Warcraft’s global sales had already reached roughly forty-five million. China was its most popular market; half the worldwide total coming from there was hardly surprising. Still, achieving twenty million so early was encouraging. The forty-five-million milestone had belonged to Warcraft 3; this record came from the first two games alone. The newly released Warcraft 2 compilation even incorporated much of the third game’s story and boasted superior graphics and quality.
Ma Huateng, however, was completely captivated by the twenty-million figure. He concluded it was time to spur the galloping horse. Ambitious and capable, he quickly identified a path to elevate Tencent: strengthening the partnership with ID Group by becoming its official Chinese distributor. Unlike other global firms rushing direct entry, ID Group had shown zero signs of entering China—an opportunity Ma Huateng recognized instantly. Demand for ID Group’s software and hardware was enormous. Securing official distribution rights for the Android OS, cloud computing technology, T-Touch Phones, and more would give Tencent an unshakable foundation.
That was why Ma Huateng had gone to extraordinary lengths to prepare for the couple’s Shanghai visit. He had researched their tastes, arranged the itinerary, secured accommodations, and curated meals that showcased the grandeur of Chinese cuisine. The only disappointment was the brevity of their stay—just one night and two days. While they spent at least three days in other countries, China lacked ID Group facilities, so the visit was limited to sightseeing before departure.
Ma Huateng had therefore prepared his strongest card.
“You may look forward to it.”
The couple’s Shanghai tour was luxurious yet conventional. They visited the Oriental Pearl Tower, Nanjing Road pedestrian street, the Shanghai Museum, and People’s Square. The only distinctive stop was laying flowers at the Provisional Government of the Republic of Korea building. The rest of the itinerary was so standard that the comments on PowerBlog.com’s Shanghai posts were sparse. New posts appeared almost in real time with each location, but compared to Mount Kumgang, Shanghai felt ordinary.
To Jae-won, however, the experience itself was remarkable. The Shanghai of 2000 was a place where old and new China coexisted. He saw both the glittering future Shanghai he remembered from his previous life and the undeveloped districts he had never witnessed before.
After finishing the afternoon schedule and returning to their lodging, evening arrived. The dinner was held in a small nine-pyeong dining room attached to the Presidential Suite of the Shanghai Hotel. Ma Huateng had insisted on hosting them there rather than at a popular local restaurant. Naturally, the entire suite was provided as their accommodation. Though compact, the Qing-dynasty imperial-style interior conveyed unmistakable luxury. The dishes were thoughtfully prepared to suit Jae-won and Tiffany’s palates—neither too oily nor too spicy.
The hidden guest appeared just as they finished light appetizers and before the main courses and drinks were served. The VIP was Hu Jintao, Vice Chairman of the Central Military Commission of the Chinese Communist Party. A seat was promptly added to Jae-won’s right.
“I hope I’m not too late.”
After the greetings, Hu Jintao took his seat with the friendly smile of a neighbor and opened the conversation.
“CEO Ma Huateng spoke so confidently about the dinner that I wondered what grand dishes would appear. I never imagined it would be you, Vice Chairman. It is my greater honor to meet China’s rising next leader.”
Tencent’s explosive growth since the 2000s had been fueled by the full support of the Chinese Communist Party. The question of whose patronage it enjoyed had remained unclear until Hu Jintao’s appearance resolved it. As Vice Chairman of the Military Commission, Hu Jintao would become General Secretary of the Party in November 2002 and one of China’s five paramount leaders. He already wielded substantial real power; the position was no mere honorary post. China was a nation built by those who believed power flowed from the barrel of a gun.
While Jae-won’s bold moves sent shockwaves across the globe, China had felt only the strong sales of the Warcraft compilation and the proliferation of Android clones. Hu Jintao would therefore ascend as China’s supreme leader in November 2002 as planned and exercise unchecked authority. An ardent supporter of IT companies, he had helped Alibaba, Baidu, and Tencent flourish. Jae-won’s succinct assessment was that Hu Jintao was a capable leader who had completed Deng Xiaoping’s reform and opening and achieved the rise of a great power.
An hour later, Tiffany excused herself, citing fatigue. Once she left, Ma Huateng moved to the main topic.
“The sales of the Warcraft series have already proven the strength of Tencent’s distribution network.”
“And?”
“Please designate Tencent as ID Group’s official distributor in China. I am confident that our robust network can turn any ID Group product—Android OS, cloud systems, T-Touch Phones, and more—into a massive success here.”
Ma Huateng laid out his ambitious business plan with confident enthusiasm, even opening an iWorks laptop to deliver a brief presentation. He expressed certainty that legitimate Android operating systems could achieve 100 percent penetration in government offices, corporations, and PC bangs. With Hu Jintao’s full backing, it might indeed be possible—though even Hu Jintao would struggle to replace every government computer with an American operating system. Significant factions within the Party opposed him, and China had long pursued its own indigenous operating system.
Ma Huateng was counting his chickens before they hatched.
“China’s opening will only accelerate. If ID Group invests actively here, I will remember Chairman Yoo’s name with gratitude.”
Hu Jintao chimed in to support Ma Huateng.
“Of course. ID Group also holds China’s potential in high regard. With a visionary leader like Vice Chairman Hu Jintao at the helm, becoming a G2 power will happen in the blink of an eye.”
Jae-won played along with their rhythm. His stance on direct entry into China remained unchanged, but expanding product lines through Tencent posed no major issue. Moreover, he already held a fifty percent stake in Tencent; its growth was his growth. The real concern was Xi Jinping, who would succeed Hu Jintao. Capitalism’s flower was the stock market, yet Xi Jinping had no regard for capitalist logic. Even Chinese founders could be expelled if they fell out of favor; guarantees for foreign shareholders were a mirage. Any increased investment in Tencent would therefore need to be divested at a high price once the Xi era began.
“Ah, I understand ID Group also owns a world-class financial firm—ID Investment, was it? China’s financial sector is particularly weak. If ID Investment, fresh from its Wall Street successes, were to bring advanced techniques here, I would pay special attention.”
Hu Jintao continued.
“You mean the financial sector?”
Manufacturing and R&D would change nothing, but finance was a different story. Jae-won’s eyes gleamed.