When I ask my host if he feels he needs any more money he is completely matter of fact - without a hint of greed or self-doubt: “It’s not that I want more; but I will get more.” I have no particular reason to doubt him: like so many of China’s new billionaire class Liu Qiangdong is making up for lost time - and with vertiginous speed.
Again, like so many of China’s new titans, Liu’s family was so poor that until he went to university aged 18 he only tasted meat once or twice a year. His family, peasant farmers in arid coal country, 700km south of Beijing, had a few rice fields but they also had to hand over the crop to the government; these were the dire days after the Cultural Revolution. “From June until September we were able to eat corn - cornmeal porridge for breakfast, corn pancakes for lunch and dry cornbread for dinner; cornbread so tough it made your throat bleed,” he tells me. “The other eight months we ate boiled sweet potato for breakfast, sweet potato pancake for lunch and dried sweet potato for dinner.”
Now he is 43 and worth nearly $11bn. He may bristle at the comparison but I am talking to the Jeff Bezos of China.
We’re sitting for lunch at a large round banquet table in a lavishly decorated room on the top floor of the futuristic campus of JD.com. The walls are covered in Chinese motifs featuring birds and flowers and there is a bank of plush sofas next to the large round table where we’re eating. Richard, as he likes to be known to foreigners, founded the e-commerce company as a single counter in a Beijing electronics market in the late 1990s. Now it is the third-largest internet company in terms of revenues, behind Amazon and Google but well ahead of Facebook, number four.
His description of childhood deprivation comes as we finish a delectable first course of Spanish shrimp tartare with red pepper crackers and smoked pepper emulsion coupled with slow-cooked Canadian lobster in a shellfish sauce. When in 1992 he passed the gruelling entrance exam for the elite People’s University in Beijing his family did not have enough money to pay for his trip to the capital. So his neighbours, relatives and friends in the village chipped in and gathered Rmb500 ($75) in cash - a huge sum at that time in the countryside. Those who could not afford to give money donated eggs so he would have food on the long journey. “I couldn’t take a chicken to Beijing but I could take eggs,” he says. “For the entire first week I was in Beijing I just ate eggs.”
At this point, in another moment of delicious incongruity, the waiters bring out a plate of grilled Scottish salmon accompanied by pickled cucumber, green apple and lettuce. Originally he had planned to cook for me using only ingredients sold on JD.com - something of a first in the grand tradition of Lunch with the FT. But when I arrive at his office compound - a looming space-station structure on the outskirts of Beijing - he tells me he has guests coming that afternoon and cannot cook because he is wearing a clean shirt. It’s a slightly perplexing, even unconvincing, account but I am assured that all the ingredients being prepared by chefs in an unseen kitchen were not only ordered from JD.com but also delivered by the uniformed drivers who are now to be seen in vans and on motorbikes from Shanghai to Urumqi.
A lot of rich people in China cannot sleep well
Only in China, I think... Over the past 17 years that I have lived here I have witnessed first-hand the incredible economic surge that has fuelled the rise of China’s billionaire class. So the rags to riches story is familiar - as is the contrast between the lavish meal in front of us and my host’s humble upbringing. But even so I am struck yet again by China’s astonishing trajectory in recent years. It was just three years ago that China overtook the US as the largest e-commerce market - but last year China’s total online retail transactions hit an estimated $750bn, nearly double the figure in the US. Most analysts predict China’s online retail market will more than double again by 2020, by which time Chinese online purchases are expected to exceed those of the US, UK, France, Germany and Japan combined. It is this projection that has made Richard China’s 16th richest man - and makes him so confident in his future.
“Within five years I’m 100 per cent sure we will be the largest B2C [business to consumer] platform in China - we will surpass any competitor.” He is referring, however obliquely, to his determination to overtake Alibaba, China’s e-commerce champion, which listed on the New York Stock Exchange in 2014 in the biggest initial public offering in history. Through its online retail platforms, Alibaba controls an estimated 57 per cent of China’s B2C e-commerce market, compared with JD.com’s 25 per cent. It also dominates mobile payments in the country and has been investing in everything from film studios to physical retail stores. Alibaba is also wildly profitable. It enjoys a net profit margin of close to 30 per cent, while JD.com only recently made its first profit. It has made a paltry $35m in net income in the first three months of this year from revenues of $11.3bn.
When I ask him about profitability, however, Richard appears unconcerned. The e-commerce business has been profitable for the past three years, he says. “The group still lost some money because we invested a lot in technology, in finance and other new business and this still burns a lot of money.” The contradiction between Alibaba’s much larger market share and profits but smaller revenues is explained by the rivals’ different business models. Like Amazon, JD.com controls most of the supply chain and delivers goods from its own warehouses directly to customers, so it counts online sales as revenues. Alibaba, by contrast, is essentially an internet platform and payment system for other companies and individuals selling to consumers online and earns the bulk of its revenue from advertising.
The discreet female attendants have brought a bottle of Bordeaux but we both decline. In its place arrives a thick mushroom soup covered by a crisp mushroom wafer served with sourdough bread and truffle butter. Richard, who eats little, gestures out the window at several large empty plots as he recalls the early days of the company. “I bought this land in 2009 because I thought sooner or later we would be a huge company.” In 2009, JD.com had barely 300 employees. Today it employs more than 120,000, including 65,000 delivery drivers and logistics workers. Using its own drivers ensures more than 90 per cent of its deliveries arrive the same or next day - an astounding statistic compared with the “two to five business days” offered by companies such as Amazon.
As I know only too well, online shopping has taken off so dramatically in China in part because of the frustrations of relying on traditional retail. In big cities, shopping frequently involves sitting for hours in traffic, bargaining relentlessly with shopkeepers who never display prices and discovering later your purchase is counterfeit or poor quality. Apart from the convenience of buying online, Alibaba has been so successful because it allows you instantaneously to compare prices on a national scale - though it has also faced criticism over counterfeit products on its platform. JD.com likes to contend it has succeeded because it sells “trust”. Like Amazon, it has built up a colossal warehousing system and also claims to be the world leader in testing drone delivery.
“When I was a kid, my parents always told me that business is trust and trust is business,” Richard says. “I have the full trust of the Chinese consumer.”
Like so many of the Chinese elite, Richard is rather more guarded when it comes to discussing his interactions with the ruling Communist party. These are difficult days for the country’s super wealthy as China’s president Xi Jinping presses on with his purge of potential rivals and the business leaders with close ties to them. Some of China’s wealthiest entrepreneurs have been arrested in recent months and the state-owned sector has steadily expanded at the expense of private enterprise. Richard is loath to discuss how he and other tech billionaires have managed to remain unscathed. But the fact that these online businesses are crucial for the “new economy” Mr Xi envisions must be partly behind their survival.
It’s only when he talks about his family and upbringing that he becomes more animated - particularly when I let him know I visited the area around his tiny hometown in the northern Jiangsu Province on a government propaganda trip more than a decade ago. His village is called Chang’an - “eternal peace” and falls under the jurisdiction of Lailongzhen - “town of the approaching dragon” - but the poetic names misrepresent this desolate part of the world. Virtually every Chinese millionaire or billionaire is self-made because capitalist reforms to the centrally planned communist economy only began in the early 1980s and did not really take off until the 1990s. But the modern super-wealthy often turn out to be descended from an earlier capitalist class. Richard is no exception. Before the 1949 revolution his family were wealthy shipowners who transported goods along the Yangtze river and the ancient imperial canal from Beijing in the north to Hangzhou in the south. They lost everything when the communists took over and were forcibly resettled at least twice. One academic survey found more than 80 per cent of Chinese “elites” (those with income at least 12 times higher than the average in their area) are descended from the pre-1949 elite. Richard puts this down to “family culture”.
“My parents and grandparents taught us a lot - not Chinese or maths but a sense of values, of how you should be and how you should treat others,” he says. They also drilled into him the knowledge they had once been very rich but everything had been taken away - a lesson all too relevant even now.
Once in Beijing as a young student, Richard knew he had to fend for himself. So when his egg supply ran out in his second week he landed a job writing letters by hand for a company that could not afford a photocopier. His degree was in sociology but he found the lessons simple and had a lot of free time. So he taught himself computer programming and began to make more money than he had ever dreamt of. By chance his arrival in Beijing in 1992 coincided with paramount leader Deng Xiaoping’s “southern tour”, which marked the wholesale shift to embrace capitalism and market reforms in the wake of the 1989 Tiananmen massacre. “Suddenly the whole society needed computer engineers but there weren’t any, so I got very rich and even bought a mobile phone - a Motorola like a big rock that cost me $4,000, a huge fortune,” he says. “I also bought a computer and built a new house for my parents in the village.”
With the money he earned from programming, he also started his first business, a restaurant near the entrance to his university. The venture ended in bankruptcy after just eight months.
“The cashier fell in love with the chef and they worked out how to steal from me and then all of the staff started stealing,” he says with a rueful laugh. “It was all my fault because I had no management skills and I was never there.”
Faced with big losses from the failure of his restaurant he worked for a Japanese company to learn about management and repay his debts. After two years he had saved Rmb12,000 and was able to start another business - a 4 sq metre shop counter in an electronics market that sold computer components. The year was 1998. Observing how most of his competitors earned money by cheating their customers, selling counterfeit or substandard goods and haggling over every sale, Richard decided to test a different strategy.
“I was the first and only stall in that market to put price labels on everything and give official receipts; from day one I never sold any counterfeits and I soon had the best reputation,” he says. “A lot of rich people in China cannot sleep well because they did too many wrong things but I never made any dirty money ever so I can sleep very well.”
By early 2003 his tiny stall had grown into a chain of 12 large electronics stores across Beijing. But then disaster struck - and his fortunes changed for the better. A pandemic known as severe acute respiratory syndrome (Sars) that would eventually kill 775 people worldwide broke out in southern China and quickly spread to the capital. The government’s attempts to cover up the calamity led to greater panic and Beijing became a ghost town. Richard closed all his stores but redeployed a handful of staff to offer products through online bulletin boards. The panic passed and his stores reopened, but he kept one person employed full time on the internet. At the end of the year he looked at sales numbers, realised e-commerce’s potential and decided this was his future.
“If it hadn’t been for Sars I’m sure I would still be rich and successful, but not hugely successful like today because the business model [of traditional retail] is not the best,” he says.
The fastest computer in his office belonged to the receptionist. He requisitioned it and made it into JD.com’s first server. He wrote the initial code for the website himself and he lived in his office so he could answer questions from online customers at any time of day.
“I bought an old traditional alarm clock and I put it on a wooden floor so it was like an earthquake waking me every two hours - I’d get up and answer questions online and then sleep for another two hours and then get up again,” he says. “In the first four years it was just me doing customer service and it was very good for me because I learned every detail of what our customers wanted.” He has literally lived in his offices for a decade - even as they have become increasingly luxurious.
The salmon has been replaced by roasted rack of lamb with slow roasted carrots, ricotta and quinoa but Richard is restless. He orders the attendant to cancel the dessert of “monk’s head” Swiss cheese and brioche with candied hazelnuts and poached apples. In all this time he has barely touched his food and is itching to leave. But before he leaves there is something I really want to know - now he can eat whatever he wants does he prefer corn or sweet potato?
“I hate them both,” he says and heads off to make more money in surely the most exciting, fast-growing and perilous business environment on the planet.
This article was originally published by the Financial Times.
Copyright The Financial Times Limited 2017.