The elements of power, p.12
The Elements of Power, page 12
It was difficult for Wang to secure funding for the new business. When he went to banks and asked for a loan, he found that they required real estate as collateral for their cash. Wang didn’t even understand the meaning of the term real estate. But by June 1995, he managed to secure a $300,000 loan from Lu Xiangyang, a cousin of his who had made a small fortune working in banking in the SEZ, as well as some more seed funding from an associate who had worked in the insurance sector. Their stakes would later propel Wang and the other investors into the ranks of China’s billionaires. The batteries were reverse engineered—copied—from Japanese and Korean models. In the absence of mechanical equipment, Wang hired a thousand low-salaried workers to build electronics on the cheap and on the quick.
Though he didn’t have advanced machinery to put together batteries, Wang figured that China’s cheap labor was his advantage, so he divided production into bite-size stages, splitting his employees into teams of two people who formed a rapid production line. Conditions at the Buji workshop were grueling: A dozen people lived and labored there around the clock. Wang lived with them, working, it seemed, all the time; when his daughter was born, he stayed at the office instead of accompanying his wife to the hospital, and he only visited his newborn a few days later.
Wang was wary of spending too much money on machinery for BYD, even as his company grew out of the space in Buji: Every week, more migrant labor would sweep into the country’s coastal cities from the countryside, so he had a steady supply of people willing to work for BYD. According to The Creative Wisdom of Wang Chuanfu, a business-strategy book by Li Daqian, Wang only slowly integrated machines into his company. He “invented a production pattern of ‘equipment + workers = mechanical hands’ and carried out production with a ‘human sea’ strategy. He separated a production line into several processes. The core process was controlled by automation, while other links were finished by laborers. In this way, Wang Chuanfu only spent millions achieving the effects on what others had spent tens of millions.”
The hard work paid off. In the subsequent decades, China and BYD grew like lightning. The country was doubling the size of its economy every eight years. In short order, the firm was able to produce four thousand batteries a day, and Wang’s emphasis on cost cutting and repetitious work made his batteries 40 percent cheaper than Japanese ones. From 1999 to 2001, BYD grew sales by three times to around 1.3 billion renminbi ($157 million in U.S. dollars). Meanwhile, some two hundred battery start-ups had taken fast root in China. “Our competitors were all local,” Wang later told the authors of a Harvard Business School case study. “Their quality was inconsistent. Our aim was to improve quality while keeping the price low so we could compete in the high end of the market. So we started to invest in process improvement.”
* * *
At the same time, Japan had slowed to a crawl. At the end of the 1980s, the Bank of Japan had raised interest rates in a bid to slow inflation; the market, opiated by cheap government money, was at first slow to react. In the 1990s, the withdrawal symptoms truly kicked in, and Japan started to lag. The 1990s would be known as Japan’s “Lost Decade.” Growth slowed to about a quarter of its rate in the previous decade, and Japan went through three recessions. Even by the early 2020s, the largest Japanese companies had barely grown since 1989.
Sony was initially able to ride out some of the aftershocks of the rate rises. Batteries certainly helped offset the stagnation affecting other economies. Thanks to innovations like the lithium-ion battery, Sony recorded $63 billion in sales in 2000. But the company was not immune to the slump that had stopped the clocks in Japan, and it was suffering from its own lack of impetus.
The mass adoption of the mobile phone intensified the race for lithium-ion, but Japanese companies seemed unable to hang on to their early-mover advantage. Executives from Japanese firms and from around the world scoured the earth for a place where they could build batteries as cheaply as possible at scale. Sony turned to China: In 2000, the company issued a press release trumpeting the creation of a new factory that created high-tech lithium-polymer batteries in Wuxi, a city close to Shanghai. “Sony believes in the great potential of the Chinese market,” said Hiroshi Shoda, president of the firm’s China subsidiary. “Its high-tech and new technology fields, represented by the communications industry, are growing rapidly.” Soon, Chinese companies were making their own lithium-polymer batteries—and all at lower prices than the Japanese versions.
Japan was reduced to making parts of devices, like batteries—and even that market would soon evaporate. Across the Sea of Japan, the rest of Asia was looking at Tokyo’s demise as an opportunity, one that would come to be of paramount importance as the world began to decarbonize and turn to electric cars.
Korean firms like Samsung, and later LG, began to develop lithium batteries. At the beginning of the 2010s, Samsung was producing 110 million battery cells a quarter and held more than one-fourth of the market share of a global lithium-ion battery business that Reuters valued at $18 billion. Sony’s share at the time was 7 percent. At the turn of the millennium, Japan had controlled 90 percent of the lithium-ion battery industry; by 2012, Sony’s value had dropped to one-ninth of Samsung’s.
The economics in Korea worked better than in Japan, but according to the Financial Times, Samsung and LG enjoyed only a 10 percent operating margin on their battery production at the best of times. The margins in China, as Wang’s work at BYD had proved, could be much higher. In a globalized world that promised frictionless trade, more and more firms began looking at China, a country that had followed the Japanese and Korean models of development but had an almost endless supply of cheap manual labor. In 2022, an executive at a Japanese battery company explained to me how Chinese companies like BYD had leveraged low wages and looser safety standards. “In China, the mentality is different,” he said. “The mentality is: ‘We go all in; we can fail; we can even fail the safety tests—the government will support us, and even if the batteries blow up from time to time, they will look the other way.’ Now they have surpassed us.”
* * *
In the advance ranks of China’s battery-building machine stood BYD. Wang was, by all accounts, an eccentric character, a workaholic who lived and breathed his company. He rarely appeared in anything but a business suit, though he sometimes sported a silky tie that shimmered in the light, its fabric patterned with his company’s monogram, stitched in miniature.
Wang never really seemed to rest. Unlike his Japanese and U.S. counterparts, he continued to be frugal, even as money flowed in. He insisted that his executives fly economy, and at the North American International Auto Show, in Detroit, the firm rented a cheap suburban house for its presenters rather than fork out more for a hotel.
Helpful, too, was that at the outset, the firm didn’t have to invest in research and development. “China and Korea are good at copying Japan,” the Japanese battery executive told me. “Sony built their factories to build batteries in China in the 1990s. We gave them the keys to copy us.” BYD reverse engineered Sony’s battery designs, leading the Japanese firm to file a patent-infringement lawsuit in Tokyo against Wang’s company in 2003. Sony withdrew it when BYD invalidated other patents held by Panasonic: It was a win for BYD, which showed it could defend itself against larger legacy firms, although the company did set up an intellectual property department of its own.
BYD had begun creating lithium-ion batteries by the turn of the new millennium, and China was on the way to becoming one of the world’s largest producers of the technology. Rival firms, like Robin Zeng’s Amperex Technology Ltd., or ATL, also began mass-producing batteries. Zeng bought a U.S. patent to build a lithium-polymer battery that was safer and more flexible than other lithium-ion technologies; at first, the firm’s technicians couldn’t seem to make the technology work, but then they employed a technique similar to Wang’s, working long nights until they had created a usable battery. Zeng’s factory was located in Dongguan, which soon became one of the cheapest places in the world to produce lithium-ion batteries.
By the early 2000s, BYD was making cheap cells for Motorola and Nokia, which profited from the massive savings Wang’s supply chain entailed. Mobile phones provided an important growth segment for Chinese battery makers. In 2002, an estimated 95 percent of mobile phones were powered by lithium-ion batteries, and over the next decade, most mobile phone batteries came to be made in China. “It’s a volume game,” Jeffrey Char, a Tokyo-based tech and energy investor, told me in 2023. “Economies of scale and large volume basically provide you with the opportunity to lower your cost and therefore be more competitive.”
* * *
Within a decade of its founding, BYD had muscled itself into becoming the world’s second-largest battery maker. Competition was steep, but Wang had mastered a work cycle that brooked little rest. He was soon mooting the building of “a green-energy car,” a plug-in vehicle. In Wang’s conception of BYD, “price would be the greatest driving force of sales”—relentless cost cutting would create cheaper products for consumers, especially Chinese consumers.
The company was listed on Hong Kong’s stock exchange in 2002 and started to produce cars a year later. “We successfully sustained remarkable growth, as we have done in the past eight years,” Wang wrote in his first annual report. The company had grown yearly revenue by 76 percent. BYD, the report boasted, had enjoyed “enormous success.” But BYD had also gotten a helping hand from the Chinese state: At first, funds were available through the government’s 863 Program, which ran from 1986 until 2016, spurring domestic high-tech development in China and birthing supercomputers and spacecraft. Then, at the turn of the millennium, the Chinese state prioritized the commercialization of battery systems during the period of the Tenth Five-Year Plan, a national development blueprint that set economic policy, and BYD profited from government financing and tax breaks. More and more, Wang was becoming part of the fabric of the Chinese state. In 2000, he was elected deputy of the Shenzhen Municipal People’s Congress, and he “enjoyed special allowances from the State Council,” according to one of the company’s yearly statements.
Soon, Wang was joking that his company’s initials stood for “brings you dollars.”
Zeng’s ATL had also enjoyed wild success, thanks to the same concoction of state capital and hard work. Its early batteries, created after a patent Zeng had licensed from Bell Labs, would swell and occasionally explode if charged repeatedly. ATL’s engineers changed the original chemical formula to stabilize the battery and filed for a new patent, which, in 2003, caught the eye of Apple as it was launching its iPod media player. Zeng’s new batteries were now powering the Walkmen of their era. In 2005, the company was bought by TDK, the Japanese electronics manufacturer, but a spin-off, Contemporary Amperex Technology Limited, or CATL (pronounced as “cattle” by some), would grow to become the world’s largest electric-vehicle battery maker. Wang and Zeng had the production capacity, the know-how, and the sheer engineering muscle. Elon Musk may have been thought of as the battery king of the West, but Zeng and Wang were power-storage emperors. In 2024, the dichotomy was underscored by Zeng. “He doesn’t know how to make a battery,” the CATL head said of Musk. “It’s about electrochemistry.”
* * *
BYD and Wang were shouting their ambitions to high heaven, but at first few people in the West took any notice. In January 2003, BYD bought 77 percent of Xi’an Qinchuan Automobile, a struggling state-run automaker in the interior of China. (The next year, the company upped its stake to 92 percent, bringing BYD’s investment to $38.9 million.) “Due to the limited oil resources and increasing environmental protection consciences, the growth potential for electric vehicle and automobile is enormous,” Wang wrote six months later. By 2004, it was marketing the Flyer, Qinchuan’s boxy $4,000 petrol-powered car, at the Auto China show, in Beijing, at a booth that featured two models clad in gold bikinis and mermaid tails.
Most Western auto executives scoffed: The Flyer had a tiny engine and doors that would only fully open some of the time. But in China, the cheap vehicle was attractive to a new generation of workers who, on the back of the country’s industrial success, were able to afford cars for the first time. Wang had achieved further savings by bringing his supply chain in-house as he created “a whole-industry chain of low-cost components,” Li explains in The Creative Wisdom of Wang Chuanfu. “At least 70% of BYD’s auto parts were produced by internal business units.”
From around 2005 on, BYD made everything but tires, windshields, and some “universal auto parts.” It even made things that were usually outsourced, like CD players and wires. This allowed the company to maximize its cost competitiveness. It was perhaps inevitable that the “resource advantage” talked up by companies like BYD would lead Chinese businesses—and the Chinese government—to try to bring the raw materials that went into producing lithium-ion batteries under their aegis.
It wasn’t exactly difficult to figure out what would come after the Flyer: a BYD car powered by batteries. Part of Wang’s strategy for his firm was neatly summed up in one of the company’s mantras: “When others have something, I have a better one; when others don’t have something, I have it.”
BYD was also hard at work replicating its original model: what the company called “innovating through imitation”—and what foreign firms were quickly realizing was simply copying. “After a year and a half in business, we’ve realized there’s a lot of technology that’s not patented in China,” Wang told Forbes in 2004. “We can learn a lot from that.”
* * *
BYD was not the only firm that was growing in China. The country was “no longer content to be the home of low-skilled, low-cost, low-margin manufacturing,” a writer for The New York Times opined in 2008. “Chinese companies are trying to move up the value chain, hoping eventually to challenge the world’s biggest corporations for business, customers, power and recognition.” Communist Party planners were also beginning to realize that electric vehicles represented a China-shaped space in the global market. That year, at the Beijing Olympics, Chinese companies showcased some five hundred new energy vehicles, including ones powered by batteries.
By 2008, the writing was on the wall, and a few wealthy Westerners had begun to read it: That year, Warren Buffett bought 10 percent of BYD’s stock, and the company unveiled the world’s first plug-in hybrid: a lithium-ion-powered car with a petrol-range extender. In Shenzhen, Wang presented the car from beneath a banner that read Technology for a Green Tomorrow. The car would combat pollution, which had become an acute health crisis in the nation’s cities during China’s push to become a manufacturing powerhouse. That year, it was also widely reported that the upstart company’s name had taken on a new significance: Its initials, BYD, stood for “build your dreams.”
Chapter 17
Fire Sale at the Karavia
Augustin Katumba Mwanke, the young Katanga native who had grown up idolizing Gécamines, headed to South Africa after he finished his studies. It was the early 1990s, and he took a job with HSBC Equator, a subsidiary of the British multinational bank that did its business in sub-Saharan Africa. “He was a kind, thoughtful, intelligent, quasi-religious person,” Bruce Jewels, the banker, told me. Jewels was Katumba’s former boss at HSBC Equator. “A churchgoing man and churchgoing family, you know? And that resonated with me because I’m also a churchgoer.” At the time, Katumba, a slight man, wore a thin mustache and double-breasted gray suits with wide lapels, the style that Wang Chuanfu was also sporting over in Shenzhen. He showed up one day at Jewels’s office looking for a job. Katumba was a young accountant with no experience in banking, but Jewels took him on as an assistant.
By the mid-1990s, Mwamba Wanzala, Katumba’s old classmate, had moved to the U.S. to study engineering and was starting out in a logistics role for the U.S. Army. Wanzala, who knew Katumba from the time he was fifteen or sixteen through their university studies together in Kinshasa, traces a change in Katumba’s attitude to when he became involved in finance. He told me that Katumba used to call him when he came to the States on a training course with HSBC. During their long conversations, they shared their experiences in the U.S., and Katumba told Wanzala of his excitement over his new role and the financial possibilities it offered. “He was more interested in what he was doing. He was doing some training to become a banker,” Wanzala said. “He liked it. He thought that was one way he was going to make money.”
* * *
While Katumba was learning the ropes in South Africa, Mobutu Sese Seko’s Zaire finally collapsed. The rebel insurgency led by Laurent-Désiré Kabila and sponsored by Rwanda and Uganda invaded the country from the east, easily routing Mobutu’s troops and quickly capturing land. The Big Vegetables, people like Kufi Kilanga, faded into the woodwork or fled.
Kabila, badly in need of investment, decided to promise rights to Congo’s mineral assets in return for cash to fund his insurgency. At first, the type of state-backed investment that China espoused did not look likely to win out in Congo. Congo’s economy was in tatters after decades of Mobutist profligacy, and the country had embraced a kind of turbo-war-capitalism that was surely distasteful to Beijing’s planning-obsessed economists. Inflation was hovering somewhere between 500 and 600 percent, and Gécamines—the mining giant that Katumba had so admired in his youth, and that had supported Mobutu’s empire—was a laughingstock.
