Duan Yongji

Duan Yongji was born in July 1946. From 1965 to 1970 he studied at Tsinghua University; from 1970 to 1978 he taught at Beijing No. 176 Middle School; from 1979 to 1981 he was a graduate student at the Beijing Institute of Aeronautics; and from 1982 to 1985 he was deputy director of a research laboratory at Institute 621 of the Ministry of Aviation Industry. From 1985 to 1987 he served as deputy general manager of Stone Group Corporation and head of its OA department, from 1987 to 1991 as vice president and first vice president of Stone Group Corporation, and from 1991 as president of Stone Group Corporation.

Around 1999, to resolve Stone’s property rights problem, Duan Yongji introduced a management buyout (MBO), proposing to use a management-financed buyout as leverage and restructure Stone along the path of “New Stone I”, “New Stone II” and “New Stone III”, which he then called “the only road available”. He rarely mentioned the MBO afterwards; New Stone president Yang Hongru left the company in February 2001, and the New Stone that Duan Yongji had deliberately built ultimately became a supporting player to Stone Group. According to reports at the time, some analysts believed that Duan Yongji’s control over Stone had long been weakened and that he was rebuilding the “Stone camp” in order to regain control of Stone.

The media called 2001 the “year of reform” in which the “Stone camp” carried out extensive internal restructuring of equity, resources and personnel. That year, Stone gave up its position as the largest shareholder of Stone High-Tech; Stone Electronics held 25% and 5% stakes in “Zhongguang Cable” and “Gehua Data” respectively, and in Gehua Data’s shareholding structure Zhongguancun Technology held 40%, Zhongguancun Communication Network Development Company 5% and Stone Electronics 5%; reports held that Duan Yongji, using his dual roles at Stone Group and Zhongguancun Technology, created a pattern of cross-shareholdings and overlapping businesses that bound the two together. The Stone camp’s year-long restructuring targeted investment squarely at the telecommunications business, and Stone also formed a joint venture, “Stone Xinyuan Telemedicine Network Company”, with the China Telecom Data Bureau, with each side holding 50%. On December 19, Beijing Zhongguancun Technology published an announcement that it planned to jointly establish “Zhongguancun Software Co., Ltd.” with Stone Group and Microsoft Corporation of the United States, with a registered capital of 100 million yuan and all three parties contributing cash: Zhongguancun Technology would contribute 51 million yuan for 51%, Stone Group 30 million yuan for 30%, and Microsoft 19 million yuan for 19%.

On the Sina front, Wang Zhidong was ousted from Sina in June 2001; in September, Sina.com completed the acquisition of a 29% stake in Sun Television Cybernetworks by paying US$8 million in cash and 10% of its shares, becoming Sun Television Cybernetworks’ largest shareholder, while the couple Wu Zheng and Yang Lan thereby became Sina.com’s largest shareholders; in November, Wu Zheng and Yang Lan formally joined with Duan Yongji to form Sun Stone, which held 20.6% of Sina, becoming its largest investor and shareholder. According to reports at the time, Duan Yongji and Wu Zheng took full control of Sina and pushed its shift toward a cross-media model. In an interview with the media that November, Wang Zhidong said he had been “ambushed”. On December 4, Zhou Mao, former executive vice general manager of Sina.com’s China region, formally announced his resignation, saying he felt lost about the company’s future. Some internet analysts pointed out that the business areas announced by Sun Stone conflicted with those of Sina.com; Duan Yongji and the Wu Zheng and Yang Lan couple held 51% and 49% of Sun Stone respectively.

Zhongguancun Technology’s transformation was likewise directed toward the telecommunications business. Duan Yongji positioned Zhongguancun Technology as a high-tech “investment holding” group whose main business was virtual telecom operations. From 2000 onward, Zhongguancun Technology invested several hundred million yuan in CDMA projects: together with Beijing Posts and Telecommunications Equipment Factory and Qualcomm it set up Beijing Qualcomm Communication Technology Development Center Co., Ltd., investing US$4.8 million; it invested 50 million yuan to take part in forming China Century Mobile Communications Co., Ltd.; in cooperation with Beijing Shenzhou Great Wall Communication Technology Development Center it invested 210 million yuan to build an 800 MHz CDMA cellular mobile communications system in Beijing; and it invested several hundred million yuan in building the Guangdong communications network system project (CDMA). Because the state had explicitly authorised China Unicom to exclusively develop and operate CDMA projects in China, construction and operation of these projects stalled, and the investments already made awaited transfer under government coordination. Duan Yongji said that Zhongguancun would not immediately sell its CDMA project investments, but planned first to bring in new investors to complete construction and then transfer the projects to an operator. In finance, after China Securities Regulatory Commission chairman Zhou Xiaochuan endorsed a private letter from Duan Yongji, Zhongguancun Technology took control of Shantou Securities for 240 million yuan, becoming its largest shareholder, moved its headquarters to Beijing and renamed it Zhongguancun Securities, turning it from a regional brokerage into a national one, with its core business positioned as providing financial advisory and asset management services to high-tech companies in the Zhongguancun area.

Reports at the end of 2001 held that, taken together, Duan Yongji’s series of moves in the “Stone camp”, Sina and Zhongguancun Technology showed him shifting from a product entrepreneur to a capital-operations entrepreneur. At the launch of Sun Stone, he said that he understood neither the internet nor the media but knew what they were for, and wanted to use capital to control them. The reports also said that, compared with Orient Group president Zhang Hongwei’s entry into telecommunications by investing in China Netcom, Duan Yongji’s investments into the telecommunications sector were more concealed and complex, but the two shared the same strategic thinking of “using capital to integrate resources”.