China's change merchants: A new breed of CEO emerging in China is wiring the nation--and portending change for just about everything else. (Technology).

Zhongguancun, China's Silicon Valley, is as different from California's as imaginable. Rather than sprawling corporate campuses, this section of Beijing feels more like East Broadway in Manhattan--though here the vendors are selling circuit boards and software instead of tube socks. Central to China's multi-billion-dollar technology industry, it is transforming the most populated nation on Earth.

Beginning at Third Ring Road, Zhongguancun heads north along Haidian Lu, the main street, lined with offices and showrooms of hardware companies such as Apple, Compaq and Legend, the number-one personal computer-maker in China. Innumerable software companies are tucked along side streets and, further to the south, lie myriad multistoried research and development centers and assembly plants. It all ends in the north at Beijing University, which spawned many of the technology companies. In Zhongguancun, you can't miss the euphoria--and the vertigo. China and the Internet individually and together represent opportunity, but huge risk is also in the air-the type of risk inherent in any revolution.

Every CEO of every entrepreneurial company I've ever met in California's Silicon Valley has described his or her company as revolutionary: "Our company will change life as we know it!" "We are changing the world!" But whereas such innovators as Andy Grove, Steve Jobs, Tim Berners-Lee and the like are true pioneers of the information revolution, most company founders were doing little more than providing alternative ways to buy books, flirt or unload Fiestaware. The Zhongguancun business leaders are different. In most cases, they could have easier and more comfortable lives in America. However, they are devoted to building the Internet and other communications technology specifically to shake China loose from its stagnant, isolated and repressive past, to raise the standard of living and create new-economy jobs. Most important, the entrepreneurs are passionate about building an indestructible, modern infrastructure that includes a vast, uncensored pipeline of information that will connect China--first its teem ing metropolises and eventually its remote villages -- with the rest of the world.

The new generation of Chinese CEOs is an unlikely group of revolutionaries, yet their similar histories brought them together and have guided their crusade. They are businesspeople born at the time of the Cultural Revolution and raised on Mao, scattered by Deng Xiaoping's reforms, and then sobered and politicized by Tiananmen Square. The trauma of June 4, 1989, inspired them to repatriate and found businesses with a mission. They are committed to information technology, particularly the Internet, precisely because of its potential to change their world.

The leader of the entrepreneurial movement is Edward Tian, now the CEO of China Netcom, a telecommunications company that has, in two short years, wired China with the world's most sophisticated broadband network. Tian, is known throughout China as the man who built, from the ground up, the nation's Internet. As a cofounder of AsiaInfo, the country's first homegrown Internet infrastructure company, he helped construct the backbone of the country's national and many provincial networks. AsiaInfo is one of the most dramatic success stories in the new China--the first private Chinese firm to go public in the West. Which is why Tian baffled many of his friends and angered AsiaInfo's board when he announced that he was leaving to work for China Netcom, or CNC. The government-funded startup was designed to compete with the 700,000-employee, state-owned monopoly, China Telecom.

Passion for technology and China

Beijing is often dismissed in the West as if it were a singles intractable and immovable voice. But when a report showed that Chinese technology paled by western standards, the government supported the influential Chinese Academy of Science in spinning off a western-style entrepreneurial company designed to shake things up. Tian was tapped for the top job. Credit Suisse First Boston analyst Jay Chang says Tian was an inspired, if not obvious, choice. "They looked to Tian because he has passion--for technology and for China--and charisma. He has an enormous ability to keep people focused on the task at hand. He also has a willingness to learn. But his background was not in telecommunications, so his learning curve would initially be steep.

When Tian first heard the proposal in March 1999, he turned it down. His firm was preparing to go public. Besides, CNC's ownership structure--a result of the high-level meetings in Beijing--seemed untenable. Four shareholders, the Ministry of Railways; the City of Shanghai; the State Administration of Radio, Film and Television; and the Chinese Academy of Sciences; would each have a quarter interest in exchange for a $25 million investment. In addition, the company would be regulated by a fifth agency, the Ministry of Information Industries, which also runs China Telecom. Translation: five demanding bosses whose interests could contradict one another. However, the scope of the project began to keep Tian up at night. This new company could transform China. Chang puts it this way: "If somebody came along and said to you, 'I want you to create what could become China's largest company. You'll have all the relevant government support, and you can in the process contribute immeasurably to the people of China,' wh at would you say?"

Tian nervously accepted the new job, essentially starting over. Though he began in a single room in Beijing's Friendship Hotel, these days CNC looks similar to a lot of U.S. startups. His fledgling team immediately began developing key strategies. The raiso [partial]etre: build a fiber-based broadband network. "Fiber is like a road upon which everything else will go forward," Tian says. Fifty days after the groundbreaking, the first 4,970 miles were installed. They went live in August 2001. That meant that in just 10 months, CNC built a network comparable to the ones that it took Qwest and Sprint two to three years to build in the United States. The results astounded skeptics. "People who were opposed to this project now see what one man with a vision can accomplish," says Peng Peng, China's assistant minister of railways. "It is waking up people throughout the Chinese government."

CNC's biggest worry going forward has nothing to do with competitors, even now with the country's January entry in the World Trade Organization. No, its biggest concern is a specter more daunting than any other: China itself. That the government has waffled so dramatically on its Internet policies over the years makes it a dangerous, chaotic force. "This is a horse race between encouraging information technologies and resisting them by people who want to control information," says Orville Schell, the dean of the Graduate School of Journalism at the University of California at Berkeley, and a longtime China observer. "No one knows which horse will win." CEO Tian is sanguine. "By now we are all working together with the same goal," he says. "We are building our nation so that the people of China will have opportunities they never had before and our nation will thrive. Imagine what limitless bandwidth can do for China. With our technology, enlightenment can flow through the taps like water. When it does, it wil l enlighten our whole country." And Tian's confidence may bear out. With the WTO entry, signs look promising for a more stable environment for CNC and other companies, too, particularly since the government's highest priority now is state-of-the-art technology and a world-class business environment.

Big shoes to fill

When Tian decided to leave AsiaInfo, his board wanted to undertake a CEO search, but Tian convinced them to look no further than his cofounder, James Ding. Ding, 35, who met Tian when they were both graduate students in America, was uninterested in the job. At first certain influential board members didn't try to persuade Ding to take the CEO post. Bill Janeway, senior managing director of the investment firm Warburg Pincus, who sat on the AsiaInfo board, said, "How could [Tian] do this to [his] partner? Abandon him and then saddle him with this thankless job!"

AsiaInfo had come far since it was founded in China in a warehouse-like office in Zhongguancun, where Ding and Tian bartered with the landlord. (In exchange for wiring the building, rent was free.) Their first major commission was a job for Sprint International, which had been hired by the government to build a dial-up-based commercial Internet in China. Sprint subcontracted the job to AsiaInfo. Ding, Tian and their team hired more engineers and built, with $4 million in imported computers and routers, the first phase of a commercial Internet in China, a link between Shanghai and Beijing. They connected both cities to the international Net via leased undersea telephone cables. In 1995, the government prepared to extend the contract with Sprint for the next phase of the project, the wiring of additional Chinese cities to the network it named ChinaNET. By then, Sprint no longer wanted a subcontractor and it planned to cut AsiaInfo out of the deal. AsiaInfo fought back. It went after-and won-the government cont ract.

AsiaInfo went on to become China's premier systems integration company, winning numerous contracts with national and provincial telecommunications companies, and in the process creating as much as 70 percent of the nation's Internet infrastructure. When Tian left to found CNC, Ding finally agreed to take over-with the cautious approval of the board. There was concern that Ding lacked his partner's charisma but, as an AsiaInfo manager says,

When he went out on the historic AsiaInfo road show -- it was the first time a private Chinese company went public in the West -- investors seemed eager to participate in the deal despite the risks of investing in China. The initial offering price was $24 a share. Before the day was over, the stock hit $100 and settled to a first-day close of $48 a share. The deal valued AsiaInfo at more than $4 billion. It was the first private Chinese company to reach $1 billion, never mind $4 billion in value. In spite of the decline in the value of tech stocks since then, AsiaInfo has held up well as the company has continued to announce profitable quarters and large contracts.

"We were shocked at the transformation. His dynamism had been hidden, directed like a laser at his technical team. When he broadened the output to the whole company, we felt supercharged." Ding spent several months in the executive training program at UC Berkeley and, when he returned to China, applied his software genius and obsession with making things work to AsiaInfo itself.

Failures amid success

The Internet industry in China is too new and precarious not to have some disasters, however. A friend of Ding and Tian, Wang Zhidong, was a legend in Zhongguancun. "He and his partner were known to be the smartest of the software geniuses," says leading China venture capitalist Bo Feng, 32, one of Wang's first investors. In 1989 and fresh out of Beijing University Wang was recruited by the university's Computer Science Center, where he went to work at the Beijing Founders Group, a commercial spin-off company that made computers and software. He went on to found what became the nation's largest homegrown software company, SRS, which created a program that translated standard English Microsoft Windows into Chinese, allowing it to read and display Chinese characters. At the time there was speculation that Wang would become the Bill Gates of China.

In the mid- l990s, Wang, now 35, made a controversial decision: to transform SRS into an Internet portal company using Yahoo! as a model. The plan had a twist: The site would unite the world's Chinese by allowing them a digital platform on which they could freely communicate and share information, including business, political and cultural news about China, Taiwan, Hong Kong and other communities of Chinese around the world. Given the virtual Great Wall that has surrounded mainland China, blocking all but government-approved information and communication to and from China's billion-plus people, the portal, Sina.com, seemed a miracle.

Preparing for the company's IPO, Wang hired former Netscape executive Jim Sha as CEO. Sha had experience in western capital markets. But Wang began to regret the decision when he watched Sha bring in his own team and give them power over Wang's group in China. Slowly at first and then with increasing anxiety, Wang worried that mainland China was being given short shrift in terms of investment and staffing. Wang saw that he was being marginalized -- his opinions ignored, his initiatives placed on the back burner. The founder realized the new CEO was attempting to take control of his company. He feared that the current course would prove disastrous and had to do damage control after many of Sha's decisions. In a series of meetings that culminated in a tense board meeting, Wang had it out with the new CEO. The board wound up supporting Wang. Sha resigned and Wang took back Sina's reins.

The portal continued to grow in terms of the number of devoted users and the depth and breadth of its Web site, but the Internet bubble burst in the U.S. and sent shock-waves to China. At the first sign of an economic downturn, mainstream advertisers abandoned the Web and Sina's revenue sources withered. Its stock sunk to the dangerously low price of $1 from a high of nearly $30. The original SRS software program wasn't much help, either. Many of the features were by then mirrored in Microsoft's own Chinese Windows. The portal's downturn proved at least one thing: Wang was not to become the Bill Gates of China.

Worse, in early June 2001, a Sina boardmember and longtime advisor and friend had orchestrated a coup--a successful one. The Sina board fired Wang. At first, he was shocked and immobilized, but by the end of the month he informed his friends that he had hired a team of lawyers. By fall, however, he had settled with Sina. Though well-compensated, Wang lost his company.

Len Baker, a partner in the venture capital firm Sutter Hill and veteran of America's technology boom, has said that Zhongguancun is "like Silicon Valley in the early days. However, conversations are much more direct and immediate in China. There's a stiffer emotional tone in the interchange. The difference is the urgency. There's a sense that the fate of more than a billion people is on the line." As such, there's not much time to sulk. Within months, Wang was back in Zhongguancun shopping a new business plan for a company that he says "will change the time paradigm here yet again."

Ding, at the helm of AsiaInfo, is meanwhile preparing for his biggest year ever. China's WTO entry is a boon for his firm, because it will be the most likely partner of numerous companies who want to do business in China.

Tian's life, however, is changing dramatically--again. After watching the quick ascent of CNC, the government has decided to shake up its entire telecommunications industry by breaking up China Telecom -- similar to the breakup of AT&T in the U.S. The likely scenario: China Telecom will be split into four separate companies. The idea is that competition will breed innovation, better services for consumers and business customers, and lower prices. The government has dictated that CNC will be absorbed into one of the four new telecoms. Who will lead it? At press time, the most likely contender is Tian. If he gets the job, instead of managing 3,000 people and a $3 billion company, overnight he will become chief of a company with 200,000 employees and as much as $50 billion in revenues. And the revolution marches on.

David Sheff is the author of China Dawn: The Story of a Technology and Business Revolution (HarperBusiness, March 2002). Send comments to [e-mail].