Alibaba: The House That Jack Ma Built pdfdrive com

Zhejiang: China’s Crucible of Entrepreneurship
Hangzhou, the nearby port of Ningbo, and other industrial clusters dotting
northern Zhejiang and southern Jiangsu Provinces form the economic
powerhouse of the Yangtze River delta, with Shanghai as its center.
Home to Alibaba’s e-commerce empire, Hangzhou has a long tradition as a

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trading center. The city once served as the southernmost point of the 1,100-mile-
long Grand Canal, whose full name in Chinese is Jing Hang Da Yun He, or the
Beijing-Hangzhou Grand Canal. For more than a thousand years, the Grand
Canal was the main trading artery between south and north China, making
Hangzhou one of the most prosperous cities in China.
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Hangzhou and the nearby port of Ningbo lie on relatively flat land. But
much of Zhejiang Province is mountainous, its elevations and rivers creating a
patchwork of isolated communities and dialects. The need to trade and the
distance from the country’s political rulers have helped make Zhejiang the cradle
of private enterprise in China. Today many of the province’s entrepreneurs sit
atop China’s rich list. Most, like Jack, started out living hardscrabble lives.
Zong Qinghou, worth more than $11 billion, is the founder of Wahaha,
China’s largest beverage manufacturer. From the age of four, Zong grew up in
Hangzhou, later working on a salt farm on an island off the coast of Ningbo
before graduating from secondary school. In the 1980s he sold ice pops on the
street for less than a penny. Li Shufu, worth more than $2 billion, founded
Geely, China’s first non-state-owned car manufacturer. He started out
assembling refrigerators using spare parts, then in 1988 founded Geely. In 2010
Geely purchased Sweden’s Volvo Cars. Lu Guanqiu, worth more than $7 billion,
is the founder of Wanxiang Group, the Hangzhou-based auto parts manufacturer.
He started out as a farmer, then started buying scrap metal from villagers.
Jack’s friend Guo Guangchang, a man worth an estimated $7 billion before
his unexplained disappearance for several days in December 2015, is the founder
of investment firm Fosun. Guo survived the Cultural Revolution only by eating
moldy, dried vegetables, later winning entry to Shanghai’s prestigious Fudan
University, where he sold bread door-to-door in the dorms to make ends meet.
Prior to his surprise absence in 2015, Fosun had been described by the 
Financial
Times
as the “Berkshire Hathaway of China.” Guo is an active supporter of
Alibaba’s forays into logistics and finance.
As we saw in the logistics edge of the iron triangle, one cluster of Zhejiang
entrepreneurs has played an important role in Alibaba’s success. The Tonglu
Gang of logistics companies, located in the town of Tonglu to the southwest of
Hangzhou, account for more than half of all package deliveries in China. Tonglu
was the birthplace of the late Nie Tengfei, founder of courier giant Shentong
(STO Express). Born into poverty, Nie raised pigs, planted grain, and sold
firewood before moving to Hangzhou to work in a printing factory. He
moonlighted as a courier delivering bread on his tricycle before spotting an
opportunity at the age of twenty to beat China Post,
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delivering customs forms

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for trading companies in Hangzhou to the port in Shanghai. Nie died in a car
crash in 1998, but Shentong continued to thrive. Two of Nie’s relatives and one
of his classmates each founded three other large courier companies in the Tonglu
Gang.
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Hangzhou, the provincial capital, and Ningbo, its largest port, have long
been prosperous trading centers. But two other cities in Zhejiang, Wenzhou and
Yiwu, though less well known overseas are renowned in China for their
newfound wealth. Wenzhou helped legitimize the role of entrepreneurs in
society, and Yiwu established the wholesale markets that extended their reach to
all parts of the country and indeed the world. Wenzhou and Yiwu have played as
important a part in China’s entrepreneurial revolution as the cotton mills of
Lancashire did in Britain’s industrial revolution.
Wenzhou and Yiwu provided the dynamism that inspired Jack to launch his
own entrepreneurial career. Innovations in Wenzhou opened the door for
Alibaba’s future forays into financial services, and the massive wholesale market
in Yiwu was a template for Alibaba’s first business model, connecting merchants
in China with global buyers. Let us take a brief tour.

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Wenzhou
Wenzhou lies two hundred miles southeast of Hangzhou. Hemmed in by
mountains on one side and the East China Sea on the other, Wenzhou had
always looked to trade, including tea exports, for its livelihood. But after 1949,
its proximity to nationalist Taiwan became a liability. With Shanghai a three-
hundred-mile ferry ride away, the city suffered from its isolation.
Wenzhou had little arable land and many unemployed or underemployed
agricultural workers. But once Deng Xiaoping launched his economic reforms in
1978, the private sector started to boom. Wenzhou’s entrepreneurs, often
working with family members, started out in light manufacturing. In the 1980s
they were some of the first merchants to fan out across China to sell their wares,
including knockoffs of Western brands. For many, Chinese goods from
Wenzhou were the first items they ever purchased that were not made by the
state.
Wenzhou has played a pivotal role in legitimizing entrepreneurship in
China. In 1984 the Wenzhou municipal government invited the city’s most
successful private entrepreneurs to a conference. Although the government
wanted to help them showcase their success, many entrepreneurs refused to
attend, fearing arrest. Only two years earlier a number of entrepreneurs in the
city had been arrested for speculation. They still languished in prison. Of the
entrepreneurs who showed up for the meeting with the government a number
brought along their toothbrushes, in case they too were detained. But the
entrepreneurs were not jailed. After releasing those arrested two years earlier, the
Wenzhou government published an unprecedented admission in local
newspapers that it had erred. Professor Yasheng Huang at the Massachusetts
Institute of Technology writes that “many entrepreneurs cited these two episodes
as having convinced them of their personal security.”
For decades in China, the country’s state-owned banks ignored private
enterprises and individuals, making politically directed loans
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 to the state-owned
enterprises (SOEs).
Starved for lending, the private sector in Wenzhou began to devise its own
private credit market, often adopting illegal structures. The local government
actively supported the establishment of private credit associations, cooperatives,
and money houses—a form of local financial broker that derives profits from the
spread between rates of interest on deposits and loans—forming a system that
came to be known as the “Wenzhou model.” Wenzhou paved the way for

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Alibaba’s own foray into banking. When Alibaba received its banking license in
2014, two of the other five recipients were from Wenzhou.
Raw entrepreneurial spirit, plus access to capital, fueled an explosion in the
city’s private sector, which so dominated Wenzhou’s economy that the state
became completely marginalized. Facing a huge demand for new roads and
bridges, the entrepreneurs of Wenzhou didn’t wait for funds or instructions from
Beijing. They simply built their own, in a surge of construction that bordered on
anarchy, lacking any coordinated plan.
In 1990, acting on their own, entrepreneurs even funded the construction of
the city’s airport. One year later the country’s first private carrier, Juneyao
Airlines, was launched in the city. In 1998, Wenzhou created China’s first
privately funded railroad.
Today in China, Wenzhou is synonymous with wealth. The city’s residents
are resented by some for their mass shopping sprees, always paying cash, which
have driven up the prices of apartments in Beijing, Shanghai, Hong Kong, New
York City, and beyond.

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Yiwu
Yiwu is an unlikely location for one of the world’s key trading nodes. It is
located inland, far from Hangzhou, Ningbo, or the East China Sea. Like
Wenzhou, it was dirt poor, with little cultivable land. Lacking any alternative,
local farmers since the sixteenth century turned to trade. Their main product was
brown sugar, which they cooked with ginger and cut into chunks. This they
bartered for chicken feathers, which they used to make feather dusters or
mulched to make fertilizer.
In the winters, when the farmers had little to do and food was scarce, local
men would hoist a pole with bamboo baskets on their shoulders and travel the
country as peddlers. They carried out sugar chunks, sewing needles, and thread,
and brought chicken feathers back to Yiwu. As they walked they would use a
rattle drum to attract customers. They became known as “Sugar Shoulder-Pole
Men”—a precursor to today’s million-strong courier workforce.
Soon there were so many itinerant merchants in Yiwu that they formed a
veritable mobile army. To supply them with wares in the 1700s, the first
wholesale markets started to appear in the city. Trade flourished for centuries
until the dislocation of the Japanese invasion and the communist revolution.
When Deng Xiaoping’s reforms started to take effect, the wholesale trade
came out of the shadows. In September 1982, traders in Yiwu were allowed
access to a patch of land—a ditch that they had first cemented over—to set up
their stalls. Seven hundred stalls popped up almost immediately and Yiwu
became one of the first wholesale markets of its kind in postrevolutionary China.
Today the city is home to the largest wholesale market in the world and its
population has shot up to over two million people. An estimated 40,000 people
visit the wholesale market every day. The 700 stalls have become 70,000 outlets,
housed today inside the Yiwu International Trade Center. This colossal building
spans more than 40 million square feet, generating a turnover of more than $6
billion per year.
On sale inside are an estimated 1.7 million products, from toys to plastic
flowers, jewelry to suitcases, clothing to home appliances, anything and
everything that is Made in China. Without knowing it, a huge amount of what
we consume in the West has passed through Yiwu. Even Christmas is “Made in
Yiwu”: More than 60 percent of the world’s Christmas decorations are
manufactured in the city. Although traders travel there overwhelmingly for its
cheap prices, part of Yiwu’s attraction has been its supply of counterfeit

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products, for example handbags sold under almost-familiar-sounding names
such as “Gussi.” The