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Analysis: The digital prince of China

Industry Standard

(IDG) -- If anyone can turn China into a technological powerhouse, it's Jiang Mianheng. But you won't see him at industry gatherings. He operates in stealth mode, and there's a virtual ban on covering his activities in China's state-run media.

That's not because he's out of favor with China's communist government. Quite the opposite. Jiang is a "princeling" of the regime, as the sons of prominent officials are called. In fact, he may be the premier princeling: His father is Jiang Zemin, the country's president and head of the communist party. With his father's backing, the younger Jiang has built a secretive web of companies and personal relationships that are changing how China connects with the rest of the world. INFOCENTER
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He's helping break up telecom monopolies, opening the Internet to China's massive middle class and steering hundreds of millions of dollars in state money into various venture investments. He's also attempting to make Shanghai, his hometown, into a world-class producer of semiconductors.

If all those efforts prove successful, Jiang will help modernize China's technological base and propel it into the information age. If not, China's transformation will proceed at a more sporadic pace, and foreign companies will likely continue to be frustrated by their lack of access to China's information-based industries. The stakes are considerable: China's $4.8 trillion economy is the second largest in the world.

Jiang doesn't actually run companies; he operates behind the scenes, outlining strategy for about a dozen companies and investment firms, securing funding from Chinese and international investors, and putting together deals based on his extensive network of relationships among China's ruling class. "He is like a John Doerr," says Frederick Chang, a partner with Hong Kong-based VC firm Sunevision Holdings, referring to the prominent Silicon Valley venture capitalist. "He has his hands in all these different pots." One of those pots, Shanghai Alliance Investment, a $140 million venture fund headed by Jiang, accounts for 16 percent of the $870 million in total venture capital managed by domestic firms.

Jiang's flagship company is China Netcom, an 18-month-old firm based in Beijing. It has raised a first round of private funding that values the company at $2.7 billion. Backed by powerful government departments such as the Ministry of Railways and the State Administration for Radio, Film and Television, it is building a 5,300-mile fiber-optic network linking 50 million people in 17 of China's most prosperous cities.

China Netcom is already shaking up the country's $37 billion telecom market. Its broadband network is a direct challenge to one being built by China Telecom, the country's former telephone monopoly, and is being touted as the largest and most advanced in China. And China Netcom's Net-based phone service, which is already operating in a few cities, has cut the price of a phone call from Beijing to New York from 60 cents to about 28 cents per minute, forcing traditional phone companies to slash their prices to stay competitive.

Foreign executives, stymied by regulations that make doing business in China's technology sector extremely difficult, view Jiang as their best hope for cutting through red tape. He knows how to capitalize on his political connections. According to Finnian Tan, a partner in the Singapore office of venture capital firm Draper Fisher Jurvetson, "People say that he is good because he is the one who can really deliver on deals."

Rupert Murdoch and Michael Dell are betting that is true. The two billionaires joined Goldman Sachs and Chinese investors in the $325 million round of financing for China Netcom -- one of China's largest venture deals ever. James Murdoch, Rupert's son and the head of News Corp. in Asia, wouldn't say exactly how the deal fits into his company's strategy, but offers that it "could certainly develop into many, many different kinds of relationships."

Other American heavyweights such as General Electric (GE) Chairman Jack Welch and Viacom (VIA) Chairman Sumner Redstone are also courting Jiang. China Netcom could be a potent partner for either of the two men, who respectively control the NBC and CBS broadcast networks as well as various other properties.

Jiang's business roots reach back to the United States. A graduate of Shanghai's Fudan University, he left China in 1986 to get his doctorate in high-temperature superconductivity from Drexel University in Philadelphia. After finishing his studies in 1991, Jiang moved to Silicon Valley and spent 18 months at Hewlett-Packard (HWP) developing its business strategy for Asia. In 1992, he returned home and joined the Shanghai Institute of Metallurgy, where he spun off a manufacturing company from the state agency. The company, Simtek, went on to make components for foreign telecoms such as Ericsson.

It wasn't until 1999, however, that Jiang started to have an impact on China's technology industry. That's when he convinced his father's circle of top decision-makers in Beijing to approve a new company that would break the monopoly of state-owned telecommunication companies. China Netcom launched in November 1999, and Jiang hasn't looked back since.

In March 2000, a Jiang-backed networking company, AsiaInfo Holdings (ASIA), soared 315 percent in its first day of trading on the Nasdaq. Then in September Jiang cut his biggest deal when he partnered with Taiwanese billionaire Winston Wong in a $1.6 billion venture to build semiconductor plants in Shanghai.

But any similarity to high-profile international investors ends there. Jiang, who declined to be interviewed for this story, finances his deals with money from state coffers. Bankers who have worked with China Netcom say Jiang does not appear to hold any shares, but given China's murky disclosure laws it is impossible to know for sure. If he does, he sure doesn't boast about it. To do so would provoke charges of nepotism that would damage his father politically. But that situation may change. Jiang Zemin is due to leave office next year, and once that happens his son will be freer to act like a full-fledged capitalist and openly reap the rewards of his deals.

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AsiaInfo Holdings
Draper Fisher Jurvetson

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4:30pm ET, 4/16

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