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Chinese consumers are well aware of Lenovo's computers, smartphones and home electronics products. Photo: AFP

The next big thing for Liu and his Legend: China's consumer revolution

Liu Chuanzhi steered Lenovo to be the world's top PC maker. Now he's targeting the next big thing - China's free-spending middle class

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A decade after surprising the world with Lenovo's takeover of US technology giant IBM's personal computer business, its founder, Liu Chuanzhi (profile), is turning the attention of his business empire to the next big thing: the free-spending Chinese consumer.

"We currently focus more on consumer-related businesses as I feel the Chinese government is very serious about how to get its people to spend so we can boost domestic consumption, which is really important to national economic growth," said Liu, the 71-year-old chairman of Legend Holdings, parent of Lenovo and one of the largest privately owned industrial and investment conglomerates in China.

"You will see more and more Chinese people become middle class and more and more of them will travel abroad. When they travel, they will see popular things and businesses in foreign countries, for example, car rental, and when they get back, they may want to try the same things," Liu told the in an exclusive interview in Hong Kong.

For Legend, I think we should dare to try more new things
LIU CHUANZHI

Legend, which lists on the Hong Kong stock exchange today after raising about US$2 billion in an initial public offering, has already invested in China Auto Rental, the country's No.1 car rental service provider. Liu said his next focus would be on any businesses, at home or overseas, that can help Chinese people "eat, dress, live and travel better".

The former top computer scientist turned entrepreneur is banking on the Chinese government's stated policy of turning the country into one full of consumers and ending reliance on low-end manufacturing and exporting to drive economic growth.

Chinese incomes have risen rapidly in recent years, the country's tourists are spending billions around the globe and vast areas of the country remain ripe for further development even as overall economic growth slows.

In a 2014 report, consultants McKinsey estimated the per-household disposable income of China's urban consumers would double between 2010 and 2020 to about US$8,000, and with more people set to move to cities as a result of the government's urbanisation policy, the numbers of consumers will grow.

You will see more and more Chinese people become middle class and … travel abroad
LIU CHUANZHI

Liu, the son and grandson of wealthy bankers, once earned about 100 yuan a month in his early years as a researcher at the Chinese Academy of Sciences. No estimates of his current personal wealth are available.

He followed up the ground-breaking 2005 IBM deal with last year's £900 million (US$1.4 billion) takeover of British firm Pizza Express via Hony Capital, Legend's flagship private equity unit.

That deal catapulted Hony into the big league of global buyout funds and showed the world that Chinese capital was now a major player, in the same way that the Lenovo-IBM deal a decade before had announced the arrival of Chinese tech firms.

Illustration: Lau Ka-kuen
Focusing on the Chinese consumer may help boost Legend's profile at home. In terms of brand recognition, Chinese consumers know more about Lenovo's PCs, smartphones - Lenovo acquired the Motorola Mobility phone brand from Google late last year for US$3 billion - and home electronics products than about Legend.

That is despite the group having another four business areas besides Lenovo and Hony where it is a major player: food and agriculture, consumer services, real estate, and chemicals and energy. The consumer services business has a focus on health care and runs a nationwide chain of dental clinics.

Liu said the key to the company's success in expanding abroad would continue to be transparency.

READ MORE: Top 5 tips for Chinese entrepreneurs from Lenovo's Liu Chuanzhi

Many Chinese firms, notably telecoms company Huawei, have struggled in the US mergers and acquisitions market due to perceptions they are state-owned, or in Huawei's case, have ties to the military. That complicates business deals in sectors considered sensitive due to national interests.

"We've always tried to be very transparent, since the very early days when we made the Lenovo-IBM deal and later when we acquired the Motorola business. Because we were very transparent, we didn't see the US government giving us too much trouble when approving those deals," Liu said.

At home, one of Legend's drivers of success would be innovation, Liu said, acknowledging that in China innovative new ideas can come into conflict with policies, attitudes and laws that reflect a different approach by the government.

A case in point, Liu said, was Didi Kuaidi, the homegrown taxi-booking app often known as the "Uber of China" after the US ride-hailing service. Didi is literally a family affair for Liu, since it is run by his daughter, Jean Liu Qing, who joined last year after 12 years as an investment banker at Goldman Sachs.

Didi has grown rapidly in China, but has run into opposition from established taxi firms fearful of losing business. Protests against its services have sometimes turned violent, leading the authorities to declare car-hailing apps illegal. However, the services continue to run and gain in popularity thanks to cheap pricing and efficient service for users and the opportunity for extra income for car owners.

"I think Didi can do more than just provide a new way of transportation for Chinese people. In fact, it also helps to curb air pollution in China; if we can all make the best use of our resources, for example to get more people to share rides so we can cut traffic-related pollution," Liu said.

He said he was very proud of what his daughter had achieved and joked that she may be more popular in the media than he is nowadays given her company's fast business growth as well as its big impact on social development in China. Didi also showed the way for both budding entrepreneurs and big companies.

"There are always some times when you see certain policy lies in a grey area, but as long as you see the direction is right, you should go for it," said Liu. "For Legend, I think we should dare to try more new things. For China as a country, innovation is all about trying new things too."

This article appeared in the South China Morning Post print edition as: The consumer revolution
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