How the wager unfolded offers a vignette of corporate China
IN 2013 BUSINESS folk gathered at a gala in Beijing to honour Chinese “Economic Figures of the Year” were treated to an unexpected twist. One of the winners, Lei Jun, ventured that in five years the sales of Xiaomi, the smartphone-maker he founded in 2010, would surpass those of Gree, a state-owned manufacturer of air-conditioners. To make things interesting, Dong Mingzhu, Gree’s chairwoman with whom he shared the award, bet him 1bn yuan that her company’s turnover would remain ahead.
The bet looked bold for Mr Lei in 2013. Xiaomi was then making a quarter of Gree’s 120bn yuan in annual sales. “Apple of the East”, as it was dubbed, represented a new sort of Chinese company: market-driven and spunky, not state-led and stodgy; online instead of bricks and mortar; digital rather than mechanical engineering. By mid-2018 Xiaomi’s revenue neared 90% of Gree’s. When it floated on the Hong Kong stock exchange last July it was valued at $54bn.
They face similar challenges, too. The competition in their core markets is stiff. Xiaomi’s margins from low-cost phones are wafer-thin. Gree has lost share of Chinese air-con sales to rivals such as Haier or Midea, which are introducing more high-tech models. Xiaomi and Gree have both taken a punt on diversifying beyond their original business models. Gree is selling more online. Xiaomi opens more physical stores.
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