Tech Giants: Starting from Bankrupt Companies

70: Chapter 70: The Moment of DecisionJuly 5, 2017, 9:00 AM, top-floor conference room of Xingchen Heavy Industry headquarters.

The morning sunlight streamed through the floor-to-ceiling windows into the conference room, yet it could not disperse the heavy atmosphere in the air.

At 9:00 sharp, everyone who was supposed to attend had taken their seats. There was no usual small talk or idle chatter; documents were spread out in front of everyone, and water cups were steaming, but no one touched them. The two sides of the conference table formed a natural divide: on the left, led by Lin Wan, were Shen Nanpeng and several finance and legal executives; on the right were Zhao Tiezhu, Chen Zhiyuan, Zhao Qing, and other technical and production heads from Xingchen Heavy Industry.

When Su Chen pushed the door open and entered, everyone looked up. He was wearing a dark gray shirt with the sleeves rolled up to his elbows, and in his hand, he held an inspection report on Shenyang Machine Tool that had been flipped through until the edges were curled.

”Let’s begin.” Su Chen sat down without an opening statement. ”Everyone, first state your position, then explain your reasons. Lin Wan, you go first.”

Lin Wan sat up straight and opened the three documents in front of her. Her voice was clear and calm, devoid of emotion, but every word was like an icicle:

”I oppose it. There are three reasons.”

”First, the financial risk is uncontrollable.” She opened the first document. ”Shenyang Machine Tool has total book assets of 31.2 billion, but after evaluation, the realizable high-quality assets do not exceed 8 billion—mainly land, some new factory buildings, and that set of production lines from Germany. Meanwhile, liabilities are 58.2 billion, with net liabilities of 50.2 billion. Even under the most optimistic debt restructuring plan, the debt we would need to assume is over 20 billion.”

She brought up a cash flow forecast chart: ”Xingchen Heavy Industry is projected to have a net profit of 6 billion in 2027. After deducting R&D investment and normal expansion, the disposable net profit is about 5 billion. Even without considering interest, it would take 4 years just to repay the 20 billion principal. During this period, the Red Flag project requires continuous investment, the chip factory needs investments in the tens of billions, and our own capacity expansion requires funds—a broken capital chain is an inevitable outcome.”

A stifled gasp echoed in the conference room.

”Second, the personnel burden.” Lin Wan opened the second document. ”There are 30,000 on-the-job employees with an average age of 48, and those under 35 account for less than 15%. Skill structure analysis shows that 85% of the employees can only operate traditional machine tools or simple CNC equipment and cannot adapt to the requirements of modern intelligent manufacturing. According to the state’s regulations on job transfer training and resettlement compensation, the average cost per person is about 150,000, totaling 4.5 billion.”

She paused, her tone intensifying: ”What’s even more terrifying is the cultural risk. What did we see in Shenyang? The mentality of ’waiting, relying on, and asking for’ is deeply rooted. A simple example: that set of equipment from Germany worth 800 million was left to rust for three years because of a lack of maintenance funds. But at Spark, if a critical piece of equipment has a problem, engineers and technicians will work through the night to repair it because every minute of downtime is a loss. This kind of cultural difference cannot be solved with money.”

Zhao Tiezhu wanted to say something, but Lin Wan raised her hand to stop him: ”Let me finish.”

”Third, strategic drag.” She opened the third document. ”Xingchen Heavy Industry is currently in a critical growth phase. The monthly production capacity for five-axis machine tools will increase from 2 units to 5 units, and the Jingwei, Luban, and Gongshu product lines are about to be released in volume. The intelligent manufacturing base we plan to build in the Yangtze River Delta requires us to concentrate all our resources. If we divert our energy to save a dying enterprise at this time, our core business could be dragged down.”

Lin Wan closed the document and looked at Su Chen: ”So my conclusion is: this is not a merger and acquisition; it is a suicidal blood transfusion. We cannot destroy everything Xingchen has built over the past year just for the sake of sentiment.”

The conference room fell silent. The sunlight moved an inch across the tabletop.

”Let me say a few words.” Zhao Tiezhu spoke up. This usually taciturn manufacturing expert’s voice trembled slightly at this moment. He stood up, walked to the whiteboard, and drew a simple diagram.

”Manager Lin is right, from a financial perspective and from a risk perspective.” Zhao Tiezhu used the pen to draw the outline of a machine tool. ”But for those of us in manufacturing, the way we look at problems is a bit different.”

He pointed to the core part of the outline: ”Manager Lin says Shenyang Machine Tool only has 8 billion in high-quality assets. But there are some things that cannot be written on an evaluation report.”

”Liu Weiguo, an eighth-grade machinist, 62 years old. One touch of his hand on a workpiece, and he knows how much machining allowance is left; one listen to the cutting sound, and he knows the extent of tool wear. This kind of experience is ’muscle memory’ accumulated over decades and tens of thousands of operations, which no sensor or algorithm can replace.”

”And then there are those confidential military manufacturing processes.” Zhao Tiezhu’s voice became excited. ”37 items, all sealed in the archives. I read the catalog, and some of them are about special material processing—high-temperature alloys, titanium alloys, composite materials. If these processes are converted, our yield rate for processing aircraft engine blades and rocket nozzles could increase by more than 30%!”

He turned around to face everyone: ”In Shenzhen, if we want to find large castings, we have to ship them from Sichuan Province or Hubei, which has high logistics costs and long lead times. In the Northeast, within a radius of two hundred kilometers, there are foundries, heat treatment plants, special steel plants, and tool factories—a complete heavy industry supply chain. This is an industrial ecosystem accumulated over decades or even centuries, which cannot be replaced by us building a few new factories.”

Zhao Tiezhu walked back to his seat and picked up a list: ”This is the list I brought back from Shenyang. 78 Old Master Craftsmen with an average seniority of over 35 years, 42 of whom are provincial-level or higher labor models and technical experts. They are now earning two or three thousand yuan a month, guarding those old machines in the workshop. If we give them new equipment and an environment that respects technology, how much energy could they unleash?”

He concluded: ”Manager Su, Manager Lin, everyone. I know the risk is great, and I know it might fail. But the ’bones’ of Shenyang Machine Tool are still there! That skeleton that has supported China’s industry for seventy years has not fallen apart! We now have the opportunity to give it a new heart and new muscles—this opportunity may only come once.”

Zhao Tiezhu sat down, his chest heaving. This usually low-key technical expert’s performance today surprised everyone.

Shen Nanpeng pushed up his glasses; as the CFO, his stance was more pragmatic: ”Both of you make valid points. Manager Lin’s risk analysis is very thorough, and Manager Zhao’s technical value assessment is very pertinent. The key to the problem is how to find a balance between risk and opportunity.”

He brought up a draft: ”I suggest adopting a ’betting mechanism.’ When negotiating with the state, set clear trigger conditions: first, debt stripping must reach over 80%; second, the state must bear at least 50% of the employee diversion; third, all policy support must be written in black and white in the contract, with a clear implementation schedule.”

”If these conditions are fully met,” Shen Nanpeng continued, ”the risk of the acquisition will be reduced to a controllable range. We can establish a special ’Shenyang Project Company’ to isolate risk from the main body of Xingchen Heavy Industry. Even if the project fails, it will not drag down the entire group.”

”But what if the conditions are not met?” Lin Wan asked.

”Then the transaction will automatically terminate,” Shen Nanpeng said. ”We will set up a ’unilateral exit clause.’ As long as any one of the state’s commitments is not met on time, Xingchen has the right to exit without liability, and the funds already invested will be repurchased by an asset management company designated by the state.”

This plan was very shrewd, attempting to lock in risks with contract clauses.

The conference room fell into debate again. The finance team supported Lin Wan, the technical team supported Zhao Tiezhu, and the legal and strategy departments wavered in the middle. Voices gradually rose, and data, case studies, and forecast charts were passed across the table.

The debate lasted for two hours.

Until Su Chen stood up.

He didn’t speak, but just walked to the window, turning his back to everyone. Outside the window, the Shenzhen CBD was filled with high-rise buildings, their glass curtain walls reflecting the sunlight. That was the embodiment of China’s speed and China’s efficiency over the forty years of reform and opening up.

And the Shenyang he had just left was another China—a heavy, slow, and history-burdened China.

”Two years ago at this time,” Su Chen finally spoke, his voice calm, but every word was clear. ”We were betting on a 50 million angel investment. Lin Wan, do you remember? We stayed up all night revising the business plan, worried that the VCs wouldn’t invest and the company wouldn’t survive the next month.”

He turned around: ”Now, we are sitting here, discussing a 50 billion acquisition, the livelihoods of 30,000 people, and the fate of a pillar industry of the country.”

His gaze swept over everyone: ”I will not make a decision today. Because in today’s discussion, there is too much emotion, too many positions, and too much ’I think.’ But for such a big matter, we cannot rely on feelings.”

Su Chen walked back to the head of the conference table: ”Three days from now, July 8th at 9:00 AM, the second meeting. In these three days, I want to see everyone’s risk assessment report—not verbal opinions, but black-and-white data models, scenario analyses, and stress tests.”

He looked specifically at Lin Wan and Zhao Tiezhu: ”Lin Wan, your report must answer one question: if the acquisition fails, what is the worst-case scenario? Can we bear it? Zhao Tiezhu, your report must answer: how much actual productivity can those ’unquantifiable technical values’ really be converted into? How much investment is needed? How long will it take?”

Finally, Su Chen said: ”If—and I mean if—we eventually decide to take over, I will demand absolute control. This includes, but is not limited to: purging all old management, redefining the compensation and performance system, and establishing a brand-new corporate culture. This is not about saving a patient; it is about transplanting a heart into a skeleton. During the surgery, rejection is inevitable; some tissues must be removed, otherwise the entire organism will die.”

He paused: ”The meeting is adjourned. Three days from now, we will make the decision.”