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In March 1992, Pacific Capital’s Hong Kong office held a strategic meeting.

Mark reported on the results: "In the past year, we have invested in fifteen projects in China, with a total investment of one billion US dollars. Eleven of them were snatched from Japanese companies. Japanese companies are now afraid of us, and some have withdrawn from projects as soon as they heard that we were going to participate."

"The results are very good," Su Ning said, "but we need to be careful about how we do it. The Ministry of Commerce has spoken with us and hopes that we won't be too high-profile."

"Then what should we do? Stop robbing?"

“Let’s try a different approach,” Suning said. “Instead of openly competing, we plan ahead. We research the industries that Japanese companies are interested in and contact local governments before they even begin negotiations. This way, it doesn’t look like we’re competing; it looks like we’re the ones who initiate the talks.”

Guan Wei nodded: "That's a good idea. We can establish an intelligence network to track the investment trends of Japanese companies. As soon as they have an idea, we'll take action."

"How exactly do we do it?" Mark asked.

"First, we need to develop informants within Japanese chambers of commerce and companies to understand their plans," Guan Wei said. "Second, we need to establish closer relationships with local governments to obtain investment information in advance. Third, we need to focus on breaking into several key industries—auto parts, semiconductor equipment, and precision instruments. These are Japan's core strengths; if we eliminate these, they will truly have nowhere to go."

“Automotive parts are very difficult to manufacture,” Mark said. “Giants like Toyota and Honda have deep roots in China.”

“Then let’s start with supporting products,” Suning said. “For example, car audio systems, tires, and glass. If Japanese companies make them, we’ll make them too, but cheaper and with better technology. We’ll gradually penetrate the market.”

The plan is set.

Pacific Capital has begun a more covert and systematic "alternative to Japan" strategy.

In the second half of 1992, Nikon Corporation of Japan planned to build a semiconductor lithography equipment repair center in Suzhou.

Photolithography machines are the core equipment in chip manufacturing, costing tens of millions of dollars per unit.

Repair and maintenance are a continuous source of revenue and are also key to technical control.

Negotiations with Nikon went smoothly, and the Suzhou side was very welcoming—this is a high-tech project.

But just a week before the signing, Pacific Capital approached them.

This time it wasn't Guan Wei who came forward; it was a newly formed team led by Li Ming, an American of Chinese descent who had worked in equipment engineering at Intel for ten years.

"Mayor Wang, I heard that Nikon is going to build a service center in Suzhou?" Li Ming asked.

"Yes, it's been agreed upon." The vice mayor of Suzhou nodded.

“We are also interested, and we can do it better,” Li Ming said. “Nikon only provides repair services, not technical training. We promise to establish a training center to train lithography equipment engineers for China. Nikon’s core components are imported from Japan, and we promise to achieve 50% localization within three years. Nikon’s service prices are market prices, and we will offer a 20% discount.”

"Do you have the technology? Your lithography equipment is very professional."

“Of course we have it.” Li Ming took out the documents. “Pacific Capital and Applied Materials of the United States have established a joint venture to specialize in semiconductor equipment services. Applied Materials is the world’s largest semiconductor equipment manufacturer, and its technology is no worse than Nikon’s.”

The deputy mayor was tempted, but hesitated: "But we've already promised Nikon..."

“Business negotiations can be conducted before a contract is signed,” Li Ming said. “Moreover, we can increase our investment: Nikon will invest $30 million, and we will invest $50 million. In addition, we promise to establish a research and development center in Suzhou and hire 500 local engineers within five years.”

The conditions are too good.

The Suzhou authorities held an emergency meeting overnight and ultimately decided to award the project to Pacific Capital.

Nikon was furious, but there was nothing they could do—they couldn't offer better terms.

……

By the end of 1993, Japanese companies' investments in China had run into difficulties.

Pacific Capital snatches up any project they want to invest in.

Pacific Capital can always exceed any terms they agree to.

A saying has begun circulating within Japanese companies: "Pacific Capital is watching us closely, deliberately following our path, leaving us with nowhere to go."

Some Japanese companies have changed their strategy: avoiding industries that Pacific Capital focuses on and investing in niche areas.

But Pacific Capital followed suit; they followed any investment made by a Japanese company.

Some Japanese companies have simply abandoned the Chinese market and turned to Southeast Asia instead.

However, Pacific Capital also has a presence in Southeast Asia, though not as aggressively as in China, but it is still a competitor.

In particular, with Pacific Capital's expansion in China and the dumping of a large number of high-quality products into the Southeast Asian market, Japanese investment in Southeast Asia is absolutely not going to be successful.

Japanese media began reporting: "Pacific Capital's 'Sniping Strategy' - How American Capital Is Encircling and Suppressing Japanese Companies in China."

The report analyzes: "Pac Capital is backed by Suning, the world's richest man of Chinese descent. He has a systematic competitive strategy against Japanese companies, aimed at weakening Japan's manufacturing advantage in Asia. This is not only business competition, but may also involve geopolitical considerations."

The Japanese business community has begun to take this competitor seriously.

But paying attention is useless; Pacific Capital has money, technology, and determination.

By 1994, Pacific Capital had invested more than US$2 billion in China and established more than 30 manufacturing bases covering multiple fields such as electronics, machinery, chemicals, and auto parts.

At least twenty of these projects were "hijacked" from Japanese companies.

These projects brought advanced technologies, cultivated a large number of local talents, and established a complete industrial chain.

Chinese local governments really like Pacific Capital...

Although it may sometimes cause diplomatic trouble, the real technology and investment provide a huge boost to the local economy.

Meanwhile, the development of Japanese companies in China has slowed down significantly.

Many plans were shelved, many projects were snatched away, and much of the market share was eroded.

Of course, in order to achieve cooperation and project implementation, Japanese companies have to relax their conditions, and profit margins are naturally becoming increasingly tight.

Pacific Capital's strategy was very successful: follow the path of Japanese companies, leaving them with nowhere to go.

At the year-end summary meeting in 1994, Chen Wei reported: "Boss, at the current pace, by the end of the 1990s, we will be able to establish a competitive advantage over Japanese companies in China's major manufacturing sectors."

“That’s not enough,” Suning said. “We need to make them withdraw completely. The biggest advantage of Japanese companies is quality and technology, and we must surpass them in both areas. Quality depends on management, and technology depends on R&D. We need to increase investment in R&D and establish a research and development center in China.”

Where will the R&D center be located?

“Shanghai,” Suning said, “to build the biggest one, invest $500 million, and recruit global talent, including Japanese talent—poach them with high salaries.”

"Then Japanese companies are really going to cry."

“We’re going to make them cry,” Su Ning said. “In the 1980s, Japanese companies crushed many American industries with their low-priced, high-quality products. Now, it’s their turn to taste that bitterness.”

After the meeting, Suning stood by the office window, looking at the Hong Kong night view.

But he felt that this wasn't a fight to the death.

This is business competition, but this time, he's on the other side of history.

In the 1980s, Japanese companies rose to prominence while American companies suffered repeated setbacks.

It really was time for a change in the 1990s.

China is the main battleground in this competition.

Whoever wins the Chinese market wins the future.

……

In fact, Lemon Technology and Japanese companies have had a long-standing feud.

When the semiconductor war between the United States and Japan first broke out, Ningxin Semiconductor, a subsidiary of Lemon Technology, frantically absorbed resources from Japanese semiconductor companies.

They've gone to great lengths to poach talent, acquire technology, and engage in corporate espionage.

Therefore, Ningxin Semiconductor is now very strong, especially since it has established a complete semiconductor industry chain in China.

We are supporting Chinese companies to complete their semiconductor technology transformation, forming a perfect closed loop in the upstream, midstream, and downstream industrial chain, and their technology has already approached the level of semiconductors in Japan and Europe.

However, it's still some distance behind the US semiconductor industry. Of course, this was intentional on Suning's part; otherwise, US capital would definitely have targeted Lemon Technology, so it was necessary to give the US semiconductor industry a head start.

Furthermore, Lemon Technology now treats Japanese companies as pawns, competing with them for projects across the board, so Japanese companies now hate Lemon Technology to the core.

In a high-end sushi restaurant in Ginza, Tokyo, Kenichi Sato, chairman of the Japan Semiconductor Industry Association, is having dinner with several presidents of major companies.

The atmosphere at the table was heavy.

"Ladies and gentlemen, Ningxin Semiconductor's third-phase wafer fab in Shanghai will begin production next month." Miyamoto, president of Toshiba's semiconductor division, put down his sake cup. "They can now achieve a 1.2-micron process with a yield of 85%, only one generation behind us."

NEC President Yamada chimed in: "What's even more frightening is their supply chain in China. From silicon materials and photoresist to packaging and testing, they have supported a large number of local Chinese suppliers. Now in Shanghai, 80% of the components for a complete chip production line can be sourced locally."

"How did they do it?" asked Fujitsu's president, Watanabe.

“Poaching.” Chairman Sato sighed. “Over the past decade, they have poached at least two hundred senior engineers from Japan, a third of whom were core technical personnel. Ningxin Semiconductor offers three times the salary in Japan, and also provides US green cards.”

“What about corporate espionage?” Miyamoto lowered his voice. “I’ve heard that their technology roadmap is very similar to our internal plans.”

"Is there any evidence?"

“Yes, but not enough.” Miyamoto shook his head. “Last year we caught an employee who tried to steal lithography machine blueprints. He admitted to taking money from a middleman at Ningxin Semiconductor. But that middleman got away, and the trail went cold.”

Yamada gritted his teeth: "This isn't normal business competition, this is war."

"So what? Lemon Technology has now launched a full-scale war against Japanese companies, and we have become increasingly passive in the Chinese market."

"Damn it! Why is Lemon Technology doing this? It's like they're deliberately targeting Japan."

"Don't doubt it! They're deliberately targeting us."

The rise of Ningxin Semiconductor was indeed not a normal one.

Let's go back to 1987, when the US-Japan semiconductor war was raging.

The U.S. government accused Japanese companies of dumping memory chips and imposed a 100% punitive tariff on Japanese electronic products.

Japanese semiconductor companies are being forced to accept US oversight, and their market share is about to be eroded by South Korean and Taiwanese companies.

It was during this chaotic period that Ningxin Semiconductor made its move.

Morris Chang and Chen Weiming were in charge of the operation, but Suning was the one directing everything behind the scenes.

At the first internal strategy meeting, Suning put it bluntly: "Japan is ten years ahead of us in the semiconductor industry. To catch up, conventional methods are not enough. We must use extraordinary means."

"What methods?" Chen Weiming asked.

"First, poach talent. Japanese semiconductor companies are currently being suppressed by the United States, resulting in declining profits and reduced employee benefits. This is the best time for us to poach talent. If we offer sufficient salaries and favorable conditions, I don't believe we can't recruit them."

"Secondly, acquisitions. Japan has many small and medium-sized semiconductor equipment manufacturers and technology companies that struggle to survive during industry downturns. We acquire them at low prices, including bundled technologies."

"Third, technology transfer. Japanese companies wanting to enter the Chinese market must exchange technology for market access. We act as the intermediary—helping them enter China, but the technology must be shared."

"Fourth," Suning paused, "business intelligence. I don't encourage illegal activities, but competitive intelligence gathering is essential. We need to know as soon as possible any new moves by Japanese companies."

Morris Chang, who is in charge of technology, added: "The key is talent. Semiconductors are a knowledge-intensive industry; with talent comes technology. We can first build a research and development center in Japan, ostensibly to 'serve the local market,' but in reality, it's a base for poaching talent."

And so the plan was set.

……

In early 1988, Ningxin Semiconductor established its first overseas R&D center in Yokohama, Japan.

The job advertisement was very attractive: "We are sincerely recruiting semiconductor talents: the salary is 150% of the industry average, and we provide a work visa to the United States, education subsidies for children, and medical insurance for family members."

At first, the Japanese didn't believe it: Could a Chinese company offer such high compensation?

But the first person to try something new appeared.

Koji Tanaka, a 45-year-old former Hitachi semiconductor engineer, was laid off due to company downsizing.

He applied for the job on a whim and ended up with an annual salary of five million yen, which was 80% higher than his previous salary.

After Tanaka joined the company, Ningxin Semiconductor arranged for him to be interviewed by a Japanese technology magazine.

Magazine title: "A Second Spring for Middle-Aged Engineers: Finding New Horizons in Chinese Companies".

In the report, Tanaka praised Ningxin Semiconductor's working environment, research freedom, and corporate culture that "looks at ability rather than seniority."

This report exploded like a bomb in the Japanese semiconductor industry.

Furthermore, with Ningxin Semiconductor backed by the tech giant Lemon Technology, the relevant personnel went completely crazy.

Over the next three months, Ningxin Semiconductor received more than two thousand resumes.

They screened 300 people and ultimately hired 120, all of whom were engineers with more than five years of experience.

Japanese companies are panicking.

Toshiba was the first to retaliate: it raised salaries for its core technical staff and signed stricter non-compete agreements.

However, the effect was limited; Ningxin Semiconductor had given far too much.

Moreover, they poach not only current employees but also retirees.

Japan's semiconductor industry has many engineers in their sixties and seventies with extensive technical experience.

Ningxin Semiconductor has established an "Advisory Committee" and hired these senior employees at high salaries. They only need to work for three months a year and provide consultation for the rest of the time.

These veteran engineers brought with them decades of experience.

While poaching talent, Ningxin Semiconductor also began acquisitions.

In late 1988, Precision Machinery, a mid-sized semiconductor equipment manufacturer in Kobe, Japan, fell into a financial crisis.

This company specializes in etching machines and has good technology, but its market share is being squeezed out by Tokyo Electron and Dai Nippon Printing.

Ningxin Semiconductor made a move, acquiring 70% of the company's shares for US$50 million, retaining the original team, but injecting funds to upgrade the technology.

Following the acquisition, all of the precision machinery's technical data was made available to Ningxin Semiconductor.

Using the same method, between 1989 and 1991, Ningxin Semiconductor acquired eight small and medium-sized technology companies in Japan, covering multiple fields such as photoresist, silicon wafer polishing, and packaging materials.

For each company acquired, the technology was packaged and sent back to China.

The bigger move was the joint venture.

In 1989, Mitsubishi Electric of Japan wanted to enter the Chinese market, but at that time China was wary of Japanese semiconductor technology.

Ningxin Semiconductor approached them: "We'll help you enter China, on the condition that we share our technology."

However, the negotiations were difficult.

A Mitsubishi representative said, "Technology is our core competency and cannot be shared."

Chen Ming, a representative of Ningxin Semiconductor, said: "Then you won't be able to enter the Chinese market. China needs semiconductor technology now, but it prefers that the technology be localized. If you don't provide the technology, the government won't approve it."

After a three-month stalemate, a compromise was finally reached: a joint venture would be established, with Mitsubishi providing the 1.5-micron process technology and Ningxin Semiconductor handling operations in the Chinese market. The two companies would share the technology patents, but Ningxin would receive 60% of the profits from the Chinese market, and Mitsubishi would receive 40%.

This joint venture enabled Ningxin Semiconductor to acquire complete 1.5-micron production line technology.

Mitsubishi, on the other hand, secured its entry into the Chinese market.

It's a win-win situation, but Ningxin wins more.

...(End of chapter)