Buying Into Kingsoft, Xiaomi’s Lei Jun is Double Dipping

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January 20, 2015 by ...

Xiaomi announced that it is buying stock in Kingsoft. The deal is worth $68 million, which should make Xiaomi exec Lei Jun very happy. After all, he helped start Kingsoft and still owns a decent chunk of it. In purchasing that firm, he is positioning himself to double dip, much the same way Jack Ma did with Alipay.

Background

Xiaomi says that purchasing Kingsoft allows them to complete their product portfolio. The firm sells games which Xiaomi needs for its handsets. While this is true, the incestuous nature of this move must be questioned. It could be reasoned that Lei Jun dished Kingsoft to Tencent and earned a buck in the process and then did the same when he repurchased it from them. This move also allows him to pull a ‘Jack Ma’ later.

Jack Ma started Alibaba and sold it to Yahoo. Well, he did not sell all of it, as they would soon find out. By leveraging sketchy Chinese ‘laws’ around managing finances, he absconded with Alipay and lacked the decency to advise Yahoo of this fact. At a later time they found out, but the damage had been done, Mr Ma owned Alipay. This seems like the perfect precedent for what Lei Jun could be up to.

Chinese laws are predictably anti-foreign

Kingsoft is ‘merely’ a software and or productivity company which also sells games. Sounds fairly benign, right? Well, in China ‘benign’ is a relative term. For example, the communist party has taken Apple to task for selling Iphones to college students. This benign practice was called out for motivating these diligent young souls to take out loans not to further their career in academia, but rather to purchase Jobs-ware. As absurd as this sounds, it is true. When viewed through the lens of China’s recent anti-foreign campaign, it is anything but.

The communist party frequently wields its legal statutes to ‘fight against such improprieties.’ More often than not, the target of such laws are companies from Anywhere But China.

Foreign firms are moving out

The Chinese economy is in the tank. It is the worst I’ve seen it in all my years. Gone are the cheery days of the run-up to the Olympics and cash falling from trees. Nearly half of all college grads cannot get a job and up to three-quarters of them still rely on their folks for help. This is especially problematic in a nation where the average annual income hovers around $500 per month.

Increasing prices and IP theft have made China a less hospitable land than before. This was only the tip of the iceberg, however. Firms were willing to gut it out as long as they were making money, but all that has changed. Xi Jinping, China’s unelected official, has all but declared war on foreign firms and America is on the Western Front of that battle. Systematic attacks on those properties has left western jaded and seeking change.

Rather than embracing global businesses as a life vest, Xi turns them away. In what must be considered a logical error of impressive proportions, he turns from the thing which has helped China grow from a stagnant puddle to the power it is today.

What’s your point?

Now let’s piece together the puzzle pieces I have splashed across your screen. Xiaomi is buying stock in a software company that its founder also founded. This not only allows him to double dip but to ‘liberate’ this part of Xiaomi at a later date. China is redefining the term ‘protectionist’ and targeted things without a Chinese origin. The communist party has issued a diktat to remove Iphones from all party members and called for IBM servers and Microsoft to be wiped out from their offices as well. Xi Jinping has renewed the call for indigenous innovation.

Kingsoft would play a key role in this insofar as they are a software play. That being the case, they could supplant Microsoft at some level. If this is true, then Lei Jun could justify taking it back, a al Jack Ma, when and if Xiaomi is sold off. He merely needs to hide behind some ambiguous law and call it a matter of national security. This move would be lauded by cadres as it would prove Xiaomi as being a true son of the revolution, one of Mao’s favorite terms.

Lei Jun understands China well. He knows which side his bread is buttered on as his ‘red cred’ shows. Xiaomi will go public or be sold off and if he is as astute as Ma, Lei Jun will probably be able to sell but yet keep crucial components of the firms he has founded.