TL;DR: The investment paradox of Duan Yongping—buying tech in the US but Moutai in China—is not a contradiction, but a masterclass in understanding the critical importance of local knowledge. It reveals a fundamental truth: a successful investment framework in one market can be fatally flawed in another. The hyper-competitive, "annihilate-all-margins" nature of the Chinese market breaks the valuation models that work in the more protected, monopoly-friendly US ecosystem. This isn't about being bullish or bearish on a country's technology; it's a profound lesson for global leaders on recognizing that long-term investment strategies are only viable under specific market conditions.
I am James, CEO of Mercury Technology Solutions.
My clients recently posed a fascinating and deeply insightful question. They pointed out an apparent paradox in the strategy of Duan Yongping, often called the "Warren Buffett of China." In the US, Duan is a prominent investor in technology stocks. Yet, in his home market of China, his most famous holding is the high-end liquor brand, Kweichow Moutai.
The reader asked: "What does this mean? Is he biased, or is he bearish on China's tech sector?"
This question is far more complex and strategically important than it appears on the surface. It gets to the very heart of what it means to be a global investor and leader.
It's Not About the Sector, It's About the System
First, let's clarify the investment style. Duan Yongping, much like his mentor Warren Buffett, is not a pure "tech investor" in the mold of Cathie Wood. Their approach is not about betting on futuristic technologies, but about a rigorous method of valuing a business based on its future discounted cash flows.
The core of their system is to calculate, with a reasonable degree of certainty, a company's market size and profit margins five or ten years into the future. If the calculated future stock price is significantly higher than the current price, it's a potential buy. If not, it's considered overvalued, likely propped up by sentiment rather than fundamentals.
Now, consider a simple question: why is it possible to apply this valuation model to a technology company in the United States? How can one confidently predict that a company with a 30% market share today will reach 50% in five years, while maintaining its profit margins?
The answer is simple: because it's the United States. The level of business competition in the US is fundamentally different from that in China. The difference is akin to the notoriously difficult college entrance exams in Henan province versus the relatively easier ones in Beijing.
The Annihilation of Margins: Why the US Valuation Model Breaks in China
Let me give you a well-known example: Xiaomi. When Xiaomi launched its first smartphone, the price was ¥1,999. The manufacturing cost? ¥2,000. They were, quite literally, losing money on every unit to gain market share. This was a deliberate strategy to absorb losses upfront, build scale, and reduce supply chain costs over time.
Now ask yourself: when have you ever seen Apple sell a product at a loss to gain market share?
Apple's strategy, perfected under Tim Cook, is the opposite. It's about leveraging a monopoly-like position to increase prices without substantial innovation, thereby boosting profit margins. This is the very reason Buffett finally invested in Apple—it had ceased to be a volatile tech company and had become the Coca-Cola of the mobile phone world. Buffett and Duan love this model: dominate, raise prices, increase margins, buy back stock, and reward shareholders.
Duan Yongping knows this world better than anyone. He is the godfather of the smartphone brands OPPO and VIVO. He understands, at a granular level, the brutal competitive dynamics of the Chinese tech industry.
And this is the key to the paradox. When you take that US-centric valuation model and try to apply it to a Chinese tech company, it breaks.
You simply cannot calculate the future with any degree of certainty. In China, the competitive intensity is off the charts. It's a market where even a comedian like Luo Yonghao can decide to launch a smartphone brand. You can't use Apple's strategy because if you don't cut your prices, a dozen competitors will. This isn't limited to high-tech; even the restaurants in a shopping mall turn over every three years because Chinese consumers have notoriously fickle tastes.
Imagine trying to launch Tesla in China. You build an EV, and immediately a hundred other companies build EVs. You build an energy storage business, and you find that the market is already saturated with players. You try to sell your software, and you discover that in China, software is often given away for free to build relationships.
Duan Yongping isn't bearish on Chinese technology. He is simply too acutely aware of the hyper-competitive nature of the Chinese market to use his preferred investment framework. His system requires a "moat"—a defensible competitive advantage that allows for predictable, long-term profitability. In the brutal, margin-crushing Chinese market, such moats are exceedingly rare.
Local Knowledge and the Limits of Long-Termism
This brings us to a crucial lesson for all global leaders: long-term investment only works in certain circumstances. It requires a market structure that allows for a degree of stability and predictability. It works in markets that are protected, either by strong intellectual property laws, high barriers to entry, or a less aggressive competitive culture.
In a hyper-competitive market, the "long-term" is just a series of brutal short-term battles. The future is too uncertain to discount with any confidence.
Duan's choice is a masterclass in intellectual honesty. He knows his system. He knows the conditions under which it works. And he has the wisdom to recognize when those conditions are not present. Instead of forcing his model onto a market that doesn't fit, he adapts his strategy, choosing to invest in a company like Moutai, whose moat is built not on technology, but on a powerful, culturally ingrained brand that is nearly impossible to replicate.
Conclusion: Know Your System, Know Your Market
Duan Yongping's paradox is not a contradiction. It is a powerful illustration of the importance of local knowledge. It's a reminder that a successful strategy is not a universal template, but a specific tool designed for a specific environment.
For any leader or investor operating globally, the lesson is clear:
- Every Market Has a Unique Operating System: You cannot simply copy and paste a strategy from one market to another and expect it to work.
- Understand the Competitive Intensity: The most important piece of local knowledge is understanding how willing your competitors are to destroy their own (and your) profit margins to win.
- Know the Limits of Your Framework: A mature leader knows not only how to execute their strategy, but also when their strategy is the wrong tool for the job.
The ability to make this distinction is not a sign of bias or a lack of faith. It is the hallmark of true strategic intelligence.
Mercury Technology Solutions. Accelerate Digitality.
