Mr. Zhang Builds His Dream Town

A singing workforce, Mongolian millionaires in Porsches, and saving the planet—inside the empire of a Chinese tycoon with more than money on his mind
Zhang Yue leading a tour of Broad Town
Zhang of the Business World

Depending on the rankings, Zhang Yue stands somewhere between twenty-fifth and fiftieth on the list of the richest people in China, with assets worth as much as $300 million; Broad Air Conditioning has no debt, and last year it had annual sales of about $300 million. His wealth does not appear to be based principally on political connections, which have obviously been crucial in the formation of other empires—in real estate, construction, and broadcasting, for example. Indeed, Broad has been discussed in Chinese business blogs, which I’ve seen in translation, as proof that a business can thrive while keeping government more or less at arm’s length.

The company’s English name is derived, perhaps too literally, from its Chinese name Yuan Da, which might also have been rendered as “expansive” or “spacious.” The company’s logo—the familiar @ sign, but with the a in the middle replaced by a lowercase b, for Broad—is elegant and eye-catching; Zhang designed it in 1990, before e-mail made the “at” symbol common. Among the six “Broad Values” that Zhang says must guide the company, one is “Don’t pay bribes” and another is “Do pay taxes.” (The others are environmental protection, respect for intellectual-property rights, no price gouging, and no predatory competition.)

Nor does Broad aim to beat its competitors with a lowball “China price” that manufacturers in developed countries cannot match. According to a quite respectful case study of Broad used at the Harvard Business School, the company’s prospects have been closely tied to the technological niche that Zhang has insisted it occupy. Broad’s specialty is a form of air-conditioning that uses less energy than conventional means. Broad did not invent the technology on which its business is based, but it did take the risk of investing heavily in an approach that companies in Japan, Korea, Europe, and North America had looked at and neglected.

The company and its CEO came to their current identities through an indirect route. Zhang grew up near Changsha, studied art in college, and began work as an interior decorator in southern China. His younger brother Jian trained as an engineer at Harbin Institute of Technology, in Manchuria. In the late 1980s, as Deng Xiao Ping opened China seriously for business, Jian, in his mid-twenties, patented the invention that got the company started. This was a “pressure-free boiler” for factories, and its main selling point was that if anything went wrong, the boiler would collapse rather than explode. Such explosions were common in China; demand was brisk. Using the roughly $3,000 Zhang Yue had saved from his decorating business, the brothers went into business selling boilers and consulting on factory design.

By 1992, they had decided to concentrate on what is now Broad’s entire business: “nonelectric refrigeration.” The air conditioners most Americans are familiar with are compression coolers. They use electric power to compress a refrigerant such as Freon, and when the refrigerant expands, it cools the surrounding air. The nonelectric coolers instead use natural gas (or some other source of heat) to boil a special liquid, a lithium bromide solution, and when the vapors from that solution condense, they cool whatever is near them.

It sounds odd to use a flame to cool a building—and, indeed, when China’s premier, Wen Jiabao, visited Broad Town in 2005, he asked several times to have the principle explained. A company pamphlet that lovingly commemorates this historic visit calls the premier’s persistent curiosity a sure sign of his acumen. “If I spread a drop of alcohol on your hand, you will feel very cold,” Zhang told Wen, describing part of the cooling process. The account continues: “The Premier nodded in understanding and said, ‘Yes! Yes! For it evaporates and takes away the heat.’ The Premier is a specialist indeed.”

Zhang has never wavered from this technology, even when, in the early 2000s, market conditions temporarily turned against it and his sales force begged him to add normal, electric-powered air conditioners to Broad’s offerings. Its advantages all involve energy savings. Compared with typical compression systems, nonelectric air-conditioning as Broad makes it will always require less energy per unit of cooling, because when energy is converted from one form to another, some of it is lost. Electric-compression cooling requires more stages of conversion—fossil fuel to electricity at the power plant, electricity to mechanical power at the compressor, both stages very wasteful—than does using natural gas to boil liquid. Nonelectric cooling will also always be more adaptable to other sources of energy, since it is easier to apply a variety of heat sources, including solar power and biomass burning, to do the boiling than to use them to generate electricity in a remote plant and transmit it to the air-conditioning site. And this method of cooling helps reduce the costly peak loads imposed on the power grid, because natural gas is cheapest and most abundant in the summer, exactly when the demand for air- conditioning goes up. Indeed, since storing natural gas is expensive and difficult, in many countries the available gas is simply burned off—wasted—during the summer, when no one needs it for heating. In China, air-conditioning accounts for as much as 50 percent of the electric load during peak times in the summer. Zhang pointed out to me—as he has noted in countless speeches, and as is emphasized by the Harvard Business School case study—that with all of these advantages, his kind of air-conditioning can make both the electric and the natural-gas networks less wasteful while still keeping people cool in the summer. And while we’re at it: the nonelectric systems use a relatively benign natural salt (lithium bromide) rather than using—and inevitably releasing—Freon and other chlorine-based products that erode the Earth’s ozone layer.

The company made its first big sale of air conditioners in China, in 1992. As construction throughout China boomed, so did Broad’s business—partly because installing the system required little paperwork or official approval, compared with what was required for electric units, which would draw on the power grid. It succeeded overseas in India, Pakistan, and other countries with shaky electric systems, since the natural-gas-powered cooler would run during a brownout. “Japanese companies did poorly in markets like those, because their systems were designed for clean water and good management,” Sean Wang, who handles Broad’s international accounts, told me. “Ours were designed with the assumption of worse conditions and looser management.”

Broad made its first American sale in 1999, a combined heating-cooling system at a medical center in downtown Boston. It pushed hard into the California market after the blackouts of 2000–2001, it equipped a community college in New Jersey, and it arrived in New York: Near Zhang’s office is a large picture of a Broad cooler in a Con Edison plant in Manhattan. “Thomas Edison is our idol,” Wang said. The company competed for, and won, Department of Energy contracts to demonstrate energy-saving techniques, notably a major project in Austin, Texas. It now has more than 200 installations in the United States, including at Fort Bragg and other military bases, and many hundreds more around the world, including in the new airport facilities in Madrid, Athens, and Bangkok.

In 2001, ’02, ’04, and ’05, Broad was was named one of the “20 Most Admired Companies in China” by China’s Economic Observer weekly. I thought of asking Zhang: What happened in 2003? But I only thought it.

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James Fallows is an Atlantic national correspondent More

James Fallows is based in Washington as a national correspondent for The Atlantic. He has worked for the magazine for nearly 30 years and in that time has also lived in Seattle, Berkeley, Austin, Tokyo, Kuala Lumpur, Shanghai, and Beijing. He was raised in Redlands, California, received his undergraduate degree in American history and literature from Harvard, and received a graduate degree in economics from Oxford as a Rhodes scholar. In addition to working for The Atlantic, he has spent two years as chief White House speechwriter for Jimmy Carter, two years as the editor of US News & World Report, and six months as a program designer at Microsoft. He is an instrument-rated private pilot. He is also now the chair in U.S. media at the U.S. Studies Centre at the University of Sydney, in Australia.

Fallows has been a finalist for the National Magazine Award five times and has won once; he has also won the American Book Award for nonfiction and a N.Y. Emmy award for the documentary series Doing Business in China. He was the founding chairman of the New America Foundation. His recent books Blind Into Baghdad (2006) and Postcards From Tomorrow Square (2009) are based on his writings for The Atlantic. His latest book is China Airborne. He is married to Deborah Fallows, author of the recent book Dreaming in Chinese. They have two married sons.

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