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In March 1984, the atmosphere in the conference room of the Jinjiang Hotel in Shanghai shifted from enthusiastic to frozen.

Seated on one side of the long table were Suning, Chen Weiming, Zhang Zhongmou, Kevin (CFO of Lemon Technology), and Robert (Co-President of Lemon Technology).

On the other side were personnel from Shanghai...

Deputy Director Li from the city government, Director Wang from the Economic Commission, and several technical staff from the Electronics Industry Bureau.

The talks have been going on for three days, and the first three days went very smoothly.

Deputy Director Li first introduced the situation: "Mr. Gan, Shanghai warmly welcomes Ningxin Semiconductor to invest and build a factory. Our Pudong New Area is currently planning and can offer the best plots of land, at a price of only one-tenth of that in the United States. We can guarantee the supply of water and electricity at preferential prices. Not to mention labor costs, the monthly salary of a skilled worker in our area is about one hundred and fifty US dollars, which is only one-twentieth of that in the United States."

Director Wang added, "In terms of technical personnel, Fudan University, Shanghai Jiao Tong University, and East China University of Science and Technology all have semiconductor-related majors, and we can coordinate the placement of graduates. In addition, there are several established electronics factories in Shanghai with existing factory buildings that can be renovated, which can save construction time."

Morris Chang, who was in charge of the technical aspects, asked a crucial question: "How is the power stability? Wafer production cannot be interrupted for even a moment. If the power is interrupted for even a second, the entire batch of wafers may be scrapped."

“We can guarantee that,” replied Lao Zhou, a technical officer from the Electronics Industry Bureau. “We can build a dual-circuit power supply for the factory, and even a backup generator set. If there are any losses due to a power outage, the government can coordinate compensation, and we can also arrange for a dedicated thermal power plant to be built to support the factory.”

Chen Weiming, who is in charge of operations, asked another question: "What about importing raw materials? Silicon wafers, specialty gases, photoresist—all of these have to be imported from Japan and the United States. Won't the customs procedures be very complicated?"

"Pudong New Area plans to establish a bonded zone," said Deputy Director Li. "Imported equipment and raw materials can be exempted from taxes, and procedures will be simplified. Exported products will also enjoy tax rebates."

Everything went very well, even more smoothly than expected.

It wasn't until the morning of the fourth day that the most crucial issue was discussed—the equity structure.

The meeting resumed at 9:00 AM on the fourth day.

Deputy Director Li spoke first: "Mr. Gan, regarding the equity structure of the joint venture, our initial idea is that Shanghai will contribute land, factory buildings, and some capital, holding 51% of the shares. Lemon Semiconductor will contribute technology, equipment, and remaining capital, holding 49% of the shares."

The meeting room fell silent after those words were spoken.

Suning did not immediately respond, but looked at Robert, the general counsel.

Robert adjusted his glasses and said in a very professional tone, "Director Li, according to internationally accepted foreign investment practices, the technology provider usually requires a controlling stake. This is because the core of a wafer fab is technology, and technology requires continuous investment in research and development. If the Chinese side holds a controlling stake, the decision-making power rests with the Chinese side, but technological updates and upgrades require continuous support from Lemon Semiconductor, which creates an imbalance of power and responsibility."

Director Wang chimed in, "Mr. Robert, China has its own national conditions. For key high-tech industries, the country has policy requirements that China must maintain control. This is not something Shanghai can decide."

"What are the specific policies?" Su Ning asked.

"For strategic industries like integrated circuits, the principle is that Chinese ownership should not be less than 51%," Deputy Director Li stated clearly. "Special circumstances can be approved, but it's very difficult. Moreover, if foreign ownership exceeds 50%, many preferential policies will no longer be available."

Morris Chang spoke up. As a technical expert, he was direct: "Director Li, a wafer fab is not an ordinary factory. It requires continuous technological upgrades, with annual R&D investment potentially accounting for 15% to 20% of total revenue. If Lemon Technology doesn't have a controlling stake, it will be difficult for us to persuade the US headquarters to continue investing heavily in technology transfer and upgrades. What's the point of a factory if it's built but the technology stagnates and becomes outdated in three years?"

Old Zhou, the technical staff member, nodded: "Mr. Zhang is right. But policy is policy, and there's nothing we can do about it."

The first day of negotiations was stuck at 51% and 49%.

On the fifth day, the two sides continued their talks.

Suning proposed a new solution: "If the equity structure cannot be changed, we can consider another cooperation model - Ningxin Semiconductor will build a factory independently, but we promise to meet certain conditions."

"What are the conditions?" Deputy Director Li asked.

“First, we guarantee that our factory’s technology is on par with the world’s best, and we will conduct a major technological upgrade every three years,” Suning said. “Second, we commit to training no fewer than 500 local technical talents within five years, who can then move to other Chinese semiconductor companies. Third, we commit to procuring a certain percentage of local raw materials and services to drive the development of the industry chain. Fourth, we will pay taxes on time and in full, and abide by Chinese laws.”

Chen Weiming added: "If these commitments are written into the contract and there are clear assessment standards, it is actually more practical to protect China's interests than simply taking a 51% stake. Because technological upgrades and talent cultivation are the truly valuable things."

Director Wang pondered: "This idea...we need to consult our superiors. But Mr. Gan, why do you insist on a 51% controlling stake? With 49% of the shares, you also have a lot of say."

Robert explained, “Director Wang, from a corporate governance perspective, there is a fundamental difference between 51% and 49%. 51% can decide on board members, appoint the general manager, approve the annual budget, and decide on major investments. 49% can only participate in decision-making, but may ultimately be vetoed. Wafer fabs involve huge investments and rapid technological updates. If every upgrade requires approval from shareholders who may not understand the technology, it would be too inefficient and too risky.”

Deputy Director Li said, "We can agree that the technical decisions will be led by Lemon."

“But how should the company’s articles of association be written?” Robert pressed. “If it says ‘technical decisions are led by the foreign party,’ that doesn’t comply with China’s Company Law. If it says ‘major decisions require a two-thirds majority vote of the board of directors,’ then the Chinese party, with 51% ownership, still has veto power.”

Negotiations have stalled again.

……

In the afternoon, an internal meeting was held in Shanghai.

Old Zhou said, "Actually, Suning has a point. What we need is technology, talent, and the ability to drive the industrial chain. If these can be guaranteed through contracts, whether or not we have a controlling stake is not that important."

Director Wang shook his head: "Old Zhou, you don't understand. Holding a controlling stake is a matter of principle, not a technical one. There are documents from above that state that foreign capital cannot hold controlling stakes in certain sectors; that's a red line."

"What can we do then? If things remain stagnant, the project will fail. Shanghai needs high-tech investment, jobs, and tax revenue right now."

"I'll report this to the city again and see if they can make a special approval."

……

On the sixth day, Shanghai's attitude seemed to soften.

Deputy Director Li said, "Mr. Gan, we consulted with our superiors and have a compromise solution. You can hold a controlling stake, but not more than 50%. It will be 50% to 50%, and then independent directors will be appointed, with key decisions requiring a two-thirds majority vote."

Suning did the math: "50% to 50%, plus independent directors... that still means no one can make a decision alone. This kind of structure is the worst; it's prone to disputes."

Morris Chang said directly, "Director Li, I worked at Texas Instruments and saw many joint ventures fail because of equal equity. Technology upgrades require money; if one party agrees but the other disagrees, it becomes a deadlock. The market changes quickly, and by the time they reach a conclusion, the opportunity is gone."

Chen Weiming also said, "We chose Shanghai because of its stable environment, low-cost land and labor. But these advantages are meaningless if we don't have autonomy in our operations. We can go to Singapore, Malaysia, or even Taiwan to build factories. Those places all welcome us as wholly-owned enterprises, and they are all lobbying us from our US headquarters."

This was said very bluntly, almost like an ultimatum.

Deputy Director Li's expression was not good: "Mr. Chen, China has a huge market. If the factory is built in Shanghai, the products will have an advantage in entering the Chinese market."

“But our products are mainly exported,” Suning continued. “Lemon Semiconductor is positioned as a global foundry, with customers in the United States, Japan, and Europe. The Chinese market is certainly important, but not right now. Our plan is to focus on foundry services first, and then consider entering the Chinese market once the technology is mature. This will take at least ten years.”

"So what's your main motivation for investing in Shanghai?" Director Wang asked.

“Five reasons,” Suning said, holding up a finger. “First, Shanghai has a stable situation and good public security, so we don’t need to worry about any risks. Second, land costs are low, which can save 30% on factory construction costs. Third, labor costs are low, which can save 50% on operating costs. Fourth, there is a good educational foundation, which can cultivate the talent we need. Fifth, long-term stability and return on investment.”

"that's it?"

“That’s all,” Suning said frankly. “That’s why we’re willing to invest. But if the price is giving up a controlling stake, then these advantages aren’t attractive enough to us. We can spend more money to build a wholly-owned factory elsewhere.”

Negotiations have stalled again.

……

During the afternoon recess, Robert privately said to Suning, "Boss, their bottom line is probably 50%. Should we concede?"

“We cannot back down.” Suning was adamant. “Wafer fabs are long-term investments, and control must be in our hands. If we give in today, there will be countless troubles in the future. In fact, we have already given in, since we initially demanded that the fab be built wholly owned.”

"But Shanghai's conditions are indeed the best! Compared to Shanghai, Taiwan and Singapore are really tiny places."

"Then let's talk again. If they insist, we'll give up on Shanghai and go somewhere else."

On the seventh day, negotiations continued.

Deputy Director Li spoke first, his tone more moderate than before: "Mr. Gan, we had another meeting last night. How about this: you hold 51%, we hold 49%, but..."

"but what?"

“But we need to sign a supplementary agreement,” said Deputy Director Li. “The agreement clearly states that you have autonomy in areas such as technology upgrades, equipment procurement, and international orders. However, we need to have a say in areas such as labor, procurement of domestic raw materials, and profit remittance.”

Suning and his team exchanged glances.

Robert asked, "How exactly should it be defined? What is the upper limit for the amount of money for technology upgrades? What is the approval process for equipment procurement? These things need to be clearly written down, otherwise there will be disputes later."

“We can set up a joint working group to develop these detailed rules,” Director Wang said.

Morris Chang shook his head: "By the time the detailed rules are finalized, it might be half a year. Factory construction can't wait."

Chen Weiming suggested, "How about this, we'll do it in phases. In the first phase, we'll build the factory as a wholly-owned subsidiary. We'll enjoy fewer preferential policies, but the decision-making process will be faster. Once the factory is running smoothly, we can discuss a joint venture three years later. By then, you'll see our sincerity and technical strength, and it might be easier to reach an agreement."

Deputy Director Li smiled wryly: "Mr. Chen, this is not in accordance with procedure. It's either a deal reached in one go, or no deal at all. There's no such thing as going from sole proprietorship to joint venture first."

They talked for another day, but still made no progress.

……

That evening, Suning held a meeting with Chen Weiming and Zhang Zhongmou in his hotel room.

"Do you think Shanghai is truly unwilling to compromise, or is it testing our bottom line?" Su Ning asked.

Chen Weiming analyzed: "I think it's fifty-fifty. There are indeed policy requirements, but they also want to win this project. The question now is who will make concessions first."

Morris Chang said, "Boss, we can actually consider a 50/50 split. As long as the technical decision-making power is clearly written into the articles of association, we can also accept a certain level of supervision in terms of operations."

“What about the risks?” Su Ning asked. “The risk is that if the relationship sours in the future, they can use non-technical issues to hold us back. For example, they can find excuses to delay us regarding employment, environmental protection, and safety inspections,” Robert said.

“That still won’t work.” Su Ning shook his head. “We must have control.”

On the eighth day, the atmosphere at the negotiating table became even more tense.

Deputy Director Li formally stated: "Mr. Gan, the highest percentage we can accept is 50% to 50%, plus an independent director. This is the final proposal."

Suning also officially responded: "Director Li, Ningxin Semiconductor can only accept controlling stakes, at least 51%. This is our bottom line."

The two sides looked at each other, both knowing that the talks were over.

“Well… I’m sorry.” Deputy Director Li stood up. “It seems that this cooperation cannot be achieved for the time being.”

“It is indeed a pity.” Su Ning also stood up. “But on matters of principle, neither of us can compromise.”

As they shook hands to say goodbye, Deputy Director Li said, "Mr. Gan, I hope we will have the opportunity to cooperate again in the future."

There will definitely be an opportunity.

Leaving the Jinjiang Hotel, everyone felt somewhat dejected in the car on the way back to the hotel.

Kevin said, "Boss, Shanghai really does have the best conditions. Land prices, labor costs, and power supply are all better than other places. Are we really giving up?"

“We won’t give up, but we can’t compromise either,” Suning said. “Building a factory in Singapore would increase costs by 30%, but the policies are stable. Going to Taiwan… the political risks are too great. What about Malaysia and Thailand?”

Chen Weiming said, "I've looked into it. Penang in Malaysia has factories for Intel and AMD, and the supply chain is relatively mature. Bangkok in Thailand is also attracting investment. But the infrastructure there is not as good as Shanghai's."

Just then, the phone in the car rang—it was a call from the hotel reception.

"Mr. Gan, a Mr. Zhou is looking for you. He says he's from the Electronics Industry Bureau and has something urgent to discuss."

"Have him wait for me in the hotel coffee shop."

Half an hour later, Su Ning met Lao Zhou at the coffee shop; Lao Zhou was the technical officer at the negotiating table.

He wasn't wearing a formal suit; instead, he was dressed casually.

"Mr. Zhou, what's going on?" Su Ning asked, somewhat surprised.

“Mr. Gan, please don’t misunderstand, I’m not here on behalf of the government today.” Old Zhou lowered his voice. “I just want to say a few words to you personally.”

"You say."

“Actually, I think you’re right to insist on holding a controlling stake.” Old Zhou was very direct. “I’ve been in the electronics industry for thirty years and have seen too many joint ventures ruined because of equity issues. When it comes to technology, people who don’t understand it shouldn’t give orders.”

Suning didn't respond, waiting for him to continue.

"I heard you went to Singapore to look at land?"

"Yes, the conditions are good, but the cost is a bit high."

"What if... Shanghai has a way to give you a controlling stake, but not in name only?" Old Zhou asked cautiously.

"What do you mean?"

"That's right. The legal documents state a 50/50 split, but in private agreements, you control the actual operations. You decide everything from technology upgrades and equipment procurement to personnel appointments. We only retain supervisory rights and do not interfere in the operations."

"Does this... comply with policy?"

“Policies are rigid, but people are flexible,” Lao Zhou said. “The key is that this project is too important to Shanghai. The first modern wafer fab can drive the entire electronics industry chain, create thousands of high-paying jobs, and cultivate a large number of technical talents. The city really wants to make it happen, but it can’t say so openly because of the policy.”

Su Ning pondered, "If we do it this way, wouldn't it require the tacit approval of the city's higher-ups?"

“Of course.” Old Zhou nodded. “If you agree with this idea, I can try to pass the message up. But I can’t guarantee it will work.”

"We need to think about it."

Okay. Give me an answer tomorrow.

……

On the ninth day, the Suning team held an internal discussion for a whole morning.

Robert analyzed from a legal perspective: "This arrangement of 'nominal ownership but no actual control' carries legal risks. If a dispute arises in the future, the court will only look at the business registration, not the private agreement. Moreover, if this operation becomes known to higher authorities, both parties will bear responsibility."

“But this is the only possible way to build a factory in Shanghai,” Chen Weiming said. “Old Zhou dares to say this because he must have been instructed by higher-ups. They just can’t admit it publicly.”

Morris Chang considered it from a technical perspective: "As long as we take the lead in actual operations and decide on the technical route, I think it's acceptable. Nominal equity is not that important."

Kevin worried: "But how will this be handled financially? How will the profits be distributed?"

“These can all be agreed upon in a private agreement,” Robert said. “For example, it can be agreed that profits will be distributed according to the actual investment ratio, rather than the equity ratio. It can also be agreed that although the number of board seats is equal, the general manager will be appointed by us and will have the right to make daily operational decisions.”

Suning finally made the decision: "We can try. But we need to clearly write down all possible disputes in a private agreement, especially the rights to make technical decisions, procure equipment, and appoint or dismiss personnel. In addition, we need to stipulate a dispute resolution mechanism—how will we arbitrate if disagreements arise?"

In the afternoon, Suning arranged to meet with Lao Zhou.

"Mr. Zhou, we agree to this approach in principle, but there are a few conditions."

"You say."

"First, the private agreement must be legally binding, preferably notarized in Hong Kong or Singapore. Second, the agreement must clearly state that all technology-related decisions, including R&D direction, equipment procurement, and process improvement, will be made by Ningxin Semiconductor. Third, the general manager and all heads of technical departments will be appointed by us. Fourth, profit distribution will be based on the actual investment ratio, not the equity ratio. Fifth, if future policies allow, we must have the right to adjust the equity ratio to the highest value permitted by law."

Old Zhou carefully wrote down: "These conditions... I think they're negotiable. I'll report back tonight."

On the tenth day, Lao Zhou brought good news.

"Mr. Gan, the higher-ups agree in principle. But there are two requirements: First, the joint venture must be registered in Shanghai and taxes must be paid in Shanghai. Second, you must promise to give priority to hiring local Shanghai residents and commit to a technical training program."

“Most of these are fine,” Suning said. “However, it’s impossible to give priority to hiring local Shanghai residents. Based on the future development of our wafer fab, we will not give preferential treatment to people from any particular region.”

"Then... shall we restart the negotiations?" Old Zhou asked.

“No,” Su Ning said. “The formal negotiations are over. Next, we will sign two contracts: one is the joint venture contract for the higher-ups, 50% to 50%. The other is a private agreement, which stipulates the actual rights and obligations. Once the private agreement is signed, we will start the project immediately.”

"Okay!" Old Zhou breathed a sigh of relief. "I'll go arrange it right away."

Three days later, two contracts were placed on the table.

One of them is the "Contract on the Joint Venture Establishment of Shanghai Ningxin Semiconductor Manufacturing Co., Ltd.", with equity split 50% to 50%, registered capital of US$100 million, and each party contributing US$50 million.

The other document is a thick "Supplementary Agreement and Articles of Association," which is over a hundred pages long and specifies all the details of the actual operation.

Su Ning and Deputy Director Li signed the public contract and exchanged copies.

The agreement was signed privately by authorized representatives of both parties in a separate room, without media or flashing lights.

After the signing was completed, Deputy Director Li shook Su Ning's hand and said in a low voice, "Mr. Gan, I hope this project will be successful."

"We will definitely succeed," Su Ning said.

As he walked out of the signing room, Morris Chang remarked, "After going around in circles, I've finally come back to where I started."

Chen Weiming said, "When doing business around the world, sometimes you have to be flexible."

Looking out the window at Shanghai, Suning said, "As long as things get done, we can be flexible. The important thing is that the factory can be built, the technology can be implemented, and the talent can be trained."

"What's next?" Kevin asked.

"Buy land, build factories, buy equipment, and recruit people," Suning said. "Two years from now, I want to see the first 'Shanghai-made' chip roll off the production line. We will acquire as much land as possible in Pudong."

The convoy left the hotel and headed to Pudong New Area to inspect land.

Shanghai's first modern wafer fab project was quietly launched in this "openly repairing the plank road while secretly crossing the Chencang pass" manner.

No one knows how many challenges the future holds.

But at least, the first step has been taken.

This crucial step wasn't about one side overwhelming the other, but rather about both sides finding that delicate balance...

Between principles and reality, between policies and needs, between controlling stakes and cooperation.

...(End of chapter)