TIM CLISSOLD has worked in China for sixteen years and travelled there ex-

tensively. After graduating in Physics from Cambridge University and work-

ing in London, Australia and Hong Kong, he developed a fascination with
China. He spent two years studying Mandarin Chinese before co-founding a
private equity group that invested in China.

Praise for Mr China

‘It’s got big money, charismatic capitalists, Communist apparatchiks, crime

and mysterious disappearances – the lot. Sadly for author Tim Clissold,
though, it’s not just a novel – it’s true . . . [But] it’s not, he insists, an anti-Ch-
ina book, at all . . . the real butts are the Wall Street types who thought they
could crack China without knowing what they were doing.’
Richard Spencer, The Daily Telegraph

‘Hard to put down . . . delightful for the engaging way in which it details the
hardships of any businessman who lives on the road . . . at the same time a
useful lesson for those who think there is anything easy about direct invest-
ment in brand-new markets.’
Economist

‘Engaging, extremely well-written and often very funny. An extremely in-

sightful account . . . we can’t recommend Mr China too highly: anyone in
business associated with China, however large or small, ought to read it and
learn from it.’
China-Britain Trade Review

‘A compelling view of China since Deng set its present course in 1992.’
Management Today
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‘Such a good book. It is a must-read . . . don’t leave home, heading for China,
without it.’
China Economic Review
 4/269

Mr. China
Tim Clissold

ROBINSON
London
 5/269

Constable & Robinson Ltd

3 The Lanchesters
162 Fulham Palace Road
London W6 9ER
www.constablerobinson.com

First published in the UK by Robinson,

an imprint of Constable & Robinson Ltd 2004

This edition 2002

Copyright © Tim Clissold, 2004, 2006

The right of Tim Clissold to be identified as the author of this work has been asserted by him in
accordance with the Copyright, Designs and Patents Act 1988

All rights reserved. This book is sold subject to the condition that it shall not, by way of trade or
otherwise, be lent, re-sold, hired out or otherwise circulated in any form of binding or cover oth-
er than that in which it is published and without a similar condition including this condition be-
ing imposed on the subsequent purchaser.

A copy of the British Library Cataloguing in Publication data is available from the British
Library

ISBN-10: 1-84119-788-2
ISBN-13: 978-1-84119-788-2

Printed and bound in the EU

7 9 10 8
 6/269

For
Christian, Honor, Max and Sam
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A Chinese Chop

‘The events that I describe in this book actually happened; but this is the
story of an adventure, rather than an expose of a particular company and,
since it describes circumstances that many foreign investors find in China, I
have changed the names of some of the companies, places and people who
appear. The main events described took place between 1995 and 2002.’
 8/269

Everything under heaven is in utter chaos;

the situation is excellent.

Chairman Mao
 9/269

Contents

Preface: Mr China

Map of China

We are But Wanderers at the Ends of the Earth

A Journey of a Thousand Li Begins From Under One’s Feet

If You Won’t Go into the Tiger’s Lair, How Can You Catch the Cubs?

We Tramped and Tramped Until Our Iron Shoes Were Broken

Three Vile Cobblers Can Beat the Wisest Sage

Wind in the Tower Warns of Storms in the Mountains

The Magistrate’s Gates Open Towards the South

Crushed by the Weight of Mount Taishan

The Battle of Ningshan: The Mightiest Dragon Cannot Crush the Local
Snake

The Siege of Jingzhou: Up in the Sky there are Nine-Headed Birds

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The Bottle Finally Bursts: Nineteen Thousand Catties Hanging by a Single

Hair

The Iron Tree Blossoms

Author’s Note

Postscript
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Mr. China

The idea of China has always exerted a pull on the adventurous type. There is
a kind of entrepreneurial Westerner who just can’t resist it: red flags, a billion
bicycles and the largest untapped market on earth. What more could they
want? After the first few visits, they start to feel more in tune and experience
the first stirrings of a fatal ambition: the secret hope of becoming the ‘Mr Ch-
ina’ of their time, the zhongguo tong or ‘Old China Hand’ with the inside
track in the Middle Kingdom. In the end, they all want to be Mr China. They
want to be like Marco Polo roaming China as the emissary of the Kublai
Khan. Or the first pioneering mill owners lolling about in the opium dens in
Shanghai, dreaming of the fortune to be made if every Chinese would add an
inch to his shirttails. Kissinger must have felt like Mr China as he schemed
against Russia with Zhou Enlai; Edgar Snow may have been the same as he
stood on the Gateway of Heavenly Peace with Chairman Mao. And of the
countless businessmen who come to China with high hopes of the ‘billion
three market’, how many long to become the ultimate China Hand, the only
outsider, the first and only laowai to crack China? But in the end, it’s an
illusion.
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13/269
 One

We are Wanderers at the Ends of the Earth;

But to Meet Each Other Here,
Why Must We Have Met Before?
Bai Ju Yi: Pi Pa Xing
Tang Dynasty
AD 650–905

For anyone whose mood is affected by the weather, Hong Kong in October is
heaven. There’s a month of perfect blue skies with a bite in the air and a
sharpness in the light that accentuates the dense green on the Peak against the
brilliant blue of the harbour. So with my spirits buoyed up in the sunshine, I
cut through the Botanical Gardens on my way towards Admiralty. A col-
league in Shanghai had set up my meeting and I had no particular expecta-
tions. There was still plenty of time so I stopped to admire the orchids for a
while.
I took the lifts to the eighteenth floor and waited. There was silence apart
from the slightest breath of the air-conditioning. The deep red thick-pile car-
pet absorbed all traces of footsteps. Terracotta figurines stood in carefully
backlit alcoves; there were lacquer vases with twigs of twisted hawthorn and
one or two high-backed Chinese antique sandalwood chairs. The faintest
scent of pollen drifted across from the huge white lilies in the tall glass vase
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on the table. And the silence. As I waited on the black leather couch, I
couldn’t help feeling that it was like so many other offices in these tall glass
towers where nothing ever seemed to happen. Maybe I was about to meet an-
other wealthy US business executive using the boom in Hong Kong as a cov-
er for an early retirement away from the wife back home. Or maybe not.
There was more style to this place than the average.
I was shown into an office behind a frosted glass wall. There were match-
ing leather sofas, a full-length map of China on the wall and a spectacular
view of the harbour. Behind the vast black polished desk there were shelves
lined with ‘tombstones’, those little perspex blocks that investment bankers
keep as trophies for their deals, with miniature copies of the public announce-
ment of the latest buyout or merger inside. A framed copy of the front page
of the New York Times hung on the wall. It reported comments about the
Black Monday crash from prominent players on Wall Street. There were two
photographs on the front page: one was of Rockefeller, the other was of Pat.
‘How y’doing?’
An enormous figure strode into the room, squeezed my hand and gestured
towards the low table near the windows. Tanned and relaxed, he looked like
he was in his mid-forties. Difficult to tell: he was fit, I thought, that was for
sure, powerfully built, a real bruiser in fact; the only clue to his age came
from the slightest frost at the temples. After the small talk and the exchange
of name cards, he leaned back in the chair, threw his arm over the back, and,
with one foot on the edge of the glass coffee table, started out on his story.
‘Let me give you a bit of background and go through what I’m doing out
here,’ he said.
The story that unfolded over the next hour instantly seized my attention.
The son of a steelworker from Pittsburgh, Pat had been on Wall Street for
twenty years. His athletic appearance must have come from his passion for
American football in earlier years and his conversation was still laced with
references to the sport that I couldn’t always follow. He told me that he had
majored in American history at Yale and, after graduating in the early 1970s,
he joined one of the top investment houses on Wall Street. ‘All the smart
guys go into investment banking,’ he said, ‘that’s where all the money is.’
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After a few years, he went to study for his MBA at Harvard Business School
and graduated with high distinction.
When he went back to Wall Street, he joined one of the mid-tier invest-
ment banks that looked as if it was on the way up. He said that joining a mid-
tier bank had helped him learn the ropes and stand on his own two feet. ‘At
the top-tier banks, you’d just be part of a machine and rely on the brand-
name rather than your wits to win the deal.’ It seemed as though it had been a
smart move; the more conservative establishment banks might have been
tough going for someone with his background. He worked on M&A at the
bank.
‘Mergers and acquisitions,’ he said, ‘taking smart ideas to the CEO, per-
suading him to buy up another business and then raising the capital to do it.’
He was good at it and ended up running the whole investment banking di-
vision. In his first year as head of investment banking, revenues doubled and,
by the end of the great bull run of the 1980s, Pat had a seat on the Board and
had collected his millions on the way up. ‘Yeah,’ he said with a huge laugh,
‘I had the Jag, an apartment on Park and houses up-state, just like all the oth-
er buffoons on Wall Street.’
By that time, the bank was poised for further growth but didn’t have the
money to compete with the real Wall Street heavy hitters: it needed a big cap-
ital infusion to take it to the next level. Pat had led the protracted and com-
plex negotiations with a big Japanese investment house to recapitalize the
business. He eventually signed the deal that brought nearly three hundred
million into the bank to fund the next level of growth. He was a hero. But by
then he’d climbed to the top of the ladder and he was looking for something
new.
‘You know, Wall Street goes in phases,’ he continued. ‘It’s a question of
getting there first and being ahead of the curve; creating the leader in
whatever’s gonna be the next big story. Just like Milken did with junk
bonds.’
‘Junk bonds? How?’ I asked.
‘Well, basically he realized before anyone else did that if you took low-
quality paper – you know, debt securities of mid-sized companies and so on –
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and you securitized it at a fat discount, you could end up creating a whole
new market.’
‘Right,’ I said, smiling but not having a clue what he was talking about.
‘The same happened in the LBO business. You see, KKR were first
movers for LBOs and once they got a hold on the market, no one else really
got a look in.’
‘KKR?’
‘Yeah.’ A quick glance my way. ‘Dominated the LBO market in the mid-
eighties.’ He looked curiously at me again. ‘LBO, yeah?’
LBO. LBO. ‘Leveraged buyout,’ I said triumphantly.
‘Right!’ A second sixty-decibel laugh exploded in my ear. They were in-
fectious, those laughs, I thought. This could turn out to be fun.
He told me that while he was at the investment bank he had raised a lot of
money for one of America’s big media moguls. John Kleaver had come to
him when he needed money to build up his company, MediaStationOne, by
buying up radio stations all over the country. ‘The scheme was so success-
ful,’ said Pat, ‘that a few years later, when Kleaver sold out, he was worth
about three billion.’
‘Three billion?’
‘Yeah, so I set up an LBO firm with Kleaver. He provided the capital but I
ran it. Still, we were a bit late in the cycle,’ he continued. ‘The LBO business
was getting competitive. We did a couple of deals but it didn’t look like it’d
work out long term so I started figurin’ out where the next big movement of
capital would be. The smart people figure out where the money flow will be
and get there first. It’s a question of riding the next wave and that’s why I’m
in Asia.’
I pieced together the next bit of the story from an article I found in the Asi-
an Wall Street Journal a few weeks later. It seemed that Pat had teamed up
with an ex-colleague from the bank who ran the risk arbitrage department.
Bill was one of Wall Street’s best arbitrageurs or take-over stock traders. The
rumour was that he quit the bank after a row when they only paid him an an-
nual bonus of twelve million dollars. Bill was convinced that the Asian eco-
nomies were on the way up and decided that Hong Kong would be one of the
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best places to make money over the next decade. He convinced Pat to join
him and the two of them had made several trips out to Asia to ‘kick the
tyres’. They had toured Japan, Korea, Indonesia and the Malaysian peninsula.
It seemed as if Asia was on the way up and that it would need huge amounts
of capital to build the roads and the power stations and the car plants to mod-
ernize the economy and develop new markets. Billions of dollars, maybe; and
the only place that could provide that kind of money was Wall Street.
They came out on three trips and met with bankers and big business lead-
ers all over the region. Pat said that he was amazed how receptive people had
been. ‘It was just like we’d walk in off the street and people would see us. No
one would do that back home unless they were pretty desperate for capital.’
All this had convinced him of two things. First, that there was an enormous
need for money but no one was really in the market for providing it; second,
that the real action was going to take place in China.
Everywhere Pat went, people were talking about China; whether they were
enthusing about the opportunities for new markets or were nervously looking
over their shoulder and fretting about the new entrepreneurs with their factor-
ies and cheap labour up the coast, they were talking about China. So Pat had
taken a few trips up to Shanghai and Guangzhou – and he had liked what he
saw.
‘It’s amazing what’s going on up there – it’s really buzzing. The timing’s
just right because they’ve started off but there’s no way for them to get capit-
al up there. And it’s not like India. India is dominated by a few powerful
families, it’s a real clique and they’ve already got money. Just like Japan and
Korea. Why are any of these guys ever gonna give you a place at the poker
table unless it’s just to take your money? China’s different. I reckon there’s a
way in for an outsider. The economy grew up on the lines of a planned eco-
nomy so government officials control it rather than big families like in India.
I just figure that if these officials have a chance to get capital to grow their
businesses, they’re gonna grab the opportunity.’
I agreed.
‘So, anyway,’ he continued, ‘what’s your story?’
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Two

A Journey of a Thousand Li
Begins From Under One’s Feet
Lao Zi: The Tao and Its Virtue
c. sixth century BC

Five years earlier, I’d arrived as a blank sheet of paper.

As I flew to Hong Kong from London for the first time, I had no idea
where it was. I didn’t care. Flying in from on high in the late afternoon, I
gazed down on a scattering of islands that looked like pebbles thrown care-
lessly into the South China Sea. I could pick out a rocky peak half hidden by
heat haze and surrounded by a belt of glass spikes. Ten minutes later, after a
momentary shudder through the dense patches of cloud lower down, the
plane took the last-minute hairpin to the right. As we bounced to a halt on the
tarmac, the smell was in the cabin before the doors opened. Damp heat.
I still remember vividly the taxi ride from the airport to the seedy hotel in
Wanchai. Night had fallen and neon characters of every size and description
leered at me through the taxi window. It was a new world. The streets were
teeming. Nobody slept.
Over the coming weeks, new sensations seeped into me. The smells, the
dress, the food, the sounds, the written word. Wherever I looked, the Chinese
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were bargaining, unloading from boats, hammering in tiny factories. I

couldn’t believe that such a concentration of human life could exist in a state
of perpetual motion. The pace of life was so relentless that I became swept up
by its momentum. I soon felt like a part of some vast machine.
As the days passed, I quickly grew to like the place and started to take in
more of the surroundings. I often went up to the little path near the summit of
Hong Kong Island that winds around the Peak from the tram station. After
about half a mile in the shade of the India-rubber trees with their roots trail-
ing out of the branches down to the ground, round a bend the leaves suddenly
clear and the path opens out on to the sky from the cliff face. On first sight,
the view over the harbour to the mountains on the other side quite catches
your breath, it is so dramatic: a vast modern city with glass towers and spikes
set in a huge natural amphitheatre with the ocean as its floor. I stared out over
the harbour, breathing in the atmosphere as the city churned below, counting
the scores of ocean ships in the port and the planes queuing up to land at Kai
Tak from the west. I could see a tiny trail of smoke from the green and white
funnels of the Star Ferry as it inched its way across the harbour. A distant
roar rose up to the skies from far below: the sound of a thousand engines, the
clatter of trams, the hammering of piledrivers, the occasional shout from a
worker perched high on the bamboo scaffolding around the next half-built
glass tower.
From any direction, the geography of Hong Kong draws the eye towards
the mainland. The island seems to wrap itself around the tip of the peninsula
opposite like a giant horseshoe, so that from any point the view focuses on
the row of nine hills behind the mist on the other side. Whenever I went over
to Tsim Sha Tsui, I took the Star Ferry and sat on the polished wooden seats
with the spray on my face, taking in the smell of oil and the sound of the
ropes creaking as they strained against the vast iron stubs anchoring the ferry
to the quayside. As I sat there on the ferry, gazing ahead through the heat
haze, I found myself wondering about China, wondering what it was like be-
hind those nine hills beyond Kowloon on the other side.
Hong Kong had never really seemed English to me. Sure, there were the
bars in Lan Kwai Fong where, if it weren’t for the heat, I might pretend that I
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was in Fulham. There might be the odd judge hurrying along in his wig and
red coat-tails near the High Court and plenty of pinstriped bankers in Central,
but that was only on the surface. Scratch below that and everything that
mattered was Chinese.
The papers were full of stories about some huge power struggle up in
Beijing but I couldn’t figure out exactly what had been going on. The names
were all so similar (and back to front) that I could never quite see who had
done what and to whom. There were photographs of a dour-looking man with
thick glasses, an unconvincing smile and collars that were slightly too big
who seemed to be the Prime Minister. But the country was ruled by an
eighty-year-old recluse who did little but play card games; that and control
the Army. I found an old guidebook in a second-hand bookshop in Holly-
wood Road and, as I thumbed through the disintegrating pages, I was amazed
at the size of China: vast areas of uninhabited frozen wastelands in the west,
huge deserts further north and then an incredible crush along the coast. The
faded sepia pictures of pavilions and sweeping tiled roofs in the Forbidden
City caught my imagination and I wanted to see them for myself. I knew that
parts of China had been open to foreigners from the early 1980s and when I
met the odd person who had been there I questioned them eagerly. Some
seemed lost for words, almost annoyed by the place: ‘Don’t go there, it’s ab-
solute chaos.’ Others seemed puzzled in an amused sort of way: ‘Of course, it
was all very interesting, but the people were a bit odd. They always preten-
ded that they didn’t have train tickets when you knew that they did, or that
the restaurant was full when you could see that it was empty.’ But for some it
was in their blood. They seemed possessed. And when they couldn’t explain
exactly why, it fed my curiosity.
Slowly, an idea developed in my head: why not head back for England
overland through China and take the Trans-Mongolian railway through Mo-
scow on the way? So I started reading up about China and found that the pass
over the mountains from northern Pakistan had been opened. I heard that it
was possible to follow the Silk Road along the northern edges of the deserts
in north-western China. There was also a southern route but no one knew
whether it was open. I tried to learn the odd phrase of Chinese, for
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emergencies, but the words came out in a way that just drew blank stares.
Still, I persisted and, the following spring, I set off for China.
I went in through the Karakoram Mountains, where Afghanistan, Pakistan
and China meet. The mountains there are capped with thick glaciers and in
places the road almost disappears. At last it descends towards the deserts in
north-western China. Heading east towards Beijing, I followed a string of
oasis towns on the edge of the desert. After ten days in a bus, aching and
bruised, I reached the railhead and boarded a train for central China. Three
months later and a stone and a half lighter, I slipped through the Wall and
crossed the grasslands to Moscow.
As I sat on the train through Russia and watched the endless pine forests
recede towards the east, I couldn’t assemble all the things that I had seen into
any coherent form in my mind: the street urchin who pushed a knife through
his wrist for a few coppers, the blind people’s massage parlour, the pickled
human heads in an underground city, peasant villages and huge polluted cit-
ies, the crush of people in the stations. But I had a sense of something so vast
and so old, so chaotic and so utterly foreign, that it took me right out of
myself.
I knew that I had barely scratched the surface, but I could see that hun-
dreds of millions of ordinary Chinese were on the march for a better life. It
was like Hong Kong but on a cosmic scale. I felt energized; there was such a
sense of purpose in among the chaos. An age-old culture had somehow taken
a wrong turn, but I could feel the determination to catch up.
And there was something else, something funny about China that told me
not to take it all too seriously. I had just caught the tail end of the planned
economy, where Beijing still tried to manipulate the minutiae of China’s vast
economy. On the macro scale it was madness; how could the bureaucrats in
Beijing coordinate the annual production of a billion pairs of trousers, or two
billion pairs of socks across a country several times the size of Continental
Europe? Even on the streets I often found that common sense seemed
swamped by some vast nonsensical central plan. It completely inverted the
normal relationships where the customer was king. Here the planners
provided everything and the customer, it seemed, was supposed to be
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grateful. Huge arguments arose over the simplest of transactions. At times,

for example, it might take half an hour to persuade a receptionist to let me
stay in a hotel. She’d say that it was full and that there were no rooms avail-
able. At first I was puzzled and went away wondering where all the guests
were. But I figured out that under the planned economy, it made no differ-
ence whether a hotel was full or empty and if there were guests there would
be more work to do. Since everything was owned by the State no one cared;
in fact, no one higher up even knew what was going on. So the receptionist
would simply announce that they were full and wave people away so that she
could go back to her newspaper.
The trick was to come back with objections until they finally agreed to let
you in. It was the same in shops, at bus stations, in restaurants or when hiring
bicycles. Sometimes I had to persuade a shop assistant to sell me something
that I could see behind the counter; she’d say it had already been sold or that
it was broken or that it was the last one and had to be kept for display. I’d go
into a restaurant and they’d tell me that there was no rice or I’d go to a bar
and they’d pretend to be out of beer. I even found a restaurant in Xi’an that
closed for lunch. But after a while, I learnt to probe and question, cajole and
persuade – and never to give in! So I barged into kitchens in restaurants to
find something to eat and went upstairs in hotels in search of an empty room;
I grabbed whatever I needed from behind shop counters and searched sheds
for bicycles to hire. Even going to buy vegetables was a challenge but I
sensed a rapport with the people I met; it was almost as if they enjoyed the
game of wits and they often gave me a laugh or a smile once they finally
gave in. I never felt any malice from them; it was more like a bad habit that
no one seemed able to kick.
There were many other habits that could push a newcomer into either lov-
ing or hating China: the extreme curiosity towards foreigners in the 1980s,
for example, or the dogged adherence to incomprehensible rules. When the
attendant on a railway carriage woke you up in the middle of the night for the
third time to clean under your feet with a filthy black mop, just because there
was a regulation to sweep the floor every two hours, you would, as they say,
either laugh or cry. There wasn’t much middle ground. On the other hand,
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ordinary things like hotel notices or restaurant menus were full of bizarre
rules and mistranslations. There were signs everywhere that said ‘Beware of
Smoking’ and ‘Stop Spitting!’ The regulations in the Shanghai Peace Hotel
included restrictions on ‘bringing poisonous or radioactive substances into
the hotel’ or ‘letting off fireworks in the room’, as if such matters were per-
fectly normal occurrences. Also banned was ‘fighting, gambling, drug taking,
whoring or making of great noise’, and there was a rule that no guest was
(sic) ‘allowed to up anyone in their room for the night’. Another hotel had a
brochure which described its wonderful gardens and said that they hoped that
‘all our guests will be depressed by the flowers’; the Chinese version meant
‘impressed.’ Restaurant menus were similar; I found an upmarket restaurant
in Guangzhou which served ‘camel’s hump in wonderful taste’, ‘double
boiled deer’s tail in water duck soup’ and ‘roasted sausages in osmanthus
flowers’. Another one down the road, which was slightly more modest and
obviously trying to attract foreigners, had its menu in English offering ‘lunch
on meat with egg’ and ‘scramfled egg with lunch on meat’, but it rather lost
track with the ‘squid beard’ and ‘fried field snail in bear sauce’. I thought it
must have meant ‘beer’ sauce, so I looked up the Chinese characters, but they
seemed to mean something to do with ‘bell peppers’ so I was none the wiser.
Over and above the chaos on the streets, the mistranslations and endearing
absurdity, there were huge changes under way that brought to mind the old
aphorism attributed to Napoleon: ‘Let China sleep, for when she wakes up
she will shake the world.’ True, China was starting from a low base but the
vast majority of the changes was positive. The UN reported that in the 1980s
alone over a hundred and twenty-five million people had been lifted out of
absolute poverty. I became convinced that the country was on the way up as
the shackles of the Communist system fell away. There was a sense of optim-
ism everywhere, a feeling that things would continue to get better.
So, by the time that I left China after that first solo journey of three months
back in 1988, I knew that I had found something that completely absorbed
me. I felt that it might change my life; and it did. In retrospect, sixteen years
on, I can recognize something common in many people new to China. I had
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become almost intentionally dazzled. I had set off wanting China to be

something special and therefore it was. It was a kind of wilful infatuation.
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Three

lf You Won’t Go into the Tiger’s Lair,

How Can You Catch the Cubs?
Han Dynasty Proverb, 202 BC–AD 220:
‘Nothing ventured nothing gained.’

When I got back to London, my head was still in China. I found myself
straining to catch the odd Chinese character out of the corner of my eye from
the top of a bus, or absent-mindedly wandering towards Chinatown to rum-
mage in the bookshops and enjoy the familiar smells. I had found something
new and exciting but in London little had changed. Two more years up the
ladder, many of my colleagues were climbing a structure without ever paus-
ing to wonder whether it ought to be climbed. I couldn’t reengage. I couldn’t
take it seriously when, on the other side of the globe, an epic struggle was un-
der way.
As I sat in an office dreaming of the chaos, the packed railway stations and
crowded street markets, I toyed with schemes that might get me back there.
Surely with changes on such a scale and at such a pace, there had to be a way
back for anyone willing to take a risk? I spent hours every day dreaming
about starting a business out there, building pagodas in the sky and scheming.
Eventually, I went to see the senior partner of the firm to ask whether he’d
 27/269

send me back. I thought that I might be able to persuade him to set up an of-
fice in China to help clients invest, but the interview was a disaster. I had
been shown into an office and my heart sank as I saw the figure behind the
desk: late-fifties, perfect blue pinstripe, silver hair with not a strand out of
place, hands resting palms down on the surface of a huge pine-wood desk in
an office overlooking the Thames. There was something unnerving about the
desk, that enormous clean expanse of bare wood; an uncluttered desk shows
an uncluttered mind, I supposed dejectedly. So the interview went about as
badly as it could have done; he clearly thought that I was a lunatic. So I went
back to my desk to hide. But after a while I thought, ‘Sod it!’ I found a
Mandarin course and handed in my notice.
About a week after I left my job, I suffered a momentary loss of confid-
ence. The headline on the front page of The Times describing the crisis in Ti-
ananmen Square read ‘Peking in flames as China slides into Chaos.’ My
mind flew back to the last few hours I had spent in Beijing a year earlier, just
before I got on to the train to Moscow. I had sat for a while on the steps of
the huge monument to the People’s Heroes in the middle of Tiananmen
Square. The old men were flying their kites; beautiful yellow paper kites,
with lions’ heads and dragons’ tails. I watched as they shuffled back and
forth across the paving in their soft cloth shoes and the kites swooped and
soared around the great stone obelisk. Everything had seemed so calm then,
perfectly set into its allotted place. But a year on, after the tanks had rumbled
on to the Square, the world had changed.
When I got back to China in the summer of 1990 the monument was all
fenced off and surrounded by guards. As I stepped out on to the vast open
surface of the square, people were tense, unwilling to engage, wary of contact
with the few foreigners who had returned to China. The last rays of the set-
ting sun caught the yellow tiled roofs of the Forbidden City. In the distance, I
could see the faint smile of Mao Zedong on the Gateway of Heavenly Peace,
the face in the giant portrait silently watchful. A smile just like the Mona
Lisa’s: serene, humourless and utterly ambiguous – just right for a tyrant.
The atmosphere in the university where I had enrolled in a Mandarin
course was just the same. People were cautious. It was no time to take risks
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or to stick out from the crowd, so it took several months before I was able to
make Chinese friends.
I lived in the university for nearly two years. At times, I was the only white
boy among a thousand Chinese. Foreign students were kept apart in a separ-
ate building. There was a campaign against ‘spiritual pollution’ but after a
while Chinese students sought me out. Their natural curiosity soon got the
better of the vague regulations designed to separate us. It was still a novelty
for them to talk English to a foreigner rather than reading it from a book.
When the first few students found that I was receptive, many more followed.
My time at the university was my first brush with the real China, the China
from which you cannot escape. At first it was intimidating. For a start, I
wasn’t used to the constant intrusion. There was never a second of privacy,
never a moment of silence, a moment for repose, or an opportunity to gather
one’s thoughts. I was bombarded with noise: at six o’clock the campus
speakers blared out marching tunes for compulsory early morning exercises;
at ten-thirty they announced lights out. I often came back to my room to find
a line of students waiting. There was no escape from the endless, grinding re-
quests for English lessons. I could see why there was no Chinese translation
for ‘privacy’ in my dictionary; the concept didn’t exist.
I wasn’t used to all the restrictions imposed by the authorities and matters
were made worse by the vagueness of the regulations. I was jumpy because I
never really figured out what I could or could not do. Once my brother came
to visit me in Beijing and slept on the floor in my room. The next morning
the Dormitory Chief, in his blue overalls and thick glasses, arrived stony-
faced at the door. He had been tipped off by one of the girls who delivered
the hot-water thermoses that I had a guest in my room. He was furious be-
cause I hadn’t asked permission. I apologized and said that it had never oc-
curred to me that I needed to ask; we weren’t doing anything harmful. But he
wasn’t to be put off and it developed into an unpleasant row. My brother had
to leave and find somewhere else to stay. A few days later I went back to the
dormitory office; I wanted to avoid any more exhausting scenes like the last,
so I called through the little hatch to the Dormitory Chief and politely asked
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for a copy of the rules. He said that I couldn’t have them so I asked, ‘Why
not?
‘Those rules are internal and not to be told to the outside.’
‘What does that mean? If I don’t know what the rules are, how can I obey
them?’
‘Our regulations are very clear.’
‘Oh, I’m sorry, but that’s not my point,’ I replied. ‘If I don’t know what
rules you have, I can’t follow them.’ After a few more rounds, I gave up. I
never did get a copy. I discovered years later that this ‘internal rule’ concept
was applied across the board in China, even to things like income tax. It’s
hardly surprising that China’s tax system is so inefficient when no one knows
what they’re meant to be paying. At the university, the only thing I ever knew
for sure was that it was lights out at ten-thirty with all the doors locked. If
you were caught with a girl after hours, you’d be thrown out of the country.
Vast amounts of time seemed to be taken up by the most mundane tasks. I
stood in endless queues at the university canteen, where they served only
cabbage and rice for months on end in enamel bowls shoved through a hatch
in a brick wall. I waited an hour and a half for a shower. But as the months
rolled on, I settled into a semblance of routine.
The Beijing autumn is very short and after a few weeks of golden leaves
and vermilion sunsets, winter howls in from Mongolia. My room, which
faced north, was a stark concrete box on the second floor of a brick dormitory
building. It came with an iron bedstead, a forty-watt bulb hanging on a wire
from the ceiling – and not much else. In winter, the freezing wind blew
straight through the metal-framed windows until I sealed them up with tape.
The cold was bad enough, but the cruellest part of the winter was the dryness.
Wood cracked, earth dried to powder and skin creased and aged in the desic-
cating cold. Every morning, as I scraped a thin layer of ice off the inside of
my window, I tried to keep warm with a small electrical stove. Stoves were
banned and the authorities soon found me out. They monitored the electricity
on each floor. There was a search but I refused to hand the heater over. Then
one day the electrical wire, which was far too thin for the current, burst into
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flames, leaving a large black hole in my bedcovers. After a huge row, my

stove was confiscated and I took to wearing several layers of clothes.
Cleanliness suffered in the winter. The only hot water came in a green
plastic thermos left outside the door each morning, and it was difficult to
keep clean. For months on end, I felt grubby, as if I were on a camping holi-
day. Clothes became grimy because there was only a stone sink and a bucket
for washing. I used to wash my jeans there, but in winter the water was so
cold that the bones in my hands ached unbearably. Wringing out clothes was
agony. Afterwards, when I hung them out to dry, they froze solid in minutes.
I often carried them back inside clutched under my arm with the legs sticking
straight out in front like a cardboard cut-out.
When I eventually ventured into the Chinese students’ domitories, I felt a
lot less sorry for myself. I had never seen anything like it. Seven students
crammed into a tiny room in bunk beds, with inadequate lighting, wire cages
over the windows and not much in the way of heat or sanitation; and that for
the best scholars in China. The rooms were arranged off a central corridor
and the students threw rubbish out of their rooms on to the floor for collec-
tion later on. The walls were blackened to waist height and hadn’t been
painted for years. The girls’ dormitories were even worse because they
cooked on makeshift electrical stoves perched on top of piles of bricks in the
corridors so that the floors were covered in scraps of food, pools of dirty wa-
ter and discarded tins. At the end of the corridor, where the toilets were, great
piles of used sanitary towels had been tipped out of the wire baskets in each
cubicle and swept out over the floor into the corridor outside. The concrete
floor was cracked with potholes, so it was impossible to clean up properly.
Although the dull winter months in Beijing could be dispiriting at times,
the planned economy still provided some light relief. Beijingers have a tradi-
tion of eating cabbage in the winter. It resists the cold and doesn’t get dam-
aged by the frost so, in earlier years when food was less plentiful, the
Government organized cabbage to be brought into Beijing and distributed
free to the people. Each year, from early November, long convoys of trucks,
queued up on the outskirts of the city, waiting until nightfall to rumble in
with their vast loads of cabbage into the city. Thousands and thousands of
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tonnes of the vegetable were brought in and piled up at the main intersections
in the city. Teams of elderly women guarded it by night and handed it out
during the day. The whole process took about a month and the huge mounds
on the street corners became a familiar sight. However, in the run-up to that
first winter in Beijing, the government set the price too high and the peasants
in the surrounding countryside grew nothing but cabbage. The result was a
massive glut. The piles of cabbage grew and grew until they were ten feet
high and hundreds of yards long. After a month, cabbage leaves were every-
where: on the pavements, on the roads, inside buildings, stacked up on win-
dow ledges. The leaves soon mashed down into a thick, slippery green slime
on the ground. Bicycles collided, cars bumped gracefully into each other and
people spent half their time picking themselves up off the floor and scraping
cabbage sludge off their trousers. It got so bad that the Mayor of Beijing went
on the radio and made a speech during which he said that it was everyone’s
‘patriotic duty’ to eat cabbage. Although all the political sloganeering over
the years had dulled the Beijingers’ senses, the Mayor’s remark provoked
howls of derision and, to this day, long-leafed cabbages are still known in
northern China as ‘Patriotic Cabbage’. As winter changed to spring, there
was an almost tangible relaxation as the ripples from Tiananmen receded to-
gether with the cold. Even the political campaigns on campus became half-
hearted. I heard that there were still compulsory Marxism lessons on Tues-
days, but the students generally sat around reading novels. The teachers were
bored senseless, just like the students, so they made no attempt to impose dis-
cipline. Gradually, the flavour of life changed. As the spring came round, the
cherry trees blossomed and the regimen as well as the weather seemed to
thaw out.
Between the lighter moments provided by the planned economy and the
restaurant menus, living in China was much harder than I had expected. All
the same, I felt that I was peeling back the layers to find out what was at the
core. I made slow but steady progress with the language and after a year or so
I could enjoy a simple conversation with a stranger. Although I knew that life
in China could be tough, I felt I was slowly mastering it, but from time to
time I came across small incidents where I felt a hardness that I had never
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known at home and which would set me back a few weeks. I remember once
seeing an old man, dazed on a sidewalk, who’d been knocked off his bicycle
and concussed. He was sitting unattended in the broken pieces of a pot of
pickled vegetable roots that he had been carrying, surrounded by pedestrians
all arguing about whose fault it was. Occasions like that would shake me.
Another time I met a leper sitting on the pavement not far from Tiananmen
Square. His skin was terribly sore, red and messy, and his hands were all dis-
torted. I went to get a carton of milk and fitted a straw into it for him. I
passed by the same place about half an hour later and found some people in
uniform questioning him sharply, wanting to know where he had found the
milk. A truck arrived. They threw him in the back like a sack of potatoes. I
screamed at them, but it was as if I wasn’t there. I was an embarrassment. As
they drove off, he looked at me out of the back of the truck and smiled Mao
Zedong’s smile, serene but expressionless. I’ll never know quite what it
meant but I was starting to sense a sort of protective detachment that some
Chinese people needed in order to survive.
At the same time, of course, there were many kindnesses, small acts of
charity that meant so much to me as I struggled in unfamiliar surroundings.
They showed the human side of China.
These experiences made me feel as if the rigidity of the regime in China
magnified each side of human nature: the good and the bad; the pettiness and
the generosity. But what would it make out of me? I felt under stress dealing
with such a foreign environment, and if the pressure really built, which way
would I turn?

After a year at the university I was rapidly running out of cash. I had been
studying full time and had quickly got through everything I’d saved in Hong
Kong so I found a job writing up books in my shaky Mandarin in an office
down the road. I used to get there on my bike each day, about half an hour if
the wind was with me.
A sandstorm blasted through Beijing one day in April 1992 and caught me
on my way to work. The dust storms in northern China in the late spring are
often so dense that at times they blot out the sun and the light fades into
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dusky sepia colours. It took me an hour straining against the wind before I
got to the office and when I arrived I was filthy. After I’d rubbed the grit out
of my eyes, I found on my desk a letter from England. A friend had sent me a
copy of a job advertisement from the Financial Times in London. ‘Mandarin
Speaker Needed by Large Financial Services Company.’ It looked interest-
ing. They needed someone to help them advise investors how to get into Ch-
ina. My mind’s eye instantly flew back to the short interview in London and
that awful uncluttered desk. I could have written that job spec three years
earlier when I’d gone to see Old Roy back in London.
I cobbled together a CV and sent it off. When I called the number later in
the week, the voice at the other end of the line was chuckling. ‘You won’t be-
lieve who it is,’ I heard him say through the crackles from London. ‘It’s your
old firm. Andersen!’
‘What?’ I said as it slowly sank in.
‘Yeah, it’s Arthur Andersen!’
‘Yes!’ I shouted punching the air. The interview was a walkover and, two
years after I left them in London, I went back to rejoin the firm in Hong
Kong that summer.

During my time in Beijing, I had started to figure out that China was ruled by
complex and ceaselessly shifting alliances within a group of very old men,
known as the ‘Eight Immortals’. I never made any serious attempt to under-
stand how it all worked, but at the centre of these fluid coalitions was a man
called Deng Xiaoping.
Deng had been a senior member of the Red Army prior to Liberation and
for years afterwards he was a key figure at the top levels of power. His repu-
tation was that of an able, pragmatic politician who was more interested in
getting the job done than in worrying about political dogma. After the
People’s Republic was founded in 1949, he rose through the ranks and ended
up as the Number Two to China’s President Liu Shaoqi. But in 1966 both Liu
and Deng fell from power during the Cultural Revolution.
Mao and Liu were old political rivals, and Liu had gained the upper hand
when the Great Leap Forward, Mao’s mad dash for economic growth, ended
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in famine. Liu tried to put China on to a path of stable growth based more on
sound economics than politics. But it didn’t last long; Mao hit back in 1966
when he launched the Great Proletarian Cultural Revolution by encouraging
young men and women to break all forms of social convention by attacking
‘bad elements’ in society and waging ‘perpetual revolution’.
The country rapidly descended into chaos. Schools and universities
stopped functioning when the more radical students became Red Guards.
They started to attack anyone suspected of being Mao’s political opponent,
labelling them ‘Rightists’ or ‘Capitalist Roaders’ and parading them through
the streets in dunces’ caps. Factories ceased production as the Red Guards
formed ‘Mao Zedong Thought Propaganda Teams’ and demanded that the
workers spend hours a day in study sessions. Rival factions of Red Guards set
up speakers in the streets that blared out propaganda until the early hours, and
festooned walls and gateways with posters criticizing each other. Mao per-
sonally pasted a ‘big character poster’ on to the doors of the Great Hall of the
People calling for the masses to ‘bombard the headquarters’, and held a series
of massive rallies, one of which was nearly a million people strong, in Ti-
ananmen Square.
With Mao’s implicit support, the Red Guards began to target senior figures
in the Government, ransacking their homes and arresting family members.
Social order collapsed completely. No one attended to the normal functioning
of the State; everything revolved around politics. Government ministries
stopped functioning because officials were too frightened to go to work, and
large crowds of Red Guards besieged foreign embassies. A huge notice was
erected on the front of Beijing station that summed up the nonsensical politi-
cization of the times: ‘Better a socialist train that’s late than a capitalist train
on time.’
Liu Shaoqi, China’s President and Mao’s principal rival, and Deng, as
Liu’s Number Two, rapidly became targets. There is a photograph of Liu
standing in the Central Government compound, Zhongnanhai, being de-
nounced by a large crowd of thugs wearing Red Guard uniforms. One can al-
most smell the fear coming out of the picture. Liu died a year later on the
floor of a jail in Kaifeng.
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But while many around him perished, Deng survived. From 1967 to 1974,
stripped of all power, it seems that he spent most of his time working in a
tractor factory in Jiangsu. His son ‘fell’ out of an upstairs window in Beijing
University where he had been studying physics and has been paralysed from
the waist down ever since. After Mao died in 1976, there was a protracted
power struggle before Deng emerged triumphant three years later. Paradoxic-
ally, he succeeded by resigning. It forced his opponents to resign as well,
whilst he continued to manipulate real power from behind the scenes. One of
his first steps was to start to rehabilitate many of the people who were un-
justly attacked during the Cultural Revolution and insist on the trial of the
Gang of Four, the chief protagonists of the chaos, led by Jiang Qing, Mao’s
third wife. There was a televised trial lasting several weeks where Madame
Mao repeatedly shouted down the judges and refused to recognize their right
to try her. She claimed that she was acting on Mao’s orders and that the court
had no authority to question him: ‘I was Mao’s dog,’ she said. ‘What he said
“bite”, I bit.’ She was sentenced to death ‘suspended for two years to see if
she would behave’ and spent the next twelve years in jail, making cloth dolls,
until she committed suicide in 1991.
Deng was incredibly tough. It seemed as if he was made of an indestruct-
ible material, a kind of political tungsten carbide, and, by the time he
emerged as China’s paramount leader, he was well into his mid-seventies.

After Tiananmen Square, the Chinese economy had crashed and businesses
everywhere faced very difficult times. Most were starved of cash as the
Government tried to rein in State lending. Whilst Deng was no liberal, he was
a pragmatist and realized years before his Russian counterparts that if the
Chinese Communist Party was to survive, it had to deliver the economic
goods. Tiananmen Square had shown that he would not shrink from using
force, but he knew that in the longer term power grew from rising living
standards rather than from the barrel of a gun. Immediately after the crisis,
the Government had slammed the brakes on the economy, but by mid-1991
Deng had had enough of the austerity and wanted to get back on track. Even
though he had won the battle for the top place in the Chinese hierarchy, Deng
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could not just set policy as he pleased, and when he tried to recharge the eco-
nomy he faced serious opposition from the conservatives.
The battle raged on behind the walls of the Party compounds throughout
the months towards Chinese New Year in 1992. After months of infighting,
Deng had had enough and he decided to seize the initiative. At the age of
eighty-eight, he gave China one last shove towards further reform by
grabbing centre stage from his opponents. Just as Mao had done at the start of
the Cultural Revolution when he travelled to Wuhan and swam across the
Yangtse, Deng achieved a huge shift in policy by a seemingly insignificant
event: he went on holiday and planted a tree.
On what is now written into Communist Party folklore as Deng’s ‘South-
ern Tour’, he arrived at Shenzhen Station in the southern seaside town next to
Hong Kong with his family and went sightseeing. At a theme park the next
day, he planted a tree for the cameramen and repeated his old slogan, ‘To get
rich is glorious.’ Proceeding regally up the coast, he toured factories and vis-
ited the huge new development zone in Shanghai. Behind the scenes, the
struggle intensified and Deng held meetings at Cadre Training Schools and
Party Committees all along the coast. He talked directly to local officials
about the need to ‘guard against the left’, and pushed his agenda for greater
reform.
Back in Beijing, his octogenarian opponents watched these antics in hor-
ror; they knew that Deng had deliberately bypassed all the normal Party
structures and had reached out directly to local officials. They also quickly
realized that they were fighting a losing battle; the rank and file liked what
Deng had to say and the tide was against them. Although it was several
weeks before anyone dared to publish the story of Deng’s trip in the Chinese
press, the news that he wanted more reform and further ‘opening up’ of the
economy eventually broke and by April the country was in a state of great ex-
citement. I remember several meetings of my Chinese work colleagues when
they went off to study the latest bulletins. China appeared to be on the move
again.
Deng’s speeches that spring galvanized the whole country into action and
officials everywhere set up investment zones and held trade fairs to attract
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foreign investors. By the end of the year, the news that China’s growth rates
were on the rise had filtered through to the world outside. The New York
bankers started arriving in Hong Kong in their pinstripes and tasselled
loafers, intent on setting up offices as a launching pad into China. Specialist
investment companies appeared overnight in Hong Kong, all fighting for
press coverage. Barton Biggs, one of Wall Street’s most influential money al-
locators, arrived in town and told the newspapers, ‘After six days in China,
I’m tuned in, overfed and maximum bullish.’ In the next few days, as his
words flashed across the wires in America, two billion dollars sloshed into
Hong Kong’s stock market and share prices went through the roof. Investors
started to gather huge amounts of capital to put to work on the mainland and,
by the time I went back to Andersen that summer, there were millions of dol-
lars sitting in ‘China Funds’ in Hong Kong all trying to find a way into the
Middle Kingdom.
My job was to help these investors find projects in China so the first thing
I did was call up all my old contacts in Beijing. Over the next few months I
shuttled back and forth between Hong Kong and the mainland, visiting
Shanghai, Wuhan, Chongqing, Tianjin, anywhere I could get a meeting with
officials. Given the overall hype, it wasn’t difficult to find a receptive audi-
ence. At each of these places, I’d go through my pitch, explaining that there
were large amounts of money sitting in Hong Kong and that my job was to
help invest it in China. Everyone I met seemed keen to get in on the act and
promised to introduce me to good businesses needing expansion capital. ‘If
you give me a few weeks, I’ll organize a tour of all our best factories,’ they’d
say. But as the months went on, and I went back on second or third visits,
they just kept talking, talking, talking. It was the same old story without any-
thing actually happening. Endless tales like, ‘My cousin runs an aspirin fact-
ory in Jilin, and they really want to do a joint venture.’ But I could never ac-
tually get anyone to do anything. One man out of all those I spoke to was
different.

* * *
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Ai Jian was in his early forties when I met him. He was one of the ‘lost gen-
eration’, the people born just after Liberation who were swept up in the mad-
ness of the Cultural Revolution during their teens. The universities and
schools had been closed for nearly ten years and, just like millions of others,
Ai had been sent to the countryside to work in the fields.
He was born in Jining in the eastern province of Shandong and later moved
up to the capital, Beijing. His father, who was well educated, had been as-
signed to be the Party Secretary of a tank factory up in Harbin so the family
had moved on to the north when Ai was a boy. It was a familiar story: a com-
fortable, even privileged childhood blown apart by the Cultural Revolution.
Like almost everyone else of his age, Ai had been seduced by the excitement
of those first heady days in the late summer of 1966, and he had joined the
Red Guards.
Ai had soon been brought down to reality. After his father was targeted,
the family fled back to Beijing to hide with relatives. A group of Red Guards
from a rival faction travelled the seven hundred miles back to Beijing to find
him and, terrified that the whole family might be arrested, Ai’s father gave
himself up. The Red Guards dragged him back to Harbin where he endured
years of humiliation and physical abuse. Ai told me that on one occasion after
the Red Guards had ‘struggled’ against him for hours, his father had died.
‘He was beaten and beaten until he died on the floor.’
I corrected him gently; I knew that his father was still very much alive and
well. But he was insistent.
‘No, my father actually died on the floor and he only came back when they
threw a bucket of freezing water into his face,’ he said.
It couldn’t have been literally true but it was a telling metaphor and I let it
ride. The pity of the Cultural Revolution was that Mao had calculated so de-
liberately, so callously when he set up young people to humiliate and destroy
their elders. In a society where face was everything, the fear and humiliation
had literally killed thousands and thousands of older people, many of whom
took their own lives. The shame was so total that for many children, their par-
ents had ‘died’ whether or not they happened to remain on earth.
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By the late 1960s the Cultural Revolution had created such chaos across
the country that even Mao feared that he might lose control. His main politic-
al rivals had been destroyed so he attempted to rein in the Red Guards. He
did this by sending them to work in the countryside to ‘learn from the peas-
ants.’ All forms of intellectual learning were regarded as useless. Only polit-
ics mattered and Mao had hijacked politics to regain control. The campaign
to move people to the countryside quickly grew and, in the early 1970s, mil-
lions of young people were reallocated from the towns to the countryside. Ai
was one of those millions; he was sent to Jiangxian County in a remote part
of Shanxi Province, a few hundred miles to the west of Beijing.
I had been to Shanxi the year before. It lies in the northern part of central
China on the banks of the Yellow River where, five thousand years ago, there
were the first stirrings of the Chinese civilization. The yellow-grey loess soil
there, which gives river its name, is like powder and is difficult to farm. The
whole dusty landscape is pitted with deep ravines caused by rainwater wash-
ing away the light soil over the centuries. I knew that some of the counties in
Shanxi were amongst the poorest in China and that many people still lived in
caves.
For four years Ai rose with the sun and slept as it set, the daylight hours
spent in the fields.
‘The peasants there were very kind,’ he said. ‘But they had nothing. Noth-
ing! They knew nothing, they had nothing, they did nothing except work in
the fields.’
There was no machinery, no electricity, at times not enough food. Nothing
but the prospect of another day’s hard labour in the fields. But at least Ai was
removed from the political campaigns and the incessant din of the slogans
from the loudspeakers in the city. In Shanxi, free from the constant fear that
he might become the next target, there was at least a semblance of peace.
He recalled the one luxury of those years; sometimes on rainy days, if
things were particularly good, he would sit inside on the kang with his work-
mates. A kang is a big raised platform used as a bed for the whole family and
made out of beaten earth with a primitive wood-burning stove built in. They
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would sit listening to the falling rain and enjoying the occasional cigarette
rolled out of newspaper.
Once a tractor came to the village, Ai remembered. ‘Some peasants from
over the hill had walked ten miles to come and gawp at it,’ he said, ‘and it
was all decked up in ribbons and red rosettes. Afterwards there had been a
celebration with speeches about how grateful we should be to Chairman Mao
for giving us a tractor.’ But the following day the tractor went to the next val-
ley and the peasants walked back over the hill with their shovels.
After Mao died, life slowly returned to normal. Ai was accepted at an en-
gineering university in Xi’an where he met his future wife. On graduating, he
found a good job in Beijing.
‘The problem was,’ he went on, ‘that at that time in China you had to have
a hu kou.’ The hu kou was a rigid system of residence permits that made it
impossible for ordinary people to move around the country without the little
red chops, or Chinese seals of approval, from the Public Security Bureau.
Ai’s wife had not been able to obtain a hu kou for Beijing so she had to stay
in Xi’an. Even in the first few years of marriage, they were only allowed to
see each other twice a year, at the Chinese Spring Festival and in the summer.
It was nearly ten years before she got a hu kou for Beijing and for the first
seven years after Ai’s son was born he only saw him for three weeks a year.
I felt that all these experiences might have hardened and embittered Ai,
but, years later, as we sat in a bar in Beijing, the strongest feeling I had from
him was his burning ambition for his one son. He had a fierce hope that his
son would be spared all the troubles and political turmoil that had blighted
his own early life, and that China would be stable so that the next generation
would be free to use their time more constructively. Years later, his boy got a
place to study in America.
After coming back to Beijing, Ai was assigned to work for the ministry in
charge of foreign investment. Never the diplomat, he got into difficulties
after the Tiananmen protests. The Party apparatchiks, or ‘cadres’ as they are
known, decided to muzzle him so he had been sidelined to run a business
centre in one of Beijing’s hotels. It was somewhere that they thought would
keep him out of trouble.
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I met Ai through a friend. She’d been pestering me to see him for months
but our paths never seemed to cross. ‘If you want to get anything done round
here,’ she said, ‘you should talk to Ai.’ So I eventually called him and fixed a
time to meet. Dumped into a backwater by the cadres and pushed away from
the action, he was in a restless, searching mood when I found him; and as I
described what had been happening in Hong Kong, he quickly latched on to
the opportunity.
I knew that Ai was different from my other contacts in China when I came
back a few weeks later. Whilst the others just talked and talked and made
endless promises, when I met Ai for the second time he reached into his
drawer and pulled out a cardboard box full of handwritten letters. He had
written twenty-six letters to his colleagues in local governments all over Ch-
ina. He only got three replies, but that was enough to start.

Over the next six months, we travelled all over China in search of investment
projects. At the end of each trip, I went back to Hong Kong to talk to in-
vestors. It was frustrating work. They never quite knew what they wanted and
seemed reluctant to come up to China. We found steel-rolling mills and
watch factories, power equipment works and lock makers. Every time we
found something that looked promising, I wrote it up and sent it to investors
in Hong Kong. But they never seemed to bite.
Eventually I managed to persuade some fund managers from a big New
York investment house to come up to Shanghai. It was an important visit, so
one of my colleagues, Maneksh, flew out from London. He’d been in India
and brokered a few deals so I was glad of his company.
The trip was a disaster. These bankers, still slightly jet-lagged from Wall
Street, stared with disbelieving wonder at the chaotic traffic, gesticulating po-
licemen and the waves of bicycles. They kept checking their Rolexes, sighing
unnaturally loudly and repeatedly looking through their air tickets as we sat
sweltering in near-gridlock on Hengshan Road. They had sent me a fax be-
forehand saying that they were interested in ‘real estate and consumer pack-
aged goods’ so the first meeting I arranged was with the Land Bureau of the
Shanghai Government.
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Despite the considerable power that came from controlling land during
those times of spiralling property prices, the Land Bureau was in a dilapid-
ated building at the end of the Bund, the sweeping avenue that looks out over
the river in Shanghai. It was squeezed in among the grand colonial buildings
next to Suzhou Creek. The contrast between the bankers with their highly
polished shoes and designer silk ties and the bureau officials could not have
been sharper. As we were led down a corridor with enormous old-fashioned
frosted-glass lampshades like Olympic torches set into the walls, the bankers
noticed a huge gash in the ceiling with lath and plaster hanging through. In
the meeting room, they settled on to a lumpy sofa with their knees tucked up
to their chests. Sitting between a pale green plastic thermos flask and a spit-
toon, they tried not to stare too hard at the torn brown curtains flapping
limply in the windows or the suspicious-looking holes in the skirting boards.
The meeting started with the Deputy Bureau Chief offering them some melon
seeds to chew on and it got worse from there on in. It didn’t last long; there
was no way they were ever going to get their heads around buying up land in
Shanghai.
As they left, muttering under their breath and shaking their heads, they
asked what was next.
‘Er, the Rubber Bureau,’ I said.
‘So that’s consumer products, right?’
‘Kind of,’ I said nervously, not knowing quite how to break the news. I
spent the next hour sweating quietly in the back of the car, hoping that the
traffic would be so bad that we’d have to call the meeting off. Then suddenly,
out of the blue, inspiration seized me.
‘You know, the one-child policy is quite controversial in the West, isn’t it?
But I reckon that the population here is so huge that it’d be kind of irrespons-
ible just to ignore it, don’t you think?’
‘Uh-huh!’
‘You know, in China, even though there’s the one-child policy, there are
only seven condom factories. Amazing really, isn’t it?’
‘Uh-huh!’
‘Yeah, only seven in the whole of China,’ I went on.
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‘What of it?’
‘Well, the whole condom production of China is only eight hundred mil-
lion a year. There’s more than a billion people here, so there’s got to be, say,
four hundred million blokes out there all needing condoms. But that’s about
two each a year. Must be a huge demand out there – if only we could figure
out a way to get at it!’
‘You’re not saying-’
‘Well, you said you wanted consumer packaged goods!’
‘I do not believe we’re doing this’ they said, all exasperated sighs and
rolling eyeballs. ‘I do not believe we’re doing this!’
But by that time there was little prospect of escape. The traffic was running
smoothly and we were miles from the hotel. As the car drove through the
gates of the Shanghai Great Unison Condom Factory, Madame Tao, who was
in charge of foreign investment at the Rubber Bureau, came panting down the
steps and took us to a meeting room with a display case at the back. We
stared at the contents. The packaging was primitive: it was poorly printed in
slightly garish colours and with a line drawing of a long-nosed couple – who
were clearly meant to be Westerners – embracing against a sunset backdrop.
‘What the hell’s goin’ on there?’ said one of the pinstripes.
It was a classic example of the Chinese confusion towards Westerners: on
the one hand, they were a target in campaigns against spiritual pollution at
the university, and on the other they were used on condom packets to conjure
up an image of something rather daring that might be secretly admired.
‘Terrible, isn’t it?’ said Maneksh, picking up one of the packets. ‘You
know, Mrs Tao, you need to redo all this packaging. It’s far too dowdy. You
need to make it more exciting for the consumer. Back in the UK there’s all
sorts of stuff available. Different colours and shapes, even flavours – banana,
strawberry, whatever takes your fancy. Maybe here it’d be shrimp-and-peanut
flavour, or spicy bean curd . . .’
‘Er, yes, thanks, Maneksh,’ I interjected hurriedly. ‘Shall we go and see
the workshops?’
The machinery that we found at the top of a rickety staircase leading to the
first floor of the warehouse at the back of the factory was a botched-up Heath
 44/269

Robinson affair; it looked like some bizarre homespun contraption cobbled

together with bicycle parts and bits of old washing machines. There was a
huge sagging rubber belt strapped between two wheels that was pulled slowly
through a tub of melted latex. On the belt, set at every conceivable angle,
some of which were anatomically simply not possible, were hundreds of
glass penises. As the belt drooped into the tub, the latex coated each one with
a thin layer. Weighed down by latex and by then at slightly less inspiring
angles, they clanked onwards into a small chamber that had what looked like
a couple of hairdryers inside blasting away to make the rubber set. At the oth-
er side, two colossal women with beefy forearms hauled off the condoms
from the legions of approaching penises and threw them in handfuls into a
plastic tray on the floor.
There was a rather frosty atmosphere in the car going back to the hotel.
The next day we were due to see a pig farm but that was too much. We parted
rather stiffly. It was back to the drawing board.
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Four

We Tramped and Tramped Until Our Iron Shoes Were Broken and Then,
Without Looking, We Found What We Sought
The Water Margin:
Unattributed Ming Dynasty Novel

After six months of searching in China but still getting nowhere with the in-
vestors in Hong Kong, I felt that we were spinning our wheels. I was begin-
ning to lose heart. Then I had the chance introduction to Pat that was to
change the course of my life for the next ten years.
A month or so after our first meeting, I took Pat to meet Ai Jian in Beijing.
We found him in his dim little office, poring over a confused mass of hand-
written papers in the fading sunlight of a wintry afternoon. He leapt to his
feet as we came in and fussed over some tea for a while. Once he had settled
down and Pat started on his introductions, I saw that Ai, unusually for him,
was in a state of great nervous tension. His almost anguished concentration
on Pat’s every word was so intense that it looked as if something inside him
might suddenly snap at any moment. He had immediately sensed that this
was no courtesy visit but a one-off opportunity that might be lost if he didn’t
grab at it with both hands.
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I could understand Ai’s desperation; when the ex-Red Guard and forced-
peasant-turned-bureaucrat met this Wall Street banker, he already knew that
the whole world had tilted in favour of America and its overwhelming finan-
cial power. Mao’s China had never had enough money but after Deng there
wasn’t even a clear political creed to cling to, or a hero to worship; just the
Great Chase of catching up with the West. Ai had sensed that this might be
his one chance to get off the sidelines and out of the dismal backwater that
the cadres had thrown him into. So, despite his nerves, the first meeting went
well and he was in a state of great excitement after Pat had left.
It was understandable. Pat was in a league of his own. I had come across
the odd career banker who had learnt the ropes in Hong Kong, but there was
no one else who was remotely as convincing when it came to talking about
financing China’s growth. Pat would talk about raising the odd hundred mil-
lion and consolidating whole industries in a manner that most of us might use
to comment on the weather. This lack of pretentiousness only made his story
more compelling. Years later, when recalling that first meeting, Ai had said,
‘I had spent years hoping to find a chance to do something big. Searching and
searching – and then, suddenly, it was as if a film star had walked into my
life!’
Pat was an enormous personality. His blue eyes, swept-back hair and J.P.
Morgan nose gave him a presence that soon dominated any conversation. He
was the archetypal Wall Street adventurer, full of the financial bravado of the
1980s when Wall Street pushed deal-size to the limit and reputations were
made or lost purely on how far one dared to go. He even came packaged up
with the pink silk handkerchiefs and blue pinstripe, an ear-splitting laugh and
an insatiable appetite for oysters, champagne and Cuban cigars. Late into the
evenings, he would sit around after dinner in clouds of smoke, with wine-
glasses strewn about the table, bantering and howling with laughter, all the
time fiddling with the enormous red rubies on his gold cuff links. He knew
how to have a good time, that was for sure, and preferred an audience to a
good night’s sleep. But it wasn’t just a carefully cultivated image; this was
the real thing. An American icon: the steelworker’s son risen from the bottom
rung to the top of the ladder through his wits and force of personality, with
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plenty of guts and hard work thrown in. By the time that we met him, Pat had
become a man with a mission, a pioneer on a single-minded quest to create a
machine – a machine for bringing money from Wall Street to Asia. And like
me, but for a thousand different reasons, his focus was China.
At first I was puzzled. How had this man summoned the courage to uproot
himself from everything he knew? Why had he left the security of the top
rung on Wall Street, with all the comforts of a high position, to attempt an-
other and much more hazardous ascent in a totally alien environment? He had
certainly aroused my curiosity; and he had my admiration. I could see the
drive and determination, the tremendous optimism and thirst for adventure.
But it seemed that the trappings of Wall Street had not been enough. I knew
that Pat had money; I guessed that what he wanted next was fame.

Pat had told Ai to work the phones. ‘I want to see every project you can find,’
he said. ‘We’ve got to think big on this one. There are whole industries out
there that need a ton of money and we’ve got to get there first. In a few
months, the whole of Wall Street’s gonna be crawling all over this place, so I
want power stations, toll roads, phone systems, steel, all of that kind of stuff,
anything that’s big, and I want it now.’ With that he got on a plane back to
the States, and told us he’d be back in two weeks.
While he was away, Ai called every ministry that he could think of. Al-
though China had started reforming its system of central planning, back in
the early 1990s most of the economy was still controlled by the ministries in
Beijing. The Government had a much greater role in running industries than
was the case in any Western country at that time, so it was the right place for
us to start. Ai had such a brass neck that he sat for days in his dingy office,
cold-calling government officials all over Beijing, pestering them for meet-
ings. By the time Pat came back, Ai had arranged to see officials everywhere:
iron and steel, telecommunications, paper, electronics, chemicals, rubber,
building materials, float glass, cement, light industry, power generation, even
aircraft maintenance.
Ai managed to dig out a black Mercedes from somewhere to ferry us
around the ministries. ‘It gives us more face and that matters here,’ he said as
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we left the hotel on the first day wondering what to expect. As the days rolled
on, each visit seemed to merge into the next. As we sat in the traffic in the
Beijing spring sunshine, moving from one ministry to another, I mused to
myself that it was amazing that government departments existed at all for half
of these industries. The bureaucratic waste was absurd; a whole ministry just
to administer the production of paper and probably a major consumer at the
same time. Most of them have since been abolished.
The ministries and the officials we met with all seemed the same. For days
on end, we tramped around Beijing, turning down some leafy side street
somewhere in the centre of town through a set of gates with vertical white
signs hanging on either side. The columns of Chinese characters showed the
work units inside: black characters for Government offices, red for the Party.
Then up some concrete steps into an enormous draughty hallway with high
ceilings, creaky wooden floors and spittoons outside the doorways. At the
end of some fusty corridor with peeling paintwork we’d invariably find a
meeting room with rows of brown sofas draped with antimacassars and a
table in the middle with a bowl of oranges, each wrapped up in crinkly cello-
phone. It was the same everywhere we went. Drab colours, the smell of dust
and old floor polish, high ceilings, the bowls of fruit, green plastic thermos
flasks, wooden-framed windows that didn’t fit properly and the same old
frosted-glass lampshades in the shape of an Olympic torch, just like the ones
in the Land Bureau in Shanghai. And at every meeting the opening line from
the officials on the other side was the same: ‘Xingku la! Chi dian’r shuiguo.
You must be tired after your journey. Do have some fruit!’
The force of Pat’s message to the ministries seemed undulled by Ai’s
translation; it was well received. He told the officials that investors believed
that China was set for record growth and would need unprecedented amounts
of capital. The only place that could come up with that kind of money was
Wall Street and, with his decades of experience in investment banking and
his willingness to come to China, he was the man to get it. Whoever got this
money first in China would far outgrow their domestic competitors so we
should grab the chance together.
 49/269

Pat’s powerful dynamism, his self-confidence and undeflectable optimism

all came across clearly in his manner and gestures and the officials liked what
they saw. As he spoke, he seemed to work himself into the story, growing
with it, almost as if by the strength of his own feelings he had set about con-
vincing himself as well as those who were listening. He seemed to have a
knack of explaining overwhelmingly complex situations by reducing them to
a simple set of economic forces. He could explain trends in whole industries
in a couple of sentences that seemed so simple that we were all left wonder-
ing how we could have missed something so obvious in the first place.
As I sat absorbed in those meetings in the Chinese ministries, I had my
first clue of how simple the world might seem, viewed from those towers on
Wall Street. From there, everything seemed so straightforward, just another
enormous case study like they do at business school. It was the simplicity that
made it all so convincing. On Wall Street, everything came down to relative
power: eat or be eaten, buy or be bought. And the key to survival was capital.
Without capital, businesses die. The winner in the endless struggle for capital
was the one who got biggest first, the one who dominated a market or man-
aged to get to the stock market before the others. It all came down to capital;
and to get it, you needed to speak the language of Wall Street. At this, Pat
was the master. He took the whole of China and reduced it to a couple of
growth trends so powerful that they would transform the whole country into
an economic superpower within a decade. The officials loved what they
heard; Pat thought that investors back home would feel just the same.
We were almost always invited back by the officials for follow-on meet-
ings with their bosses, and we steadily worked our way up the hierarchy.
Pat’s message was so compelling that it seemed at the time that we hadn’t
needed the inside connections, the Chinese guanxi, that most foreigners
thought underpinned Chinese business. In about six weeks, we were meeting
with deputy ministers for the industries that we had targeted.
Over the weeks, as we pieced together the story we got from each visit, re-
assembling our scribbled notes back in Ai’s tiny office, an overall picture of
China’s economy seemed to come slowly into focus. There were some indus-
tries, like telecommunications or power generation, that were so basic that it
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was probably a safe bet that they’d grow quickly. But often, in those areas,
the government restricted foreign investment, so we couldn’t get in. Then
there were other areas that looked much more tricky, like consumer goods
where local tastes and brands were almost impossible to understand. How
could we ever contribute to a marketing campaign for cans of ‘prickly
hawthorn juice’, for example? Or come up with a best-selling brand name
like ‘Golden Bean’ for upmarket leather handbags? No, consumer goods
were clearly too difficult.
But some industries did seem to make more sense, like the automotive in-
dustry. With the economy expanding, it seemed like a safe bet that there
would be more and more trucks and buses and cars needed to move people
and goods around the country. One of the ministries we visited had been spun
out of the vast Chinese military complex some years earlier. They were
busily converting their factories from the manufacture of military products to
civilian use. Many of them were making simple parts for China’s big truck-
makers. It sounded as though it might be an interesting area so we arranged
to take a look.
emong

Over the next three months, we were on the road continuously, visiting al-
most every part of China. We started in the south-west, in Sichuan, accom-
panied by two officials from this Ministry. Later we moved on to the central
regions of China, Hunan and Hubei, ending up in the frozen oilfields in the
extreme north-east near the Russian border by Qiqiha’r.
The first trip started in the south-west in Chongqing, China’s largest city.
Together with the surrounding counties, Chongqing has a population of
nearly thirty million. I could scarcely imagine it: this vast city hidden right in
the depths of China, little known outside, with a population bigger than that
of many countries. As we came into town from the airport on that first trip, I
noticed that, unusually for China, there were few bicycles in the streets. This
vast city sits in a steep-sided valley at the confluence of two mighty rivers,
the Jialing and the Yangtse. The winding stone-flagged streets there are much
too steep for riding. The density of people was staggering: millions and
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millions swirling in the roadways, passing through from the surrounding

countryside, all in faded blue overalls and with piles of baggage, blocking the
gates at the station, crammed into buses, milling about on the pavements.
Even late at night, around the quayside, at the point where the two rivers
meet, wave upon wave of porters in identical blue overalls struggled up the
steep-sided hills, carrying heavy loads on the end of bamboo poles, stagger-
ing up the stone steps towards the city centre. Early next morning, I noticed
that the natural foggy, damp climate in Sichuan combined with the smoke
from the hundreds of factories in the hills around the city to create spectacu-
lar colours at sunrise. But by mid-morning, the air was almost opaque and the
taste of diesel fumes was never out of my mouth.
Hemmed in by the two rivers, until recently Chongqing only had two
bridges strung high across the waters. The traffic congestion at these bottle-
necks was quite unbelievable. On bad days, it could take three hours to drive
a couple of miles across the city; it was much quicker to walk. In the late
1990s a third bridge was built but it collapsed shortly after it was opened,
sending forty people down to a watery death. Several officials were arrested
and at least one was executed afterwards. It was one of China’s recurrent cor-
ruption cases, which all seem so drearily familiar; another contractor using
sub-standard materials to save money and officials turning a blind eye in re-
turn for bribes. We soon set into a routine that spring, travelling hundreds of
miles a day in our small bus, marvelling at the scale of the countryside
around us. Sichuan is a vast and fertile province and, towards the west, it
rises up into the foothills of Tibet. It was a towering landscape and many of
the factories that we visited were tucked away in narrow gullies near the
mountain passes, hidden from the densely populated valleys far below. As
the bus laboured up the hillsides, I rested my head against the window and
stared down over countless steps of rice terracing down to the valley floors. I
could see a distant coloured patchwork of fields far below: squares of bright
yellow rape set amongst the emerald shades of the first shoots of rice. Higher
up, in among the withered trees and the damp mists, there were little groups
of houses made from rammed earth and with stooping eaves and thatched
fences at the front. Groups of scruffy schoolchildren ran out and chased after
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the bus, shouting as we passed through the tiny villages. Back down in the
valleys, the narrow roads and stone bridges were often blocked by great jost-
ling flocks of ducks running towards the streams while all around, visible
only in the distance, the peasants toiled in the fields, squelching barefoot in
the thick fertile mud.
In the following weeks, we visited about twenty factories in Sichuan alone.
It was exhausting work. Every day we rose at six, complained that there was
no hot water, went down to a breakfast of fried dough sticks and hot water-
buffalo milk and were on our way by seven. Then it was three or four hours
on the bus to the next factory where Pat would go through the pitch, with Ai
translating. We’d do a quick tour of the factory, interview the management
and then pause for lunch. Unfortunately, we were often the first foreigners
ever to have visited the factory so it was ‘party time’ for the locals. Lunches
normally involved fifteen or more courses and at least a crate of beer. Then it
was back on the bus – with a thick head – for another three hours and the
next factory tour. The evenings normally ended at one or two in the morning
in the upstairs room of some awful karaoke bar with cracked mirrors and
faded Christmas tree decorations sellotaped to the walls. I often had a split-
ting headache and a sore throat from the clouds of cigarette smoke. And all
that with nothing else to look forward to except the alarm at six and no hot
water in the next hotel.
Most of the factories that we saw were vast, more like towns than manu-
facturing plants, with populations of many thousands hidden behind high
walls and gateways with their own hospitals, kindergartens, cinemas and
shops. The size of these facilities was startling enough, but it was the choice
of location that struck me most. The factories were in the most incredibly re-
mote locations, far from the cities, out at the edge of the world, hidden right
up in the highest mountain passes. Several times we drove for an entire after-
noon up a dirt road through steep-sided ravines to find a vast factory at the
head of the valley, churning out red smoke and dirty, foaming water. In one
particular place, called Tianxing, the factory with its three thousand five hun-
dred souls was set in a valley so narrow that there was direct sunlight for only
a few hours a day. I remember the translator at the factory attaching himself
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to us with a desperate ardour. He literally ran to the bus as we stepped down.

We were the first foreigners ever to come to the factory and he had almost
never heard English spoken by a native speaker. With the valley sides so
steep and so high, there was no chance even of listening to radio broadcasts
so he clung limpet-like to me right through the factory tour.
I found seeing so many people marooned in these artificial encampments
up in the hills troubling, even a little frightening. There was something grot-
esque about them being stranded up in these godforsaken places. It made me
feel nervous, jumpy, and almost a little guilty when we left the factory. Why
were they there? These heavy industrial plants, with their old buildings, the
broken windows and piles of rusting machinery, the chimneys and the heaps
of coal next to the boilers were all set in scenes of the most spectacular natur-
al beauty.
During lunch at the third factory – a gearbox plant, I think – I cautiously
asked our host how he had ended up in the mountains. The factory director
was away so a Mr Che, the chief engineer, had shown us around. He was a
real rough diamond, quite unfazed by the sight of these two foreigners in
suits and ties walking gingerly between the heaps of raw castings and the
rows of ancient machining centres in his battered workshops. After the tour,
he took us for lunch and sat at the huge round table in the workers’ canteen, a
flat cap on his head and an oily measuring gauge sticking from the pocket of
his factory jacket. As soon as we sat down, about a dozen different dishes ar-
rived. Sichuan food is my favourite: fiery sauces and pungent flavours,
ideally washed down with a couple of crates of the local beer that comes in
big green bottles.
After the small talk, during which I asked Mr Che whether he’d been
abroad and he said there wasn’t any point because the food was so bad, I
asked him about the factory’s location. I figured I’d probably get a straight
answer from him, but at first he wouldn’t be drawn. The beer flowed and the
atmosphere relaxed slightly, so I had another go. He sighed, took off his cap,
placed it on the table and, after a few moments staring into the middle dis-
tance, said, ‘It won’t make any sense to you, of course. You foreigners,
you’re not clear about our China. I was in Changsha, but our work unit
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moved to the mountain valleys. Now it all needs to be changed, of course.

But back then, it was just Mao’s Third Front.’
‘Third Front?’
‘Don’t you know? The third line. The third line of national defence,’ he
said. ‘After Liberation, in the 1950s, Russia was our Big Brother. After so
many years of civil war and the fight against the Japanese, Russia helped us
set up our New China. They sent us hundreds and hundreds of advisers, and
all the designs and materials to build factories all over the country.’
Mr Che sighed and, after pausing for a moment, took another long silent
draught of beer.
‘But after Stalin died, Mao and those new Soviet leaders, they just couldn’t
get on. Mao Zedong said Khrushchev wasn’t a good communist. All that “re-
visionism” – no one felt surprised when they rose up in a fight.’
His mood suddenly changed and he grinned, ‘You know, I’ve heard it said
that one time, when Khrushchev came to China, Mao forced him into his
swimming pool. Mao knew Khrushchev couldn’t swim, of course. Made him
look a fool and lose face in front of all those officials, floating around in a
rubber ring!’
Mr Che went on to explain that the relationship became worse and worse
until, one day, Khrushchev lost patience and recalled all the Russian advisers.
‘You think about it,’ Mr Che said. ‘Thousands of ‘em, all gone in one day.
Bridges and dams and power stations and tractor plants all half-built right
across China and the Russians just patted their arses and went off home. All
home in a week. The drawings and blueprints all taken with them. We were
really at sevens and eights, a whole mass of confusion.’
‘Right,’ I said, wondering why Chinese always went a step further than
English, even with an expression to describe utter chaos.
Mr Che went on and told me that by the mid-1960s Mao thought that
things had got so bad that there would be war, so he ordered all the military
factories to move out of the towns and the coastal areas and go up into the
hills. In the next few years, hundreds of factories were all relocated into the
steep-sided valleys in the remote hills out of sight of the bombers.
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One of the officials from Beijing joined in. ‘Yes, it seemed to make sense
in those days. We had such a low base to build from. After Liberation, there
was such a strong spirit, it felt like we were all together. So all the factories
moved up into the hills. We were all willing to go to help defend the country.
But now there are sixteen million people hidden up in these mountain valleys
and no one knows what to do.’
‘Sixteen million! Is that really true?’
‘True. But now, of course, they want to try to move us back,’ said Che.
‘Move back? Why?’
‘Well, now, you see, all that worry of war, it’s all in the past. The Central
Government spends on construction these days, not on the military. So they
came up with a new policy called “change military to civilian”. They want us
to start making other stuff – you know, motorcycles, tractors, car parts, that
kind of thing. They don’t have the resources to support so many military
factories any more. But it’s all the same; in every campaign the slogans are
many, but the money is short.’
Mr Che explained that the money from Beijing just dried up and many
factories were stranded without orders. ‘Some of them – the smart ones, that
is – managed to start making civilian products using the machinery they had
in the mountains. If you can make parts for a tank, it doesn’t take much to
change to manufacturing parts for trucks or buses.’ So that was what
happened.
‘Some of them were terrible failures, of course. Funny, really; the ones that
were best at getting money from the ministry, they’re really in trouble now.
They got all that really specialist equipment. We all wanted it then, but now
it’s useless. All that money gone to waste. The good ones,’ he went on, ‘the
ones that changed, well now, the government wants to move them all back
down the valleys. You can’t run a factory up here; can’t ever get anything
done. But the locals, they don’t want us to move out. Once we’ve gone,
who’s going to buy their vegetables? With the factory gone, they’ll not get
through the days so easily.’
It seemed as if this second move was causing as much heartbreak as the
first. The factory workers had been in the hills for so long that many had
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married locals. Now there was to be a second break-up that would tear apart
families and loved ones once more. I heard later that, despite severe punish-
ments, in some places the peasants were so desperate that they tried to sabot-
age the move by cutting the electricity lines and telephone cables. I remember
once using the phone up in the hills and the line suddenly went dead: not
even a click, just total silence.

It wasn’t surprising that after a month we were exhausted, bad-tempered and

in need of a good workout. More to the point, despite travelling for thousands
of miles, bouncing around in the back of a bus, we hadn’t found a single fact-
ory that made the remotest sense for investment. We had been presented with
scenes of complete anarchy at most of them: huge workshops with vats of
boiling metal and men wearing cloth shoes pouring it into moulds on the
floor; groups of women squatting down on their hunkers, with rusty old files
gnawing away on vast heaps of aluminium castings; accountants’ offices
piled high with shoe-boxes stuffed full of wafer-thin paper covered in inde-
cipherable characters. Even if we spent months getting to the bottom of what
was going on, I could see that it would take millions of dollars to restore
these rotting warehouses and heaps of broken machinery.
But Pat remained optimistic. The big picture still made sense to him and he
was determined to find a way to invest. He was convinced that we were at the
start of the next new investment wave and he wasn’t going to be put off. This
was a unique opportunity and Pat, the perpetual optimist, even managed to
turn the remote locations into a positive. ‘Just think,’ he said, ‘if we can get
the money, we’ll transform these factories. Wages will go up and create de-
mand for a whole range of new products. And we’ll be sitting there with a
captive market. There’s thousands of people stuck up there with nothing to
do. We can bring in restaurants, shopping malls, gaming halls, the lot.
There’ll be a huge demand for entertainment and once the market reaches the
right size, we can try for a McDonald’s franchise. If we’ve got twenty factor-
ies, that’s a huge market already, maybe fifty thousand people right on the
doorstep with nowhere to go. So we can set up transportation companies to
take them on trips down the valley, and they’ll need gas stations, repair
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shops, maybe even banks. The key’s to get exclusive rights before someone
else muscles in. We can do that now because they need capital and we can
get it. And people are going to want cable TV. We’ll be plugged in to the
right officials when the licences come up so that we’ll be the ones to supply
it. Kleaver made a fortune on cable TV in the States. And all this will affect
the value of property. If we buy up some of the key sites in the factories now,
who knows what they’ll be worth when we get the place really humming?’
But the real difficulty with all of those factories was that we never actually
felt we knew what was going on. Were they really making motorcycle parts
or were they still involved in the old weapons programme? I thought that get-
ting money to help these factories change from military to civilian products
was something that was thoroughly worthwhile, and not just in financial
terms. But could we be absolutely certain how the money would be used? My
nagging doubts were removed on the third or fourth visit to the gearbox fact-
ory. The subject of the old weapons programme had come up again at lunch
and the managers had been cheerfully evasive.
An hour later, we were standing in the small square outside the office
block, just about to get on to the bus. Suddenly there was a colossal explosion
from behind a row of sheds at the back of the factory. There was no possib-
lity of having missed it, but the conversation continued uninterrupted as if
nothing had happened. But I had seen the briefest lapse in Mr Che’s genial
expression. As we drove off on the bus, Ai Jian looked at me and said, ‘You
know, even Sunzi’s Art of War says that sometimes the best strategy is just to
run away!’

Failure in the hills, however, did nothing to dampen our enthusiasm. Al-
though none of the individual factories we’d seen up in the mountains were
viable for investment, the picture of the industry as a whole was encouraging.
A consistent story of growth came out of the many discussions we had with
the different factory directors. So we persisted and changed our emphasis to-
wards the larger towns; we found that the factories there were more prom-
ising. The first real signs that we were on the right track came when Ai
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arranged a trip to Changchun in the north-east where China’s largest truck

factory had just started a project to make passenger cars.

First Auto Works had been set up jointly with the Russians in the mid-1950s
up in Changchun in the north-east of China. The city grew with the factory
and much of the architecture still retains a strong Stalinist influence, particu-
larly the government buildings and the huge solid hotels, with their endless
corridors, high ceilings, dusty chandeliers and heavy double doors that open
in to enormous, draughty banqueting halls. I had taken a trip up to
Changchun when I was at the university in Beijing, but that trip had been in
the summer and there had been a gentle breeze in the park at the centre of
town. The children splashing about on the boats in the middle of the lake had
reminded me of Hyde Park years before. There had been a relaxed feel to the
tree-lined streets, almost a holiday mood, with customers at the lively restaur-
ants spilling out on to the pavements. But, when Pat, Ai and I went on that
first trip northwards, it was still cold with temperatures twenty below and the
familiar icy blast howling in from Mongolia.
A couple of officials met us at the airport. They had been sent by the
Changchun Government to escort us around the factories and they went
through the itinerary as we drove into town.
The first visit was to First Auto Works, which sits in a suburb some way
out from the centre. Just like the factories in the hills, it was vast and spread
over several square miles with dormitories, hospitals, kindergartens, even
cinemas hiding behind the high walls that encircled the compound. The
massive gates, with the guards standing to attention on little white platforms
and the familiar vertical signs strung up on either side led onto a broad aven-
ue. Inside the gates, we found a perfect image of the decaying rust-belt fact-
ory. On either side of the broad street there were rows of shattered ware-
houses, along with the familiar sight of smashed windows, heaps of coal,
workers in oily blue overalls wandering about on bicycles, and pipework with
torn lagging strung up over the roads. The skyline ahead was dominated by a
huge square boiler house, with blackened brickwork. On top, four vast chim-
neys, covered with fins and wrought-iron ornamentation, periodically
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disgorged vast clouds of black smoke out of iron chimney pots that looked
like fantastic spiky crowns at the top.
At that time, the factory only had two products. They had both been de-
signed in Russia in the 1930s and had been transferred into China before Mao
had had his fight with Khrushchev. The first was an ancient truck with a
bulbous nose, a split windscreen and great round wheel arches. It had been
introduced into China shortly after the founding of the People’s Republic, so
it was called the ‘Liberation Truck’. The other was a vast upright limo called
the ‘Red Flag’, which was used to ferry around government officials who sat
on lumpy back seats, hidden from public view by thick brown curtains
draped in the windows at the back. The trucks were always dark green; the li-
mos were always black.
When we visited the assembly lines in the brick factory buildings we star-
ted to have a sense that we might be homing in on something big. In contrast
to the factories up in the hills, with their scores of idle workers and offices
crammed with people slurping tea out of big jam-jars behind well-thumbed
copies of the People’s Daily, here all was activity. Workers in blue overalls
climbed all over the half-finished trucks as they moved along the production
line. Engines and gearboxes came down on chains through the ceilings and
were bolted onto the chassis. Arc welders flashed as the cabs were attached to
the front. At the end of the line, several hundred yards ahead, young girls
with blue caps and pigtails drove the fully assembled trucks out of the factory
for testing.
But even this was nothing in comparison to the new car plant being built
down the road together with the Germans. It was colossal; about a mile long.
Although it was only half-built at the time, it was already impressive. The as-
sembly lines were being set up; there were automatic welding machines and
electronic sensors everywhere and, at the side, workers tore open huge
wooden crates with more equipment shipped in from Germany. They were
obviously gearing up to make thousands and thousands of passenger cars; the
investment must have been enormous.
That afternoon, we saw several components factories in the town. They
made simple parts – electrical connectors, switches and the like – but the one
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that caught my interest was a factory that made ignition coils. It was run by a
Madame Tan who was only in her late-thirties. She seemed knowledgeable
about her business and she had just won the contract to supply ignition coils
to the huge factory that we had seen in the morning. With demand about to
go through the roof, she was looking for some money for expansion. As we
left through the factory gates, I told her that I’d come back for another look.
On the way back, the officials told us that we had been invited to dinner at
six by the Mayor of Changchun. That was a good sign: Mayor Huang was the
top official in the Municipal Government. With support from him, I felt sure
that we’d soon be in business.

We met the Mayor in the hotel that evening. Pat gave a brief description of
the day’s visits, sitting rather stiffly on the familiar old sofas in a drafty meet-
ing room, and told Mayor Huang that he’d been impressed with the factories
that we’d seen. The Mayor was pleased; he was one of the younger genera-
tion of leaders promoted after Deng’s Southern Tour. He seemed smart and
came back with quick comments, speaking with animation about how he
hoped to bring foreign investment into Changchun. He had only been in
Changchun for six months or so, and the transfer from Yangzhou, at the
mouth of the Yangtse in the gentler climate near Shanghai, must have been a
shock. Nevertheless, the Mayor seemed to have found his feet quickly. He
appeared to be firmly in charge and determined to improve the city.
Mayor Huang was totally different from the plodding cadres we had been
more used to in Beijing, and he had long abandoned the traditional Mao jack-
et for a snappy Western suit and tie. I liked him. He was alert, interested and
supportive of what we were trying to do. He was in his early forties: a
shortish man with neat features, thick hair, sparkling eyes and teeth whose
whiteness was accentuated by the clean, slightly tanned look of the southern
Chinese. As he listened intently to Pat’s explanation of the recent excitement
about China in the financial markets, I sensed that he was wondering how he
could get his hands on his share of the spoils.
Soon it was time for dinner, so we trooped out of the meeting room,
through cavernous hallways with thick dusty carpets and followed the Mayor
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into a private room. There was a huge circular dinner table with a glass
turntable in the middle placed at the centre of the room under an enormous
chandelier.
‘Qing zuo; said the Mayor, ‘Please sit,’ as he gestured towards his right.
I looked at the expanse of white tablecloth in front of me, the perfectly
aligned plates and the flowers and elaborately carved vegetables on the circu-
lar glass stand in the centre. I leaned back in my chair and breathed in slowly.
‘This’, I thought resignedly, ‘promises to be an epic’
The food eaten in ordinary homes, factory canteens and local restaurants in
China is tasty, diverse and healthy. Within reason, you can stuff as much
down as you like without getting fat. It bears no resemblance at all to some of
the glutinous, oily Chinese food served up in restaurants in Britain. But ban-
quet food is quite another matter. The whole purpose is to impress. Chefs
compete to create the most elaborate and obscure dishes. Excess, both in the
amount and the nature of the food, is meant to flatter the guests. I thought
back to the factories in the hills and hankered after some simple, spicy
Sichuan dishes, but unfortunately my first guess had been right: the dinner
we had that evening with the Mayor of Changchun was an absolute classic.
It started off, as it always does, with a fight about the seating arrange-
ments. At these events there is a strict hierarchical order to the places at the
table and there is always a prolonged argument amongst the middle-ranking
Chinese officials about where they should sit, with plenty of jostling and
pushing, each person protesting loudly that the others should take the more
senior places. Once everyone had settled, during the small talk little glass
cups appeared beside each guest’s place and were silently filled with baijiu
by waitresses who moved noiselessly through a concealed door in the
panelling.
Baijiu looks like gin but it tastes much stronger. It is distilled from grain
and sorghum and there are many famous brands of the drink in China. Wuli-
ang ye or ‘five-grain liquid’ comes from Yibin in Sichuan, and maotai, the
most famous in China, comes from Guizhou, further south. At the lower end
of the market, there is er guo tou or ‘the top of the second wok’, which is dis-
tilled in Beijing. A really good bottle of maotai can cost the equivalent of
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several months’ salary. Baijiu is always taken neat but, thankfully, in small
doses. The idea is to knock it back in one go with a cry of ‘Gan bei’, ‘Dry the
cup!’ The problem is that drinking baijiu at a Chinese banquet is compulsory;
it is slightly viscous, has a smell like exhaust fumes mixed with a trace of
chocolate and seems both fiery and sickly at the same time. It burns the in-
side of your mouth and throat and leaves you with a sensation rather than a
taste. There is an immediate feeling of heat and tingling that creeps up the
back of the neck and radiates out all over the scalp. I already knew that these
formal banquets entailed elaborate drinking rituals designed to get the guests
hopelessly drunk, so I braced myself for the deluge.
Baijiu loosens tongues almost immediately although I’ve never met any-
body, even at the heights of alcoholic derangement, prepared to admit that
they actually liked the taste. After drinking it, most people screw up their
faces in an involuntary expression of pain and some even yell out. But there
were plenty of people who liked the sensation and the atmosphere that a
couple of bottles of baijiu produced at a dinner. It created the best parties and
the worst hangovers imaginable and the smell seemed to seep out through my
pores the following day. A German friend once summed up the experience
perfectly. She said, in her perfect Hochdeutsch, that when her husband had
been out drinking with his Chinese colleagues and had hit the baijiu, it was as
if she had ‘woken up the following morning next to an oily rag that had been
soaked in diesel’.
The Mayor was obviously pleased that we had had a good day. He was
anxious for foreign investment in Changchun. Although I knew that bringing
substantial foreign investment to Changchun would be good for his career, I
still felt that he was genuine in his desire to see the city develop and improve
the lives of the people there. So the baijiu flowed freely and the atmosphere
relaxed. Nevertheless, as the waitresses started bringing in the plates, I eyed
the food with deep suspicion.
The starters were served cold. First, there was a dish of duck webs in a
thick yellow sauce. It turned out to be the strongest mustard that I had ever
tasted. It sent a searing pain up the back of my nose and brought tears to my
eyes. Next came ‘husband and wife’ lung slices. Mayor Huang roared with
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laughter as it was translated and poured some more baijiu. He told us that it
was a Sichuan speciality: cow’s lung soaked in chilli sauce. The lungs were
followed by goose stomachs, a couple of dishes of pickled vegetables, a plate
of steamed lotus root and a chicken that looked as if it had been attacked by a
madman with a machete: its bones stuck out at all angles. Then onwards to
the hot dishes.
It seemed as if the cooks had entered a contest to serve up the strangest
parts of animals in the weirdest combinations. The pile of stacked plates grew
on the table in front of us: fish lips with celery, monkey-head mushrooms,
goats’ feet tendons in wheat noodles, ox’s forehead, roasted razor-blade fish
and finally a tortoise in a casserole. There was one dish that looked like a
bowl of ribbon pasta served up plain and without the sauce, but it was
crunchy and almost tasteless. It couldn’t be pasta, so I asked what it was. ‘A
Shandong speciality,’ said the Mayor. ‘Steamed rabbits’ ears.’
Halfway through the main dishes, the conversation, by then well-oiled with
baijiu, was flowing freely. Mayor Huang was telling us about Changchun’s
ambitions to be China’s Hollywood. There were several large film studios in
the town and he wanted to set up an international film festival. The Mayor
said that obviously they’d never be able to compete with Hollywood.
‘Your America is so much more developed than our China,’ he said. But
Pat replied that, from everything he had seen, it looked like China was catch-
ing up fast.
‘You see, China’s exactly like the States was in the late 1800s,’ said Pat.
This remark was greeted with a faint smile from the Mayor and a polite
gesture with his chopsticks towards a plate of duck’s tongues.
Pat went on. ‘Yeah, thanks. Y’see, China’s standing right on the verge of a
huge expansion, just like the States in the late 1800s. Everything changed in
the thirty years from about 1870 to 1900. The same’s gonna happen here,’ he
enthused, ‘but this time it’ll be bigger ‘n’ quicker.’
Once this had been translated, it was obvious that the Mayor was warming
up. Pat now had his full attention. How could any Chinese official fail to be
flattered and excited by this comparison with the world’s greatest economic
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superpower? The idea waxed in his mind. It was clearly time for another
toast.
‘Y’see, it’s like this,’ Pat went on. ‘America and China are the only two
countries in the world that are big enough to support big companies with just
their own domestic market.’ Another gan bei. ‘That gives you economies of
scale in your own market. No one else can match that. China’s the last market
on earth that has that potential. A billion-plus people out there working their
asses off for a better life. Just like the States a hundred years ago!’ With the
slightest pause to gauge the reaction, Pat raised his glass and ended with a
flourish, ‘So, you see, we’re really just the same!’
Another round of toasts, howls of laughter and invitations to have more
tortoise. By this time, the table seemed to be creaking under the weight of
stacked-up plates and the waitress arrived with another clay pot.
‘Eels,’ said the Mayor.
‘Great!’ we all replied.
‘In the States, y’see, it all started with the railroads. But you know what, in
China, it’s gonna be auto!’ he said, fixing the Mayor with a jubilant stare.
‘Trucks, buses, cars, limos, tractors, the lot, millions of ‘em – and that, Mr
Mayor,’ he said, ‘is why we are here today.’
I could see, through rapidly thickening clouds of cigarette smoke, that
Mayor Huang was starting to enjoy himself. But I was struggling. I had been
taken on by two of the officials from the Investment Bureau who were altern-
ately toasting me at every opportunity. I was beginning to feel that familiar
queasiness rising up in my stomach, but I was forced into trying another
Chinese cigarette whilst Pat worked his magic with the Mayor. Protestations
that I didn’t smoke were brushed aside as entirely irrelevant and another box
of Red Pagoda Mountain, China’s best, arrived on the table.
Pat was in the midst of convincing the Mayor that it had been a stroke of
destiny that he had ended up in charge of industry in this northern city of
Changchun. What might have seemed to the Mayor like an exile to the desol-
ate northern rust belt could now be turned into a chance of glory. His was to
be a role at the centre of an economic supernova that was about to be deton-
ated by this Wall Street banker.
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‘All you have to do is give us a few good factories and we’ll light the blue
touchpaper. It’s gonna be an economic explosion that’ll go down in world
history!’
It was all getting a little out of hand. Another round of toasts followed,
with speeches, general agreement on how much Chinese and Americans all
had in common and several more glasses of baijiu. Pat ploughed on.
‘Back in the 1870s, there were thousands of small-scale businesses all over
the States, “Mom V Pop shops”. But they couldn’t survive. The smart guys
built operations on a scale where the smaller ones couldn’t compete, and then
they just took ‘em out.’
‘Took them out?’
‘Yep, crushed them or bought them up. They built markets right across the
country. And the railroads were key to all that. If you couldn’t shift goods
around the country, you’d never grow a national market.’
‘But in our China, the iron roads indeed have limits. With the tall blue-
green mountains and the endless yellow plains, our China is vast and rather
unsuitable for this new machinery.’
A sideways glance at the translator. ‘What? Er, yeah, right,’ Pat said recov-
ering quickly. ‘But anyway, here it’s the roads that matter. Everywhere I’ve
been, the government’s building highways. Just imagine the thousands of
trucks needed to move all this stuff around China. People like Vanderbilt,
back in the last century, they just bought up all the small railroad companies
in America and joined ‘em together. Then you had a national railroad system
that no one could rival. We can do that here with auto.’
More toasts.
‘The railroads in the States, they needed steel, millions of tons of it. So
then they started building huge steel plants. Pittsburgh was the centre of steel
for years.’
A toast to Pittsburgh.
‘Then Carnegie brought in new technology. By the end of the 1890s, the
mills in Pittsburgh could produce a thousand tons of steel a day with only a
handful of workers.’
A toast to a thousand tons a day with only a handful of workers.
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At this point there was a minor distraction from the story as a plate of
black scorpions arrived. The Mayor explained that you eat them whole with a
couple of pieces of shredded radish and popped in a few to show us. I said I
thought they were poisonous but he said reassuringly, ‘Not if they’re cooked
properly.’
‘But the really interesting thing didn’t happen until all these businesses,
you know, the railroads and steel mills, got capital. That’s where Junius Pier-
pont Morgan came in. J.P Morgan, the biggest kick-ass financier in history.
Morgan figured that if he bought up lots of different companies all in the
same industry, forced ‘em to work together rather than against each other,
then he could take out the competition in the market. That way, one plus one
equals three! Yeah! So his idea was to build up something big that dominates
a market, and sell it on for more than he paid for each piece! Morgan did that
with US Steel. After Carnegie sold out to him, Morgan just bought up all the
competition. We can do that here.’
At this point, the soup arrived. Despite the fact that it looked like a bowl of
lukewarm pond water with a few weeds floating about, it was good news
since it signaled that we were nearing the end of the meal.
‘So, Mr Mayor, Changchun’s gonna become the Detroit of China. The as-
semblers are already here and what you need is components. We’re gonna
buy up factories, pump in a few hundred million and build the biggest com-
ponents company in China.’
‘The biggest components company in China!’ The Mayor just loved it.
‘Just like J.P. Morgan!’
He raised his glass. ‘To the J.P. Morgan of China!’
More toasts, cheers, hoots of laughter and the grand finale arrived.
‘Deer’s whip!’ said the Mayor.
A waitress had brought in a flat white oval dish and placed it centre stage.
In the middle, chopped up neatly into sections and then meticulously reas-
sembled, surrounded by carefully arranged pieces of broccoli and carrot and
with just the faintest traces of steam rising up from the edges, was unmistak-
ably an enormous penis.
‘Deer’s dick! Oh, Lord, how horrible!’
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The Mayor, smiling broadly, leaned forward, picked up a piece with his
chopsticks and placed it on my plate. The tip, so it seemed, was the best part.

I don’t quite remember how we got out, but I do remember the freezing air
hitting me as we stumbled towards the cars. And I also remember noticing
the steady and purposeful stride of the Mayor as he walked over to a waiting
group of officials to discuss our itinerary for the next day. It left me with a
vague suspicion that whilst our cups had been filled with baijiu, his might
have contained just the mineral water that I had noticed earlier on the side-
board. But, as the cars drove off, I put my mind more to controlling the
waves of nausea welling up in the pit of my stomach.
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Five

Three Vile Cobblers Can Beat the Wisest Sage

Rhyming peasant saying: literally, ‘Three smelly cobblers (with their wits combined) can beat
Zhu Geliang (the Master)’
– quoted famously by Mao Zedong in the 1950s

Over the coming months, after the hangover had cleared, Mayor Huang bent
over backwards to help us invest in Changchun. Within the Municipal
Government he set up a special office whose only purpose was to facilitate
our investments. After the disappointments up in the mountains in Sichuan,
the Mayor’s enthusiastic support was a welcome change. So we decided to
focus on Changchun and than gradually spread out to cover China’s major
cities: Tianjin, Wuhan, Shanghai and Beijing.
In the 1950s, the central planners had located the main truck factories in
China’s larger cities and, thirty years later, when the foreign passenger-car
companies started to arrive in China, the Government encouraged them to go
into partnership with the big truck businesses there. We thought that the com-
ponent factories in those cities should have a bright future, given the huge
new demand on their doorsteps. So we trawled round the government bur-
eaux and investment offices in each of these cities, visited factories and
gradually built up a picture of the overall industry. From these first trips, we
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found leads to other factories in more distant locations across China and pa-
tiently expanded the net.
During the late spring and the summer, we visited almost every part of Ch-
ina in our search for good factories. The contrasts between the different land-
scapes and local customs that we saw and the vast distances that we travelled
were all so great that, if it hadn’t been for the language, it would have been
difficult to believe that they were in the same country. In Zhejiang and Ji-
angsu, the two provinces either side of the mouth of the Yangtse near Shang-
hai, we crossed vast areas of dreary flat-lands, where each town looked like
the last with their monotonous rows of modern two-storeyed buildings
covered in cheap white tiles. The water-table is high in the whole area and
there are thousands of interconnected canals and lakes. The hulks of boats
loaded with vast piles of sand or gravel passed along the canals in an endless,
doleful procession, taking building materials to the next new factory town.
Everywhere, the lakes were covered with bits of polystyrene and empty
plastic bottles which I thought must have been rubbish dumped into the wa-
ter. But I soon discovered that they were floats in the oyster beds. Jiangsu is
the world’s largest producer of freshwater pearls.
Further north, the Shandong peninsula juts out towards Korea between the
Bay of Chihli and the Yellow Sea. The coast there becomes more rocky and
mountainous. Inland, out from the dusty plains and the orchard groves, Ch-
ina’s sacred mountain, Taishan, rises to the smoke-filled temples at its peak.
Nearby, in Qufu, the ancient home of Confucius, the family’s ancestral
graveyard still sits in a woodland surrounded by high walls and filled with
ancient knotty pines and grassy burial mounds. The inscriptions on the head-
stones stretch back seventy-eight generations.
We travelled to the various points of the compass: Guangdong in the south,
Jilin in the north and Urumqi in the far west. The scale of the industrial
zones, especially around Shenzhen in the south where Deng had planted his
tree, were enough to strike fear into any foreign businessman. As we drove
through the region, mile upon mile of multi-storey factory buildings flashed
past the window, each one churning out clothing and cheap manufactured
goods for export throughout the world. In the north, the conditions were at
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the opposite pole: the forgotten rust-belt cities, with their shattered factories,
broken chimneys and vast crowds of people milling around in the streets with
a lost look in their eyes.
By the end of the summer, we had visited more than a hundred factories all
over China. We’d seen every type of business that I could imagine: huge iron
foundries, steel-rolling mills in workshops a mile long, badly lit shacks near
Shanghai with row after row of young women assembling tiny electrical mo-
tors. One thing was for sure; there were plenty of factories that needed invest-
ment and seemed poised for expansion as the foreign passenger-car compan-
ies nudged China towards the next century. And more to the point, the fact-
ory directors wanted American investors.

Looking back on it, the frenetic pace and the tremendous extent of those
travels, as we lurched across China from one grubby hotel to the next, now
seem rather fanatical – even manic – unless they are set into the wider con-
text of what was going on in the country as a whole. In the months following
Deng’s Southern Tour, whole swathes of the Communist Old Guard in Pro-
vincial Government offices across China had been swept aside and replaced
with younger and more reform-minded cadres. These changes set off a chain
of events which led to local officials all over China, especially along the
coast, scrambling to set up new ‘investment zones’ and dispatching trade del-
egations across the seas in search of foreign partners. The economy expanded
rapidly and in the first half of 1992 the Shanghai Stock Exchange rose more
than tenfold. News of the paper millionaires in Shanghai who had started
with nothing and earned fortunes by speculating on the stock markets spread
across China. People all over the country fell into the grip of an investment
fever and started buying shares, pushing up prices even further. On one day
in August of that year, half a million people queued to buy shares in a newly
listed company outside the Stock Exchange in Shenzhen. When the applica-
tion forms ran out, rumours spread that officials had grabbed all the forms for
themselves and their relatives. There was a riot which left cars overturned
and windows smashed; it took the police several hours to bring it under
control.
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In many ways, the reaction inside China was to be expected. People were
fed up with the austerity programme; it had lasted for nearly three years after
Tiananmen and they wanted change. They immediately grabbed onto Deng’s
lead and quickly became caught up in the new mood. But the excitement in
the domestic economy was nothing in comparison to the delirium sparked off
outside China. Chief executives from all over the world stampeded into Ch-
ina in a cavalry charge waving chequebooks under the noses of their smiling
but slightly bemused hosts. For a time, it looked as though many of them had
abandoned conventional business logic in the search for the mythical ‘billion-
plus market’ while money poured into the country. The investment frenzy
soon gained a self-sustaining momentum that probably surprised even Deng,
its hoary old instigator.
The real detonation, however, occurred in the financial markets. With the
China investment frenzy at its height, in early 1993 an obscure Hong Kong-
registered car company with assets on the mainland applied to list on the
Stock Exchange. It wanted to raise about eight million dollars, but it received
application monies for just under four billion! Encouraged by these wild suc-
cesses, the Chinese Government authorized nine domestic Chinese compan-
ies to list in Hong Kong. The first one was Tsingtao, China’s biggest beer
company, and the share issue was massively oversubscribed. The Hong Kong
stock market was in the ascendant; it went up 35 per cent in the first few
months of 1993. Gradually, the news that ‘something big’ was happening in
Hong Kong floated across the Pacific towards America.
In the third quarter of 1993, while we were completing our factory tours in
China, the huge American institutional investors started moving into Hong
Kong. They wanted to get in on the act and the ‘money allocators’ were in
town, the hugely powerful analysts who advise the markets where to put their
dollars. That was when Barton Biggs, one of the most influential voices on
Wall Street, had made his famous remark about being ‘maximum bullish’
after a six-day banquet marathon up in the Middle Kingdom. In the months
following his visit, the stock markets soared and investors scrambled over
each other to grab whatever investment in China they could get hold of. At
the end of the previous year, a small bus company called Jinbei had gone
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public in New York and raised millions of dollars; it was the first listing of a
Chinese company on the New York Stock Exchange, but now investors
wanted more. The only way to access more deal-flow was to invest in Hong
Kong or, even better, in China itself. So it was in this heady atmosphere to-
wards the end of 1993 that Pat went back to America to raise money.

Throughout the year, Pat had been warming up some Wall Street heavy-
weights. He said, ‘I know it can be difficult to raise money on your own and
we need someone with real firepower behind us.’ Through some old contacts,
Pat had been introduced to IHC, a huge money manager with offices in
midtown New York. ‘They’re one of the best money managers around,’ Pat
had said. ‘If we can get them on our side it’ll make the whole process of rais-
ing money much easier.’ He’d also been talking to one of the biggest New
York stockbrokers and, although investing in factories in China hardly came
within their normal sphere of business, they seemed interested as well. ‘It’d
be good to have a big broker behind us,’ he said. ‘It’ll help when we go pub-
lic in New York.’
IHC, the money manager, routinely raised hundreds of millions of dollars
from the big corporate pension funds and other institutional investors in the
States. There were also some individuals who invested with them, but you
had to be rich; they weren’t interested in anyone with less than fifty million.
Pat wanted to persuade IHC to take a ‘China Fund’ to their investors. IHC’s
name would add credibility and they were always on the lookout for new and
intriguing investment ideas for their clients. China was flavour of the month,
so Pat was hopeful; if we could attract IHC’s interest and get them to raise
capital for us, we could then buy up the factories that we had found in China.
‘If we can get IHC to take it to their clients, I think we’ll raise enough money
to keep us busy for a while,’ he said.
Pat sparked enough interest for IHC to look at the idea seriously and in
August the president of the company, Myron Rubel, had come to China to-
gether with Bob Smith from the brokerage firm. They flew to Hong Kong in
IHC’s jet, grumbling about having to ‘go commercial’ into China; at that
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time, the Chinese Government was not too keen on private planes whizzing
around in its airspace.
The trip was a strain. I found Rubel a nightmare to deal with. Thin and
wiry, with frizzy white hair, he was a hyperactive man who could never sit
still. He was about fifty when I met him and he had only just become presid-
ent of IHC. Managing sixty billion dollars was bound to entail a lot of pres-
sure, but Rubel was the archetypal stress-junkie; an erratic eater, constantly
fidgeting around, shaking his legs up and down on the balls of his feet under
the table, taking out his diary, looking at it for a split second, putting it away
and then taking it out again. He had a concentration span measured in a
couple of picoseconds and seemed to have a hundred things all jumbled up in
his head at any one time, things that seemed to fall out in no particular order.
He’d fire off questions about exchange controls and halfway through the an-
swer suddenly ask for statistics on the auto market that we’d already given
him the previous day. He was exhausting company.
Cheerful, red-faced Bob Smith from the brokerage firm could not have
been more different. He was far more rounded than Rubel in both personality
and physique. He was a jovial man who would talk you to death if the chance
arose. His breakfast meetings in America were legendary for lasting well past
lunchtime; sometimes whole days were consumed in the process as one meal
merged into the next. At first I suspected that his slightly absent-minded
manner might have been a ploy to put you off guard; given his high position
on Wall Street, it was not wholly convincing. However, after his secretary
told me that she once found a bonus cheque for nearly a million bucks in the
pocket of a suit jacket that had been hanging on the back of his door for
months, I began to have my doubts.
I was only convinced that Smith’s eccentric manner was genuine after I
saw his office. It was famous throughout the brokerage and I was once taken
in for a viewing by one of Smith’s analysts who’d previously checked to
make sure that Smith himself was out of town. I could hardly get through the
double doors. Piled from floor to ceiling, on desks, under chairs, blocking the
windows and stuffed into bookcases were thousands and thousands of docu-
ments: prospectuses, contracts, offering documents, long form reports and
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financial statements stacked in great tottering piles right up to the ceiling. A

path had been trodden through the middle of these disorganized heaps and
towers of paper across to the corner of a desk. The desk itself was piled three
or four feet high with binders and magazines, but a small space, about a foot
square, had been cleared on the corner where there was a battered plastic tele-
phone next to a collection of bottles containing pills and vitamin tablets, and
a pair of knackered old training shoes. Apparently, Smith sometimes locked
himself in there for hours on end, bumbling down the phone and rummaging
around, looking for his headache tablets. Most of the documents were years
old; his secretary told me that some of them dated back to the 1970s but that
whenever she tried to clear up he yelled at her. Bob Smith insisted that he
knew where everything was but of course he could never find anything; we
always made several extra copies for him, knowing that most would end up
being tossed into the vortex.
I never really figured out what made Bob Smith tick, but one thing was for
sure: his slightly shambling walk and amiable manners were the perfect anti-
dote to Myron Rubel’s hyperactive volatility, and he progressed sedately on
his tour through China unperturbed by the whirlwind raging around him.

Before their trip, Ai Jian had fixed up meetings for Rubel and Smith with the
ministries in Beijing. We had also arranged to take in the best factories in
Beijing and Changchun but Rubel didn’t want to see them.
‘Nah, I’ve seen enough factories for one lifetime,’ he said. ‘If the guy
wants our money, get him to come and see us.’ So Ai Jian called around and
the factory directors duly trooped in to see us. Fortunately Mayor Huang was
in Beijing anyway, so that avoided the embarrassment of telling him that we
weren’t coming up to Changchun.
The meetings were stiff and uncomfortable; several were at ministerial
level and kept to a set pattern. Although the rules at these types of meeting
are less rigid than at a formal dinner, there is still an etiquette to dealing with
high-level Chinese officials. When they are introduced to new acquaintances
in a formal setting, the Chinese have an elaborate self-deprecating habit of
talking themselves down. But the customary expressions of worthlessness
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from the host are expected to elicit strong protests from the guests who
should respond with excessive compliments elaborating on the fame of their
host, the lavishness of the surroundings or anything else appropriate that
springs to mind. Of course, I knew that the shabby hallways and rusting pipe-
work in the ministries were not exactly what Rubel and Smith were used to in
their offices in New York. But my nerves were still frayed when the ministers
made the standard opening apologies for the poor surroundings and they just
nodded their heads in agreement.
I sat anxiously through the meetings, waiting at each pause for Rubel’s
next question. There is a strict hierarchy to the seating at meetings in China;
the most important participants sit at the centre of the long meeting tables.
Given the august company, Ai Jian and I had been consigned towards the op-
posite extremities, so I couldn’t even influence his translation with the odd
undercover whisper.
The meetings generally went well; Rubel asked his pointed questions and
the Chinese gave their elliptical answers, but generally there seemed to have
been some form of a meeting of minds. Towards the end of the trip the atmo-
sphere grew gradually more relaxed and on the last day, just before Rubel
and Smith left for the airport, we had lunch with the Mayor of Changchun.
We had figured that it might be tempting fate to end up with a baijiu dinner.
Ai Jian ordered the dishes so the meal was a relatively straightforward affair,
with the only excitement – minor, at that – caused by a plate of sea slugs. Ru-
bel fired off questions from every angle as Smith fumbled with his chopsticks
and Pat and I finished the beer until, just before we got up to leave, Rubel
asked his last question.
‘Well, Mr Mayor, we are very impressed with you but we’ve heard that of-
ficials in China move about a lot. So if you move to another city how do we
know that your successor will follow the same policies?’
The answer came without the slightest blink.
‘Well, Mr Rubel, we are impressed with you but we’ve heard that execut-
ives in America move around a lot. So if you move to another company how
do we know that your successor will pursue the same strategy?’
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The Mayor had delivered his reply absolutely deadpan and held Rubel’s
gaze for a moment. Then, just as the tension was mounting, his face, with
perfect timing, broke into a broad grin. To his credit Rubel laughed as loudly
as the others but it had been a great put-down and probably a close call. I
loved the self-confidence, the almost barefaced cheek of the new generation
of Chinese officials. Here was a man landed with the responsibility for a
deadbeat industrial city in northern China with all its poverty and unemploy-
ment and decay, up against a visitor from a distant land who controlled sixty
billion dollars. It was pretty obvious who held all the cards but the Mayor
never once let the mask slip; I admired his gall in taking them on eye-to-eye.
He seemed able to meet them on their own level with the same mixture of
brazen self-confidence and bluff. In another life, Mayor Huang would have
thrived on Wall Street.
By the time that Rubel and Smith left China, they had seen enough to get
them interested. Pat went back to the States late that August and went up to
one of Rubel’s holiday homes in Vermont together with Smith. They sat on
the porch in the late summer sunshine. That night, Pat called me in China and
told me, ‘We got the deal!’
IHC had agreed to go out and raise a hundred million bucks for the
Chinese auto industry.

With IHC behind him, Pat was on a roll. By October the documents were
ready and he toured the States. He visited all of IHC’s major clients and, after
about six weeks, I got one of his regular calls in Beijing. ‘So, how’s it all go-
ing?’ Several minutes into the conversation, he said, ‘Well, I’ve got eighty-
five for you.’
‘Eighty-five?’
‘Yeah, eighty-five million. We got circles on eighty-five million of cash
from investors. Should be up to a hundred and fifty by Christmas. You’d bet-
ter be able to invest it!’ And with his characteristic roar of laughter, Pat put
the phone down.
Eighty-five million bucks. That seemed like a lot of money. Goddammit, it
was a lot of money! Bucket loads, in fact, especially in China. In those days,
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raising that kind of capital inside China itself was virtually impossible where-
as in the States it had seemed almost routine. Gradually, I began to under-
stand the power of the money machine in America. There, every day, multi-
million commitments were made by small groups of people and were based
on, maybe, a two-hour meeting and some macro-analysis of countries that
they had never visited. It just depended what was in vogue at the time. In the
late 1990s, it was dot.com. Back then, it was China.
Pat told me that during his tour of the States in early December, he had
travelled up from New York to Stamford together with Rubel to talk to a
large pension-fund investor. They went through their pitch and then went
back to Manhattan, about an hour away on the train. When they got back to
IHC, there was a message from the investor left on Rubel’s desk. It read;
‘Myron, you and Pat did a great job today. You got your fifteen million,
Pam.’ That was it! The same investor came up with another ten million a few
months later.
Despite these surprises, it was the wealth of individual people in America
rather than that of the institutions that really amazed me; I had no idea that
such vast fortunes were controlled by families or individuals who had either
made or inherited money. During Pat’s first money-raising tour, IHC had ar-
ranged for him to attend a breakfast meeting with a group of wealthy indi-
viduals in Houston. Although the smallest permitted investment was a mil-
lion dollars, there were seven people at the breakfast all fumbling around
with their toast and marmalade, dropping their napkins and shouting for more
coffee and ‘grits’ as Pat gave his presentation. When he had finished, one of
them asked two questions. Pat couldn’t answer the first as it was about some
obscure tax loophole, but the next one was easy.
‘How many factories have you personally visited in China?’
Pat launched into a set-piece exposition about how we had visited a hun-
dred factories in a hundred days on our Long March across China. It must
have been convincing. A few days later, on the basis of that hour-long break-
fast meeting and two questions – one of which hadn’t even been answered –
the investor signed up to invest five million dollars of his personal money
and wired it across a few weeks later.
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I found it difficult to pull the people at Pat’s ‘Breakfast in America’ and

the workers up in the Chinese hills into the same world-view. It seemed as if
the factories, where raising a hundred thousand dollars could take years of ef-
fort, were on a different planet. Curiously, that was something that excited
me. I found the real prospect of bridging that colossal cultural and financial
gap hugely inspiring; we were about to embark on an adventure, that was for
sure, but it was one that might bring hope to those forgotten communities that
had no way to access the resources that they needed to survive. Here was a
unique opportunity, the chance to bring capital into China on a scale that
could rejuvenate businesses that employed thousands; and in a scheme where
both sides could win.

Things fell into place quickly afterwards. Once the ‘high-net-worth-individu-

als’ – as really rich people in America were known – had signed up for their
eighty-five million, the big institutional investors moved in. Early in the New
Year, it looked as though we would raise two hundred million dollars. But
Rubel back in New York was nervous. ‘OK, I know you’ve seen all these
factories, but how do we know you’ll actually be able to invest all this
money? Two hundred is a lot for the first pull.’ Eventually, he cut back the
commitments and we accepted a hundred and fifty-eight million dollars. Pat
didn’t like it. He wanted to get as big as possible at the first strike, but he re-
lented and at the end of February the contracts were signed and the first in-
stalment squirted into our bank account. I still couldn’t quite believe it. The
first money-raising round had exceeded my most optimistic expectations;
once the celebrations had died down, we turned our minds seriously to in-
vesting it. It looked as if all the hopes were about to change into reality.

With a hundred and fifty million bucks at out disposal, it wasn’t difficult to
make waves throughout the whole industry. Although we had actually spent
many months patiently researching China, building up the big picture and
visiting factories across the nation, to the outside world it seemed as if we
had suddenly burst onto the headlines from absolutely nowhere. We were all
over the press. The Asian Wall Street Journal ran a whole page on us. The
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article, which was entitled ‘The Insiders versus the Outsiders’, compared our
chances with another group of Hong Kong investment managers who had
raised ninety million for one of the big Beijing-based industrial groups. We
were the ‘outsiders’ from Wall Street up against the ‘insiders’ from Hong
Kong who claimed to have all the right relationships in the inner chambers up
in Beijing. The article was inconclusive but said that the ‘outsiders’ had a
more coherent investment strategy; it might pay off in the long run if ‘the
outsiders’ could navigate their way through the tangled relationships up in
China and find the right businesses to buy.

With all that money burning a hole in our pockets, the pressure was on to in-
vest so I was relieved when I managed to persuade an old colleague from
England to come out to China and help us figure out what to do. Michael and
I had worked together at Arthur Andersen before he left to join a private
equity house in London and I knew that he had much more experience with
the nuts and bolts of investing than I had. Together, we hired a team of eight
bright young Chinese graduates who had studied English or finance at one of
China’s top universities. They helped us churn through the reams of figures
we’d collected and figure out which were the best factories to invest in. I
thought that we had the right team in place, but Rubel became more and more
nervous as the weeks passed. He wanted to see some action and the telephon-
ic board meetings between China and the States started to become tetchy.
We had agreed to focus on Changchun to start. We had to get something
done quickly before Rubel exploded. The Mayor was on our side and the
factories up there were smaller than many in the other big cities, so we felt
that it was the right place for us to begin. The Director of Mayor Huang’s
special government office, Mr Jiang, accompanied us to each of the factories
and entertained us in the evenings. But the visits were tough going and we
made slow progress. The businesses were so confusing: sometimes it was
even difficult to figure out exactly what the factory made; trying to under-
stand their markets was verging on the impossible. We seemed to spend
hours in freezing offices, squinting at schedules of figures that never quite
tied up.
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The ‘entertainment’ in the evenings was also a strain. The Mayor had told
Jiang to keep us happy, so there were nightly banquets which, though not
quite on the scale of the Mayor’s epics, still involved multiple courses over-
spiced with garlic and washed down with baijiu, or beer if we were lucky.
The parties afterwards were even worse. Night after night we were invited to
dances at the various factories. Even in March, the temperature outside was
still well below freezing and the heating in the dance halls never seemed to
work. We all wore coats inside and, as we sat huddled on the rows of chairs
on the edge of the dance floor, with our frosty breath illuminated by the disco
lights, we were dragged out to dance with girls from the factory. Egged on by
the doggedly well-meaning but hopelessly unobservant Jiang, the factory
girls would come out, one after the other, in endless succession to ask to
dance. It seemed to go on for hours, but I never had the heart to refuse. We’d
stand swaying to the reverberating sound of the Chinese version of ‘Only
You’ until midnight in a freezing dance hall with flashing Christmas tree
lights taped to the walls, clasped in the arms of a female factory worker who
was wearing three overcoats. With all the padding, my arms hardly reached
round my dance partner’s back. Michael said that it felt as if he was ‘dancing
with a bear that’d washed its hair in garlic’
Michael and I spent many weeks in Changchun with Madame Tan trying
to ‘put the numbers in the spreadsheet,’ as Pat had rather tactlessly put it to
Michael. Pat was still focused on the big picture, impatient with the distract-
ing details of each individual factory but convinced that the strategy would
work as a whole.
Madame Tan was the Director of the ignition-coil factory that we had vis-
ited on our first trip to Changchun when we’d met the Mayor. She was a jolly
round-faced woman in her late thirties. Her ignition-coil factory was perfect
for a first investment. The products were simple and Madame Tan thought
that she only needed about two million dollars to push the factory into over-
drive. She had just landed big orders from the new German passenger-car
line down the road, so the market seemed secure. She just needed our money
to buy more equipment to meet the new demand. As we waded through the
figures and the weeks rolled on, the four huge iron chimneys at First Auto
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Works, with their spiky crowns on top, became a familiar sight on the
horizon.

In those days, foreign investment in China was almost exclusively in the

form of a ‘joint venture’ where both the Chinese and the foreign side had a
share in the business going forward. Generally, the foreign partner invested
cash while the Chinese partner contributed the assets at the factory. Once the
deal was struck, the contracts had to be approved by the Government;
without the red ‘chops’ from the ‘relevant department’ no foreign investment
contract was valid in China. But the regulations were confusing; even Direct-
or Jiang seemed vague about the details. It was just like at the university
where many of the regulations were ‘internal,’ but this time it seemed as if
the people on the inside didn’t really understand the rules either. No one
could tell us which documents were needed and which of the municipal com-
mittees and commissions had to give their chop before final approval. There
was a maze of confusing regulations requiring accountant’s certificates, tax
registrations and valuation reports before the joint venture could be approved.
Many government officials didn’t have a clue how even to start working their
way through the labyrinth and whenever we asked what to do, each one gave
a different answer.
Sometimes Madame Tan could be equally perplexing. She had imported
some specialist equipment from Italy the previous year but it was still locked
up in a warehouse. When we asked to see it, she was evasive. During one of
her many trips out of town, we persuaded one of the other managers to open
the warehouse for us. We found that the machines had never been used; they
were still in their packing cases. So why did she want more equipment? We
had noticed that there was another factory on the same site as Madam Tan’s –
the Changchun Number Two Wireless Factory – but she seemed extremely
anxious to prevent us from meeting anyone from the wireless factory.
At times, Madame Tan would suddenly disappear for a few days without
any explanation. At first, I didn’t think anything of it; after all, she could
have been on a normal business trip. But after one such absence she came to
collect us from the hotel in a huge black stretch limousine. It was a Cadillac.
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I’d never seen one in China before. The crowds of early-morning bicyclists
stared at us as we left the hotel. The car, with its enormous length and gleam-
ing black paintwork, slowly wound its way with almost feline stealth around
the potholes in the road and the huge clouds of steam that poured out of the
manhole covers into the freezing air. But a couple of weeks later the Cadillac
had gone; it seemed as if the ignition-coil team had suddenly fallen on hard
times since they appeared to have no car at all. At lunchtime, when we went
to a restaurant just down the road, we were driven over on an old ‘Liberation’
truck. We sat there, in our suits and ties, shivering on a battered sofa that had
been dumped onto the back of the truck together with some filthy old sacks.
Meanwhile, back in New York, Rubel was becoming increasingly nervous
and unpredictable. As we struggled to reach a deal with Madame Tan and
find our way through the maze of government regulations, the drum beats
from New York got louder and louder. My heart sank when I heard that Ru-
bel had arranged to come to China in May. But that was still two months
ahead; we hoped that by then we would have signed the deal with Madame
Tan and that it would keep him off our backs.
In April, the deal was struck. It was small; just the right size for us to cut
our teeth on. We agreed to invest a million dollars for 60 per cent of the busi-
ness. Madame Tan would invest the factory’s land and buildings, plus the
equipment, for her 40 per cent share. And she would continue to run the fact-
ory. It seemed like the perfect deal. Rubel was pleased and the tension
abated. We were relieved as well; with the first deal out of the way, we could
get on with the job of putting the rest of the capital to work.
A few weeks later, Madame Tan called to say that there was a problem.
‘Our factory’s land, you know. It’s not registered in our name so we can’t put
it in. Does that matter?’
Michael had taken the call. ‘Of course it matters!’ he said. ‘If you don’t
own it, who does? They’ll want to charge rent. Anyway, if you can’t put the
land in, how are you going to pay for your 40 per cent?’
Madame Tan said that the wireless factory next door owned the land.
When I heard the news, I said, ‘That’ll be fine. We’ll just get Mayor Huang
to sort it out. The land’s all owned by the State anyway, so it shouldn’t be a
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problem.’ We had several meetings with Director Jiang and his Investment
Bureau and, later on, with Mayor Huang. He promised to instruct the Land
Bureau to re-register the land. There was a lot at stake for the Municipal
Government; if we made that first investment in Changchun, others would
surely follow. But the weeks dragged on. There was no news and the tension
mounted as Rubel’s arrival drew closer. Then, a week before he was due in
Beijing, Madame Tan called to tell us that it was all off. A huge dispute was
raging over the title to the land. Mayor Huang had thrown his weight behind
Madame Tan, but the wireless factory had been lobbying the Changchun
Party Committee. There was deadlock. We were confused. How could such a
simple matter of a small and not particularly valuable piece of land become
so complicated? It was puzzling and the timing was awful. At that stage, all
we had to look forward to was Rubel’s reaction when he heard the news.

I was not in China when Rubel arrived but I heard that the meetings were
horrible. Michael called me afterwards in a state of despair. He had been giv-
en the task of presenting the progress of our investment programme to Rubel
and his team of simpering assistants. Rubel kept butting in, firing distracting
questions at Michael, not really concentrating on the answers and complain-
ing that it was all too complicated. At one point, when Michael was going
through the government-approval process for foreign investment, Rubel just
wouldn’t let go of a particular detail. As Michael struggled to explain a pro-
cess that many Chinese government officials themselves didn’t really under-
stand, Rubel became highly agitated. In practice, local officials often inter-
preted the vague regulations in ways that suited local conditions, but this
didn’t stack up with Rubel. He smelt a rat. When Michael, with increasing
exasperation, said, ‘But Myron, you’re just looking at it through a Western-
er’s eyes,’ the long-awaited explosion erupted. ‘But I am a Westerner,’ Rubel
yelled, ‘I am a Westerner. How the hell else am I supposed to look at it? I
wanna know where every investment project is in the system. I want a list of
projects at each stage of the process. You must have that, so show me the
list!’
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The Chinese staff were by then looking uncomfortably at their shoes. This
was definitely not their style.
‘Show me the list!’ Rubel shouted, bouncing up and down in his chair.
‘What?’
‘Show me the list!’
‘But there isn’t a strict sequence to how things get done.’
‘Show me the list! Show me the list! Show me the list!’
Apparently, the ranting continued for several minutes until Pat suggested a
break. They were all exhausted by the time that Rubel left for Japan the fol-
lowing day.

After Rubel left, we regrouped. The experience up in Changchun had taught

us a lesson: the workings of Chinese business, and apparently even parts of
the Government, were much more chaotic than had appeared from the out-
side. In retrospect, events and comments that we had passed over in the hills
in Sichuan took on a new significance. I had been puzzled at times by the
factory directors’ apparent disdain for our two fellow-travellers from Beijing
– they were reasonably senior officials from the Ministry on a mission to
bring money to the remote valleys, but often their requests for information
had been brushed aside. The directors had been openly scornful of the Cent-
ral Government bureaucracy, those ‘old men who squatted in their offices in
Beijing’. When I told Ai Jian that I couldn’t understand why everyone
seemed to ignore the officials from the Ministry, he used an old Chinese ad-
age: ‘The hills are high and the Emperor is far away.’ It seemed as though the
far-flung extremities of the ancient kingdom still paid little attention to the
capital.
After these experiences, it was fast becoming obvious that if we were to in-
vest our money safely we would have to take a majority share in each of the
businesses. That way we’d be able to retain a reasonable degree of control.
Negotiating a majority stake would be difficult; but Pat said that he reckoned
that most of the businesses we’d seen were so desperate for capital that
they’d agree in the end. He was right. We eventually came up with a formula
that we thought would be acceptable to both sides: the original factory
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directors would remain in charge of the daily operations but, in return for our
money, we would always take more than 50 per cent of the shares and a ma-
jority on the Board. And Pat would be chairman.

The summer that year in Beijing was unusually hot and wet; every day a
cycle seemed to set in with blue skies at dawn and a gradual build-up of heat
and humidity during the day that cleared again in the late afternoon with co-
lossal thunderstorms. Often the clouds in the late afternoon were so thick that
the city would be plunged into darkness as the rain came down in great black
streaks. The rising tension in the weather through each day matched the
wider mood as the months rolled on, but eventually it broke at the end of the
summer when we closed our first deal.
We finally made our first investment in a factory high up in a steep-sided
valley with mountain streams, stone bridges and bamboo groves, tucked up
far away in the central province of Anhui. It had been founded in the early
1980s by one of China’s new breed of entrepreneurs, a Mr Shi. Originally
from the river town of Jiangyin in the flat-lands of Jiangsu, he had ended up
in the mountains after the Cultural Revolution and had never gone back. His
factory had always been outside the state-owned system so Old Shi had
grown it from nothing, relying entirely on his own resources. Fifteen years on
the business was making a fortune supplying rubber parts to China’s auto-
motive industry.
The negotiations to establish the joint venture were surprisingly straight-
forward. Somehow Shi seemed to know how to deal with foreigners; he was
clear about what he wanted, he wasn’t hemmed in by a state-run bureaucracy
and he made quick decisions. He was flexible and only dug his heels in on
two points: our cash had to come quickly and he was to remain in charge.
After a couple of months, we agreed a handshake deal: twelve million dollars
for a 60 per cent stake in the business. The accountants and lawyers were dis-
patched to work out the details.
During this lull in negotiations, I had to go to America for a commitment
that I had been dreading. IHC wanted me to address a large group of in-
vestors in Los Angeles. My topic was China so it should have been easy. But
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the speaker immediately after me was Dr Henry Kissinger. The prospect of

lecturing in front of hundreds of prominent investors and a man who had per-
sonally known Mao and Deng sent me into a paroxysm of nervous tension.
As I got up to speak, I scanned the audience anxiously for the famous
hornrimmed glasses reflecting the stage lights. In fact, Kissinger appeared
neatly from one side of the stage after I had given my pitch and spoke for
forty minutes, without notes, on the balance of global power between almost
every significant country. Short and rather stout, he mesmerized his audience
and was fallen upon by fawning millionaires once he had finished speaking.
Fame, it appeared, was a more highly valued commodity in America than the
odd hundred million. But ‘The Doctor’, of course, had both.
When I arrived back in Hong Kong on the journey back to China, I was in
for a shock. I knew that Old Shi, with his factory up in the hills, was a risk-
taker, and that he had borrowed heavily from local banks during the boom
that had been set off by Old Deng’s Southern Tour. But two years on, the
government had started to rein in the overheating economy and Shi was un-
der pressure from his bankers. While I was away, he suddenly arrived in
Beijing and presented Pat with a draft investment contract.
Pat had called me as I arrived in Hong Kong a couple of days after Shi’s
visit.
‘Yeah,’ he said, ‘Shi came up to Beijing with this draft contract, so I
signed it.’
‘What?’
‘Yeah, I signed it.’
A pause.
‘You know that the lawyers haven’t signed off on the wording yet?’
‘Yeah, I know.’
‘And the accountants are still checking the numbers?’
‘Well, you know that the contract isn’t valid until it gets chopped by the
Government. It’ll take ages before Shi gets the approval.’
‘And the Board papers.’ I continued cautiously. ‘You know, Rubel’s never
even heard of the deal.’
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‘Look, I’m fed up with all the bleating from New York. What are we sup-
posed to do with all that cash? Just leave it in the bank account? I don’t think
so! So, stop worrying, it’ll take Shi months to get the approval. Anyway, how
was I supposed to refuse?’
‘Well, you could have said “No”,’ I suggested.
‘Well, you know me,’ Pat said. ‘If I was a girl, I’d always be pregnant!’

Pat received Shi’s jubilant call before the end of the week. After he’d met
with Pat in Beijing, Shi had flown directly to Hefei, the provincial capital in
Anhui, clutching his precious contract, and had procured the government’s
red chop the same day.
‘The documents are all approved,’ said Shi. ‘When can I get the cash?’

The telephonic board meeting linking New York with China that night resul-
ted in a display of pyrotechnics that would have impressed even the Chinese.
Storms of protest burst from the speakerphone in front of us. The other dir-
ectors had never heard of the deal and Pat had sent the contract over to New
York with a rather disingenuous attached note saying: ‘Here is the condition-
al contract that I signed in Beijing for discussion tonight.’ After Rubel had
read the contract, he was beside himself, spluttering with fury. ‘Why is it
conditional?’ he screamed. ‘Where is the conditionality? Where is it? Where
is it?’ The shouts came out against a vague background noise of fists drum-
ming on a boardroom table some eleven thousand miles away.
Of course, the raging of the other directors could not change the facts.
There was already a commitment to invest about twelve million within
twenty-one days whether they liked it or not. Eventually, exhausted by the
force of their own remonstrations, they signed off. An uneasy truce was de-
clared. Pat had broken the logjam and further investments followed quickly.
It was a smart move at the time but it did nothing long term for the relation-
ship with our colleagues in New York.
On 8 September 1994 the twelve million dollars were wired into Shi’s
bank account in Ningshan. Late that day, I took a long walk up to the Great
Wall and stared out northwards towards Mongolia over the ancient parapets.
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We had made our first investment. I felt exhausted, exhilarated and appre-
hensive all at the same time. It had been a bruising process. Would it all be
worth it?

Once the initial logjam had cleared and we’d figured our way through the
bureaucracy, we were able to close other deals quickly. By the end of the
year, we had invested the whole of the hundred and fifty million dollars in
seven factories all over China. In the following year, 1995, IHC raised a fur-
ther two hundred and sixty million and we invested that into more factories
making components. We also used it to expand into another industry when
we bought up three large breweries in Beijing. In the space of eighteen
months, we had come from nowhere to be one of the biggest financial in-
vestors in China, right at the height of the China boom. We were fast becom-
ing the nexus between the vast capital resources on Wall Street and the
greatest growth story ever. Others had gone out and raised money, but no one
had raised comparable amounts. Many of the funds that raised capital failed
to invest it; their money was still parked uselessly in Hong Kong years later.
No one else had managed to invest so quickly. It looked as if Pat had created
his machine for bringing money from Wall Street to China.
In the space of two short years, we had grown from three people sitting in
a dingy office in a second-rate hotel in Chaoyang District on the east side of
Beijing into a company with twenty businesses across China and twenty-five
thousand employees.
Pat seemed like a man on the brink of greatness.
I was walking on air.
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Six

Wind in the Tower Warns

of Storms in The Mountains
Tang Dynasty Poem by Xu Han:
‘Coming troubles cast their
shadows before them.’

They called themselves factory rats, those knarled old engineering types with
beer bellies, checked shirts and nicotine-stained fingers. Before we found
them, they’d spent the whole of their working lives as foreign expatriates,
grappling with metal-bashing factories in developing countries all over the
world. We hired them to form an operating team to get our factories in China
really humming; twenty-five of them, grizzled and oily, tough old bastards
who claimed they could hear the clink of a badly adjusted metal press a hun-
dred yards across a factory floor. They didn’t exactly fit in with the Wall
Street types, but the idea was that they’d be there to guide the Chinese fact-
ory directors and help them improve each of the businesses while we got on
and raised more money. But somehow it never quite worked out like that.

By the middle of 1995 we had completed our third round of fund-raising.

With more than four hundred million dollars under management, we were the
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largest financial direct investor in China and we were bursting with optim-
ism. After we raised the capital, we ended up visiting nearly two hundred
factories throughout the whole country. Since that covered almost all the
sizeable components businesses in China, we knew that we had invested in
the best.
During the money-raising process, Pat and IHC were clear about the
strategy of buying up factories and consolidating them into the largest com-
ponents company in China. The investors identified with the story. It had
happened in the States so why not in China? Pat had told the investors that
we would go for size; we would only use their money to buy stakes in busi-
nesses that were in the top three of their markets.
As we trawled through all these factories, we found that Old Shi, with his
business up in the hills of Anhui, was an exception. There were hardly any
other privately owned businesses that had managed to get to the top of their
markets; most of the other big components businesses were state-funded.
Many appeared to be stuck in a time warp back to the 1950s and 1960s when
the planners had first provided the funds. The problems surrounding state-
owned companies had been at the top of the government’s agenda since the
country had started to open up in the early 1980s. For years there was no
profit motive so most state-owned businesses were hopelessly inefficient, in-
capable of developing new products when markets changed and massively
overmanned. It made no difference to the factory directors whether the busi-
ness made profits or losses; they still got the same miserable wage. Many
state-owned operations were dying, drowning in a sea of debt and weighed
down by thousands upon thousands of excess workers.
But there were exceptions; some businesses made money and had a re-
spectable market share. They were still overmanned and inefficient, but these
problems had been masked in the boom years during the early 1990s when
sales grew rapidly. Some had doubled in size in each of the three years before
we invested; that meant that in the space of three years, their sales had grown
by a factor of eight. We knew that they’d need a lot of work, but in the new
climate of reform we thought that the factory directors would be receptive to
new ideas. So we hired the factory rats and they started drawing up vast
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checklists for ‘in-process quality control’, whatever that was, and putting in
computer systems. It looked as if they were getting to grips with the factories,
so we left them to it. Pat went out to raise more money; by that time he had
the cement, float glass and packaging industries in his sights.

The results in the first half of 1995 hadn’t been good, but the optimism about
the Chinese economy endured and there was little reaction from America.
After all, it was only the first year of operations and the new working ar-
rangements were bound to take some time to settle down. We’d delivered
what we had promised: Pat had raised the capital, we’d invested it in good
factories and had found a team of experts to run them, so there was no cause
for complaint. I had no particular concern, but gradually I began to notice dif-
ficulties between our operations team and the Chinese factory directors. It
was below the surface at first; just a vague feeling that they weren’t getting
on, or that there wasn’t quite the right degree of trust between the two sides.
But I still wasn’t unduly anxious; the factory directors maintained their op-
timism; and I felt that, with their years of experience all over the world, our
old factory rats were bound to be a jaundiced lot and would take some time to
grow to trust their new Chinese colleagues.
But it didn’t work out like that. As the months rolled on, the factory direct-
ors continued to be reluctant to change the way that they ran their factories
and a kind of resistance set in. Again, we didn’t take too much notice; it
wasn’t entirely surprising – no one likes change. ‘Give them a few more
months and it will sort itself out,’ I thought. But the situation became worse
and the first signs of seriously choppy water appeared in the autumn. The
business-planning sessions for the next year were under way between the op-
erating team and the factory directors. By the end of the year, it seemed as if
the simplest decisions, like purchasing testing equipment for a few thousand
dollars, often resulted in protracted and acrimonious rows. Our factory rats
began to get frustrated and angry. I increasingly found myself being dragged
into disputes. Pat gradually became fed up with all the arguments. He was
impatient to get on and when the operating team found it difficult to get the
Chinese factory directors on their side he became annoyed.
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The first serious warning came in the springtime of 1996. We had invested
in a factory in Sichuan that made gearwheels for motorcycles. The factory
director, Mr Su, came up to Beijing with a plan to start making gearboxes and
the operations team had told him not to. I thought that they were right. Mak-
ing simple gearwheels is one thing, but I knew from my visits with Mr Che at
the gearbox factory up in the hills two years earlier that making gearboxes is
a much more difficult business. It required sophisticated technology and
designs that we didn’t have. Su agreed to stop the project until he had done
further market research, found a technology partner and prepared a new pro-
posal for discussion. A couple of months later, we went down to Sichuan for
the board meeting, supposedly to listen to Su’s new proposals. I was a little
apprehensive; Su was stubborn and would probably argue for his gearbox
project but I couldn’t see how we’d ever be able to agree; it was far too ambi-
tious. I hoped that the discussions wouldn’t become too contentious.
When we arrived at the factory, Mr Su took us for a tour of the site. I had
been there many times before so I knew the factory well. As we walked
round a particular corner of a workshop, I expected to see green fields rolling
gently down to the river at the bottom of the valley, but they had disappeared.
On the other side of a hastily erected fence there were two colossal work-
shops, hundreds of yards long, extending into the distance, a vast new factory
complex with chimneys, new power lines and rows of gleaming heat-treat-
ment equipment. It had only been three months since I had been there last
and there had been no sign of building then. Ai Jian stood rooted to the spot,
pointing inarticulately towards the building whilst Pat went the radiant pink
of a Chongqing sunrise. I eventually managed to stammer, ‘Er, Mr Su, what’s
that?’ Mr Su, beaming from ear to ear, announced proudly, ‘It’s the new
gearbox factory.’
At the board meeting later on, he said that he had used the Chinese part-
ner’s money to build the gearbox factory in order to ‘save time’. Now he
wanted us to agree that the joint venture would buy the new factory buildings
from the Chinese partner, doubtless at a mark-up, and launch into gearbox
production. It was a knotty problem: how could we spend money on a busi-
ness when we didn’t even know if we could even make the product? But on
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the other hand, it was a fait accompli; the prospect of a disgruntled Chinese
partner setting up a new factory in the middle of ours and heading off in a
completely new direction was hardly appealing.
Pat completely lost patience at this stage. ‘These operations guys just
aren’t getting it done,’ he said. The ‘gearbox incident’ and others like it had
brought matters to a head. After several rows the leader of the operating team
resigned. His replacement was also an expatriate and fared no better. The
wrangling with the factory directors got worse and worse until, one morning,
Pat blew up. He called in the entire operating team and sacked the lot of
them. He made me the President of the company and we took on the job of
dealing directly with the factory directors ourselves.

In the first half of the year the businesses continued to fall behind budget but
I still didn’t see any great cause for alarm. I knew that the factory directors
were difficult to deal with but I felt up to it. With a bit more straight talking, I
thought that I could bring them round. They maintained their optimistic atti-
tude and it seemed more like a slight bump in an otherwise smooth ascent
rather than any serious stalling of the engines. We asked the factory directors
to come to Beijing where we went through the numbers together. They were
all confident of being back on budget by the year-end so there were no partic-
ular alarm bells. But I never felt as though I had got the whole picture. There
were nagging inconsistencies in the description of the overall market from
the various factory directors. Whenever we asked questions, they seemed to
throw up a smokescreen of perplexing detail that was difficult to assemble in-
to a coherent story. Unperturbed by our confusion and rising exasperation,
they sat on the opposite side of the table, smiling and slurping their tea out of
big glass jam-jars at each meeting until they suggested lunch at eleven-thirty.

Over the coming months, as Pat and I struggled to gain control over the
course of events, I experienced a slow but relentless realization that an almost
superhuman effort was needed to bring about the slightest change. In Beijing,
we had invested nearly forty million dollars in a factory that made engine
parts that helped control pollution. Much of the money was used to build a
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brand new facility with state-of-the-art equipment so accurate that, in theory,

it could drill a hole through a human hair. It was an impressive facility, all
computer screens, complicated graphs, and control panels; one investor had
toured the workshop and left after commenting that he thought ‘it looked like
the engine room of the Starship Enterprise.’
But the product that came out at the end of the process had endless quality
defects. One of the problems was that the shift managers were ‘saving
money’; they refused to use the new air-conditioning. During summer, when
it was hot, they simply threw open the windows, telling us proudly, ‘No mat-
ter how hot or cold it gets, our workers will struggle through any hardship to
meet production targets.’ This was lunacy: the slightest temperature change
caused minute distortions in the machines; the smallest particle of dust or grit
could ruin the tiny precision drills. Even after we persuaded them to turn on
the air-conditioners, we couldn’t get them to improve the lighting in the
workshop. They stuck to the poor lighting because ‘bright lights waste elec-
tricity’. On they struggled, with their eyes straining in the gloom.
A few months later I received a call from another factory about sixty miles
outside Beijing where we had one of the most modern ductile-iron foundries
in China. It made brake parts; there was a huge furnace, called a ‘cupola’,
rising up in a great column of refractory brick out of the factory floor and
wrapped in a ‘water jacket’. Vast ladles for moving the molten metal hung
from gantries high up in the roof and two electric ‘holding furnaces’ kept the
iron liquid until it went into the moulding line. I loved going there to watch
them pour iron. With the smoke and the flames and the fiery streams of mol-
ten iron, the black-faced workers shovelling through vast heaps of coal, the
roar of the furnaces and the intense heat inside the workshop it was like some
romantic image of the nineteenth-century mills that powered the Industrial
Revolution. But now I was informed that ‘they had dropped the cupola.’
‘The cupola? How can you “drop” a cupola? It’s about a hundred feet high
and must weigh tonnes!’
‘Yeah, I know, but they were moving it around in the workshop and it fell
over.’
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‘Fell over! What do you mean, it fell over? That thing must be worth a
couple of million bucks! Anyway, what the hell were they doing moving it in
the first place?’
I never got a straight answer to that question; the factory directors were al-
ways moving equipment. The constant rearrangement of machines seemed al-
most a self-fulfilling activity and I never understood why it was necessary.
There was a stubbornness about the factory directors that at times was truly
breathtaking. They were absolute masters of obfuscation. Constructive sug-
gestions to improve productivity were brushed aside with the standard line:
‘You don’t understand China!’ Requests for an account of the new machinery
purchased with our investment brought forth blank stares. Pleas to collect
cash from customers resulted in elaborate excuses which presented the cus-
tomer in the most favourable light and made us feel that the mere suggestion
that we should actually go out and collect cash from them was irresponsibly
partisan.
Planning sessions for the coming year with the Chinese factory directors
ended up in arguments about obscure details. There were endless circuitous
discussions that wandered off the point in question without us ever quite noti-
cing the exact moment when we lost the thread. We faced enormous diffi-
culties in getting accurate information. Schedules of figures were presented at
one session and then amended at the next. The factory directors would often
talk for hours on end without getting to the point and then suddenly demand
an immediate decision on purchasing millions of dollars’ worth of machinery
without any analysis, insisting point-blank that the decision had to be made
there and then.
By the end of the year, with profits still nowhere in sight, it was obvious
that the task ahead was much more difficult than any of us had imagined. But
with more than four hundred million in the balance it was hardly the time for
doubts.

About this time, board meetings in the States started getting seriously tetchy:
the honeymoon period was over. Naturally, the American directors expected
profits and they grew impatient as time went on. I started to feel squeezed
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between two powerful opposing forces: the Americans chafing for profits
while the clock ticked away and ate relentlessly into their returns and the
Chinese, utterly undisturbed by any sense of urgency, proceeding serenely
forward with an almost ethereal timelessness that drove us all to distraction.
At times I felt that the factory directors must have been on tranquillisers.
With growing pressure from America and painfully slow progress in bring-
ing order to the factories in China, I thought that the time had come to lay
down the law. At first I found it difficult to get Pat to focus on the Chinese
factory directors. Michael had been convinced early on that they were the
source of our troubles and he had won me round to his view. But Pat still felt
that they would come through in the end and he remained optimistic. The
market hadn’t grown as fast as predicted, but he was confident that the situ-
ation would right itself in the end. He’d seen these kinds of cycles before on
Wall Street, and with the four hundred million, we had enough capital to get
through these temporary difficulties. Pat even thought that the downturn
might do us some good. ‘It’ll weed out the weaker opposition,’ he said.
But my doubts grew; I wanted to start challenging the factory directors
more directly. Pat thought that I was too impatient, always spoiling for a
fight, anxious to inflate small arguments. He wanted to keep everyone fo-
cused on the big picture and not worry about all the skirmishing.
‘You’re just like the Young Bull,’ he’d say.
‘The Young Bull?’
‘Yeah, the Young Bull. Haven’t you heard that story?’
‘No,’ I said.
‘Well, you’re the Young Bull. And I’m the Old Bull.’
‘Oh yeah?’
‘Yeah.’
‘So what happens?’
‘Well, the Young Bull, he sees a field of cows down in the valley and he
runs up to the Old Bull, all excited, and says, “Hey, Old Bull, Old Bull, look
at that field of cows down there, let’s run down and fuck one of them.” And
the Old Bull, well, he just looks up slowly, takes in the field of cows, thinks
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for a minute and then says, “Nah. Let’s just walk down and fuck all of
them!’”
‘Take it a step at a time,’ Pat would say. ‘Don’t get so excited. Just take it
a step at a time.’
I could certainly see how someone who had been succesful on Wall Street
might feel optimistic about the world.
After a few more months, it was obvious that conflict was unavoidable.

Our first serious fight was in Harbin, a city in the farthest north-eastern
reaches of China, just a few hundred miles inland from Vladivostok. If I’d
had any inkling beforehand that the fight would become so embittered and so
entrenched, I would never have taken it on. But we were all new to the game
and the experience taught us that in China iron had to be met with steel. In
retrospect, when we locked horns with the Factory Party Committee up there
in Harbin and tried to win just by being reasonable, it was as if an elderly
Chinese gentleman armed with a couple of chopsticks had arrived in the
States for the first time and taken on the 101st Airborne Division.

In late 1994, we invested several million in a factory up in Harbin that made

electrical components. Pang Yuanweng, a short and wiry man who had
moved to Harbin fifteen years earlier from Beijing, ran the factory. It had
been founded in the 1960s and made electrical components: horns, switches,
ignition coils and the like. It was a typical state-owned business: old-fash-
ioned, battered and overmanned. However, Pang had managed to borrow
money from a local bank and had built a new modern facility on the outskirts
of town. He had proven himself to be a capable salesman and had managed to
build up the largest market share in China for car horns. The company’s other
products were also in great demand. The business had been growing steadily
and seemed set for further expansion as its customers partnered with the
European car-makers coming to China.
The Factory had originally been set up by the ministry in Beijing that ran
the ‘machine building’ industry in the years after Liberation. Pang had a very
bad relationship with the officials from the ministry. He felt that they
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interfered with his business without really understanding it. Although Pang
was notionally in charge, it was still a state-owned business and he had to get
the approval of the Party Committee for management changes. The Ministry
controlled the Committee. So without the ability to hire-and-fire as he
wished, Pang felt hemmed in; he couldn’t run the business as he wanted and
it was slowing him down. He wanted to escape from the Ministry’s influence
and doing a joint venture with us was his way out.
So we invested and, after a brief period of profits, in startling contrast to
the radiant future that Pang had foreseen in his projections, there were
massive losses. Much more alarming were the rapidly dwindling bank bal-
ances as cash poured out of the business. Basic things were missing. Pang
never seemed to collect money from his customers, but paid his suppliers in
advance. There was never any serious analysis when he wanted to buy new
equipment.
Pang became more and more difficult to deal with; he talked in great el-
lipses, never really getting to the point and blowing up minor details into ma-
jor rows. Whenever we asked questions, he took them as a sign that we didn’t
trust him and flew off tangentially, or worked himself up into truly shocking
rages that left us completely exhausted. He was particularly bad at dinners
after the baijiu came out. He would launch into monologues about how we
didn’t understand China and that we were making his life impossible by con-
stant interference. It was absurd; far from being interfering, I felt that we
were having no effect whatsoever. I began to think that Pang viewed us in the
same light as he did the Ministry: we were there to supply cash when he
needed it but we shouldn’t think that we would have any say in actually run-
ning the business.
The relationship deteriorated even further throughout the autumn. Pang
had insisted on buying some specialist equipment through an import com-
pany in Beijing but wouldn’t explain why we weren’t buying it directly from
the supplier in Germany. I naturally asked the question whether there might
be murkier reasons for using the intermediary, but of course there was never
any proof either way. We were approaching the end of the second year, with
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profits nowhere in sight and with the business still haemorrhaging cash. So-
mething had to be done.
The crisis came in the early winter when Pat called a meeting of all the
factory directors in Beijing to coordinate sales across the country. Pang stood
up in front of the group and in a long, rambling speech announced that he
saw no benefit in coordinating with anyone else and that he had already set
up his own sales network all over China. We were appalled; he had never dis-
cussed it with us and he had made us look like fools in front of the other fact-
ory directors who, of course, found the spectacle highly entertaining. We de-
cided that we had no option but to remove him.

Pat told Ai to go up to Harbin and tell Pang that he had to go. Ai went up to
Harbin together with an official from the Ministry. We took that as a sign that
the Ministry wanted to get rid of Pang as much as we did. But we found out
that matters were more complicated.
Ai called me from Harbin and said that the discussions with Pang had been
difficult. I didn’t doubt it, but I dug my heels in and said, ‘Don’t come back
until you’ve got Pang’s resignation.’ A few days later Ai came into my office
with a dispirited expression on his face and a crumpled handwritten note
from Pang. It asked the Board of Directors to accept his resignation. Pat
called a board meeting for 4 December, three weeks later, and we put the is-
sue to the back of our minds.
Late in the afternoon of 3 December I walked into my office and found a
fax from Harbin. It was from Pang. He had withdrawn his resignation and
told us that the Chinese directors refused to come to the board meeting the
next day. This was a problem: without at least one Chinese director present,
the Board could not form a quorum. It looked like deadlock.
We checked our contract with Pang. It stated clearly in both languages that
if the Chinese directors refused to turn up to a board meeting on three occa-
sions, then we could exercise their votes in their absence. So Pat just sent out
the formal letters to call a second board meeting; if they refused to turn up
again, we could just call another and exercise their votes. It seemed that we
were off the hook.
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At the third board meeting, when the Chinese directors once more failed to
turn up, we duly voted to accept Pang’s resignation and appoint a temporary
replacement until a time when we could all sit down together and sort out the
mess. Our hopes soon faded. Pang received a copy of the Board resolution,
but he just refused to leave the factory.
The Board decision had appointed a man called Jiang – ‘Ironman Jiang’ –
to act as temporary replacement for Pang. He had earned the nickname during
his fifteen years of running a stamping workshop at First Auto Works and he
wasn’t a man to mess with. He went up to Harbin to take over the factory, but
with Ironman Jiang and Pang sitting in different offices and issuing contra-
dictory instructions the middle managers and workers didn’t know what to
do. We thought about physically removing Pang from the factory, but that
was risky; he was still Vice-Chairman of the joint venture and according to
the contract only the Chinese Partner could remove him from that position.
But with Ironman and Pang at loggerheads, the factory rapidly descended in-
to chaos.

I should have guessed that it might come to a fight. Harbin is a tough place to
live and the inhabitants can be a grizzled lot. The city sits on the Songhua
River, which, in the short summer months when it is not frozen, flows
through the marshlands to the Sea of Okhotsk. It is not surprising, given its
proximity to Vladivostok, that Harbin had a slightly Russian feel about it and
there was still the occasional painted wooden-framed house with tall
shuttered windows set into steeply sloping eaves. The city had been chosen
as one of the centres for industrial development under China’s State Plan in
the 1950s and the shattered hulks of idle factories blighted the landscape.
Steam engines were still a familiar sight and I often watched them straining
at the front of long lines of wagons piled high with coal, disgorging vast
clouds of black smoke into the wintry sky.
Harbin was famous for its ‘Ice Festival,’ where life-sized statues and build-
ings, even castles, were carved out of great blocks of ice and lit up from the
inside. For a few weeks around Chinese New Year, the city had a carnival at-
mosphere: acrobats walked around on stilts, juggling, while Chinese opera
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singers, their features exaggerated with grotesque pink and purple face-paint,
wailed in the background. Street peddlers milled through the crowd selling
tang hu lu, long sticks of red sticky sugar-coated crab apples. The sticks were
pushed into bundles of cloth on the back of the bicycles so that they looked
like enormous pincushions.
The festival probably gave the people of Harbin a welcome distraction
from everyday life; for the rest of the year, getting by was a struggle for most
of the locals. Work was scarce and there wasn’t much around to keep up the
spirits with temperatures below freezing from late October until the April
thaw. In the depths of winter, it could reach forty degrees below and a bottle
of beer solidified in minutes. On my first trip up to Harbin, I noticed that the
ice on the pavements wasn’t slippery: the extreme cold had hardened it to
rock. At times it seemed to me that the air itself had frozen as I saw the
smoke from the factory chimney stacks hanging in great black funeral
wreaths over the city.

A few weeks after Ironman Jiang came to the factory, Pang decided to
counter-attack. He embarked on a campaign of disruption aimed at pushing
us out of the factory. He called suppliers and told them that the joint venture
had run out of money. They stopped sending us copper wire and production
ground to a halt. He called customers and told them that we’d soon be out of
business. If they delayed payment until we went bust they might never have
to come up with the money to pay for goods they’d already taken. Cash dried
up and the business stalled, but Ironman managed to hold it together into the
spring. Then, just after Chinese New Year, we received a writ: Pang had
lodged an arbitration claim in Beijing. His claim asked the China National
Arbitration Commission to overturn the board resolution and reappoint him
as Factory Director. This only served to stoke up the differences between the
rival factions in the factory. Pang started to use the Factory Party Committee
to pressure the workers and held meetings where individual managers were
forced to declare in favour of ‘the factory or the foreigners’.
By this time, it was obvious that I had hopelessly underestimated what we
were up against and, after months of fighting, the business became
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dangerously unstable. The banks started calling in the loans and production
was squeezed. There was a growing sense of crisis among the workforce. In
China there is no social security so the workers had to rely on their ‘work
unit’ for survival. If the factory collapsed, they would have nowhere else to
turn. I went up to Harbin to try to stabilize the situation and met with the
banks, the local government and the management team. There was a clear
consensus that Pang had to go. But no one knew how to get rid of him.
I went to the local Municipal Government offices in Harbin and noticed
again the Russian influence in the high ceilings, ornate cornices and chan-
deliers down the hallways. While I was inside, meeting with the Foreign In-
vestment Bureau, there was a large demonstration outside in the square in
front of the government building. It was blocked by hundreds of angry work-
ers. A business had collapsed and the workers had been left stranded. After
nearly fifty years of Communism, it wasn’t surprising that they looked to the
government for rescue. We had to leave by a side gate.
The meeting had been awful; the local government wouldn’t get involved
because they were nervous of the Ministry in Beijing. By that time, the Min-
istry had turned against us. We had unwittingly become enmeshed in a
bizarre triangular dispute involving Pang, the Ministry and ourselves. In fact,
the Ministry had wanted to get rid of Pang as much as we did. But when they
saw us at loggerheads with him, they figured that they could divide and rule
and grabbed what they reckoned was an opportunity to regain control of the
factory. We didn’t know at the time but they had never authorized Pang to let
us have a majority in the joint venture; now they wanted to regain control and
wouldn’t help us get rid of Pang unless we agreed to give up some seats on
the Board. It was a complete mess.
Sucked deeper and deeper into the mire, and appalled at the sight of the
factory sliding towards bankruptcy, I flailed around trying to find a way to
save the business. Finally I heard that one of the local banks had claimed that
they had a mortgage over the land that Pang had supposedly agreed to put in-
to the joint venture. It was a total deadlock.
Back at the factory, I tried to rally the management and gave a speech
standing on a little wooden platform next to Ironman Jiang in a workshop at
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the top of the factory block. It was the only room big enough to fit in the
whole management team. The room was battered, its walls covered with
shabby peeling paint. Everyone wore thick padded coats even though they
were inside. It was an uphill battle; I did my best to conceal my growing
sense of despair. I had seen earlier that many of the workshops were in a
shocking state, with piles of semi-assembled parts on old wooden tables and
uneven stone floors disintegrating underfoot. I knew that the workforce’s
morale was at rock bottom, but I tried to raise their spirits and appealed to
them to get back to work and unite around Jiang. If we all pulled together, we
would be able to weather the crisis and they should not worry about the court
case in Beijing. I was encouraged by some of the comments afterwards but
became dispirited again as I left the factory in the extreme cold of the late af-
ternoon. I had caught sight of Pang’s pinched face squinting through a grimy
window. He was hunched up over a desk, haranguing a group of workers
who were sitting dejectedly opposite.
In the coming months, as the business sank further into the mud it started
trading on barter. Lack of cash was a common problem in China at that time
and many businesses began to exchange product instead. The knock-on ef-
fects passed from customer to supplier and spread throughout the country at
an alarming rate. Reinforced by a multiplier effect, soon whole industries
were illiquid, trapped in a mesh of ‘triangular debt’. At one stage, the prob-
lem threatened to bring down the entire economy and the Central Govern-
ment was forced to intervene with a massive cash injection.
I remember that many of the larger truck manufacturers were so tight for
cash that they had to hand over trucks in lieu of payment for components.
Several of our businesses had large truck fleets parked inside the gates. But
this made the situation even worse as component suppliers, desperate for cash
themselves, dumped the truck fleets on to the market at a discount, forcing
the truck makers to lower prices even further.
Many businesses, particularly in north-eastern China, became like ‘the liv-
ing dead’, clean out of cash and just limping onwards from day to day in a
zombie-like trance without any real plan for the future. Suppliers kept send-
ing raw materials without much prospect of getting paid except with
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components, factories shipped goods to customers without expecting any-

thing in return but trucks, and the workers kept turning up to make product
without any prospect of being paid in cash. I heard that one factory down the
road in Harbin had been paying its workers in hair shampoo. The Factory
Director had accepted a shipment of soap and shampoo in payment for goods
and passed it on to the workers who then sold it in the local markets for cash.

Throughout this time, I had to go back to New York for quarterly board
meetings. I had come to dread them; the mood by that time was invariably
black and they often ended in ‘scenes’. The meetings took place on the fifty-
sixth floor of a glass tower in midtown New York, right at the heart of Man-
hattan Island. There were six directors on the Board representing IHC and a
big pension fund. By then, the pressure from the Board for profits was in-
tense and there had been strident demands for cost cuts, including radical re-
ductions in the workforce. But that was completely impractical at that time in
China because these was no social security. So the meetings became more
and more difficult. My main mental challenge had become figuring out how
to convey accurate news from the Orient without provoking mushroom
clouds and streams of molten lava on the other side of the table.
Early in the spring of 1997, as I sat in a little side office and stared out of a
window, high up in the clouds, waiting for the meeting to start, I gazed past
the crush of colossal towers of polished glass and marble on Sixth Avenue to-
wards Central Park. I could see the yellow cabs inching slowly along the
straight lines of the streets far below. I thought fleetingly that those vast
towers seemed to exude the same feeling of overwhelming power swamping
the individual that the Stalinist colossi in China did. But then my mind flew
back to the factories and smokestacks and the knots of bicycles. The two
places were on opposite sides of the world and, at that moment, they seemed
further apart than ever.
I was soon called into the meeting room. After a brief attempt to compose
myself, I walked in with what I hoped was a cheerful smile and said, perhaps
just a little too loudly, ‘How y’ doing!’ I took in the familiar room with its
serious faces, the pinstripes and pink ties and the tortoiseshell glasses and I
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settled down on the far side of the vast table. It stretched ‘the whole nine
yards’ either side of a sleek speakerphone in the middle. Line prints of tall
ships hung on the wall and there was a sideboard at the end of the room,
laden with muffins and Danish pastries for breakfast. The smell of coffee
filled the room.
‘Diet Coke’s in the fridge if you wannit,’ someone said.
I went into the kitchen in the annexe at the end of the room. The fridge was
huge: a hideous white monstrosity that seemed to be about the same size as
an apartment back in Changchun.
I went back to my seat and looked through the agenda. I was down to give
the Board an ‘update on the issue in Harbin.’
‘Issue?’ I thought. ‘Seems more like a knuckle fight in subpolar temperat-
ures with a Chinese car-horn salesman.’
Whatever: I was relieved to see that I was on just before lunch. With a bit
of luck that might distract the others’ attention.
The meetings followed a set pattern, with Pat starting off. He gave a broad-
brush summary of the economy in China and any major political develop-
ments, plus an overview of what might happen in the next quarter. Then it
was left to Michael to go through the actual results. He often had a hard time
explaining the numbers. Translating Chinese accounts into something intelli-
gible on Wall Street was no easy feat.
One of the directors from the pension fund obviously fancied himself as a
hardball player: he was huge, with an enormous pendulous neck that rolled
from his ears down to his shoulders. He seemed to have established the dom-
inant position when it came to tearing apart Michael’s numbers. Every so of-
ten, when he’d scored a particular point or sensed some squashiness in the
figures, he’d say, ‘Now, let’s all just push back on that one, shall we?’ Tak-
ing his lead, with perfectly choreographed timing, the heads of all the six dir-
ectors on the other side of the table would go down. All six leather chairs
would roll back silently in unison. A long silence would follow until Hardball
signalled a change in the mood; he’d move back in, hunching over his binder
with a frown as the other five chairs rolled inwards to the table with syn-
chronized motion.
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‘Michael, what we need here is traction! You gotta get traction!’ It was the
buzzword of corporate America at the time; Michael and I often wondered
what it really meant. But neither of us ever had the guts to pretend we’d mis-
understood it for ‘tractors’ and say that we didn’t need them because we
already had fleets of trucks in the joint ventures. That particular morning
there were no memorable scenes, and the discussions droned on in the back-
ground as I went through my presentation in my mind.
As I stood up to go through the Harbin dispute, lunch was wheeled in. I
figured that for the next few minutes the ‘Fat Directors’ would be much more
preoccupied with choosing between pastrami sandwiches on rye bread or
tuna mayonnaise bagels, so I hurried through the difficult bits. But I knew
from experience that this was the time when the ‘Thin Directors’ were at
their most dangerous. They had spent the first two hours of the meeting look-
ing through their diaries, calling their secretaries, receiving important mes-
sages and checking their air tickets, but by the end of the morning, they had
exhausted the distractions and they were concentrating. I saw the one with
red hair stirring towards the end of the table. He was smart, that one, always
asking the most difficult questions, so I held my breath. Further down, Rubel
was scratching his palms, fidgeting about, cleaning his glasses on his tie and
rummaging through his papers. He was wagging his foot so hard that I
thought that it might fall off if he carried on much longer. I pressed on but in-
evitably ignition point was reached soon.
‘Goddammit, look at these numbers. You’re hosing out cash and you’ve
got negative gross margins. That means every time you make another one of
those things – what are they, ignition coils or horns or whatever – you’re los-
ing money. We may as well just write the whole lot off and close the thing
down. How much did we put in there, anyway?’ he asked, tearing through the
schedules.
‘Er, well, yes, it is problematic, I admit. But we’ve got our man in there
and–’
‘But what about the other Chinese guy, Pong or whatever he’s called?’
said Rubel.
‘Pang.’
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‘Pang?’
‘Yeah, Pang. Er, he’s still in there as well,’ I replied sheepishly.
‘Well, why don’t you just fire him and have done with it?’
‘What?’
‘Fire him!’
‘Yeah, fire him!’ the others joined in, passing congratulatory glances
among themselves.
‘Well, we tried, but he just stayed in the factory.’
‘Fire him!’
‘It’s not as simple as that!’
‘Fire him! Fire him! Fire him!’
The chant seemed to take on the rhythm of some primeval war dance, bod-
ies swaying back and forth to the same beat.
‘Fire him! Fire him! Fire him!’
When it eventually died down, one of the directors said, ‘Well, what does
his employment contract say?’
‘His what?’
‘His employment contract,’ he repeated slowly, spitting every syllable
through his teeth. ‘What does it say?’
Of course, we didn’t have employment contracts with any of the factory
directors. What conceivable use would an employment contract have been up
in Harbin? We’d got a cast-iron joint venture contract that had been approved
by the Government and Pang had completely ignored it. But how was I going
to explain that? As my mind raced through all the possible escape routes, I
thought fleetingly of telling them that they should just be grateful that they
didn’t have to accept dividends in shampoo.

After the board meeting in New York the whole edifice in Harbin collapsed.
Ai Jian had just returned from a trip together with someone from the Ministry
to try to sort out the mess with the banks. He had to get through demonstra-
tions at the factory gates and, once the news spread that someone from
Beijing had arrived, a group of workers tried to get into the meeting room.
There was a struggle as some of the middle managers tried to block their way
 108/269

in, and a glass door was smashed. One of the workers broke free of the man-
agers restraining him and his shirt was torn off in the process. He burst into
the meeting room half-naked and bruised about the face and picked up a very
heavy old-fashioned projector from the middle of the table. As he raised it
above his head, apparently to throw it against the wall, he accidentally struck
the ministry man a heavy blow on the side of the head, which sent the official
reeling to the floor, concussed. Everyone in the room froze with the shock;
there was absolute silence for a long time. No one dared move. The silence
was eventually broken by the sobs of the worker as he sank down slowly onto
the table.
Later that day, the demonstrations became ugly after an old woman died
on the picket lines. I had heard that she had died from natural causes but Ai
would never tell me exactly what had happened. He just felt that he was
lucky to have got out of the factory and wanted to put the whole experience
behind him.

Throughout those long months, the arbitration ground slowly forward in

Beijing and at the end of the year the decision came out. We won hands
down. It ruled that the Board decision to remove Pang was valid and that he
should compensate us for assets that he had failed to put into the joint ven-
ture. We had won. Pang left the business, we appointed a new factory direct-
or and Ironman Jiang was able to come back to Beijing. But it was a Pyrrhic
victory and it did us no good. The business had been so severely damaged by
the dispute that it never recovered. Years later it was still struggling on, trad-
ing on barter and living from day to day under the constant threat of collapse.
I felt an appalling guilt at these developments. We had handled it badly,
that was for sure. In retrospect I could see that we had missed opportunities
to draw the ministry on to our side or moments when we might have negoti-
ated our way out of the mess. But who would have guessed that the situation
would ever get so complicated or so severe, or that Pang would go to such
lengths to protect his own position? Or that the contract would have been so
useless? It didn’t make sense. All we had wanted to do was to build a strong
business where all parties could benefit but we’d ended up achieving the
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exact opposite. I felt confusion and anger – and a deep sense of frustration
that such an opportunity had been wasted by our inability to rein in one indi-
vidual. All I could do then was survey the wreckage: the broken buildings
and the broken lives, up in the ice and the cold.

During the time that the dispute in Harbin was rumbling on I had my first dis-
agreements with Pat. Tension crept slowly into our relationship as he contin-
ued to push forward full steam with new investments rather than sort out
what we had already got. He wanted to start investing in other industries like
float glass and cement. I felt that it was as if the whole of China had been re-
duced to a business-school case study; as if we were dealing with the ab-
stract, a place where theory remained undisturbed by reality. Pat had never
tried to learn any Chinese and I felt that this kept him more remote from what
was actually happening in the factories. None of the Chinese ever dared to
tell him what was really going on, and he had no way to wheedle it out of
them. Of course, he was meant to be leading from the front; part of his un-
doubted charisma was that he’d never take ‘no’ for an answer. But sometimes
I was confused by this optimism. I remember once reading in the South Ch-
ina Morning Post that he had announced that we were planning to go public
on the Hong Kong Stock Exchange the following year and raise another hun-
dred million. ‘We need at least $100 million to ensure adequate trading
volume,’ he said. It was the first that I had heard of the plan, and we were
bleeding red ink in every direction.
As time wore on, the types of businesses that Pat wanted to buy became in-
creasingly bizarre. He had met a Madame Yu who had several businesses in
southern China. She was looking for four million to invest in an auto-repair
shop and a bonded warehouse. I thought that it was too removed from our
core manufacturing business, and we had several rows before Pat insisted on
doing the deal. I was eventually ground down and went along with it
reluctantly.
Several months later, I went down to Shenzhen to take a look at the
premises for the first time. When we were picked up from the hotel, the
driver said that the repair shop was a fifty-minute drive outside the city.
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‘What?’ I said, ‘Who’s going to drive nearly two hours out into the country
and back to get their car repaired?’ On the way over, after about forty
minutes, we came across a large checkpoint across the road and we had to
show our passports. It was the border of the Shenzhen Special Economic
Zone so not only did it take a fifty-minute drive but local Chinese needed a
special travel permit to get to the repair shop from the city.
When we finally arrived we found something that had quite obviously
been designed as an office block; it was a six-storey building in the middle of
a rice paddy. I was told that the repair shop was on the fourth floor. It was
reached by an extremely narrow circular ramp that required specially trained
drivers to manoeuvre the cars round. The walls of the ramp were covered
with colourful marks scraped off the paintwork on the cars of previous cus-
tomers. I wasn’t remotely surprised when, in our first year, the repair-service
income came out at about 5 per cent of budget.
The bonded warehouse was even worse. It didn’t have a licence to import
goods into China, which rather defeated the object. The Chinese customs au-
thorities strictly controlled the licences and we couldn’t start trading without
one. A year later Madame Yu finally obtained customs clearance and we held
our first board meeting. She told us that in the time since we had signed the
contract rampant smuggling in the region had affected the business case for
the warehouse since it undercut our pricing. ‘However,’ Madame Yu contin-
ued, ‘if we could all agree to compete more directly with the others in the
market, we will definitely make money.’
I missed the point at first, but Pat knew immediately what she meant. He
held up his huge hands in the shape of a big ‘T’. ‘Time out, Madame Yu. Our
shareholders are major US financial institutions and we’re not going into
smuggling, period, the end!’
We agreed to dissolve the joint venture instead.

By this time, some of the investors, as well as the Board, had started asking
unpleasant questions. Dogged at every step by self-doubts in such a complex
and alien environment, and feeling intense stress, I was caught between Pat’s
fearsome optimism, driving ceaselessly forward, and the awful reality at the
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factories as they spun off in a thousand different directions. As I tried to rein

in both sides, lurching across China from one mess to another, the pressure
started taking a physical toll as well. Then, just before Christmas, an incident
occurred that felled me in my tracks. It happened at a factory in the south of
China, in a new town on the coast, just across the border from the Portuguese
colony of Macau.
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Seven

The Magistrate’s Gates Open Towards the

South, but With Only a Good Case and
No Money, Who’d Bother Going In?
Traditional rhyming peasant saying
about corrupt court officials

One clear winter’s morning in Beijing, as I stared out at the perfect blue
November sky and the mountains in the distance, I was interrupted by a
phone call. I was faintly annoyed; blue skies in the Beijing winter are a rarity.
It was a call from Zhuhai. The previous year we had invested in a factory
down there in the new town on China’s southern seaboard next to Shenzhen.
The factory made brake pads. One of its managers called me with the news
that Wang, the Factory Director, had gone to America just after the Mid-Au-
tumn Festival to attend a trade fair in Las Vegas. But that had been nearly a
month earlier and Wang had not returned as expected. His wife had lost con-
tact with him ten days ago and she was worried. The last time that he had
called home he had been in New York and had seemed very agitated, as if he
was frightened that someone else might have been listening. The manage-
ment team down in Zhuhai didn’t know what to do and wanted our help. We
contacted Wang’s host organization in the States but they were none the
 113/269

wiser, so we filed a missing-person report with the FBI. Another three days
passed with no news; Wang’s family were beside themselves with worry.
I was anxious too. Wang appeared to me to be rather naive; he hadn’t trav-
elled much beyond the mainland except to Hong Kong. As well as soft fea-
tures and clear skin that made him look younger than his thirty-seven years,
he had a slightly hesitant manner as if he was seeking approval all the time.
But it was difficult for me to get the real measure of him. He spoke in the loc-
al dialect, Cantonese, which I could not understand. My immediate worry
was that he might have been mugged or had his money stolen in the Big
Apple. I wasn’t sure that he’d know what to do in an emergency and I had
heard that he was alone and without translators. A few days later, we sent a
letter to Wang’s family and the employees of the joint venture telling them
that we were working with the authorities in America and that we would bear
any costs in the event that Wang had been hurt. There wasn’t much else that
we could do.
I hadn’t thought of it at first but someone suggested that we should check
the bank account at the joint venture, just in case. We called down to ask for
the accounts department to check the balances with the bank and get them to
confirm it directly to us in Beijing. The confirmation duly came over the
wires; there was still a large balance of US dollars in the account. No prob-
lem. Attention shifted back to tracing Wang.
The following day another call came in from Zhuhai. It was the finance de-
partment of the joint venture. They said that they had received a second fax
from the bank and wanted to send it up to me. I said, ‘Fine, go ahead, you
know the numbers.’ But the voice said, ‘No, this is an important fax. You
need to go and take it from the fax machine yourself.’
I walked down with Michael to fetch the fax. It was already slowly whirr-
ing out of the machine. I saw the bank’s letterhead and the first few lines in
blurred characters referring to some letters of credit. That was the first alarm.
A letter of credit is like an unbounceable cheque. They are used in interna-
tional trade when the seller doesn’t know the buyer well enough to send the
goods purely on trust. All the seller needs to do is take the letter to his bank,
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together with proof that the goods have been sent, and the bank has to cough
up the cash.
I stared at the list as it ground slowly out of the machine. There were four
letters of credit for equipment that I didn’t recognize – ‘scorching machines’,
whatever they were. The total came to just under five million. Michael and I
looked at each other. How could we have issued all these letters to buy this
equipment without knowing? The fax was still churning laboriously out of
the machine, along with one of the contracts. I saw that it had been signed
and chopped by Wang and was an agreement to buy scorching machines and
presses from a company called Solarworld based in Hong Kong.
‘Solarworld? Who the hell are they?’ said Michael, rapidly scanning across
the page. ‘Oh, look – here, at the bottom of that page.’ He pointed out a note
to the contract. It said: ‘Eighty per cent of the proceeds to be paid to Che Lap
Hong Company, attention Mr Max.’ We stared at each other. ‘Che Lap
Hong?’ My heart sank. ‘Isn’t that one of the shareholders of the Chinese
partner?’
‘Yeah, I think so.’
‘So isn’t this just hooking money out of China and straight into one of the
Chinese partners’ bank account in Hong Kong?’
We stared at one another.
It was a scam.

Zhuhai is a modern city that sprang up just after Old Deng’s famous Southern
Tour. It is rather like a miniature Shenzhen with modern high-rise apartment
blocks, smart restaurants and multi-storey shopping centres. Its streets are
broad and lined with palm trees and it has one of the best golf courses in Ch-
ina. And right next to Zhuhai, across a narrow canal, about forty miles from
Hong Kong, lies the old Portuguese colony of Macau.
By the estuary of the Pearl River, where the sluggish muddy waters spill
lugubriously into the South China Sea, there is a little bay on the coast of
Guangdong. Portuguese merchant ships have dropped anchor there since the
early 1500s. The early trading outposts on the hilltops around the natural har-
bour gradually grew into a colony known as Macau, or Ao-men in Chinese.
 115/269

Portugal administered it until 1999 when it went back to China, just two
years after Hong Kong. On the top of the hill there is a stone fort with extinct
cannons still pointing out to sea. Just below, standing out from the twisted al-
leyways leading up and down the hillsides, stands the gaunt frame of a
wrecked church. The front façade remains intact but nothing besides still
stands.
Macau’s position, squashed up between its brash new neighbour Zhuhai
and the sea, seemed to emphasize the Portuguese influence on the old trading
settlement, with its winding lanes and ochre-painted villas. At the old Bella
Vista, Macau’s famous hotel that stood on the hill behind the harbour, they
still served olla podrida and vinho verde on the veranda overlooking the bay.
The hotel had seen better days but it still retained a faded colonial magnifi-
cence, with its columns, arches and stone-tiled floors. Every Saturday night
an opera singer, slightly overweight and well past her ‘sell-by date’, stood
belting out her arias under a glass chandelier that had most of its pieces miss-
ing. She stood swaying to the music with a large gin in one hand and the oth-
er resting on the top of an upright piano that hadn’t been tuned for years.
Down below, in the broad Market Square, there was a handsome town hall
with green-shuttered windows and with stonework all in terracotta tones. In-
side, tiles of white and blue lined the staircase that led up to an ancient
library.
The hundreds of tiny inlets and coves along the coast meant that the border
between Macau and China was almost impossible to police. Smuggling was
rife, and secret criminal societies thrived during the mid-1990s. China was
booming and Portugal had little incentive to control the gangs since the Por-
tuguese had only a few more years in which to govern.
There was a particular problem in Macau. The southern Chinese are notori-
ous for their love of gambling. After Liberation it had always been illegal in
China. However, under Portuguese rule there had never been any restrictions
in Macau and there were scores of casinos on the seafront and in the large
boats moored to the quaysides. Towards the late 1990s, as passports for
Chinese nationals became easier to obtain, Macau became a favourite destin-
ation for Chinese businessmen. Gradually, more sinister activities grew on
 116/269

the fringes of Macau’s gaming industry: loan sharking, extortion and

prostitution.
For the Triads, the secret ‘black societies’ that control these rackets, the
geography of the region was perfect. The southernmost province of Guang-
dong had always been difficult to administer from Beijing due to the huge
distances involved and both Hong Kong and Macau were governed by re-
mote and distracted European capitals. With these three different legal juris-
dictions, effective policing was almost impossible. If the authorities came too
close to the trail of the gangsters in one place, the criminals would just hop
over the border safe in the knowledge that coordination between the different
police forces was very difficult.
The seriousness of the problems came into the open in 1997 when Hong
Kong went back to China. The Triads knew that two out of the three territor-
ies had now been unified and the third, Macau, was soon to follow. So in the
run-up to the handover of Macau in 1999, gang warfare broke out as the rival
factions struggled for control of the territory before it reverted to China.
Murder of the most brutal kind, often involving lightning attacks in restaur-
ants by mobs wielding Chinese meat-choppers, became commonplace; the
newspapers didn’t even bother to report the regular fire-bombings and armed
robberies. The situation improved slightly after the arrest and jailing of
‘Broken-Tooth’ Wan, who was convicted of a host of Triad-related crimes in
1999.
But back in 1995, long before the handover, and long before the worst of
the Triad activities became obvious, we had seen no particular reason to shy
away from investing in Zhuhai. Macau had still appeared calm; it seemed as
if the two parallel communities were neatly segregated on either side of the
ancient Portuguese gateway, the Porto de Cerco, that still guarded the border.

In April, 1995, we were introduced to Mr Wang Jinwen who ran the brake-
pad factory in Zhuhai. He needed investment to increase his production.
Sales to the local car manufacturers were going well and he was convinced
that there were huge potential export markets. After about six months of ne-
gotiations we agreed a deal and signed up to invest about eight million in a
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three-way joint venture with Wang and a big US-based car parts company. It
was a small investment for us but it looked as though the business would
grow rapidly. On Christmas Day in 1995 the business licence was issued and
the cash was wired in shortly afterwards.
The factory was on the coast about five miles outside of Zhuhai in what
used to be a tiny fishing village. The locals had long since given up their nets
and there was a bustling business community with many small manufacturing
plants dotted about in the gently rolling hills that faced the sea. Palm trees
lined the narrow rocky beach while further out, towards the horizon, the
vague and ponderous shadows of huge container ships moved sedately up the
coast to Hong Kong. The sea breeze was clear and fresh and the local seafood
was good. The brake-parts business had only been running for five or six
years so it had none of the problems of our former state-run operations up in
the north. Wang seemed happy with the way that the business was develop-
ing and was keen to push the export markets. Then, after the Mid-Autumn
Festival the following year, he went to America to attend that fateful trade
show in Las Vegas.

When we saw the fax from Zhuhai that freezing November morning, we real-
ized immediately that Wang had somehow committed our money to pay for
machines that we’d never ordered. It looked as though the money was being
channelled through one of Wang’s partners. Faced with what looked on the
surface suspiciously like a fraud, we threw ourselves into a burst of activity.
The first thing to do was to establish the facts. Then there would be law-
yers. And I’d have to tell the Board, of course. I shoved that prospect to the
back of my mind for the time being. I could imagine the response I’d get,
given the recent scenes when I had told them about Harbin.
The fax specified shipping dates for the goods and the vessels that would
be carrying them to China. One should have set sail from Rotterdam, 16
November on a Panama-registered ship called the Amazonite. The easiest
way to find out whether we had a fraud was to see if there really were any
goods on the way. I contacted a friend who worked in a shipping line and
asked if he could confirm the whereabouts of some ships for me. ‘Sure, send
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me the vessel’s name and last port of embarkation and I’ll find it in no time.’
So we sent a fax confirming the details and he called back in an hour and a
half. He was puzzled. He said that there was indeed a ship called the Amazon-
ite registered in Panama with all the correct references.
‘That’s your ship, all right,’ he said. ‘But it left Singapore on 14 Novem-
ber, bound for Hamburg.’
At that, the last doubts evaporated. We had a fraud on our hands. From
there on, it would just be a question of damage limitation.

I had just hired a new recruit. He had sent me scores of messages from the
States and when I told him that we weren’t hiring at the time he arranged to
come out to China to see me.
Li Wei had been born in Fujian, the coastal province in the south that lies
between Shanghai and Hong Kong. His parents both had posts in the Chinese
Peoples’ Liberation Army. He had learnt his English at an army school which
trained people to listen in to the wireless transmissions of the US pilots who
flew reconnaissance missions up and down the coast of China in the 1970s.
He was a fast learner and went to one of China’s top language institutes in
Shanghai. He eventually ended up with a PhD from the Massachusetts Insti-
tute of Technology. His PhD thesis was on the Chinese Government ‘office
systems’, which ran parallel to the government and party structures and was
much more focused on powerful individuals rather than organizations. The
‘office directors’ took care of high level officials’ diaries and controlled doc-
ument flows, just like a good PA in a Western context, but the role extends
much further. It includes arranging domestic affairs for the official and his
family, such as accommodation, travel, education for children and so on, fa-
cilitating secret communication between officials and undertaking much of
the political infighting necessary for climbing the Chinese hierarchy. Con-
sequently the relationship between the official and his ‘office director’ is one
of the utmost trust and the office director can acquire enormous personal
power himself if his master’s star is in the ascendant. I realized that anyone
who had completed a PhD on that subject must have a grasp of Chinese polit-
ics which we, at that time, so clearly lacked. I liked Li Wei when I met him.
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He was certainly very bright and he had a touch of the humanizing air of a
harassed academic. He told me that after nearly ten years in the US he felt it
was the right time for him to return to China. He had spent hours and hours
searching the web for the right opportunity. He thought that his language
skills and experience in America gave him an ability to bridge the gap
between China and the outside and he wanted a chance to have a role in
something big where his contribution would matter. I could identify with
that. When he stumbled on our website, he thought that he had found the
right place. I knew from our failures up in Harbin, particualarly the clumsy
way that we’d handled the ministry, that we needed someone who could
guide us more skillfully through the bewildering maze of government offices
and bureaux. I was also impressed by his dogged persistence, so I hired him
and pitched him straight into the middle of our difficulties down in Zhuhai.

We immediately flew down to Zhuhai with Michael and Ai Jian and had
Wang’s office safe sawn open. It took two workers about twenty minutes
hacking away before it finally yielded. Inside, we found the first clues of
what rapidly developed into a real horror story. There were about seven
handwritten IOUs, one from a ‘Big Brother Qiu’ for one point two million
Hong Kong dollars. It looked as if Wang had been involved in loan sharking.
We also found suspicious-looking travel permits, several company chops and
two backdated cheques to Wang for just under four and a half million Hong
Kong dollars. They were drawn on Che Lap Hong and a company called
‘Poly-ways’. I had never heard of ‘Poly-ways’, but at the bottom of the safe I
found a contract to build a hotel in Vietnam signed by a ‘Mr Lam, for and on
behalf of Poly-ways.’ I groaned. It was already looking distinctly possible
that the hotel might have been funded with our money.
The picture soon got worse. In Wang’s safe, we had found two air-ticket
vouchers for his flight to America in the previous month. One was for
Wang’s journey to Las Vegas, but who was the other passenger? By the end
of the afternoon Li Wei had found out: he was the assistant bank manager of
the branch where we had deposited the US dollars. It was the same branch
that had issued the letters of credit.
 120/269

Li Wei told me, ‘I called the bank manager and he said that he came back
two weeks ago. Said he was with Wang in Las Vegas but left when Wang
went off to New York. He said he hadn’t a clue where Wang was now but
seemed terribly nervous and started asking lots of questions.’
‘But did he explain what the hell he was doing on a trip to the States with
Wang to sell brake parts in the first place?’ I asked. ‘He’s a bank manager,
not a car-parts salesman!’
‘He was a bit hazy on that one,’ said Li Wei.
‘Hazy?’ I exploded. ‘HAZY?!’
The story was getting murkier by the minute. There was no way to keep it
under wraps; I had to tell the Board.
The hastily called telephonic board meeting that night provided further
scenes of chaos. I had told Pat about the problem earlier but he was in Ger-
many with some customers so it was left to me to break the news. With the
time delay, the crackling lines connecting people in six different locations
around the world and tempers rapidly deteriorating as the complexity of the
mess became apparent, it was a struggle to keep the meeting on track. As I
went through what had happened, a confused mass of questions burst in from
all different directions with three or four people all shouting at the same time.
One of the directors kept on asking about bills of exchange and bills of lad-
ing, repeatedly confusing the two and getting furious whenever anyone poin-
ted out that they were completely different. Some wanted to call the police to
catch Wang, but another said it was a waste of time. One pitched in with the
truly amazing suggestion that ‘We should go directly to the Hong Kong Mon-
etary Authority to have everyone’s bank accounts closed down.’ The hordes
of lawyers attending the meeting from different parts of the States all gave
contradictory advice, droning on about injunctions and Worldwide Mareva
Orders long into the night and it wasn’t until three in the morning that a con-
sensus emerged.
It was Rubel who eventually got to the point. ‘OK,’ he said, ‘we’ve got
those letters of credit out there but the cash is still in the bank, isn’t it?’
‘Yeah.’
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‘So we just need to make sure it stays there and the L/Cs never get paid,
right?’
‘Right.’
He asked what controls we had in place over the cash at the bank. We had
all the normal stuff, with sets of signature cards, just like everywhere else.
For any payment out of our dollar bank accounts in Zhuhai, the bank had to
get a chopped approval from Beijing; Wang’s signature alone wasn’t enough.
‘So the bank shouldn’t take the cash out of our account to pay for the let-
ters of credit, unless we sign off in Beijing,’ Rubel said.
It looked as though we might be safe. But two questions made us all
deeply nervous about the bank: why had they agreed to open the letters of
credit in the first place when they had no chop from Beijing? And why had
the assistant bank manager been on the same Las Vegas flight as the missing
Wang?
The Board eventually decided that we should try everything to stop the
bank from honouring the letters; if we stopped them paying out the money to
the fraudsters, whoever they might be, and kept the money in our bank ac-
count, we were safe, or so it seemed. They instructed me to insist on a meet-
ing with the Chairman of the bank the next day and demand that he stop the
payment. And then some bright spark said right at the end, just as the phones
went down, ‘But, anyway, it’s all governed by Chinese law, so maybe we
should get a Chinese lawyer.’

The following morning, Ai Jian and I went to the head office of the bank in
Guangzhou. It was about a two-hour drive from Zhuhai so we didn’t arrive
until mid-morning. We had called on ahead and eventually found the Chair-
man’s office. He was away, but the bank’s President was there. We had asked
for a meeting but received no clear response, so we decided to go and find
him. The head office was located in a huge tower block in the business dis-
trict of Guangzhou, the main city in Guangdong. It occupied fifteen floors of
the building so it took some time to find the President’s office. When we got
there, I found his office manager and demanded a meeting. Then we sat down
to wait.
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To my surprise, the President arrived after about ten minutes. He looked

like a man whose curiosity had been aroused. It was probably a novelty hav-
ing an agitated foreigner turn up on his doorstep without any warning and in-
sist on a meeting. We got straight down to business and I explained that we
were a foreign investment company with factories all over China. His bank
held the account of one of them in Zhuhai, and ‘There is a problem.’
I went through the facts, as we saw them. Our manager, Wang, was miss-
ing; before disappearing he had opened four letters of credit with the bank;
the bank had agreed to open the L/Cs without proper authorization; no goods
existed because the ships were in the wrong parts of the world; it therefore
looked as though there had been a fraud and the cash appeared to have ended
up in a Hong Kong account linked with Wang; and ‘the assistant bank man-
ager of your branch in Zhuhai seems to have been on the same flight to the
States as the missing Wang.’ The bank’s President listened patiently but be-
came annoyed when I mentioned the assistant bank manager. ‘Just because
he was on that flight doesn’t mean that he’s done anything wrong,’ he said
hotly.
‘I didn’t say it did, but you have to admit that it’s a bit unusual.’
‘Why?’ He stared at me blankly.
I decided not to debate the point but said that we wanted the bank to refuse
to pay for the letters of credit. We would refuse to honour them. The Presid-
ent said he’d investigate, and the brief, slightly testy encounter ended. I set
off back to Zhuhai and arrived at the joint venture in the early afternoon.

Li Wei, meanwhile, had been to see the Anti-Corruption Bureau of the

Zhuhai Government. We wanted the authorities to investigate Wang and find
out what had happened to the letters of credit. The meeting had not been a
success. Li Wei had been kept waiting for hours and was eventually shown
into a small office, with dirty ashtrays strewn about and a bleary-looking un-
shaven man slouched behind a desk: he was apparently the Deputy Bureau
Chief in charge of cases involving foreign investors.
‘I thought that he should be extremely busy,’ said Li Wei. ‘You’d expect
the Anti-Corruption Bureau Chief in Zhuhai to be rushed off his feet, but he
 123/269

was sitting in his office smoking and reading the newspapers.’ I heard later
that he had listened half-heartedly to the tale and then, rousing himself with
some effort, he’d said that he would set up an investigation, but that in order
to do so we would have to give him ‘a car and some working capital.’
‘What? Are you serious!?’ I asked when I heard the news. ‘So the Anti-
Corruption Bureau wants a car and a bag of money!’
Towards the end of the afternoon, as we struggled to come up with a clear
strategy for stabilizing the business, Li Wei came in. He’d just got a call from
the accounts department. They had tried to make payroll that afternoon, but
the bank had refused to pay it. Now the workers had no wages. The bank said
that the local Intermediary People’s Court had issued a freezing order and
that all our accounts had been closed.
‘What the hell’s a freezing order?’ I asked. ‘Can we get a copy and have
some Chinese lawyers look at it? Please!’
Back in Beijing, we found a law firm that dealt with fraud cases involving
the banking sector. Two lawyers came round to the offices for a briefing.
Over the time we worked together, I became very impressed with them. I
knew almost nothing about Chinese banking law, and certainly hadn’t ever
wanted to, but they were always extremely patient in explaining their convo-
luted logic. Their names were unpronounceable in Mandarin so, as neither of
them spoke English, we simplified matters by calling them ‘Big Lawyer’ and
‘Little Lawyer’.
In the next few hours, as we went though the documents, it emerged that
the Court Order freezing all our bank accounts had been obtained by the bank
itself. In the few hours that it had taken me to drive back from Guangzhou to
Zhuhai after the meeting with the bank’s President their lawyers had drafted a
petition asking the court to freeze the cash in the accounts so that we couldn’t
remove it and refuse to pay for the letters of credit. The Order had been is-
sued the same afternoon. I was amazed. ‘How can they do that?’ I asked.
Big Lawyer explained that when I had told the bank that we would refuse
to pay the letters, we had created a legal dispute that could be heard by a
Chinese Court. ‘But the payment was never authorized,’ I said. ‘How can
they expect us to pay?’
 124/269

‘But it isn’t a payment,’ said Little Lawyer.

‘Of course it is.’
‘No, it’s a commitment to make a payment, not actually a payment.’
‘What? It’s the same thing.’
‘No, it’s not. You’ve just told the bank that when they try to make the pay-
ment, you won’t approve it.’
‘What?’ I said that I didn’t agree with that argument but Little Lawyer just
pursed his lips.
‘And look here,’ said Big Lawyer. ‘That’s the company chop, isn’t it?’
I squinted at the fax. ‘Looks like it,’ I said.
‘And here. The Court documents say that there was an approval for the let-
ters by the juridical person.’
‘The what?’
‘Juridical person.’ After several minutes spent searching through various
Chinese – and English – dictionaries we managed to figure out that the ‘jur-
idical person’ of a business in China, normally the Chairman, has the power
under Chinese law to bind the company with a signature. In this case, the jur-
idical person was Pat.
Little Lawyer said, ‘If he’s signed anything approving Wang’s issue of the
letters, you’re on the hook for the whole of the missing five million.’

I could see that we were heading for a long battle through the Chinese courts.
It emerged later that Pat had in fact signed a power of attorney that author-
ized Wang to act as the ‘juridical person for normal operations’. It was in
Chinese so Pat, presumably not realizing the significance of the document,
had signed it anyway. An argument then developed among the lawyers over
whether buying five million dollars’ worth of equipment was within the
definition of normal operations. I thought that it was beside the point; I was
convinced that the bank personnel knew the real nature of the transaction and
therefore that they should never have agreed to open the letters of credit.
At this stage, the Board back in America briefly discussed just writing off
the whole thing to experience and getting on with life. But what kind of mes-
sage would that send to all the other joint ventures? If we just gave up and
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failed to pursue Wang and his accomplices, it would hardly be the best de-
terrent in the event that someone else was considering similar antics with a
different business. Also, we had agreed a set of bank signatories and we felt
that the bank had ignored them. That brought the whole banking system into
doubt and we had several hundred million sitting in accounts all over China.
How could we continue to invest in China and hold cash in Chinese banks if
we couldn’t rely on the controls over payments?
So the battle opened up on two fronts. Pat was determined to keep the
business stable so that we could save whatever value was left. So he appoin-
ted a new manager to the joint venture, an Italian, Carlie Verlucci. He ar-
rived, complete with sunglasses, trilby and a double-breasted jacket with two
rows of gold buttons, which looked as if it had been borrowed from his much
larger sidekick, Romanelli. Together, they arrived in January to take over the
factory.
Next, Little Lawyer came up with a strategy for the court case. If we could
show that the bank had known that the whole scheme was a fraud in the first
place, then the court would judge that the bank should pay, not us. That
meant that we had to find Wang. If we could get him to confess and show
that the bank officials were in on the scam, we’d be off the hook, so we
thought.
It took months to get an arrest warrant for Wang. I was surprised how dif-
ficult it was but, of course, it was right that the police would not issue a war-
rant without convincing evidence. The Chinese police issued a ‘red warrant’
as spring ended and Interpol followed shortly afterwards. The search for
Wang had begun.
It was much easier to get action on finding the documents in Hong Kong
and soon the police raided Solarworld’s offices in Kowloon, retrieving boxes
of documents. They revealed a baffling web of interconnected shareholdings
and bank transactions together with evidence that Wang had brought the let-
ters to Hong Kong and somehow managed to cash them. That meant that
somewhere in the international banking system there were four letters of
credit on their way back to Zhuhai that would eventually hit our bank
account.
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Over the coming weeks, we pieced together the money flows. Wang had
found a local finance house, called of all things, Best Finance, and persuaded
them to give him a bill of exchange for the letters in return for a hefty dis-
count. He had walked into a bank, deposited the bill and, over the following
few days, withdrew the money. In the space of a few short weeks, he had
managed to get nearly four million dollars in cash. He then got into the plane
at Kai Tak Airport, presumably with the assistant bank manager and ‘a large
suitcase’, and that was the last that we heard of him.

Back in Zhuhai, the Anti-Corruption Bureau was making little progress. That
was hardly surprising. We had realized what we were up against after the raid
on Solarworld’s offices in Hong Kong where the police had found documents
showing that a former Zhuhai Government official was one of the sharehold-
ers of the company that had received the proceeds. Another shareholder was a
Mr Lam, who had previously served a two-year prison sentence for letter-of-
credit fraud. It looked as if we were dealing with at least one experienced
criminal who could probably count on protection from high places.
Next we heard that the Chinese partner in our joint venture had held a
board meeting in Wang’s absence to try to figure out what to do, but that it
had broken up in disarray. One party, ‘the Village Committee’, which looked
after the little fishing village, tried to take back the land at our joint venture
but the others wouldn’t agree. It then came out that Wang had also defrauded
the Chinese partner by ‘pledging’ their bank balances against a loan from an-
other bank and then disappearing with the proceeds. Any amusement I felt at
the sight of the Chinese partner falling into the same trap as we had was
short-lived. I found out that Wang had also dragged us into that mess by us-
ing our assets to guarantee the Chinese partner’s loan. Since he was now
missing and the Chinese partner claimed to have no money, it looked on
though we might have to pay that as well.
I was relieved when Big Lawyer told me that the guarantees were against
Chinese Company Law. I thought that at least we could escape from that
mess. But when I met with the bank manager and told him that the guarantee
was invalid, he thanked me profusely and left the room saying that he had
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never really understood the Company Law and that he would immediately in-
struct his staff to check whether there were any similar arrangements with
other customers! And then, a week later, we received another writ: the bank
had sued us to enforce their guarantee even though it was against Company
Law.

The first court hearing was held in Zhuhai in the summer. Pat had to give
evidence and he said that he’d been impressed with the process. Evidence
had been heard and the lawyers had had the right to ask questions and cross-
examine the witnesses from the bank. We had been lobbying the Zhuhai
Government through the embassy to ask for a proper hearing and the case
had attracted some interest from the Central Government, so I was confident
that we’d at least get a fair trial. There was so much evidence that the bank
had been careless – reckless, I thought – when they’d opened the letters of
credit and that they had broken their own internal controls and manufactured
documents after the date. It seemed difficult to believe that the court would
rule that the bank couldn’t have had any suspicion at the time that it was a
fraud.
I was slightly perturbed when I heard that the judge had said that he had
found the case ‘confusing’ during the trial and had then visited the bank later
to ask further questions. It seemed a bizarre reversal for the judge to be going
to the bank rather than demanding that they appear in his court. But I
shrugged it off and looked forward to the verdict.

So it was to howls of protest that the court issued its verdict six months later.
We had to pay for the whole amount of the letters of credit, the guarantees
and our legal costs. The bill was more than ten million. Detailed reading of
the written judgement rubbed salt into the wound; the judgement included
new evidence that had never been heard in the court. Moreover, some of the
documents that the court had demanded had been ‘lost’ by the bank and only
photocopies were supplied. One of these photocopies was of a document
where the police had found the original in the raid on Solarworld in Hong
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Kong; on the ‘photocopy’ supplied to the court, several parts had been
altered.
The judgement then became a hot political issue. We had been keeping the
US Embassy in Beijing abreast of developments and the staff there had been
very supportive. Once the judgement came out, it transformed the issue from
a commercial dispute into a question of the reliability of the Chinese courts.
In the following months, letters flew between the top levels of the govern-
ments concerned, raising the case and asking China’s Prime Minister Zhu
Rongji to investigate. We decided to appeal to the Supreme Court of China.

Although Michael had handled much of the work on this case, I was ex-
hausted. The fight in Harbin had been going on at the same time and we had
increasing troubles in our breweries in Beijing. I had been travelling almost
continuously for nearly a year, putting out fires and trying to get to grips with
the factory directors. I had an ear infection that affected my balance and I had
lost a pair of glasses so I couldn’t see properly. I couldn’t sleep either. We
were making such slow progress. So it was in a black mood that I went to
France for a much-needed rest.
 Eight

Crushed by the Weight of Mount Taishan

Traditional saying: Taishan is
one of China’s five holy mountains and
represents enormous force or weight

In France that year the snow just fell and fell. Up in the mountains, wooden
chalets disappeared, swallowed whole underneath a great white cloak.
Streams were caught mid-flow; trees sagged, their branches drooping under
the great load of snow until, suddenly, they’d cast off the burden and snap
back to attention. Occasionally, the creaking, crunching sound of an ava-
lanche drifted down through the mists. The skies were leaden and heavy; the
snow seemed to deaden all sound as we trudged up and down the slopes.
Clouds, rotund and mournful, rolled up the valley. All was grey. The weather
matched my state of mind. I seemed imbued with a sense of heaviness that
had soaked into my bones.
I couldn’t sleep. For several nights, as I twisted about in the sheets and
wrestled with jet lag, I felt breathless, as if a heavy weight was pressing on
my chest. And the headaches: not even Mayor Huang’s baijiu had made me
feel like that. As I lay there in bed, great stupefying depth-charges boomed at
the centre of my brain. I tried to kid myself that it was all caused by the alti-
tude and rolled over, sweating. But on the third night I woke up with a pain in
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my chest that I could no longer ignore. My hands became clammy as the pain
waxed and waned. Slowly, it grew in intensity and radiated through to my
back and down to the fourth finger of my left hand. I sat for an hour on the
edge of the bed, vainly attempting to deny the truth, and watched the first
cold fingers of light creep across the sky. I tried an aspirin; but it wasn’t that
kind of problem. We called a doctor.
Fifteen minutes later, three men arrived in what looked like firefighters’
outfits. I was confused. They seemed to have brought an oxygen bottle and
wanted to carry me out. I insisted on walking. We drove for ten minutes to a
local clinic where a doctor shoved a needle into my arm and strapped monit-
ors to my chest. I couldn’t understand what anyone was saying. I was irrit-
ated by all the fuss; if they carried on that way, I’d end up missing the morn-
ing’s skiing. So I was in a filthy temper by the time they’d strapped me to a
stretcher, dumped me into the back of an ambulance and driven me down the
valley. Fuming silently, I lay on my back in the ambulance, watching the tops
of the fir trees at the edge of my vision turning back and forth against the dull
grey sky as the vehicle wound slowly down the mountain road.
The gentle rocking sent me to sleep. I was exhausted. I must have been in a
deep sleep when we arrived at the hospital. I remember vaguely someone
putting a probe on my chest again and a big monitor, but nothing else. I
found out later that I had been sedated.
I woke up with a start in a room that I didn’t recognize. Gas bottles and
monitors crowded in on me. There were charts on the wall. A nurse came in,
looking hassled. She leant over the bed and, with a slight sideways glance,
whispered, ‘You’re in intensive care.’
She waited as it slowly seeped in.
And then, ‘You’ve had a heart attack.’

At first I really had no idea what she meant. How could I have had a heart at-
tack? I was thirty-eight and ran three miles a day. They’d got the wrong guy!
I thought briefly about the baijiu and the Red Pagoda Mountain cigarettes:
not enough there to cause problems, surely. So I sank back into a fitful sleep
and waited.
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I was fitted with all sorts of drips and monitors and oxygen gauges. The
nurse told me that they’d put me on heparin, a blood thinner that might give
me a headache. If it got too bad, I should tell them.
The next day was uneventful, but the following morning I woke up with a
crashing pain in my head and called the nurse. She adjusted the heparin dose
and went away. Gradually, the pain came back in my chest. I struggled
against a rising sense of panic. I felt my heart stopping and restarting again
with a great thump inside my ribcage. But much worse than feeling these
breaks in my heartbeat, I could see them as well! I stretched my neck side-
ways and backwards, craning to watch the green point on the monitor screen
that registered the heartbeat. As it moved silently and relentlessly across the
screen, there were long depressions in the wave followed by a sudden burst
of activity before it flattened out again. The heart rate on the monitor screen
fell from sixty down to fifty-five and through fifty. The pain increased. I felt
great stabs through my chest and a dull all-consuming ache in the temples.
My head span. Down through forty-five to forty. At thirty-eight, great
squashy blotches appeared in front of my eyes. As I passed out, I remember
hearing, as if through a long tunnel, the frightened voice of the nurse calling
for a doctor for ‘le jeune anglais’. And then all was black.

I woke up feeling like death.

For a long time, I didn’t move. My arm hurt. I looked down and found that
my body was covered in repulsive bruises right down to my feet. Great black
veins on my arm stood out half an inch. I had been given an emergency treat-
ment with a powerful drug that turns blood to water, a risky crisis treatment
for someone actually having a heart attack. It dawned on me that this might
be for real.
I lay there for six days, drugged and drifting in and out of sleep. On the
sixth day, I was loaded into a tiny jet and flown back to Oxford. I had been
given a letter to take with me. It was in French and I had it translated after-
wards. It described all the symptoms and the diagnosis, concluding that my
problem was an ‘inferior subendiocardial infarct in a young man with no risk
factors except stress.’ From where I was lying that meant trouble.
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I had an angiogram at the hospital. I was frightened before I went in. They
had told me that it wouldn’t hurt but that they needed to push a tube up
through a vein in my thigh into my heart while I was still awake. They prom-
ised to knock me out a bit while they were doing it; ‘gin and tonic’ said the
surgeon. Luckily it was stronger than that. I don’t remember much except
that my feet were very cold; I discovered afterwards that while they were do-
ing the procedure the fire alarm had gone off and I had been wheeled out into
the car park for ten minutes until it was safe to go back inside.
That afternoon the surgeon came in with a smile on his face. ‘Good news,’
he said. ‘Your pipes are as clean as a whistle.’ The diagnosis had been wrong
so he sent me home with an aspirin.

I was completely shattered. How could all this have happened? How could
everything have gone so bizarrely wrong? For me personally the whole ex-
perience had been an utter disaster.
My nerve had held during the crisis. I had been too confused to think that I
would die there and then, but as soon as it was over I collapsed completely.
Thoughts of my children tore at me; my little one was only four months old.
For days afterwards I wept silently and alone.
At first the doctors didn’t know what had happened so they gave me test
after test. Once they called me on the phone and told me rather lethargically
that the problem might be a cracked aorta, but I replied that I thought that I’d
be dead if that was the case. They seemed to agree and promised to look for
something else. The tests eventually showed that I had suffered some weird
viral attack that had inundated my heart and liver and had got into my joints.
They said that a combination of my body’s ‘depleted batteries’ and the alti-
tude in France might have contributed, but that now the trouble was gone and
I should rest for a few months and not worry about China.

I didn’t think about China for a long time, but gradually my thoughts drifted
back to the other side of the world. My first instinct was just to forget the
whole thing. The problems appeared overwhelming. We were losing nearly
twenty million a year while the factory directors careered off in every
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direction and we argued among ourselves about what to do. With this new
blow to the solar plexus, I thought that the personal cost of continuing was
just too high. I decided to quit.
But then, throughout the early spring in England – days, unusually, of sun-
shine – I thought more and more about what had gone wrong. Strangely, as
time passed, the shock had had a calming effect. It put the business diffi-
culties into perspective and, as the months rolled by, I felt that I could view
things more objectively from England.
As I sat in the sunshine, listening vaguely to the birds in the hedges and
thinking, I started to have my first doubts about just jacking the whole lot in.
China seemed to have worked itself into my bones. It wasn’t going to be easy
to leave all that behind. And what about the people who had given us all that
money? Didn’t I owe it to the investors to at least try and sort out the mess?
And the Chinese: for every Pang Yuanweng, there was an eager translator up
in the hills, desperate to expand his horizons and embrace the outside world.
For every Wang who had stolen millions from our joint venture in Zhuhai,
there was a Mayor Huang and an Ironman Jiang and a Li Wei. What about
the people who really believed in what we were trying to accomplish? Or Ai
Jian who’d had the guts to leave the security of his job? No, here was
something worth fighting for. I realized that I couldn’t just run away.

And there was another, much bigger reason for wanting to go back. China
was in a state of supreme upheaval as it fought to adapt. The pessimists glee-
fully predicted from the sidelines that the crisis was so deep that it might des-
troy China’s existence as a unitary state. I didn’t see it like that. But I knew
that when Deng had opened up the gates he had unleashed centrifugal forces
that sent millions reeling; billions and billions of dollars had poured into Ch-
ina along the coast in a great splurge whilst the neglected hinterland remained
destitute. A confused tidal wave of people rose up from the country villages
sending a hundred million itinerant labourers swirling towards the sea.
At the same time, with its resources exhausted, the government began
wearily removing the props from the old state-owned factories. Staggering
under the weight of bloated payrolls, these old factories began collapsing as
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though in a great domino pile, dragging down banks and savings cooperatives
with them and toppling millions more out onto the streets. And – almost as a
side issue – the newspapers routinely reported the execution of officials
caught looting state coffers of millions of dollars and bank managers who
lent astronomical sums of money to their relatives. In just one case, the Bank
of China admitted that in their branch in Kaiping, a medium-sized town in
Henan Province, they had lost $483 million dollars when five officials fled in
‘a well-organized escape plan involving dozens of fake passports’. Mean-
while a cowed peasantry of nine hundred million toiled on the land while im-
ages of unattainable affluence beamed into the villages from outside.
The contortions required of the Chinese leadership in this immense social
and economic balancing act were scarcely comprehensible. For certain, China
had to change in order to progress and the Government had to relax its grip to
let that happen. But if central authority should collapse, the population move-
ment would affect the whole world. So, for me, this was a chance of a ring-
side seat at a spectacle of massive historical importance. There wasn’t a
choice. I felt that I had to go back.

So what had I learnt? From my eight years at the coalface in China, I knew
that I was dealing with a society that had no rules – or, more accurately,
plenty of rules that were seldom enforced. China seemed to be run by master-
ful showmen: appearances mattered more than substance, rules were there to
be distorted and success came through outfacing an opponent. The irony was
that the entire nation seemed to be shadow-boxing with itself. Whereas to
most foreigners China seemed too centralized, with an all-controlling Party
brooding at the hub of a vast monolithic State, everywhere I had looked there
had seemed to be a kind of institutionalized confusion.
I’d realized during the dispute in Harbin that there were two completely
separate power structures in China: the Government and the Party. The idea
was to provide checks and balances. But every senior official in the Govern-
ment was also a senior Party member. Most senior Party members had held
top Government positions. They constantly switched jobs between Party and
Government so that real power ended up in the hands of the individual rather
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than the office. Responsibilities overlapped, which resulted in protracted and

pointless power struggles, but elsewhere the system left no one in control.
Ministries fought over territory whilst the army expanded into commercial
activities such as manufacturing medicines or investing in hotels. I remember
hearing that the police in Guangzhou were running a chain of cake shops.
The result was a society with some areas of rigid control where the Party
delved deep into narrow vertical sections. But these sections seemed roped
off from each other, leaving great voids in between. That was where the
Chinese entrepreneur learnt the ropes, where officials routinely manipulated
badly written rules: a place of writs and freezing orders, fake letters of credit,
judges who did not understand a case but passed judgement anyway, officials
from an Anti-Corruption Bureau who asked for cars and bags of money. One
thing was for sure: if you played by the rules you were finished. I realized
that if I was going to go back, I would have to unlearn everything.
I knew that we would have to find a Chinese solution to a Chinese prob-
lem. As I thought through what had happened and tried to anticipate the
battles ahead, one remark kept coming up again and again. It went round and
round in my mind. It had been made when Pang Yuanweng had told the man-
agers up in Harbin that they had to choose between ‘the factory or the
foreigners’.
The factory or the foreigners. That didn’t sound good.
I had sensed early on that Chinese people understandably had exception-
ally negative feelings about the country’s colonial history. Conversations of-
ten came up about the nineteenth-century Englishmen who arrived with their
gun-ships and their Indian opium. I knew that Chinese people had not forgot-
ten that long period of national humiliation. It was too much part of their her-
itage: part and parcel of Mao’s audacious promise that his new People’s Re-
public would ‘reverse the reversal of history’; the reason why Deng was nev-
er going to let Hong Kong remain British.
I turned Pang’s remark over and over in my mind. But, as I thought about
what had happened up in Harbin, I still couldn’t characterize it neatly as a
straight fight between Chinese and foreigners. Despite the slogans and ‘the
factory or the foreigners’ remark, I still hadn’t felt any real racism creeping
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in. Even when the fight was at its most intense, I hadn’t seen the closed-
mindedness, the chauvinism or the essential lack of self-confidence that fuels
true racism. When anger spilt over, as it did in 1999 when NATO bombed the
Chinese Embassy in Belgrade and demonstrators threw rocks at the US Em-
bassy in Beijing, it seemed natural that these emotions should have found dir-
ection most easily along nationalistic lines.
But ours was a much more familiar story; it was just another fight between
two groups of people over power and money. And Pang, when he tried to
stoke up ethnic differences, was using every weapon he had and it hadn’t
really worked. No, I felt that the Chinese were too practical, too self-confid-
ent and too curious about what was going on in the world outside to fall into
any negative racist trap. They wanted to catch up.
I hoped that this might give me a chance of reaching across the cultural di-
vide, a chance of appealling to common values. If it came to a struggle with
the factory directors, I had to convince them that I was fighting them not as a
foreigner but as a businessman. That way, I might have a chance.

Chinese people have a deep sense of ‘Chineseness’, which I felt I had to

break through. This ‘Chineseness’ extends well beyond patriotism, national-
ity, citizenship and loyalty but includes all of those ideas. I wrote that when I
first came to China almost ten years earlier, I had found something so vast
and so old that it took me right out of myself. Over time, I tried to clarify
those hesitant first impressions into something more distinct. I had developed
a sense of some special bond between the people now living in the country
we call China and the immense and ancient culture of their ancestors; ancest-
ors who lived on that land for five thousand years and wrote down their his-
tory in an unbroken chain. ‘Bond’ is the right word: a binding, restraining
force that includes the concept of owing as well as receiving. I think that be-
ing part of that exclusive five-thousand-year-old club gives the Chinese a
sense of separateness and self-esteem. It can occasionally develop into a
sense of superiority, but no more than anywhere else. And the legacy has its
costs. The price that China paid came from the burden of history. Until re-
cently, China couldn’t change.
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‘Chineseness’ is innate, something that you are born with. It can’t be

changed by something as ephemeral as a passport or a mere lifetime spent
abroad. Once, as I sat chatting under an old wisteria in the Beijing spring sun-
shine with Old Liuzi, the conversation turned to adoption. I’d known Liuzi
for several years and I told her that I had just come back from Changsha in
the south where I had seen a group of about thirty foreigners all carrying tiny
Chinese babies. Every year in China, thousands of unwanted babies are aban-
doned so the Government set up an adoption service to cope with the prob-
lem. We talked a bit about the ‘one-child’ policy – most of the unwanted ba-
bies are girls – and Liuzi told me that she thought that it was probably a good
thing that so many were being adopted abroad. But when I mentioned that
Chinese babies adopted by parents in America or Europe would not necessar-
ily grow up just naturally speaking Chinese, she didn’t believe it. She would
have none of my theory that language depended on environment. She was
convinced that speaking Chinese was hardwired into the genes. This almost
physical connection with their culture that Chinese people feel was
something that was slowly dawning on me.
Language is central to this sense of ‘Chineseness’ and the written Chinese
characters are central to the language. They provide a link with the past quite
unlike that provided by European languages. The characters represent com-
plete ideas rather than sounds so they are different to an alphabet in that they
resist changes over the years or between regions. Pronunciation of Chinese
words might change over the centuries, but the written character remains con-
stant. The character may be pronounced xiang, heung, or hong, but it al-
ways means ‘fragrant’. Separate from the sound and recognizable across
thousands of years, the characters keep history alive. When China’s earliest
philosophers recorded their ideas on bamboo spills as far back as the sixth
century BC they used characters, many of which are still in daily use. It’s as if,
with a little effort from the reader, the words of Plato or Aristotle leapt from
the page in the original.
The link in China between daily language and the past is strengthened fur-
ther by a lack of tenses. In Chinese, there is no verb change depending on
time. ‘Mao Zedong is a good leader’ and ‘Mao Zedong was a good leader’
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are not distinguished in Chinese. Things that in our language are extinct re-
main alive in Chinese. Without the separation in language or thought between
what ‘was’ and what ‘is’, China’s past seems to merge into its present.
Until the last century, this connection was strengthened by a traditional
dating system that provided no simple way to gauge relative historical peri-
ods. Dates were defined by the Emperor’s reign: AD 1817 was Jiaqing 18; AD
965 was Taizu 5; there was nothing to indicate that one of the dates precedes
the other by 852 years. The past seemed to merge into cycles that lacked a
clear timeline mapping stages in development or an origin where t = 0.
The heightened awareness of history inhibited change and created a great
tension. The language provided a permanent rigid connection to a past that
looked backwards but at the same time there was a realization that China was
in a struggle for its survival where success depends on the ability to change.
The Chinese seemed caught between a great reverence for the past and the
need to move on.

* * *

My own journey through the language had taken many wrong turnings and,
as hard as I searched, I found no alternative to rote learning. Chinese children
have to do the same thing; hours and hours and hours spent writing the same
character again and again until it sticks. Repetition is the only way in. For an
English-speaker learning French, there are prompts. Police becomes police,
garden becomes jardin. But a foreigner has no such guide into Chinese: po-
lice is jingcha; garden becomes huayuan. And not only jingcha and huayuan.
For every word, you have to learn three components: the sound, the character
and the tone.
In Chinese, the pitch of each word affects its meaning. Mai, for instance,
with a falling tone, means ‘to sell’. But mai with first a low falling and then a
rising tone means precisely the opposite, ‘to buy’. Even Chinese people find
it confusing. At the Shanghai Stock Exchange the brokers used slang to make
sure that they don’t mix up buy and sell orders.
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Many words sound exactly the same or confusingly similar. Often Chinese
people have to go to great lengths to define a character taken out of context.
For example, it would be perfectly normal for someone to introduce them-
selves with ‘Hello, I am Deputy Section Chief Li, that’s the Li with the sign
for tree on the top and a seed underneath,’ or ‘Hello, I am Madame Wang,
that’s the wang used in “boundless oceans” not the one that means “king”.’
Without further explanation, a character lacking a clear context is often im-
possible to identify with certainty if one relies merely on its sound.
As a result, Chinese people often have to give lengthy explanations to con-
vey accurately meanings that would be quite obvious in English. Once, as I
waited at Nanjing airport with Ai Jian, we went into a small restaurant. I
ordered a beer but when Ai asked for some boiled water the waitress hesit-
ated. Remember, there is no tense in Chinese. ‘Does this man mean “boiling
water” or “boiled water”?’ So he expanded: ‘Cold boiled water!’ But that
made it worse. She looked completely blank. I could see the concept of cold
boiling water slowly developing in her mind. So he gave the full explanation.
‘Please can I have some water that was once cold and then was brought to the
boil and has been left so that it has become cold again, so that I can be sure
that the water is clean.’
‘OK,’ the waitness said flatly and without the remotest change in
expression.
Then there were further complications. Ai Jian had used the expression li-
angde kaishui, meaning ‘cold boiled water’. But it sounds almost the same as
liangge kaishui, meaning ‘two cups of hot water’. So it took another round of
negotiations to sort out that he only wanted one cup. No wonder bottled min-
eral water is so popular in China. The alternative is just too exhausting.

I loved to eavesdrop when large groups of people became embroiled in these

states of confusion, especially when there was a chance that a foreigner, exas-
perated beyond endurance by endless unintelligible discussions over simple
questions, might finally lose his temper.
Top of my collection of ‘Chinese cross purposes’ occurred in a Chinese
medicine shop close to Qianmen, the front gate of the ancient city of Beijing
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just south of Tiananmen Square. I’d heard that some of the old Chinese rem-
edies there contained a high concentration of cannabis and, although the par-
ticular remedy that I had discovered appeared to be a laxative, I was willing
to have a go. So I went down to the old Chinese medicine shop, Tong Ren
Tang, which was founded in 1669 and still resides in a three-storey building
with enormous red columns, rickety staircases and dusty Chinese lanterns.
Inside, I found row upon row of ancient wooden shop counters containing
every conceivable vegetable and animal part, all neatly ordered and packaged
and categorized by function; there was the ‘thinning blood’ section, several
counters for ‘revitalizing the qi’ and the ‘department of wind control’. It was
bemusing, so I asked for the medicine, huo ma ren, at the front desk. They
directed me past display cases stuffed with dried sea horses, anti-obesity tea
and ‘slices of multi-flowered knotweed tubers’. I climbed the stairs towards a
dispensary at the back of the shop. There I found one of the illest-looking
shop assistants I had ever seen. Thin almost to the point of translucence, she
was deathly pale with papery skin stretched over a face anchored down by a
set of outlandish dentures and crowned with a great knot of dried-up hair. She
looked as though she was about to fall over. She wore a badge which read
‘Shop Assistant Number 14’ pinned on to her white overalls. I asked for my
medicine and, as she fussed about with a pair of ancient weighing scales, I
was distracted by a disturbance down at the other end of the long wooden
counter. A large woman with a headscarf and thick glasses and wearing blue
factory overalls tucked into a pair of enormous boots had clumped in. She
was loudly demanding senna. I had obviously stumbled on Constipation City.
Once the woman had stomped off with her bags of senna, the second shop
assistant (Number 8) turned to the next customer. He enquired politely
whether they sold ants. Number 14 called across from the weighing room and
asked, ‘How much d’you want, then?’
‘Well, how do you sell ‘em?’ the customer replied.
Ants: I wondered. Maybe by the ounce? By the litre? By the hill?
The discussion on ants fast became the focus of attention, and another cus-
tomer barged into the conversation with the question, ‘So what do ants cure,
then?’ Shop Assistant 8 was immediately highly indignant. She flounced off
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back to the weighing counter, complaining loudly to Shop Assistant Number

14 about customers asking such idiotic questions and announcing hotly that
she really had no idea. The customers appeared taken aback by this response.
They were, after all, in a medicine shop. But I was sensitized to the confusion
and twigged immediately. When the customer had said, ‘Ma yi zhi shenme,
ne?’ – ‘What do ants cure?’ – Number 8 had misheard it for ‘Ma yi chi shen-
me, ne?’, which sounds almost identical but means ‘What do ants eat?’

So everything comes back to the ideographic character. Written down, ‘cure’

– – and ‘eat’ – – are immediately distinguishable. It’s the sounds zhi
and chi that confuse. Without seeing a character, or having it laboriously de-
scribed by context or shape, it is not possible to be absolutely sure which one
is meant.
About a hundred years ago, there was a move to abolish characters. There
was a brief reform movement and the government was trying to modernize
the country. The writing system was seen as archaic, something that was
holding China back, so they proposed the idea of replacing characters with a
phonetic representation. The characters for China, would be replaced
by a spelling of its sound: ‘chung kuo’. Beijing, or , would become
‘pei ching’; the underlying characters would be done away with.
A professor at Beijing University wrote a short, nonsensical but intelligible
story in response. It told of a poet, called Gentleman Shi, who lived in a stone
house and became addicted to eating lions. He went in search of them and
found ten in a market, but realized that they were all dead when he got home.
The professor published his story without any comment.
Transcribed into the phonetics that the government had suggested,
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became:

Shih shih shih shih shih

Shih shih shih shih shih shih, shih shih shih, shih shih shih shih. Shih shih
shih shih shih shih shih. Shih shih, shih shih shih, shih shih shih shih shih.
Shih shih, shih shih shih shih shih, shih shih shih shih shih, shih shih shih
shih shih shih. Shih shih shih shih shih shih shih shih shih. Shih shih shih,
shih shih shih shih shih shih, shih shih shih, shih shih shih shih shih shih shih
shih, shih shih, shih shih shih shih shih shih shih

Shih shih shih shih!

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Every character in the professor’s story is pronounced shih. The last four
mean something like ‘Go on, check that it’s true!’ The professor’s point was
clear; like it or not, Chinese can’t be reduced to an alphabet. The characters
are here to stay.

Modern Chinese characters are highly developed pictograms. Sometimes it is

possible to make out the root, but for most it is not. ‘Horse’, for example, still
looks vaguely like the animal. With a bit of imagination, the mane, the back,
the four legs and the tail in the hook on the right hand side are still visible.

But then tiger,

or snake,

give no obvious clue to their meaning. Rain can be seen in the picture of a
cloud and cascading water droplets,

and umbrella – well, it’s an umbrella.

In other characters, vague hints can be given to the meaning and some-
times the sound, but never enough to be sure. For instance, three droplets at
the left-hand side of a character imply water, thus:
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river,

lake,

waterfall,

the wistful sound of the rain pattering through the leaves,

and snot.

To make matters even worse, Mao tried to simplify the language by modi-
fying the characters. The idea was to make them easier to learn, but his
changes can add to the confusion. For instance, the character

has an alternative form

but has a completely different meaning from

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which looks almost the same.

So this was my third reason to go back. With all its comic imprecision, the
mesmerizing poise of its characters and its mysterious capacity to reach back
into the depths of history and bring thoughts resonating across thousands of
years, I had unwittingly fallen for the language.

As I started to think about what to do next, I felt that the core problem was
that we had somehow completely failed to get the Chinese on our side. We
had invested vast sums of money into China; that was unusual in itself. There
were some global giants who had invested more, but not many. We were the
only foreign investor to have put such huge amounts into the inner provinces
where money was most needed but where few investors were willing to go.
Su’s gearwheel factory, for instance, was in a tiny village in Sichuan. When I
went there in late 1993, I was the first Westerner ever to visit. When we
wired in our investment of fifteen million, it was held in escrow by the Pre-
fectural Bank for four days while they confirmed the amount with the remit-
ting bank. It was the largest transaction that they had ever handled and they
assumed that there had been a clerical error with the amount.
Later we invested in a Third Line factory in Shanxi near where Ai Jian had
lived with the peasants. When we arrived, the factory had nothing. It was a
huge iron foundry originally built to supply parts for tanks, but they had nev-
er had enough money to get it up and running. Some of the buildings, which
had been started in the 1970s, were still not complete. There was hardly an
unbroken window in the whole factory. In winter, it was freezing inside; at
dinner, they couldn’t afford beer and in the surrounding fields people still
lived in caves. But when we eventually invested twenty-five million in the
factory, we still didn’t seem to get them on our side.
There seemed to be an almost total mutual incomprehension. According to
our world-view, we thought that we had something enormously valuable to
bring to China, which would enable the factories to prosper and develop. But
the factory directors had seemed to be quite uninterested in building
something together with us once the money had arrived. It was as if some
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things hadn’t changed in the two hundred years since George III first tried to
open up China for business.
In 1793, the British king had sent an emissary to the Chinese Court to ne-
gotiate trade relations. The mission lasted two years and involved seven hun-
dred people – doctors, musicians, painters and soldiers among them – all
loaded up with telescopes, porcelain, fabrics and chronometers, models of
gunships and a planetarium as gifts for the Emperor. The emissary arrived in
Beijing but was only granted an audience with the Qian Long Emperor after
months of bickering over whether he would kow-tow by banging his forehead
on the ground nine times before addressing the Emperor. Britain, at the time,
was an advanced mercantile nation, on the brink of industrialization and with
the most powerful navy on earth so George III, understandably, considered
himself an equal when dealing with the Emperor. But that was utterly re-
moved from the Chinese picture of the world. It never occurred to them that
George III would consider himself anything other than the petty administrator
of some distant vassal state and prostrate himself before the Emperor. After
months of haggling, a formula was eventually agreed where, according to the
emissary, as representative of the King, he went down on one knee. But after
he had been finally ushered into the imperial presence, he was handed an
edict by Court officials that had been prepared weeks beforehand. It read:

Although your country, O King, lies in the far oceans, yet, inclining
your heart towards civilization, you have specially sent an envoy re-
spectfully to present a message. We have perused the text of your mes-
sage and the wording expresses your earnestness. From it your sincere
humility and obedience can clearly be seen. It is admirable and we fully
approve.

It went on to deal with the King’s key request – that permission be granted
for trade representatives to reside in China – as follows:

The Celestial Empire, ruling all within the four seas, simply concen-
trates on carrying out the affairs of government properly . . . we have
never valued ingenious articles, nor do we have the slightest need of
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your country’s manufactures. Therefore, O King, as regards your request

to send someone to remain at the capital, whilst it is not in harmony with
the regulations of the Celestial Empire, we also feel very much that it is
of no advantage to your country. Hence we have commanded your trib-
ute envoys to return safely home. You, O King, should simply act in
conformity with our wishes by strengthening your loyalty and swearing
perpetual obedience so as to ensure that your country may share the
blessings of peace . . . this is a special edict.

The British eventually responded by blowing up Nanjing. But at the time, the
emissary returned to England, completely mystified as to why the Chinese
didn’t want the benefits of trade and technology that he could bring from
Europe. The Chinese probably never gave it another thought. To be sure, al-
most two centuries later Deng had ripped open the doors and let in the out-
side, but there were still times when I felt traces of this traditional thinking,
the sense that China had endured temporary invasions for centuries but had
eventually absorbed the invaders; that it didn’t need to accommodate a better
relationship with foreigners but just take what might be useful at the time and
continue on its own chosen path.
There was no point in trying to change China. We had invested the money
there and we had to learn to play by its rules.

On the other side, I found the Wall Street world-view almost as immutable as
that of China. I had little faith in being able to persuade the Board back in
New York to meet the factory directors on their own terms. When Wang Jin-
wen had taken out the letters of credit that eventually exposed us to a bill of
ten million dollars, the money was still in the bank. We just knew that there
was a commitment that would eventually come home to roost, but it could
have taken months to find its way back to Zhuhai. The Chinese solution
would have been to transfer most of the money out of the bank account
quietly and in small amounts, until the bank noticed and froze the account or
until there was no money left to argue about. We had done the exact opposite
and precipitated a crisis by blustering into the bank’s head office. As soon as
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the bank’s senior people knew that there was a problem they made a couple
of phone calls to the local court and froze our money while we were em-
broiled in all-night board meetings with hordes of lawyers discussing injunc-
tions and Worldwide Mareva Orders. There had been a knee-jerk reaction
from the US to hire battalions of private investigators and lawyers in a highly
sophisticated response that was completely useless in dealing with the actual
problem. Our whole case in Zhuhai rested on our belief that the bank had not
been properly authorized to issue the letters of credit. But we subsequently
discovered that, even though he had no authority to do so, Wang had chopped
some of the documents with the company seal or ‘chop’. Chops are little
round seals, which are rubbed on red inkpads and are needed to approve vir-
tually every type of document in China from train tickets to declarations from
the Politburo. Under Chinese law, a red chop can authorize a document re-
gardless of whether or not the person who actually chops the document has
any authority to do so. This had made no sense to us as Westerners used to
seeing signatures as approval. In China, the system of using chops can lead to
a separation of responsibility and power since no one can prove which indi-
vidual actually chopped a document. Li Wei used to describe it as a kind of
‘collective irresponsibility’ but the system has been around for thousands of
years and it is not about to change.
As a final irony, Wang was arrested in the States several years later and
convicted of some minor related offences. The last I heard, he was serving a
prison sentence in California, but I was told that when he gets out, he can’t be
extradited to China because conviction of the theft of such a large amount
carries the death sentence and the US considers the Chinese judicial system
to be unreliable. Who knows, he might even get to stay in America. The
money was never found.

Wall Street’s theory of ‘private equity investment’, investing in private com-

panies like we had done in China, was based on two principles. Firstly, that
the system of law and other controls are reasonably effective in dissuading
business managers from helping themselves to the cash and secondly, that a
management team will work hard over long periods for clear incentives.
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Under these conditions, the theory goes, the management team can be left
reasonably free to run the business and report to a Board of Directors that sets
budgets and reviews progress. We had applied this model in China – and it
was obviously not working. Zhuhai taught us a lesson about the first assump-
tion and I was starting to realize that the second was too simplistic.
Pat’s world was dominated by the endless search for capital and, in the
States, this was supposed to occur through open competition. But it wasn’t
the same in China. Pat had a way of looking at our factory directors that he
often wrote about and mentioned in speeches. He’d talk about a ‘management
gap’ in China. His analysis was that, after the founding of the People’s Re-
public, China had essentially been closed to foreigners and there had been no
true competition in the socialist economy. So managers in China had just
been allocated capital and told what to make. There had never been any pres-
sure to respond to a market or develop new products. Capital was simply as-
signed to whoever worked their government networks most successfully.
There was no market regulation to funnel capital to the best managers and no
pressure to perform. Once Deng took off the handcuffs, the natural Chinese
entrepreneurs suddenly burst out into the open. The problem, Pat thought,
was that managers seemed to go to either extreme. ‘If the management is too
bureaucratic, you can’t get anything done,’ he’d say, ‘But, on the other hand,
if they’re too entrepreneurial you can’t sleep at night. You may be in the
components business one day and find that you are in the hotel business to-
morrow.’ Or gearboxes. Or smuggling.
It was true. Some of the factory directors were so stodgy that we couldn’t
do anything with them. Early on, when we had tried to motivate them with
increased salaries and a new bonus system, I had found that many of the fact-
ory directors were actually reluctant to take the pay increase. During the
salary negotiation with a certain Kang, who ran one of our businesses in a re-
mote country village in Sichuan, it felt as if our positions had been com-
pletely reversed. I started by offering him two hundred thousand renminbi a
year, a big increase at the time, but he would only take a hundred. I eventu-
ally bargained him up to one hundred and fifty. Then, when I wanted to back-
date the rise to January, he wouldn’t take it. After about twenty minutes of
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arguing around, we compromised on April. Living in an isolated factory up in

the hills, Kang was unwilling to take a large salary rise. Everyone worked
and lived together in the confines of the factory and Kang was not ready to
break the old established mould.
On the other hand, the more entrepreneurial managers were incredibly
quick on their feet. Their thinking didn’t conform to a big picture; they were
focused entirely on the short term. In China, new businesses often sprang up
and withered in a matter of months. There might be a shortage of some par-
ticular product so factories were built in mere weeks, often creating a glut
that caused many of them to fail. This short-termism might derive from there
having been so much turmoil and reversal in China’s recent history, particu-
larly during the Cultural Revolution. The extreme degree of uncertainty about
the future might motivate people to grab what they can while they can. It not
only creates the Wang Jinwens, who may take your money while you’re not
looking, but also the Sus, who might erect a huge new gearbox factory
without discussing it with anyone beforehand.
So it was true. Most of the factory directors were either wild men, or so
stodgy that they drove us to distraction. In both cases, we weren’t really in
control. We owned the controlling stake in each business but we weren’t in
control. Maybe we should have been firmer at the start, but by this time we
just had to find some way of taking back the businesses, either by establish-
ing trust with the existing factory directors or by booting them out and repla-
cing them with someone else we could rely on. We had tried that up in
Harbin, and it had been an abysmal failure. The next steps would require
more caution, more intelligence, more guile.

And then, of course, there was the other side to contend with. As losses
mounted, more and more impractical demands came beaming in from the
States. Headcount reductions became an obsession. Almost all Chinese state-
owned businesses were heavily overmanned, but significant layoffs were vir-
tually impossible. There was no social security, so what were these discarded
people supposed to do? But still there was a knee-jerk reaction to headcount
figures. ‘Three thousand workers? Cut the payroll!’
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I once received a note from one of our Chinese factory directors in the
southern province of Hunan. Li was one of our best managers, a rare example
of a factory director comfortably in the middle of Pat’s management spec-
trum, and we trusted him. He had attempted to implement cautious workforce
reductions at the factory and provide some continuing payments for those
who had to leave. But the message from Hunan told me that ‘Yesterday a
worker arrived at the house of Mr Li with some bombing materials.’ Appar-
ently a worker had strapped explosives to his chest and had barged into Li’s
flat at the factory while his family were eating lunch and threatened to blow
the whole place up if Li made him redundant. There had been a standoff last-
ing four hours, with police outside, but it had eventually been settled amic-
ably and the worker had gone home. Our factory director was shattered and
resigned from his post.
I heard afterwards that the police had not taken any action against the
worker. Dynamite, apparently, was reasonably easily available because it was
used to blast irrigation ditches in the countryside and the authorities were ter-
rified of provoking further unrest. Eventually, Li agreed to stay on, but there
were no more workforce reductions. The episode was quite an education for
me. The lack of a government social security system and the years of reliance
on the work unit in socialist China meant that real redundancy plans were al-
most impossible to implement and they raised tough moral questions as well.
Nevertheless, I felt that the directors back in New York were starting to
think that I was full of bullshit when I went through these types of diffi-
culties. I sensed that they thought I was throwing up roadblocks and making
excuses for not getting things done. I began to think that it was only a matter
of time before my own head would be on the block. One thing was clear:
there wasn’t much time.

So I went back to China in the spring of 1998. I knew that there were some
heavy-duty fights ahead and I knew that they couldn’t be won with teams of
lawyers sent in from the States. Harbin had been a disaster; this time we
would have to be less gentle and fight with more cunning. The stakes were
high, but strangely I felt calmer about the prospect. The shock of sudden
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illness had left me feeling that I should go back and do my damnedest, but if
it didn’t work out, so be it. There were other more important things in life
that I wasn’t prepared to lose.
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Nine

The Battle of Ningshan:

The Mightiest Dragon Cannot Crush the Local Snake
From ‘Journey to the West’,
an unattributed sixteenth-century
Ming Dynasty novel

As soon as I got back to China, I went down to Ningshan to see Shi. After we
made our first investment down there, he had proven to be extremely re-
sourceful and the business was our best performer. Shi had surprised us all at
first when he managed to get the government chops so quickly after Pat
signed the contract, but we soon got used to his energetic, buccaneering style
and since the business made money we left him to get on with it.
But on this trip to Ningshan, after a three-month absence, I was met by a
group of agitated people. They looked nervously around and quickly drew me
into a side doorway. In hushed voices, they gave me lurid descriptions of a
second factory that Shi was building some miles down the valley. They had
heard that Shi had ordered a large batch of moulding machines. ‘That means
that he must be trying to set up in competition with us,’ they said darkly. ‘If
you don’t stop it now, you’ll have a monster on your doorstep.’
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Back in 1993, on my first trip to Ningshan, I had landed at Hangzhou airport

in an old propeller plane in the drizzle and mist. Everything was grey, cold
and damp. There didn’t seem much point in visiting West Lake to take in the
scenery, so we made straight for the mountains.
It was the first time that I had been to Anhui, but I knew that this land-
locked inner province in central China had vast mountain areas surrounded
by dense bamboo forests that were still inaccessible by road. One of China’s
holy mountains, Huangshan, the Yellow Mountain, was in Anhui. For a thou-
sand years, it had inspired watercolours of rocky pinnacles with twisted pines
and peaks stretching high above the clouds in the valleys far below. Further
north, the steep-sided hills and bamboo forests gave way to gentler slopes
that rolled down towards the Yangtse. The sixty million inhabitants of Anhui
spoke with a thick accent, which was difficult to follow, but I had heard that
they shared the northerners’ taste for good food and strong liquor and never
passed an opportunity for a party.
The tiny village of Zhongxi in Ningshan County sat high up in the moun-
tains, miles from anywhere. At first the road to the factory crossed dreary
flood plains, flat and monotonous, but gradually the road approached the
foothills and we wound our way upwards through rolling countryside. Tea
bushes with stiff dark green leaves covered the hills in neat rows up to a cer-
tain altitude where, over time, they gave way to lighter bamboo tints. As we
climbed, the road deteriorated and the journey became slower. We frequently
stopped to wait for local farmers to clear the road of huge piles of bamboo.
The hillsides became steeper and rockier and the valley sides closed in. It was
a wilder landscape than I had seen the year before when we’d visited Che’s
gearbox factory in Sichuan.
After about four hours, on the brow of a hill, the driver stopped for a cigar-
ette. It was the highest point and marked the border between the provinces of
Anhui and Zhejiang. The sky had begun to clear. We gazed down the stepped
terracing in the valley in front of us. There was complete silence except for
the sound of a man scraping about with his hoe some two hundred yards
across the valley. A little stream fell down over the rocks and stones as it
made its way under ancient stone bridges. The air was clear and odourless, a
 155/269

relief after the smog of the city. In the surrounding fields, I could see hun-
dreds of winding paths worn flat by cloth shoes.
We got back into the car and followed the stream down to Thousand Au-
tumns Pass where there was a little group of houses. The chimneys perched
over the slanting tile roofs showed the faintest traces of smoke. We drove on
while scores of people laboriously planted and dug and sifted in the soil. The
only signs of mechanization were the odd three-wheeled tractors hauling
great loads of rocks up the valley. At last, over the brow of a hill, through the
thin mist, I could see a stone causeway and, beyond it, a little hamlet between
the steep sides of the valley.
Zhongxi Village had maybe a hundred battered houses scattered around the
stone road, a bank and a handful of shops. The buildings were basic. They
looked damp and in a state of disrepair. The pavements were clogged with
debris and young men sat loafing about on broken old chairs, smoking and
idly watching the world go by. In the centre of the scene was a group of
buildings protected by a high wall and with a large gateway facing the main
road.
As we went through the factory gates the sun shone down on to a perfect
lawn surrounded by a stone pavement swept spotlessly clean. Pots of brightly
coloured flowers were arranged in rows and circles. A short avenue of
twisted ‘dragon-claw’ scholar trees led to a three-storey office building
covered in white mosaic. The river flowed through the compound and, on the
opposite bank, behind another expanse of lawn, there was a huge factory
building set about with cranes and scaffolding. The faint whirr of machines
rose from the workshops closer at hand. The path between the buildings was
lined by rows of mature magnolias, almost in flower. Outside the workers’
dormitories, the gardens were divided by box hedges and there were mini-
ature fruit trees dotted about. At the base of each tree, concentric rings of
little pebbles, probably taken from the river, had been sorted by colour. There
were rings of grey, fawn and white. On that first trip back in 1993, I had
wondered who was behind this patch of ordered neatness up in these distant
hills and I soon discovered a story of epic struggle.
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The factory started in the mid-1970s as a tiny workshop making plastic

sheets. For years, a handful of workers sweated blood to make ends meet, ek-
ing out the most basic existence. Then one day Shi arrived in the village, a
stranger from the distant flat-lands near the coast. In little more than a decade
he had built a business that transformed the tiny hamlet and, by the time I
first went there, it provided job security to the three thousand workers who
lived in the village and the surrounding fields.

* * *

Old Shi was born in Jiangsu in 1947 in the low-lying coastal region just north
of the Yangtse Delta. In the early 1940s Japanese invaders had smashed this
whole coastal area but the occupation collapsed shortly before Shi was born,
leaving chaos in its wake. I never heard Shi talk about his early days but they
can’t have been easy. By the time he reached his twenties, the turmoil of the
Cultural Revolution was at its peak. The local gossip was that Shi had met
with some trouble in Jiangsu and had been sent up to Harbin where he had
been locked up in a freezing cell. When I first heard the story, it was long be-
fore my first trip to Harbin, so I didn’t know that the winter there was so cold
that many people freeze to death each year. The conditions in a Harbin prison
in the Cultural Revolution are hard to imagine. When Shi finally got out, he
came to Zhongxi as an outcast in search, so he said, for the peace to read. I
think that it must have been more to escape and forget.
Back then, the locals had absolutely nothing but for the clothes they stood
in, a few cooking stoves, the plastics workshop and some wretched houses.
Getting enough to eat was a constant worry and life was unremittingly harsh,
especially in winter. The only source of work was farming or the tiny factory.
Shi was interested in the business and soon the workers asked him to take
over. He agreed and took out his first loan. It was five gallons of diesel to run
the old generator. Electricity had not yet made its way up the valley.
Several years later, Shi struck up a friendship with an old Japanese man
who had retired but, for some reason, wanted to help a struggling Chinese
business. With this newly acquired know-how, the tiny business signed up
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customers in China’s mining industry. Rubber seals were a particular prob-

lem on the hydraulic supports used in China’s deep coal mines. The whole
mining industry in China had a terrible safety record and Shi soon found will-
ing customers. In a short time, he was able to persuade the local Agricultural
Bank to lend him thirty thousand renminbi, which, at the time, was about six
thousand dollars.
Once Shi had access even to these meagre resources, the business grew
rapidly. Shi was a born optimist and his engaging character was perfect for a
business leader. He was a great storyteller, always had a quick answer and he
inspired his workers with his optimism, his theatrics and his appetite for risk.
He was entirely self-educated; all the schools had been closed during the Cul-
tural Revolution. He read voraciously and his conversation drew on the
poems handed down by the ancients. He was in his early fifties when I first
met him and he had a slightly wild appearance, with unruly hair and rather
staring eyes. He seemed to lean forward at an odd angle when he talked to
you. He smoked continuously, fretting about his health at the same time. In
earlier years, he was given to wearing a jacket and trousers with enormous
checks that didn’t quite match. Years later, after we had made our invest-
ment, these outfits raised the odd eyebrow on Wall Street and they disap-
peared quickly afterwards.
By the mid-1980s business was good and Shi started to make a bit of
money. The little business borrowed to buy more technology from a Japanese
company introduced by his old friend. This was progress but there was a
problem. The rubber available in China was of poor quality. It wasn’t good
enough to make the new products and difficulties in importing good rubber
threatened to strangle the business. At that time, China’s economy was
tightly controlled and access to foreign currency was restricted. No one
abroad would accept renminbi. As a solution, Shi set up another factory. In a
hook of the river, a stone’s throw downstream, he built a new factory that
made simple car jacks. Although they would never make fat profits, the jacks
could be exported to America for much-needed dollars. Through his jack
factory, Shi had ingeniously created a currency exchange.
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In the following years, the business won many awards for quality and Shi’s
reputation spread far beyond the valley. By 1990, sales were several million
dollars a year and he started to export to his old friends in Japan.
Then, after Deng’s Southern Tour, when the State banks opened up the
coffers, Shi grabbed the opportunity. With a hugely ambitious plan, he tried
to quadruple the factory’s output at a stroke and started building a gigantic
facility on the opposite side of the river. He did this by taking out short-term
loans that could be approved locally under China’s bizarre rules of central
planning. These were meant only for working capital, but Shi invested the
money in a huge building and lots of new equipment. By early 1994, just at
the time that we raised our first fund, it looked as if China was overheating
and the government took fright. It tried to rein in the exploding economy and
called in short-term loans. Shi had to repay the money. He was caught with
his checked trousers round his ankles and embarrassing discussions with the
bank commenced. This gave us our chance. We had the cash to give him a
way out.

The negotiations to buy a share in the business were straightforward. Shi al-
ways knew his mind and made quick, precise decisions. He was flexible and
only dug his heels in on two points: our cash had to come quickly and he was
to remain in charge. After a couple of meetings, we agreed a handshake;
twelve million for 60 per cent of the new business. Accountants and lawyers
were dispatched to work out the details. That was the time when Shi suddenly
came up to Beijing and persuaded Pat to sign the investment contract.
Despite the explosions from the Board in New York and the mess with the
accountants and lawyers, it had all been sorted out in the end. On 8 Septem-
ber 1994, we made our first investment and the money was wired across to
Shi’s account in Ningshan.

We got off to a good start. The joint venture was officially opened with a fu-
sillade of Chinese firecrackers that lasted several minutes. After a tour of the
factory, during which one of our factory rats dropped a cigarette on the
ground and Shi pointedly bent down and picked it up, we withdrew to hold
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the first board meeting. Shi was relaxed and in good form, but at precisely the
moment when he declared the meeting open a huge landscape painting,
twelve feet in length, fell from the wall and crashed to the ground. There was
an uncomfortable pause.
1995 was a happy year and the honeymoon endured as the seasons turned.
1996 was even better. Newly acquired plant and machinery had been put to
work. Revenues doubled, profits trebled, new products started to flow and
everybody was happy. On visits to the factory, I could feel the place hum-
ming. Shi bought himself a Mercedes and was enjoying his success.
The careers of local Party officials often benefited from a big foreign in-
vestment and ours was by far the largest in the whole prefecture. As his
friends in the Government rose up the political hierarchy on the back of his
achievements, Shi’s reputation grew. He was appointed as a People’s Deputy
in the Provincial Assembly. The road between Zhongxi and Ningshan, the
main town of the county, was repaired and Shi gave a handsome donation to
the Village Committee for a new office building. His influence waxed and,
stirred by these successes, the seeds of wider ambitions grew silently in his
mind.

During the summer, there are often heavy rains in central China and that year
was no exception. The river that ran through the factory compound rose to
dangerous levels and finally burst its banks in the small hours of the morning
of 16 July. Muddy water surged into the dormitories and the factory build-
ings, submerging large areas and damaging equipment. For several days be-
forehand, the workers had desperately shovelled sand and ballast on to the
banks but finally the flood had been too much. Exhausted, they retreated up
the hills and waited miserably until it receded.
The next day, one of our junior managers telephoned Shi from Beijing and
pressed him on details of the insurance cover. I was horrified when I heard. It
made us look indifferent to the human side of the disaster and as though we
were only interested in recovering our losses. Pat asked Ai to visit Shi in an
attempt to atone for the blunder and he found him greatly upset. His niece
had been badly hurt in a traffic accident on the road up into the mountains
 160/269

and her friend from the village had been killed. Ai Jian met with Shi very
early in the morning in his office. A tear had appeared as Shi turned his face
to the wall and said waiguoren meiyou renqing gam ‘Foreigners have no hu-
man feeling.’ It had been a dreadful blunder.
1997 saw slower growth but we were preoccupied with the problems in
Harbin and Zhuhai. The business in Ningshan was still profitable after all.
But I had an ominous conversation in April. Shi had received permission
from the Central Government to take his company to the stock market in
Shanghai. This might net him a huge profit but in order to list he needed
more than 50 per cent of the business. He had already sold 60 per cent to us
so he wanted to know if he could buy back some of the shares. When I de-
clined the conversation became tetchy. He complained vigorously about the
performance of the other factory directors. ‘Most of them are just old state-
run bureaucrats, like Pang in Harbin,’ he said, ‘but the others, you foreigners
don’t know how to control them. Now that Wang has stolen your money in
Zhuhai, you don’t trust any of us.’ When Shi had signed up with us, he
thought that he had found a strong financial partner who could give him all
the money that he needed. He had readily bought into Pat’s strategy of buy-
ing up many businesses in China and building a national company but by
then he felt that he was being dragged backwards by the problems at the other
businesses.
Although the relationship was a little strained on the surface, whenever I
spent time with Shi he was immensely reassuring. The business was running
smoothly and Pat brought in a large US partner with modern technology. Shi
seemed happy and the future still looked promising.
Then, suddenly, Shi arrived in Beijing. He said that the rubber business no
longer needed his undivided attention. Several senior officials from the Pre-
fectural Government had recently paid a visit and they needed his help. Many
of the state-owned businesses in the area were making losses and unemploy-
ment was a big headache for the Government. They hoped that Shi might buy
some factories and turn them around; the government might even get some
cash in the transaction. Shi was interested in a paper factory in the nearby
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town of Guangde but he needed money. Would we buy another 20 per cent of
the joint venture from him? He was looking for $10 million.
As the months rolled on, we talked round and round. There was a dilemma.
If we refused, we might further alienate Shi. He was our best manager so
switching horses at that stage was not an option. But if we bought more of his
shares, he would only be left with 20 per cent and he might lose interest.
After much debate, we agreed to go ahead. The price was eventually bar-
gained down to six million. But we had one absolute condition where we
would not compromise: Shi had to sign an agreement promising that he
would not use the money to compete with us. The papers were drawn up and
on 17 December we became 80 per cent shareholders. By the end of the year,
Shi had another six million in his bank account. We were pleased with the
result. We had kept our management team happy and motivated, and we had
an extra 20 per cent for a good price. The future looked rosy and any uneasi-
ness about Shi was put on the back burner. A couple of months afterwards, I
went to France.

When I went down to Ningshan after recovering from my illness and first
heard about Shi’s second factory, I wasn’t sure what to believe; there were
plenty of stories but not much hard evidence. I raised it with Shi, but he was
blandly reassuring. ‘China is always awash with rumours,’ he said, ‘but you
should be able to work out the truth.’
When the time came to leave the factory at the end of that trip to Ningshan,
I remember that the car was a little late. I walked out on to the perfect lawn in
front of the factory. The green of the grass was cool and almost luminescent
in the late-afternoon sunlight. I looked around me and took in the neat office
building, the workers’ dormitories, the rows of magnolia trees, the clipped
hedges, the sound of the river, the mountains and the birds around me. The
scent of viburnum drifted over from the river bank. I felt a profound sense of
calm and order. Workers in uniform chatted contentedly as they went quietly
about their business. In the distance, the garden of Shi’s apartment was bright
with the blossoms of the fruit trees. I dismissed the rumours. Nobody could
be so stupid as to risk all this.
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Pat went to Ningshan a month later and came back saying that the meet-
ings had gone well. However, I heard later from Li Wei that Pat had arrived
at the factory at about one o’clock and wanted to meet Shi as soon as he got
there. But Shi had left instructions that he didn’t want to be disturbed from
his lunchtime nap until three. He kept Pat waiting and when Shi eventually
walked into the room his hair was uncombed and he yawned and stretched
ostentatiously. It was not a good omen.
Six months on, again without warning, Shi arrived in Beijing. We all met
with him in Pat’s large semicircular office. Shi said that he had been thinking
about the future and that he was no longer so interested in the rubber busi-
ness. His whole demeanour had changed; his manner was impatient and
bored. It was as if he found talking to us a laborious chore and he made little
effort to conceal his feelings. As he spoke, he pointedly lapsed into the famil-
iar form of address in Chinese and said that he would be prepared to carry on
but only if we changed the arrangements. He would pay us some interest on
the money that we had invested, but he would keep the profits. From then on,
we would have nothing to do with managing the business but he would send
us the occasional set of accounts. ‘It’s the norm nowadays in taking over
state-run companies,’ he said. He then announced that if we didn’t agree, he
would simply leave and his people would go with him. We would be wel-
come to the empty buildings. Then he left.
I was shocked and angry but I knew that we had to react cautiously. After
several anxious discussions, we decided to stall for time. Li Wei and Ai Jian
went down to Ningshan to commence phantom negotiations. We had to put
Shi to sleep and buy some time to think.
We were in a hole. We had eighteen million stuck up in the hills, in the
clutches of someone who was by then in open revolt. I wasn’t sure what to
do, but I knew that we couldn’t let this become another Harbin. With all the
other factory directors watching from the sidelines, there was no way we
could buckle in to Shi’s demands. It would lead to similar claims from all our
other factories across China and then we would have a revolution on our
hands. I needed a man of steel, a man of unbending obstinacy, tough enough,
maybe even reckless enough, to take on Shi on his own ground.
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I met Chang Longwei through an agent. She sent me a copy of a two-page

article from Time magazine, about the reform of China’s state-owned enter-
prises up in the northern rust-belt city of Shenyang. A local bus factory had
been chosen as the example of a success story. It was called the Jinbei Bus
Factory.
In the early 1990s, after years of massive losses, Jinbei had been taken
over by a Hong Kong group and, just after Deng’s Southern Tour, it became
the first Chinese company ever to list in New York. The bus factory used the
money from the Stock Exchange to buy new technology from Toyota and its
new minibus had grabbed over half the Chinese market in three years. The
man behind the turnaround, so the article said, was Chang Longwei.
Chang was born in Beijing in 1946. In his late teens, he had been sent to
Datong to work in a state-owned gearbox factory. Datong was in Shanxi
Province, not so far from the place where Ai Jian had worked with the peas-
ants. I had been there when I had been studying at the university in Beijing. I
remember an overnight train journey that seemed to move several hundred
miles northwest and fifty years backwards. Outside the train station there
were rows of people squatting around red plastic buckets and eating. When I
got close, I saw that they were gnawing on rabbit heads. Datong is in China’s
interior coal-mining region so not only was it poor, it was black. Coal dust
had worked itself into every pore of every face. It clung to buildings and win-
dows, it hung in the stairwells and clogged the drains. Chang had emerged
from the gearbox factory after twenty years with iron in his soul.
The Time article included a picture of Chang over the caption: ‘New Re-
volutionary at his Jinbei Factory.’ It said that ‘when the plant, burdened with
seven thousand workers making shoddy cars no one could afford, foundered
in the early 1990s, a Hong Kong company took over. It went out looking for
a mainland manager and found Chang.’ Chang was quoted as saying: ‘Man-
agement is the key. Subject to the Board, I can make all the decisions. I don’t
always have to listen to the Government.’ Workers were shocked when he
downgraded the first lazy mechanic. ‘If you don’t work hard here,’ he said,
‘you can work hard finding another job.’ His managers also had to shape up
and he sent them on training courses at Toyota. The article reported that
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corruption still plagued the Jinbei plant, but also said that Chang was determ-
ined to stamp it out. ‘If I hear of it, I fire them,’ he said, ‘no matter if they are
a Party member or whoever. The highest cadres can’t be corrupt, because if
they are the rest are.’ When he was asked about the Party, he replied, ‘Oh,
our work has no relation to all that!’
I didn’t take to Chang on first meeting. He was like the Chinese equivalent
of a northern mill-owner and seemed to treat me with an earthy disregard
despite the fact that I was meant to be interviewing him. Gradually I became
more impressed. I could detect an immense strength of will in his rugged fea-
tures and lumbering gait. He seemed an extraordinary mixture of obstinacy
blended with a thirst for learning new things. More importantly Jinbei was a
well-known company, a success story and the biggest problem with removing
Shi was coming up with someone who would be remotely credible as his re-
placement. We needed a real heavyweight. Although Chang was clearly a
handful, I thought that he was just the man we needed at Ningshan. So we
drew him in, and finally he agreed to go up to the mountain valley. It was
quite a coup.

The stage was set. We held a planning session in Beijing in great secrecy. As
at Harbin, our contracts allowed us to dismiss Shi if we could hold a board
meeting, but for that to happen Shi would have to attend personally. If his
suspicions were aroused, he might refuse to come.
In the middle of November, we formed a team of eight to take over the
factory. Chang had persuaded a few loyal colleagues to move over from Jin-
bei, including an engineer called Yang Bai. She was thirty-six when she came
down to Beijing to meet with me. During the interview, I asked her whether
she thought that a woman might have particular difficulties managing work-
ers in a place where traditions remained strong. She looked at me scornfully
and asked whether I really thought that a bus factory in Shenyang was so
easy. I liked the reply and she joined the next week.
The team carefully laid plans for seizing control of bank accounts, stabiliz-
ing workers and lobbying the local government once Shi was out. The whole
operation required meticulous attention to detail. We drafted several different
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notices for posting on the factory gates, each one anticipating different reac-
tions from Shi: one in case he agreed to resign, one in case we had to fire
him. We even hired our own transport in case Shi ordered his drivers to re-
fuse to take us to the factory – or, worse, to take us off in the opposite direc-
tion. Finally the date for a board meeting was set. It was 2 December 1998.

We had insisted on holding the board meeting in Hangzhou in order to avoid

confronting Shi on his home ground. We had to pull him off his mountain
perch. After a very bumpy flight, we arrived with our nerves frayed. The air
around Hangzhou was extremely turbulent and the aircraft shook violently
before going into an unusually steep descent immediately prior to landing.
Characteristically, Shi came alone. I remember catching sight of him in the
restaurant the night before the meeting and feeling an irrational twinge of
sympathy for this solitary and complex figure. In spite of what he was trying
to do to us I could not completely suppress my admiration for what he had
built.
The meeting was held the following day in a little side room containing a
slightly greasy table and a few cracked teacups. Pat said that he hadn’t slept
all night but I felt curiously calm now that the moment had arrived after so
much planning. Shi arrived early and we chatted away about nothing in par-
ticular before the others arrived and we got down to business.
Shi started with a report about the state of the business, blaming the poor
results on a general downturn in the rubber industry and high import prices.
No one was listening, but a tape machine turned silently on the table in front
of us. When we came to the restructuring of the business that Shi had pro-
posed, the mood changed abruptly. Pat said that we had thought about his
ideas but that we had made an agreement in 1994 and we should stick to it.
We weren’t going to be pushed out. The first signs of puzzlement came
across Shi’s face but he didn’t react except to light up another cigarette. Pat
went on but Shi soon lost patience. He repeated the same threats that we’d
heard in Beijing. There followed a long silence as we stared at each other
across the table.
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Eventually Shi broke the quiet and asked us what we would like to do. Pat
said that Shi should resign to run his own business and that we should find
someone else to run our factory. Shi would just remain a shareholder. There
was absolutely no reaction. He just sat for what seemed like an hour,
wreathed in smoke, silently brooding. Eventually rousing himself from his
thoughts, he asked whether we had a replacement candidate in mind. This
was the first time that Chang’s name was mentioned. Again Shi sat abso-
lutely motionless, his hand in front of his mouth, eyes narrowed as he drew
slowly and silently on his cigarette. He asked where Chang was from and
when we told him that he had been the General Manager of Jinbei, Shi
seemed to crumple slightly. Then he once more sat absolutely motionless for
what seemed like an eternity with smoke curling up around him.
Shi eventually hit back with a comment that Jinbei was a badly run com-
pany and that we were taking too much of a risk. By then he was stalling for
time as his mind raced through a thousand calculations. After another five
minutes, we gave him a simple choice: resign or be sacked. He extracted the
odd concession and signed his resignation letter. We agreed to meet again the
next day up in the factory to make a joint announcement to the workforce and
so the meeting concluded.
We subsequently discovered that, after effectively signing his own dis-
missal notice, Shi had been driven at lightning speed back to the factory,
screaming down his mobile phone. His black Mercedes flew through the vil-
lages and fields as our wretched minibus laboured up hills and we checked
the maps. As we drove into Zhongxi Village at dusk with Chang and his
team, we saw that Shi had gutted the factory. The dormitories, which would
normally have been alive with the sound of the evening’s cooking under way,
were dark and silent. There was nobody there. The entire management team
had been ripped out and sent down the valley. My heart sank. That night, just
before I went to sleep, I was called with the news that the boilers on the other
side of the river had been busy all afternoon. It looked as though a large num-
ber of books and ledgers had been burned.
Next day at an early breakfast, the electricity suddenly failed. All the
workshops and houses throughout the entire village were stranded in the
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watery grey daylight of an overcast dawn. At eight o’clock the workers ar-
rived, but by now the word was out and everyone stood in doorways, gawp-
ing and gossiping. Notices had appeared all over the factory overnight an-
nouncing a four-day holiday and the workers gradually drifted away.
Pat and I wandered over to the big moulding workshop on the opposite
bank of the river where I had seen the cranes at work on my first visit four
years before. It was dark and empty like the rest of the factory. Our prospects
looked bleak. No electricity, an absent management and the workers sent
home. As we walked past the deserted workshops along empty paths, great
snowflakes began to fall mournfully from the leaden skies.
After the initial shock we rallied. There was no way we were going down
without a fight. The first thing to do was to demand our electricity back.
Talking to the Village Committee would be a waste of time. They had been
in Shi’s pocket for years after he had paid for some medical expenses for Ma-
dame Ye, the Committee Secretary. We went for the higher authority, the
Government of Ningshan, which was located at the railhead some thirty miles
down the valley. Pat headed off to dig out the Party Secretary whilst I stayed
at the factory and ransacked the offices for the chops.

I was to get to know the Party Secretary of Ningshan County quite well in the
following two years. Secretary Wu was a rarity in the Chinese political sys-
tem in that, to the extent possible within that world of constant intrigue, he
appeared to say what he thought. In a tight spot, Chinese officials often dis-
appeared from the scene for urgent meetings that were mostly imaginary. Al-
though the events up in Zhongxi Village could become a real hot potato for
the local government, Secretary Wu made no attempt to hide. The removal of
Shi, a prominent local businessman with friends in the Provincial Govern-
ment, was a sensitive issue. He was a powerful People’s Deputy well connec-
ted in the provincial capital of Hefei. But on the other hand the joint venture
accounted for a good proportion of local tax revenues, so he couldn’t risk a
fight with the foreigners. Wu was in a difficult position and he knew it.
Unusually tall for a Chinese, Secretary Wu had a presence about him that
was only slightly diminished by hair that absolutely refused to sit flat and an
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enormously long fingernail – which seemed to be reserved for ear-scraping –

on the little finger of his left hand. He poured some tea and listened politely
to Pat’s explanations. Deftly sidestepping the real issue, he replied that the
choice of the manager of any business was up to the Board so he couldn’t
comment on the specifics. However, as the leader of the local Party Commit-
tee, he had a duty to protect foreign investors. Therefore we could have our
electricity back.
Back in Zhongxi Village, an agitated crowd of several hundred had
gathered outside the gates of the factory, milling around among the potholes
and craning their necks to read the notices announcing Shi’s resignation. Re-
actions varied from angry disbelief to barely concealed glee but the underly-
ing anxiety was palpable.
Shi had disappeared and throughout the day his brooding presence loomed
in the background as we tore through the offices in search of the chops.
Eventually we found them, and, by close of play, we had at least secured the
bank accounts, although we found out later that several million renminbi had
been wired out within a few hours of the board meeting.
At dinner that evening, as we sat glumly over our chopsticks and mulled
over the situation by the light of a few candles, the electricity suddenly came
back on. This development was greeted with a huge cheer and shouts for
more beer. Maybe things weren’t quite so bleak. Later someone called to ask
if a delegation from Shi could come to negotiate with us, but in a moment of
bravado we replied that there wasn’t anything to negotiate. We went to bed
with our spirits lifted.
Early the next morning Shi himself called to ask for a meeting with Pat.
Shi arrived at the factory looking tired. He mumbled that the change had
come as a great shock and some of his people had overreacted, but now he
wanted to get back to business. By the time we left, the managers and work-
ers were slowly drifting back. Round One had gone to us.

Over the coming weeks, an uneasy stand-off prevailed. Shi and Chang de-
veloped an immediate loathing for each other but Chang appeared to be in
control despite the sullen stares and disobedience of the locals as Shi lurked
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in the shadows, plotting revenge. On the surface all was normal, but under-
neath tempers were frayed.
News started to trickle in about Shi’s rival business down the valley.
Chang had driven past and told me that it was impressive, at least from the
outside. It was much bigger than I had feared and that convinced me that con-
flict was unavoidable. There was too much at stake for both sides. At the end
of December, Chang had taken one of the cars from Zhongxi Village and
driven up to the gates of Shi’s new factory. The guards thought that they re-
cognized the number plates and let him straight in. Chang had strolled around
the workshops, asking the odd question, taking detailed photographs of the
machinery and production facilities and, after about fifteen minutes, he
calmly drove off again, waving cheerily to the guards as he left. I couldn’t
believe his barefaced cheek. He might have been severely beaten if he had
been caught. But we now had proof that Shi had broken the agreement that he
had signed that he wouldn’t compete with us.
By this time, Chang was spoiling for a fight. He felt that some of the locals
were using blocking tactics against him and he became testy. Just before
Chinese New Year, I came down to the factory to talk to the management
team. On the way up to the factory, the driver complained almost continu-
ously for the whole drive about what we had done to Shi. I told him that he
didn’t know the full facts and that I planned to talk to the whole workforce.
But he said, ‘If you speak a thousand words it won’t be worth one from Old
Shi!’ so I knew that it was going to be tough.
Even so, we convened the meeting. I felt that the managers should be told
directly why we had kicked Shi out and have a chance to ask questions. I
tried to win them over but Chang was having none of it. He launched into a
monologue, his already huge voice amplified by a set of outlandish speakers
that were hopelessly outsized for the small room. He bellowed, ‘I’m the Gen-
eral Manager now, and I won’t tolerate anyone who won’t listen to what I
say!’ As he started to list the various departments at fault, one man in the
audience stood up and started shouting back. Chang demolished him in the
ensuing shouting match, called him into his office and sacked him on the
spot.
 170/269

The Chinese New Year holiday that year was an anxious time. I knew that
Shi would not just go away, so we waited nervously for his first move. On 5
February he finally struck. All 138 members of senior and middle manage-
ment, except for eight people, left the business en masse and went down the
valley to Shi. I received despairing calls from our people in the empty of-
fices. They couldn’t see how to carry on, but Chang seemed completely un-
perturbed. ‘We can get new people,’ he said. ‘I’ve still got my core managers
and most of the sales force has held. What we need is a morale booster.’
It was soon the fifteenth day after Chinese New Year, traditionally a time
for fireworks. Chang did two things: he bulldozed the factory gates and
ordered a colossal firework display. In China, imposing gateways were still
taken as a sign of wealth and social standing. Chang had described the gates
of the factory as tu-qi, meaning ‘earthy’ or ‘peasant-ish’. He was right; they
were a bit shabby. It was strange that Shi had cared so little for the gates
when he’d paid so much attention to the environment inside. Traditions were
still strong in the village and the demolition of the gates and the posters of the
new ones had quite an effect. The firework display brought in from Shanghai
was the largest the valley had ever seen and lasted nearly forty minutes. Huge
crowds came in from the surrounding countryside and gathered in a carnival
atmosphere on the bridge across the river. The fireworks worked wonders for
morale. Nerves were steadied by Chang’s cool defiance of Shi, the local war-
lord, and several people returned up the valley.
Shi had clearly expected the business to collapse when he took out the
management and had said so publicly. ‘One kick and the whole factory will
come down,’ he had boasted, so the survival of the business surprised every-
one in the valley and by then we knew that Shi had problems of his own. We
guessed that he had planned to bleed the joint venture for some time as his
own business grew, so when we kicked him out he lost a source of financing.
There were rumours that he couldn’t make payroll in January. The atmo-
sphere in Zhongxi changed. When the presses still pressed and the mixers
still mixed, there was a growing sense that we could win. One lad, who must
have been worried about job security, said to me, ‘Your enemy is now a
frozen snake. Don’t let him thaw out.’
 171/269

For weeks we tried to get the government in Ningshan to enforce the non-
competition agreement, but that would mean squashing a successful self-
made local and, on a more practical basis, it could have meant more unem-
ployment in this remote, underdeveloped and isolated region. After all, the
dispute affected more than five thousand people. From the outside, the
Government appeared indifferent to our arguments but somehow, despite the
tangled relationships and cross-allegiances inside the local Party, a consensus
slowly emerged. Secretary Wu had exerted enormous pressure on Shi to
come to terms with us and, in early March, I was summoned to Ningshan.
Shi and I met, in an atmosphere of great tension, to try and straighten
things out. Chang, Li Wei and I arrived early and were ushered up to the top
of a building in the centre of Ningshan. As we waited for Shi to arrive, I
gazed out over the rooftops to the hills in the distance. It was a lovely spring
morning, the air was warm and the hillsides in the distance had lost the tired
look of winter as the leaves began to unfold. Closer at hand, I could see the
blue tiles on the roofs of the dormitories in Shi’s new factory. The layout of
the trees and shrubs in the surrounding gardens, and the rings of coloured
stones at the roots of the trees were quite unmistakable.

* * *

Secretary Wu arrived with the Mayor and told us that they would both per-
sonally attend the discussions. This was a good sign because it meant that the
government was anxious to broker a settlement. Shi came in, looking nervous
and irritable but during the discussions I could feel that his mind was still
working very quickly. He peered at me over the table with a look of intense
concentration. Secretary Wu had explained privately that he thought we
could persuade Shi to swap his new rubber factory for the old jack factory.
We might have to make a balancing payment, but it seemed like a sensible
plan. We would end up with a bigger rubber business, free of the local com-
petitor, and rid ourselves of the jack factory and the burden of its one thou-
sand employees. I hesitated in giving a firm reply, but it seemed like a perfect
solution so I made positive noises.
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On my return to Beijing, a sharp disagreement surfaced. I wanted to try to

reach a deal with Shi and get rid of the jack factory. It was only useful as a
currency exchange, but now we had dollars. But Pat insisted that we needed
the export volume; the jacks were being sold to America. I thought that there
was no way to survive in the long term with such a simple product and I was
depressed when I lost the argument. I dutifully sent a note to Secretary Wu
rejecting his proposal. Years later I heard that the news of this blunder had
been greeted with gleeful incredulity in the Shi camp. It enabled both Shi and
the local government to say that they had tried their level best to achieve a
compromise but that the foreigners would not come to terms. It was a very
close escape for Shi. We had let ‘the frozen snake’ thaw out. The local gossip
was that we couldn’t have read Sunzi’s Art of War. We had opted for Sunzi’s
worst option: a long war of attrition on enemy ground. Round Two had gone
to Old Shi.
About that time, we all had to troop back to the States for another quarterly
board meeting. I knew that this one was going to be tough; the Board had set
up an Advisory Committee and invited a couple of retired business leaders to
attend as expert advisers. It was another knee-jerk reaction from New York.
‘We have operating problems; ergo we need a couple of experienced operat-
ors to tell our guys in China how to get it done.’
It sounded sensible on the surface, but these new advisers were veterans of
multinational companies, a bit like highflying factory rats. One had ended up
running a huge chemical factory in Holland and the other had run HR for one
of the biggest global companies on earth. I’m certain that they had been good
at what they did; but at the board meetings, they naturally came up with ques-
tions suited to running chemical factories or the personnel function of a well-
oiled global business machine. They just couldn’t grasp that we weren’t in
control and droned on about installing ‘six-sigma’ quality controls and ‘con-
strained manufacturing’, whatever that was. At that stage I was more worried
about making sure that the electricity wasn’t cut off and the accounting re-
cords weren’t thrown into the furnaces in a factory where our most sophistic-
ated HR strategy was to invite everyone to an enormous fireworks party.
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‘EBITDA’ became an obsession. It’s a kind of financial performance meas-

ure that tries to mix profits with cash flow, and we were tracking seriously
behind budget. The Advisory Committee wanted to know why and they wer-
en’t impressed with the explanations. I didn’t think that there was any point
in squeezing out the last drop of EBITDA from a factory that was convulsed
by a major battle between its shareholders. I wanted to keep the business
stable and, in China, that meant keeping the workers busy even if we had
short-term losses. If production stopped, we would be finished; Shi would be
the only option for the workers and they’d all move down the valley.
We were tracking behind in exports as well. Pat had come up with a
hugely ambitious plan to increase exports to $22 million in that year and we
were already hopelessly behind. The meeting became acrimonious after one
of the directors said that there was no point in messing around with Excel
sheets and taking ‘a foolish stab at numbers.’ Pat countered by saying that he
had to maintain a sense of optimism and so we went round and round, in the
same sort of circuitous arguments that I’d had in China, with the familiar
frustration steadily rising on both sides. After one session, again on exports,
it got so bad that we were barely on speaking terms and there were long
pauses in the board meetings as both sides glowered at each other or shuffled
about with their papers. Once, at the end of a prolonged argument about ex-
ports, one of the directors from the pension fund looked up at Pat and ab-
ruptly adjourned the meeting.
In a low voice full of menace, he said: ‘You wanna be Mr China,’ and after
a deathly silence continued, ‘And Mr China ain’t gett’n it done in China!’
It was awful. Pat had looked deflated afterwards but tried to brush it off.
He muttered that the director who made the remark was supportive behind
the scenes but had to appear tough in front of Rubel and the others from IHC.
I was skeptical; it looked much more like the old Wall Street maxim coming
out where, as they say, ‘You’re only ever as good as your last deal.’ It didn’t
matter how many successful deals Pat had done in earlier days. By then they
needed a whipping-boy and it seemed to me that the other directors from IHC
had conveniently erased the fact that they too had spent months analysing
China and doing due-diligence before we all made the joint decision to go out
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to raise the funds. I felt that, at that stage, there was no point in wasting time
in internal arguments that had nothing to do with the real problems in China.
There wasn’t the time. We were at the key moment in the first struggle that
we might actually win. We knew what we had to do in China and we were
out on our own.

Back in Ningshan, a storm had burst about Chang’s head that almost over-
whelmed him. First a key delivery of raw materials disappeared. The rumour
was that a truck from Shi’s factory had secretly entered the docks in Shang-
hai at night. The Customs officials allowed them to load up eight tons of raw
rubber that we were due to collect the next day. Chang reacted quickly and
airfreighted rubber from Malaysia. It was money well spent.
Shortly afterwards, there was a strike. It had been organized to coincide
with one of my weekly visits in an attempt to embarrass Chang but he just
walked into one of the workshops, picked someone at random and told him
that if he wasn’t back at work within ten minutes, he would fire the entire
section. By the time I left, they were all back at work.
Three days later, the Deputy Mayor of Ningshan arrived with a posse of
local policemen and, after several hours of stormy meetings, removed some
key equipment. He claimed that it belonged to Shi. We cobbled together a
new workshop consisting of a series of simple drills and presses set up in a
tent in the truck park. The makeshift facilities enabled us to limp on.
Next a hailstorm of writs hit the company. Shi had persuaded certain sup-
pliers rumoured to be relatives of his wife to take court action to recover
monies due from us. It felt as if I was back in Zhuhai when the local courts
issued freezing orders over our bank accounts even though we had been pay-
ing normally. I made what I thought was a threatening telephone call to one
of the suppliers in Shanghai accusing him of paying kickbacks but he just
laughed and put the phone down. Chang quickly opened a number of under-
cover bank accounts outside Ningshan and diverted customer receipts, so we
managed to avoid the freezing orders.
After several orders were cancelled, we found that Shi had a warehouse in
Shenzhen with a large store of faulty and defective goods. There were
 175/269

rumours that his people had taken defective goods and packaged them in our
boxes and shipped substandard goods to our customers, but it sounded rather
far-fetched to me.
Back in the valley, the Village Committee stepped up its propaganda cam-
paign. Chang was incensed by a pamphlet that Shi called ‘The Everlasting
Beacon of Zhongxi’. The article had all the overblown outmoded rhetoric of
the Cultural Revolution, praising Shi to a degree that was both embarrassing
and ridiculous. Some of the locals were taken in but I told Chang to forget it
and get back to work.
By late April, confidence was returning. We had started a recruitment
drive at the local universities in Hefei and Hangzhou for graduates to be
trained into management jobs. We had been quite successful and around
eighty students had signed up. A slow but steady trickle of people started to
return up the valley. We had recovered our balance.
My meetings with the managers in Zhongxi became a little more relaxed. I
felt that confidence was slowly returning. After twenty years in a gearbox
factory in Datong, Chang had no time for pretty words but he knew how to
work an audience. He made a speech to the whole factory and I saw him
warm up as he spoke. ‘Shi,’ he bellowed, ‘the Peasant Warlord, with no law
and no heaven had boasted that he could sweep us away with one blow. But
the “Seven Crushing Blows of Ningguo” have fallen and we are still
standing.’
When he finished a ragged cheer went through the audience. We had sur-
vived the strike, mass defection, rubber stolen from the docks, writs, the Vil-
lage Committee propaganda, confiscated machinery and the faulty products
in Shenzhen. Now it was time to counter-attack.

Chang’s speech was important; all battles in China are won or lost on propa-
ganda. Forced to take on Shi head-on, we had to hit back, so we decided on a
publicity campaign aimed at unsettling his bankers. To get their attention, we
had to come up with something big; something big enough and bad enough to
frighten them away from giving him any more money.
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We spent days in an upstairs room in Zhongxi Village sifting through

boxes of papers, trying to come up with a case against Shi. Our eyes strained
as we tried to decipher the scribbled notes of Shi’s accounts clerks. The long
hours were sometimes punctuated by a burst of excitement as someone found
a particularly incriminating slip of paper. We were all absorbed in the work
as we broke open cupboards and tore through dusty boxes together. The pa-
perwork was in an appalling state but there was strong evidence of a horror
story of machines transferred out to Shi’s new business, quantities of missing
rubber and moulds, and spurious expenses. We also found further orders to
transfer out a large batch of equipment on 6 December. Our dismissal of Shi
on the second day of the month had been in the nick of time.
In the end we cobbled together a claim for missing assets and damages
from the non-competition agreement, more than a hundred million renminbi
in all. It was a fantastic sum, big enough to pull Shi under if we won. After
Zhuhai we knew that many of the claims would be thrown out by a court. But
that was not the point. We were playing by the Anhui rules and perception
was reality.
We lodged a court case in Beijing and produced a booklet with screaming
headlines about American investors pouring millions into China’s inner
provinces to help modernize industry only to be ripped off by one of the loc-
als. We included samples of scandalous documents and sent the whole lot to
Shi’s bankers. It worked: his loans were frozen and the applications for more
money were rejected. However, with the luck of the devil, Shi had just taken
a large loan from a local quoted group arranged by his friends in the Prefec-
tural Government. He survived. It seemed as if Round Three had been a
stalemate. I knew that Round Four would be decisive.

Our legal battle slowly ground forward through the autumn and the first hear-
ing in Beijing went well. Morale improved further some weeks later when we
won two smaller court cases in Hefei. But this, in a sense, was a side issue.
The real outcome would be determined somehow from within the Provincial
Government but, of course, winning the legal cases would help in the propa-
ganda campaign. At that point, we needed to get our message across more
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effectively to the top levels of the government so we found a retired General

from the People’s Liberation Army to help us. When Deng achieved ultimate
power in China by resigning his offices so that others were forced to resign
too, the only position that he kept was Chairman of the Military Affairs Com-
mission. This shows the importance of the army. Mao has often been quoted
as saying that ‘political power grows out of the barrel of a gun’ but that was
only part of his maxim. He went on to say, ‘So that is why the Party must al-
ways control the army.’ There had always been some tension in that relation-
ship, particularly when the Party started converting the military factories up
in the hills to civilian production. The army had responded by going into ho-
tels, resorts, trading companies and manufacturing businesses, until Jiang
Zemin, after a long struggle, put an end to the free-for-all and forced them to
give up their investments.
The General was right at the edge of the very small group of people who
control China and he could find a way into most government departments. He
was a big, stern-looking man who didn’t smile much and rather stood on ce-
remony. I never felt comfortable with him; I always worried that I might in-
advertently offend him. But he certainly understood business and enjoyed the
odd bottle of baijiu at lunchtime. After listening to our case, he agreed to talk
to the Provincial Government and over time the combination of improving
government relations and the relentless pressure of the court cases started to
have an effect. Throughout the following winter, Shi began to tire of the fight
and, by the following spring, the decisive moment arrived.

On a lovely clear spring morning, on the way to work, Chang and Yang Bai
were just about to go through the gates of the factory when a car drove up at
high speed. Two men leapt out from the kerbside. Chang and his companion
were shoved into the back seat and driven off. Just before Thousand Autumn
Pass, some twenty miles down the road, on a sharp bend, Chang and Yang
Bai leapt out of the car and took refuge in a local house. They found a man
with a tractor and made off. Returning down the valley, they saw that the
factory gates were covered with notices proclaiming the formation of ‘The
Committee for the Protection of the Investors’. It had seized control of the
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factory and was allegedly headed by Madame Zhao. Madame Zhao was the
old accountant whom we had hired some years before. She was a sweet old
lady, a grandmother over retirement age who had spent several weeks in hos-
pital at the time of Shi’s removal because her nerves couldn’t take the stress.
The idea that she was the mastermind behind an attempted coup was utterly
preposterous.
It emerged later that the uprising had been led by a group of disgruntled
managers at the jack factory where the workers had become worried about
their jobs. Chang never liked the jack factory any more than I did, and, know-
ing him, he might have gone too far in saying so. When he arrived back at the
village, Chang had tried to go to work but he was expelled a second time by a
group of about fifty workers. He decamped to the Village Committee oppos-
ite the factory gates and waited. The Municipal Government down the valley
was informed and Secretary Wu dispatched officials to try to calm the situ-
ation. Order was eventually restored and Chang returned to his office at the
end of the day. That, so it seemed, was that.
There was a group of drivers from the transportation department of a sup-
plier staying at the guest house in the factory. They looked disreputable,
drank too much and had been behaving boorishly that night at dinner, hass-
ling the waitresses and making offensive jokes. They had some friends with
them who were much worse. Rumours spread around the factory that these
people were members of the local Black Hand Society, a feared and detested
Mafia-type organization. The rumours were that Chang’s office manager had
hired them to put down any further dissent. Subsequent investigations by the
Government never reached a conclusion, but at the time it was like a red rag
to a bull.
The following morning, a large group of workers surrounded the guest
house and forced their way up to the third floor to confront the intruders. At
the door a serious scuffle broke out. The people inside panicked and pro-
duced knives, which in turn led to calls for more workers to come upstairs. A
huge fist fight ensued, resulting in broken noses and stab wounds. A knot of
people struggled up and down the stairs in a mess of broken glass, torn hair
and bleeding knuckles. Nine people finished up in hospital.
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The fight raged up and down the stairwells and by the time it was over
there was blood all over the marble floor in the entrance hall. We had a group
of people from Beijing visiting at the time who were terrified and locked
themselves in their room. Even from the inside, the noises were horrible:
frightened voices and the sharp animal howling of people in pain. Eventually
the intruders fled and the rage of the crowd turned against Chang, Yang Bai
and the visitors from Beijing. The doors were broken open and they were all
dragged outside. Marched out of the factory gates by a crowd of over a hun-
dred, they were pushed and kicked the length of the main street of the little
town.
The Village Committee Secretary, Madame Ye, with her pinched white
face visible behind a megaphone, tried to restrain the crowd but the mob was
intent on revenge. They continued over the bridge and into the jack factory.
The workers slammed the gates and the small group gathered into a knot in
an attempt to avoid the blows and punches. Yang Bai seemed to be a particu-
lar target and she was taken alone to the back of a warehouse. She has never
talked about what happened there.
After a few minutes, the police arrived and Chang and Yang Bai got into
the police car. Before it had time to leave, the car was overturned with
Chang, Yang Bai and a couple of terrified policemen still inside. The car was
then bounced out of the factory gates.
By this time the Prefectural Government, alarmed by the serious civil un-
rest, authorized the use of the military and an army detachment was sent from
Xuan Cheng. This news cooled down the hotheads and the crowd dispersed.
Chang escaped to the Village Committee.
Late that night, up in Beijing, Michael and I met Pat in his office and got
through to the Village Committee. Chang’s voice came over the line, sound-
ing exhausted. He said that the violence had been an attempt to frighten us in-
to removing him from his post. With an absent management, it would be
pretty obvious who would be there to fill the vacancy. Chang was shaken and
talked in a low voice as if there were others listening. He said that his back
was ‘blue and bruised’ but that he wouldn’t leave.
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I heard months later that Chang had shouted at the mob in the jack factory
that he would ‘rather die at his post than at home’. Wild rumours were circu-
lating in the fraught atmosphere saying that we had already agreed to remove
him. He said simply, ‘If you support me, I won’t run away. If you don’t, I’ll
go now.’ I felt a tremendous wave of loyalty towards Chang at that moment.
We had asked him to fight a battle that was not of his own making and he had
put himself through fire for us. We all told him that we were relying on him
and, to his evident relief, we promised to put through a call to Secretary Wu.
We left in the small hours of the morning reasonably confident that the final
crisis had been weathered. It had been a close call.

When I saw Chang a few days later, he was withdrawn. The frightening
events had shattered his normal ebullience. In the end his true feelings came
out: ‘It seems so shaming to be beaten by your own people.’ He had always
prided himself in winning the hearts of his employees, but up in the hills the
memory of Shi was too strong. As I watched Chang struggle with his deeply
wounded pride, the unfairness of it all left a bitter taste; and all for that
wretched jack factory.
After the final storm, events came neatly to a conclusion. The court in
Beijing issued a ruling that Shi could not compete with our joint venture. Al-
though I knew from Harbin that it would be almost impossible to implement
the court order in practice, it dramatically increased the pressure on the Local
Government to find a compromise. In the absence of a fair solution, we could
try to blow up the whole dispute and go to the Central Government. No one
wanted that.
In fact, my immediate reaction was to do nothing. We had moles inside
Shi’s business so we knew that he had thrown himself into a flurry of activ-
ity, coming to Beijing to meet with his lawyers and flying to Hefei to lobby
officials. But everywhere he went the message was the same. The judgement
could not be overturned. Most of the officials were wearied by this constant
struggle. They were bored with the story and suffering from battle fatigue.
They told him to settle with the foreigners. They didn’t want any more
turmoil.
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Eventually the phone call came. Would we like to meet up in Beijing? Sec-
retary Wu was at the Cadre Training School near the Summer Palace. Maybe
we could meet up with Secretary Wu and the General? That way we might be
able to reach agreement.

Under a freezing blue sky in early December, Shi came to Beijing. We met in
a hotel, on neutral ground. Despite everything that had happened I couldn’t
dislike him. He was so incorrigible, the performer who would never give up.
As he walked in, head on one side as usual, he looked at me with mock sur-
prise and said, ‘Haven’t I seen you before somewhere?’
There were several rounds of discussions with Secretary Wu and the Gen-
eral acting as referees. On the third round, down in Ningshan, I remember
hammering Shi on some tedious point about accounts receivable where I had
been particularly well briefed. He looked pained and walked out of the room.
A minute later, a message came in; could Shi and I meet in a separate room?
We sat alone on opposite sides of the table, separated by two cups of hot
water containing floating tea leaves, just as we had six years earlier. Shi gave
me a cigarette and I took it. In five minutes we had a deal. No lawyers, no
minutes, just two people on either side of a table. He would hand over his
shares in our business and we would drop all our claims. A small balancing
payment would be made.
That afternoon, in a haze of baijiu, Shi took me around his new factory.
The same Old Shi was evident in the neat rows of machinery, the uniformed
workers, clipped hedges and perfect lawns. I asked him if he would come up
the valley with me for a visit to the old business. On our way up, he told me
that he had not even driven past the gates of his old factory for two and a half
years. He hadn’t been able to face it so it was a moment of bitter-sweet emo-
tion when we walked through the gates together. As we toured the work-
shops, the atmosphere was electric. Chang had extended the shift by an hour
and the workers craned their necks to catch a glimpse of the vanquished war-
lord’s return.
Much of the dinner that night is a blur in my memory but I do remember
that the whole Government turned out: Secretary Wu, the Mayor and four
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deputies. The baijiu flowed and even the General relaxed a little, reciting po-
etry with a few lines missing. I sat between Chang and Shi, just in case there
was trouble, but even they managed to hold a civil conversation.
Through the window we could see Shi’s old apartment and I caught him
shooting several glances in that direction. He seemed happy enough, but kept
moving over to sit alone on an old wooden sofa at the other end of the room.
I discovered later that it was from Shi’s apartment and that it had been moved
there after he had been kicked out. At the end of the dinner, Shi gave me a
huge seal carved from red granite. I was thrilled with it so after I returned I
set about to find the best seal carver in Beijing. I was given an address: The
Pavilion of Accumulated Literature, Glazed Tile Factory Street, Just South of
Tiananmen Square. The woman in charge said, ‘Old Master Xu’s already
stopped. He’s eighty-six.’ But she found me his apprentice. He was sixty-
seven.
He carved the chop with a poem that Shi had taught me years before. It
tells of petals falling from a flower into the soil below and adding colour to
next year’s growth, a poem of sacrifice and renewal from more than a thou-
sand years ago:
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Falling Red is not without feeling,

It changes the spring soil better to protect the flowers.

After I collected the chop, I went over the road to buy a huge red inkpad so
that I could use it. The shopkeeper recognized the character style of the
carver.
‘He’s not bad,’ said the shopkeeper, ‘but he’s still too young.’
I stared at him. ‘He’s sixty-seven!’
The shopkeeper just looked at me blankly and said, ‘I know.’

In the end, I found that the Battle of Ningshan drew me closer to Old Shi. He
had given us no option but to fight but once peace was restored the bitterness
quickly melted and I could see my opponent as another human being fighting
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his corner. I liked what I saw: Old Shi, the risk-taker, the opportunist, the op-
timist, the showman, the loner.
The second battle was to be with a character of a very different kind in an
ancient walled city set in the watery marshlands of central China.
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Ten

The Siege of Jingzhou:

Up in the Sky there are Nine-headed Birds;
Down on the Earth there are People from Hubei
Traditional Northerner’s saying
about people from the
Central Province of Hubei

I had already started to suspect hidden complications at our joint venture in

Hubei when I heard the news that our factory director had been shot. Chen
Haijing had been walking home from work as usual one evening when a dark
figure leapt from a doorway, raised a gun and fired at point-blank range into
Chen’s right leg. Chen was immediately taken to hospital and remained there
for several days. Michael flew to Shashi to visit him and found him in com-
bative spirits. ‘Give me a week,’ he said, ‘and I’ll be standing by the factory
gates as usual, watching the workers clock in, you’ll see!’

Hubei is right in the middle of China, in an area of flat-lands cut in two by

the Yangtse River. The Yangtse is the longest of China’s three great rivers
and the Chinese call it just that: Chang Jiang or Long River. It flows from the
glaciers in the west to the sea at Shanghai and forms the main connection
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between China’s leading business centre and the vast central hinterlands,
which are home to four hundred million people.
In the extreme west of China, the river meanders across the Qinghai-
Tibetan plain in shallow, pebbly bands until it reaches the edge of the plateau
and descends rapidly through winding valleys. By the time it reaches the end
of the upper section, the Yangtse has fallen more than three miles in altitude.
The middle section stretches for about seven hundred miles and passes
through the Three Gorges in Sichuan down to Yichang in Hubei. As the wa-
ter rushes through the gorges the sheer limestone sides tower overhead like
fantastic pinnacles and dwarf the boats that churn through the channel. In the
narrowest sections, the walls seem to close in above and the eddies and cur-
rents are treacherous. The river waters there are the deepest anywhere in the
world.
The Three Gorges have inspired poets and artists over the years as the dyn-
asties rose and fell. Each gorge is said to have its own distinctive character:
majestic steep crags, elegant forest-covered peaks, fog and spray, churning
currents and whirling pools. Hundreds of thousands of tourists visit the
Gorges every year, but for me the next section of the Yangtse, which flows
through Hubei, inspires even greater awe.
When the waters reach the end of the third gorge, they spill out through a
narrow pass into the vast open plain of central China, creating a huge system
of lakes, marshes and channels. Although the river still has thousands of
miles to run, the whole region lies at an altitude of only fifty metres above
sea level and in ancient times it was known as The Endless Marshlands. The
river grows sluggish and at first the landscape seems monotonous and drab.
But after a time I found something intriguing about the vast tangled network
of waterways, with their reeds and rushes, the dykes and ancient bridges, the
little circular islands rising from the waters with their ancient ochre-walled
temples. There was something untamed and wild about the landscape and I
heard that there was still piracy on the vast network of canals. Boats hide eas-
ily in the quiet backwaters waiting to pounce from behind the tall reeds.
Although it has been used as a waterway for centuries, the river has never
been mastered. Vast dykes were built along the banks to prevent flooding, but
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the river silts up so the huge embankments had to be raised in height again
and again. There are sections now where the river bed is three metres above
the surrounding countryside. In attempting to tame the river, the Chinese cre-
ated a tyrant. Infinitely more dangerous here than in the confines of the
Gorges, the Yangtse can burst its banks and inundate vast areas from its elev-
ated position, disgorging limitless quantities of water across the land. Every
year in early summer the people of Hubei look anxiously up at the skies, hop-
ing that the ‘Plum Rain’ would be light and burning incense to pray that there
would be no flooding.
On the northern bank of the river, in the middle of the marshes some
eighty miles downstream from the Gorges, there is an ancient walled city sur-
rounded by moats and waterways. The grey brick walls of Jingzhou were first
built in the Ming Dynasty and are over seven miles around. Even in recent
times the only way into the city was through one of the five magnificent gate-
ways that stand opposite long arched marble bridges spanning the moat. The
pavilions on the gateways, with their red lanterns, tiled roofs and upturned
eaves, created a classic picture of Imperial China. The atmosphere under the
gates, where blind fortune-tellers rubbed shoulders with the persimmon sales-
men, was only slightly marred by the bells ringing on hundreds of bicycles
and the hooting of trucks as they lumbered into the city.

I first went to Jingzhou in the autumn of 1993 when Pat was in the States
raising the first fund. I went to visit a factory in the nearby town of Shashi. In
contrast to Jingzhou with its parapets and gateways, Shashi is a nondescript,
dreary industrial town with one of China’s largest fertilizer factories as the
main scenic attraction. The broad streets were lined with plain trees and drab
tenement blocks dotted the skyline around the lake at the centre of the town.
There was an electrical motor factory there so I went to find out if they
needed any foreign investment.
The factory was squeezed between a department store and a hotel which
looked only half built. Behind the metal gateway there was a small com-
pound with a shabby office building. The conditions inside were terrible.
There was no heating and the offices were in need of a coat of paint.
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Spittoons stood at the corners of the passageways and the only light in the
corridors came from forty-watt bulbs hanging on wires from the ceiling. The
main meeting room contained a semicircle of ancient collapsing sofas, with
shabby beige cloth covers. There were green plastic thermos flasks on the
dusty sideboards. The man in charge of the business, Chairman Ni, kept us
waiting for an hour or so. When he arrived, he seemed weary and his clothes
hung loosely about his gaunt frame. His features were those of a young man,
but there were deep lines of exhaustion etched into his face. His handshake
was weak and lifeless and he spoke slowly, making rather listless movements
as he gave us the history of the business.
Chairman Ni had been with the factory since it had been founded in 1965.
It started as a state-owned electrical motor factory but developed into a key
supplier of starter motors for petrol and diesel engines in China. But the
product samples that Chairman Ni showed me had huge heavy cast-iron cas-
ings that would be hopelessly overweight for modern engines. It looked as
though we had wasted our journey. As we toured the factory and saw the
dilapidated buildings, bored workers and ancient assembly lines, I thought
about cutting the visit short. But towards the end of the tour, Chairman Ni in-
troduced us to the General Manager of the plant and told him to take us to
Factory Number Two.
Factory Number Two was located outside of town, in a field nearer to Jing-
zhou than to Shashi. The General Manager was much more vigorous than
Chairman Ni and displayed a sure grasp of his business as we sauntered
along the walkways between rows of modern machinery.
Chen Haijing was the opposite of Chairman Ni in every way. His round,
smooth face betrayed a healthy appetite and he talked excitedly, chuckling all
the while, with quick nervous movements. He was thirty-seven when I first
met him; Ni was sixty-three. Chen had graduated in engineering from Wuhan
University, in the capital of Hubei Province, about two hundred miles down-
stream. He joined the factory, working his way up through engineering and
product development before he took over the marketing. He had become
General Manager of the factory two years earlier. I realized the business
might be interesting after all, so I started to take the measure of Chen.
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He seemed at ease with himself as we strolled around the workshops and

he answered detailed questions confidently, without hesitation or notes. He
was a man of regular habits. Every morning he waited by the factory gates at
seven-thirty to chat with the workers as they clocked in. Every evening he
was there to see them home. In winter he would deliberately gain weight dur-
ing the cold months and shed it again in the spring. He drank moderately and
didn’t smoke. He spoke amusingly but not boorishly. His clothes were neat
but not showy. In short, he had an assured manner and an even-tempered
confidence that gave the impression of understated power.
Chen told me that the designs for factory’s products had originally been
transferred to China by the Soviet Union in the 1950s, before Khrushchev
had recalled the advisers. In the early years they sold these ancient electrical
motors to a local truck factory up in the hills but they were now hopelessly
out of date. High-performance electrical motors are complicated so Chen had
tried to get new technology from an American company. It had taken seven
years of negotiations but eventually they agreed to transfer the technology.
But Chen didn’t have the money to buy the expensive new machinery that he
needed. It seemed there might be a good case for us to invest. So we arranged
a follow-up meeting.
The negotiations to set up a joint venture dragged on through the summer.
Each time we went back to Jingzhou, the first day was wasted discussing
things that we thought we had agreed during the previous visit. In September
the negotiations fell apart. We were in the process of raising the second fund
and we didn’t have any time to waste. Any further interest in Jingzhou was
put on the back burner.
The following January, Chen called. He wanted to restart the talks. He said
that there had been some disagreements among the Chinese parties so it had
been difficult to progress the discussions. However, he was now running the
shop and he wanted to get on. By April, we had a contract and it was signed
on 15 May. Our cash was wired in and, amidst the familiar roar of firecrack-
ers, we became the holder of a 51 per cent interest in one of China’s leading
electrical motor factories.
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I didn’t visit Jingzhou for nearly a year after the deal was done but when I
eventually paid a visit the progress looked impressive. Chairman Ni, the old
Chairman, had been ousted after what sounded like a bitter, drawn-out fight
and Chen was now firmly in charge. The changes outside the works were
equally dramatic. Factory Number Two, the modern facility, had been in the
middle of a field the first time that Chen showed me round. But a year on it
was just one of a long row of modern factory buildings on the edge of a new
highway linking the two towns of Jingzhou and Shashi.
Huge glass buildings towered on the other side of the road. A new Cus-
toms house, several banks and the local government building had shot up in
less than twelve months. The road was broad, divided down the middle with
a grassy verge and mature trees that must have been transplanted from else-
where. The whole area had the purposeful feel of the modern commercial dis-
trict of a prosperous provincial town.
The factory itself was full of new equipment, neatly arranged in lines.
There were huge winding machines that wound thick copper wire around
armatures as if they were wrapping cotton around a bobbin. The workers
were all busy, moving about briskly in standard blue overalls, while notice-
boards showed monthly targets for production, quality-defect control and
sales, with red lines indicating actual progress. There were specially made
trolleys stacked high with copper windings and when I stopped to talk to the
workers they told me that they were happy and felt that the business was go-
ing in the right direction.
Chen had won First Auto Works up in Changchun as an important new
customer. This was quite an achievement; selling from central Hubei up to
the north was difficult due to local protectionism. Encouraged by his success
Chen set his targets on an even greater prize: Shanghai. There was a buzz to
the place, sales were going up and we were happy about the progress. There
was only one problem: the business lost money.

I never understood why the business didn’t make a profit. It was one of our
larger companies in terms of sales, with good products and customers. It
didn’t make sense and Board meetings became tetchy as we struggled to
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understand the figures. We were never briefed properly; Chen just tossed vast
tomes of badly photocopied Chinese figures across the boardroom table when
we arrived. Whenever we asked questions, different explanations would
come from different members of the management team. No one seemed to be
able to grasp the overall picture.
Frustrated by the confusion, we insisted on hiring a new finance manager
and after months of acrimonious discussions Chen eventually agreed to ac-
cept him. He didn’t last six months. Ostracized and isolated in his separate
office and with no one to talk to, he quickly became dispirited and left. It
made me uneasy. It was difficult to recruit competent people to Hubei.
The first solid clue that something was seriously wrong came when we
stumbled across a set of accounts for the Chinese partner on a routine visit to
the tax office. The accounts showed that they were making huge profits. But
the Chinese partner had put all of its assets into the joint venture. How could
it be generating profits when the joint venture was making losses? I went to
see Chen. He betrayed no unease at our meeting and told me that it was just a
matter of accounting for some adjustments that related to the time before the
joint venture. I was sceptical but he said that if I didn’t believe him we could
send in auditors to look at their books.
Shortly afterwards, we discovered an unauthorized transfer of a million
dollars between accounts at the bank and demanded an explanation directly
from the bank manager. After Zhuhai, we were nervous about bank controls,
so I asked the bank to explain what had happened. There was a lengthy ex-
change of letters in which the bank would neither confirm nor deny whether
the controls had been broken. Their replies took the natural aptitude of the
Chinese language for vagueness to new extremes. Frustrated beyond endur-
ance, we demanded that Qiu, the old accountant, should be sacked and after
several months of bitter wrangling we insisted on putting in our own man.
Little Zeng was originally from Shanghai and he thrived on conflict. All of
our previous appointees had resigned within a couple of months but Zeng
was keen for the challenge in spite of Hubei’s reputation for wildness and
lawlessness. He was small and wiry and had a toughness that went well bey-
ond the point of insensitivity. He was deeply suspicious of everything and he
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had an obstinacy that would never be deflected from his lifelong pursuit of
accounting irregularities. His pallid complexion, the result of long hours
spent poring over ledgers in dimly lit offices, was accentuated by his habit of
dressing only in black. He had the appearance of the quintessential auditor
and a sense of humour to match. In short, he was perfect.

Shortly after Zeng arrived in Shashi, it became obvious that something was
seriously wrong. The operations and accounts of our joint venture were hope-
lessly intertwined with those of the old Chinese partner. Accounting records
were conveniently merged so that an outsider could never really tell where
cash receipts had gone. Managers held dual positions, money was transferred
between the two companies and we found that some of the sales offices were
still operating under the Chinese partner’s name. That set off alarm bells.
We’d had similar problems in Harbin and it was a classic way of syphoning
off profits.
We all took the view that the problem started at the top: Chen Haijing was
the general manager of the Chinese partner as well as of our joint venture.
We told him it had to stop. There had to be a complete separation. ‘You can’t
have a foot in both camps,’ we told him, ‘and you’ve now got a month to
decide.’

After I came back from France, I went to Jingzhou many times. I had the job
of hammering out a deal with Chen and I became familiar with the journey
from Beijing. It’s a two-hour flight to Wuhan and then a four-hour drive
through the flat-lands and marshes to Jingzhou. In one stretch the fields sur-
rounding the highway are dotted with scores of ancient oil rigs. In the even-
ings, as the car sped along the raised highway, I would watch the silhouettes
of the oil derricks against the setting sun. The cantilevers on top rocked back
and forth, drawing up the black liquid from far underground like some old
woman stooping over a well.
That summer there was the worst flooding for decades. From the middle of
July massive rainstorms lashed down in the upper Yangtse basin near Tibet.
The water surged down the valleys at the eastern edge of the highlands,
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gathering momentum. The geography of the region magnified the floods.

When the river was forced into the gorges it became compressed into suc-
cessive peaks or waves, known as flood waves. In 1998 there were eight
flood waves, one of which, at Jingzhou, was the highest in recorded history.
The flooding that year affected the whole country. A sense of crisis
deepened when three key sluice gates east of the city of Harbin collapsed and
the Central Government organized massive evacuations. Confronted with a
growing national calamity, the Government mobilized more than a million
soldiers of the People’s Liberation Army and sent them to the flood regions
to guard and repair embankments. The entire nation was transfixed by the
tales of heroism beamed across the airwaves.
Throughout the long summer, the sixty-five million people on the Yangtse
flood plain lived on a knife-edge. Due to the elevation of the river bed caused
by the fragile dykes, millions of people were living in the surrounding coun-
tryside at an elevation below the level of the dangerously swollen river. In
July, the Government declared an emergency and Jiang Zemin, China’s State
Chairman, called on the nation for a ‘do or die’ effort to control the waters.
In early August, a large section of the dykes collapsed downstream at Jiuji-
ang City, flooding the town of half a million people. The soldiers deliberately
sank eight boats and manoeuvred them into the 130-foot wide breach in an
attempt to plug the gap. More than thirty thousand soldiers and civilians
toiled arounds the clock and eventually blocked the flow by adding bags of
cement, stone, coal, sand and even rice and soya beans around the sunken
hulks. But the government officials barely had time to congratulate them-
selves before the grim news arrived that torrential rains in the upper basin in
Sichuan had caused another flood wave to form. This, the fifth wave, was the
largest yet so the government drew up plans to dynamite the dykes on the
southern bank of the river.
This ancient method of flood control relied on the deliberate destruction of
the dykes at key points in order to flood low-lying farm areas and relieve the
pressure on the cities. It was a simple choice: destroy vast areas of farmland
to the south or risk the waters bursting into the major industrial towns on the
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northern bank. Wuhan, a city of eight million people, one of the main indus-
trial centres of China, lay on the northern bank further downstream.
More than three hundred thousand people were evacuated from the
southern flat-lands, sometimes forcibly. At Jingzhou, the decision was made
to blast the ditches if the water reached a height of 148.5 feet, but the final
decision was reserved for China’s State Council, or Cabinet. The Prime Min-
ister himself arrived to inspect the preparations and the television showed
dramatic footage of him plodding along the dykes and staring glumly out
over the grey swirling waters. On the evening of 9 August, the river stood at
147.3 feet as the final peak water-crest surged out of the Three Gorges,
eighty miles upstream, and poured out into the flat-lands. The authorities
knew that in a few hours the peak would reach Shashi. During the night the
water rose to within two inches of the limit, the highest ever recorded in his-
tory, but the government held its nerve. By the morning, the crisis had passed
and the water began to subside.
More than two thousand people died that summer and forty million homes
were destroyed, but the Government had responded to the crisis and an even
more serious disaster had been avoided.

As the flood waters rose and ebbed, the talks with Chen dragged on. He came
up with endless reasons to do nothing, chuckling all the time, showing his
perfect white teeth and moving his hands around as he spoke. But there was
one point that we weren’t going to budge from. He had to decide which busi-
ness he wanted to run: ‘It’s ours or the Chinese partner’s but not both,’ I told
him. We slowly turned the screws and eventually, in September, he agreed to
resign from his positions on the Chinese side. We had a small celebration
after we reappointed him as General Manager of the joint venture. In the fol-
lowing months, the business turned to profit for the first time and even Little
Zeng seemed to relax.
It seemed as if we were getting a new start but rumours soon started to fil-
ter back to Beijing that the Chinese partner was trying to go public on the
Shanghai stock market. It was impossible to know what to believe, but the
experience at Ningshan had taught us about the dangers of having a Chinese
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partner with independent sources of money. When I questioned Chen he as-

sured me that it was all rumour but the word from Jingzhou got steadily
louder and louder. There were stories that equipment had been transferred out
to another site owned by the Chinese partner at Shihaolu. We had reports of
long weekend meetings where the Chinese management debated how best to
prepare for going public.
Finally I received a fax from Zeng that changed everything. It was a notice
sent out by the General Manager of the Chinese Partner. And it was signed
by Chen Haijing. He hadn’t resigned after all.

A familiar story was instantly recognizable. If the Chinese partner managed

to raise capital on the public markets we would have a competitor on our
doorstep. But this time it was different from Ningshan. We were early
enough to take pre-emptive action. The only option was to fire Chen and put
in our own man. On the surface, it seemed an easier proposition than ousting
Shi from the tiny village of Ningshan where he was like a local warlord. Jing-
zhou had a population of nearly a million.
But we still needed to find Chen’s replacement. I had been interviewing an
overseas Chinese manager throughout the summer. Mr Hou was in his late
forties and was an engineer by training. I had heard that he had handled some
difficult situations where there had been labour problems, but he did not
strike me as being particularly tough. He had been in China for nine years
and managed a number of automotive factories. He was familiar with the
business and gave the impression of unflappable patience – which would
probably be needed at Jingzhou. He came with a strong record of team build-
ing and had worked in operations for many years. He was certainly no Chang
Longwei but he seemed calm and capable and willing to take on the task so
we signed him up and started to plan.
Just as at Ningshan and Harbin our contract allowed us to remove Chen
but we had to hold a Board meeting with the Chinese directors physically
present. We had done that successfully with Shi but had let him strike back
later. This time there would be no such limp-wristedness.
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We had three people working in Jingzhou together with Zeng. Little Li and
Cao Ping were in exports and Zhao Xun was in sales. We called the team to-
gether and went through a rigorous planning session. We prepared letters to
change the bank mandates and agreed to post people with mobile phones out-
side the banks all over the city waiting for the signal to go in. Notices to be
pasted up around the factory, were prepared, announcing the change, and ar-
rangements were made to seal off the file stores, lock the gates and impound
movable assets. It would take a team of twelve people so we drafted in rein-
forcements from Beijing. Zeng and his colleagues were relieved and excited
that we were finally going to do something about Chen. He had made their
lives miserable in Jingzhou so I was confident that there would be no leaks.

I flew down to Hubei a day early. It was my habit to go through the topics in
advance with Chen so I kept to the normal arrangements to avoid raising any
suspicions. It was surreal sitting opposite him and listening to his plans for
reorganizing the factory; he described them excitedly but I knew that they
would come to nothing.
I couldn’t focus on the conversation and stared at Chen. I had no feelings
of enmity towards him personally, more a sense of slightly bored confusion
than actual anger. I stared at him again; why did it have to be this way? I was
tired. I felt a kind of detached neutrality that would have been more fitting in
a disconnected observer as I went mechanically through the first steps of
throwing him out.
That afternoon I went for a long walk alone around the lake in the middle
of the city and stared across the reeds towards the humpback bridges in the
distance. There was a fine autumn mist in the late-afternoon as the sun cast
its last weak rays over the ornamental rocks beside the lake. I wandered down
the pathways over a wet mass of squashed black leaves towards the small zoo
on the far side of the lake. I stared for a few minutes at the fat three-legged ti-
ger limping back and forth restlessly behind his bars and then turned back
over the raised embankments by the lake. I felt listless. We were about to fire
Chen and throw him out of his job. It made no sense – but what alternative
was there? I turned my face away from the setting sun and shivered in the
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early-evening cold. Quickening my pace, I pulled my coat more tightly round

my neck and turned back towards the hotel.

I woke up early and, after a breakfast of fried twisted dough sticks and hot
water-buffalo milk in a greasy restaurant by the hotel gate, Pat and I set off
for the factory. The meeting opened in the normal way with Pat in the chair.
The presentation of the results droned on in the background as blood
throbbed in my temples. After half an hour, I looked at Pat and signalled that
it was time. We stopped the meeting and asked Chen if we could meet with
him in a separate room alone. Still apparently unsuspecting, he agreed readily
and the meeting was adjourned.
We went into a little side room with dirty windows. An old desk with some
browning newspapers on it and a few old mops propped up against the wall
added to the tatty appearance. There was an old black plastic sofa and a
wooden chair.
Pat and Chen sat on the sofa. It was a familiar conversation. Our investors
needed to see some returns . . . not satisfied with performance . . . need inde-
pendent management and so forth. Chen was clearly shocked and then asked
if he could negotiate his personal settlement with me alone, so Pat left.
As we discussed Chen’s deal, one of the cleaners came in and there was a
brief exchange in the heavy Hubei dialect. I failed to catch its drift. The con-
versation went round for another ten minutes and then Chen excused himself
to go for a leak. I wandered out and saw the other two Chinese directors dis-
appear into the gents’ after him. With my nerves already jangling I sensed a
plot. With their mobiles, there was no knowing what they might do to avoid
being ousted, so I ran the length of the corridor and pulled a startled Chen
from a cubicle and back into the little side room.
I said, ‘Resign now or be publicly sacked,’ handed Chen the letter and
said, ‘You have fifteen seconds.’ He signed it and I gave the signal to go into
the banks.
Within ten minutes the bank accounts were changed, notices were posted
all over the factory, the file store was locked and all the gates were secured.
 198/269

The other Chinese directors, white with fury, took the news in silence. Chen
tried to persuade them to sign the Board resolution removing him and ap-
pointing Hou as a temporary replacement, but two abstained and Qiu, the old
accountant whom we had sacked the year before, put up a more respectable
defence and voted against the resolution to remove Chen. It didn’t matter: we
had a majority and Chen had already resigned, so there wasn’t much they
could do.
We called a meeting of the middle management staff and Chen went
through the agreed face-saving formula. He said that he had chosen to remain
as the leader of the Chinese company and had resigned from the joint
venture.
After the meeting broke up, Chen and I stayed in the room alone. I tried to
persuade him not to fight. ‘Old Shi came back at us after we had fired him
and look what happened there. Two years of legal fights and damaged reputa-
tions, all for nothing.’ He just mumbled that we’d made a mistake. Just then
the office manager came in with the news that the file store was locked and
that we had grabbed the chops. Chen gave me a wounded look. I just
shrugged. There wasn’t much else I could do.
Straight after the meeting, I went off to lunch with Wang Ping. He was a
director in the Machinery Bureau of the Jingzhou Municipal Government. I
had met him at the time we did the joint venture at some baijiu dinner. He
had stuck in my mind as one of Mayor Huang’s few rivals in the whole of
China for consumption of alcohol. Affably useless as always, he was much
more interested in getting half a bottle of baijiu down me than in listening to
the story about Chen, and he repeatedly interrupted with toasts. I plugged on
anyway and he eventually came up with the throwaway remark that it was
really up to the Board to decide what to do – and why didn’t I have some
more bean curd? I left feeling thick-headed.
Back at the factory, everything seemed normal. Chen was nowhere to be
seen. Cao Ping told me that as he was pasting up one of the notices an old
factory worker had said gai zao zuo – ‘It should have been earlier’ – as he
read the notice. I guessed that Chen was probably licking his wounds in
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private, so we said goodbye to Hou and drove off to Wuhan for dinner with
the Provincial Vice-Governor.
As I drifted off into an uncomfortable sleep, with baijiu in my veins and a
pounding in my head, the familiar flat-lands flashed past outside. As I dozed
fitfully I felt pleased with the day and confident that we’d rescued our invest-
ment in the factory.

The weekend was quiet. No news from Hubei was good news, I thought. On
the following Monday, I flew to Shanghai. We had a visiting Japanese deleg-
ation from a company that might be interested in selling us technology for
piston rings. I was at lunch when a phone call came in to Li Wei. He looked
worried but said nothing.
As we left, Li Wei drew me into a corner and told me that there was some
trouble at the factory. Chen Haiping had arrived there as usual in the morning
and a conversation between him and Zeng had turned nasty. Apparently they
had exchanged insults loudly at the factory gates and had attracted a large
crowd of onlookers outside the office building. Chen had been furious and
had sent a letter to the Provincial Government complaining that he had been
insulted. Like Shi, he was a People’s Deputy and he sent a formal demand
that a team should come down from the Provincial Government in Wuhan to
investigate.
Apparently a similar confrontation had occurred after lunch. The two men
had been screaming insults into each other’s faces when Chen had suddenly
turned green and collapsed. He had been carried into the office building. Hou
became seriously rattled when efforts to revive him failed. Chen was rushed
into hospital where he had been declared critically ill and put into intensive
care.
The sight of Chen being carried out of the office building and the news that
he was seriously ill caused a riot. The factory was a tinderbox after Chen’s
sacking, with rival factions forming to support or oppose the decision. When
the news spread, a huge surge of rage swept through the factory and about a
hundred furious workers surrounded the office building, baying for blood.
Hou and his team were still trapped inside. I heard later that they had been in
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a third-floor office when a full bottle of beer crashed through the window and
exploded on the wall next to Cao’s head.
Zeng and Hou had been separated and no one knew where they were. The
others were bundled into the Factory Workers Union Building where Ma
Xiatong, one of Chen’s assistants, leapt onto a table and, in front of a crowd
of excited workers, delivered an impassioned speech saying that, ‘The factory
belongs to the workers who built it with their bitter tears and blood.’ He
urged the crowd to seize control and kick out the foreigners. Desperate calls
to the police and local government met with no reply. The workers were try-
ing to break down the heavy doors of the office building that had been locked
from the inside. I gave instructions for the office in Beijing to try to contact
the government and boarded the plane back to Beijing in a state of great
agitation.
In the two hours that I was out of contact, the situation stabilized. Wang
Ping had eventually arrived. The Government was trying to calm down the
workers. I hoped that at least this remarkably witless man would bore them
all into a trance – as he would if his conversation over the baijiu was any-
thing to go by. I eventually got through to Hou and his small voice came over
the line. He told me that there was no immediate threat but that there were
still fifty workers outside who were demanding that he hand over the chops. I
said immediately, ‘There’s no way we’re doing that otherwise we’ll lose
everything. You know that you can’t get at the bank accounts without the
chops, so you won’t be able to run the factory.’ Inwardly I was confused. It
seemed odd that workers would be demanding the chops. I was surprised that
they had realized their full significance.
Over the next hours there were many conversations back and forth. Hou
was clearly very rattled. I told him just to sit down and do nothing. He
wouldn’t come to any harm with Wang Ping there so he should just wait until
it was safe to go back to the hotel. He was clearly wavering so I tried to be
calmly reassuring but as the evening wore on he became frightened out of his
wits.
The conversation went round and round. ‘Think this through. Just sit there
and do nothing.’ I said. ‘The workers won’t attack you with a government
 201/269

official in the room. You know that if we lose the chops we can’t manage the
business and we’ll be finished. Just sit there and do nothing. I’ll come down
first thing in the morning. Just sit there and wait.’ And so on long into the
night.
Matters were eventually taken out of my hands when a miserable Hou
called and told me that he was going to hand over the chops. I had one final
go at dissuading him but he just replied limply that he had no choice. I even-
tually persuaded him to give them to Wang Ping for safe keeping rather than
hand them over to the workers. He said that he’d see what he could do. I put
the receiver down at three in the morning and suddenly snapped.
I threw the phone against the wall and screamed ‘Shit!’

The news that awaited me in the office the next morning was even worse.
Hou had been followed back to the hotel and his nerve had broken com-
pletely. He told the team to pack their bags and run. They were now on the
plane back to Beijing.
I couldn’t believe it! Handing over the chops was one thing but abandon-
ing the post meant that we were completely lost. We now had no one at the
joint venture and no one that I could send there. The workers knew that all
they had to do was throw a few beer bottles around and the next lot would
run as well.
I knew that all the other factory directors were watching events closely. I
had to stop the rot otherwise the team might collapse entirely so when Hou
arrived, I called him into my office and sacked him. I told the others we were
going back in and we got on a plane for Hubei.

When we arrived in Jingzhou, Li Wei went to the factory and Ai Jian to the
hospital. They both came back worried. Li Wei had managed to negotiate his
way in through the factory gates and had met with Chen’s deputy, Old Zhou.
But it was soon obvious that Old Zhou was not in control. Halfway through
the meeting, there was loud banging on the meeting-room door. It was locked
from the inside but Zhou, obviously frightened himself, had taken some time
to persuade the workers to go away. Ai Jian came back from the hospital with
 202/269

a couple of bruises. He had gone to ask after Chen but a large crowd had
barred him from the room. There had been a scuffle and he had been kicked
out of the hospital.
The next day we asked for a meeting with the Chinese partner. Old Zhou
and Qiu, the old accountant, came over to the hotel. They said it was too dan-
gerous to go to the factory. They looked ashen and frightened, but they were
absolutely adamant that we should declare the board resolutions invalid and
that Chen should go back.
Li Wei guessed from their anxiety that when we had dismissed Chen we
had destabilized the loose coalitions within the Chinese partner. If they had
been united, he would have expected them to be angry rather than worried.
He figured that with Chen absent and ill in hospital, no one was really in con-
trol and the prospect of serious unrest had terrified the other Chinese direct-
ors. I tried to use this as a tactic to get them to work together with us to sta-
bilize the situation, but they refused and after a call came in to Old Zhou’s
cellphone the meeting ended abruptly.
Two hours later a fax arrived in Beijing demanding that we retract the
board resolution and ‘accept responsibility for the economic damage caused
by the abnormal situation.’ I had it faxed on down to me. It was signed by
Chen Haijing. The signature was written in clear, bold characters. It did not
look like the signature of a man who was critically ill. We decided to call the
Government.

We trooped in to see the Deputy Mayor of Jingzhou in charge of industry.

The meeting was in the new Government building opposite Factory Number
Two. As I arrived, I noticed that a large crowd had broken into the ground-
floor reception. There was complete chaos, with a scrum of people shouting
and crying. I managed to figure out from the protests that a local state-owned
business had collapsed. An old woman was howling that with the factory
gone, there was ‘no rice to eat’ and that all her ‘family had to run to outside
places to look for work.’ Several government officials were patiently listen-
ing to the complaints, trying to calm down the workers, asking them to go
home and promising to report to the Party Secretary. We managed to get
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through the melee and I clambered up the stairs wondering how the hell we’d
get any attention with that fracas going on downstairs.
Deputy Mayor Shang listened to our complaints and gave us the standard
line that he would deal with the case in accordance with Chinese law. Old
Zhou was there but he didn’t say much. After the meeting closed we tried to
leave the office but the workers were still milling about in reception, so we
were shown out of a side door and went back to the hotel to wait.

There was absolutely no response. I was in Jingzhou for three weeks. Every
day, we made calls to the Government but there was silence. Every day we
sent faxes to the Chinese partner but there was no response. I couldn’t even
persuade Wang Ping to share a bottle of baijiu with me. After Hou’s flight
we were on the outside; Chen could safely ignore us. Just like at Ningshan,
we’d blown it after a good start. Once again, we were engaged in protracted
struggle on enemy ground. But now it was even worse. We couldn’t get into
the factory this time so we were on the outside looking in. The only cause for
hope was that Hou had handed the chops to Wang Ping prior to his flight.
Without the chops, Chen could not operate the bank accounts, so he couldn’t
make any payments. The business would slowly bleed to death. There was no
alternative but to sit out a protracted siege until he was forced to deal with us.
I was genuinely surprised by the severity of the Chinese reaction. Sure,
Chen was bound to have been furious when we’d kicked him out. But there
was something of a pantomime about the dramatic illness, the immediate dia-
gnosis of a critical condition, the worker’s uprising and the flying beer
bottles. It all seemed a little far-fetched to me. Something was missing; we
hadn’t found all the pieces of the jigsaw and something in the puzzle was
eluding me.
Every day for those three weeks I walked the full circumference of the city
on the little path between the walls and the moat, wracking my brains for a
plan. A rhythm settled in as I tramped the path each day, waiting for the call
from the local Government, hoping for some news of Chen. But there was si-
lence as I walked. Over time, the sights of Jingzhou became routine and or-
dinary: the young boys climbing thirty feet to the top of the walls, pulling
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themselves up with their fingers gripping the cracks in the ancient brickwork;
the damp odour and green moss under the gateways; the boats moving slowly
and silently through the mist on the moats; the falling leaves and the fog; the
baskets of persimmon in the orchards on the opposite bank. Seven miles
every afternoon, racking my brains for a plan.

After we had been expelled from the factory there was almost no news of
what was going on inside. But there were ominous signs. Chen had not re-
appeared and he remained in his hospital bed. But it seemed that he was con-
trolling events from behind the scenes. There were rumours of a purge where
anyone suspected of cooperating with us had been fired or demoted. I re-
member that one day, during one of my long walks around the moat, I re-
ceived a call from someone in the accounts office. Little Dong was suspected
of leaking information to us. She explained in a voice shaking with rage that
she was a university graduate but that she had been reassigned from the fin-
ance department to machine maintenance. She had been moved permanently
to a filthy old workshop at the back of the factory. She was given a toolbox
and a huge spanner and told to repair two enormous old metal presses. We
eventually found her a job at another of our factories and she went off to
Shanxi a month later.

It was really Zeng’s persistence that gave us our chance – that, and a bit of
luck. Zeng had noticed that the serial number on one of the joint venture’s
land certificates didn’t match the number on a building certificate that had
been issued some years earlier. It all seemed a little esoteric to me, so I ig-
nored him at first but he was like the terrier that wouldn’t let go. I became ir-
ritated by his constant harping on the issue and told him to drop it. But he
didn’t.
Gradually I began to have my doubts as well. Land certificates are import-
ant in China because they are taken as conclusive proof of title to the land.
Most importantly, the certificate can be used as collateral to raise loans from
Chinese banks.
 205/269

My suspicions deepened after another meeting with Old Zhou. Incredibly,

he left the handwritten notes that he had used to prepare for the meeting on
the table after he left. There, among the mostly indecipherable scribbles, at
the bottom of the second page was a reference to some transferred land certi-
ficates. Before Old Zhou came back we rushed to the next room where there
was a photocopier. He returned puce in the face and out of breath, grabbed
his notes and walked off, fuming.
It looked as though we might have found something that we could use to
put pressure on Chen. But to uncover the truth we needed someone on the in-
side, someone who would be willing to ferret out documents from within the
Government. I put a call through to the General.

Lawyer Xie had been a friend of the General for many years and readily
agreed to help. He was in Changsha when we called him but said that he
would drive over to see us. Changsha lies in Hunan Province to the south,
some four hundred miles away from Jingzhou, and the roads were terrible.
Xie arrived after sixteen hours in a taxi. Once he’d showered and eaten we
looked through the documents together. We had taken copies of the original
certificates at the time that we did the joint venture so I had them faxed down
from Beijing. We could see that the serial numbers had been changed and
didn’t match, and Lawyer Xie was as puzzled as I was. Something was
wrong, but the only way to unravel the mystery was to go to the Land
Bureau.
Lawyer Xie spent hours on the phone with his contacts in Wuhan, the pro-
vincial capital. He eventually found the right person who agreed to try to ar-
range for him to have a private meeting with a low-level Land Bureau official
who might be able to provide some clues. A call was made and Lawyer Xie
set off.
There didn’t seem much point in hanging around in the hotel so I went off
for a walk around the city walls. I waited anxiously for a call on my mobile
but I walked the whole distance without receiving any news. I was much too
agitated to relax, so I went round again. When I finally got back to the hotel,
it was past dusk. Lawyer Xie had just arrived back, carrying a bundle of
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photocopied documents wrapped up in brown paper. The copies showed that

a large piece of land that was originally owned by our joint venture had been
transferred out to the Chinese partner. There were copies of the old certific-
ates in our name with a red chop that read ‘cancelled’ stamped across the
face, a transfer document signed by Chen, and a new land certificate in the
name of the Chinese partner.
The story was out. I saw why Chen had been so desperate. When he had
tried to take his company to the Shanghai stock market, he realized that it
didn’t have sufficient assets. Chen had never intended to resign from the
Chinese partner but was playing for time. When he discovered that the assets
were insufficient for a listing, he came up with an ingenious solution. He
transferred four million dollars’ worth of land out of our joint venture back to
the Chinese company, thereby neatly solving the assets requirement and net-
ting a huge gain. Chen had been caught red-handed in a case that involved a
huge amount of money. I thought that the Government would now have no
option but to intervene on our behalf.

However, requests for a meeting with the Government still came to nothing. I
became more and more confused and frustrated. Every official we talked to
made the same excuse: they had important meetings and they were too busy
to get involved. So I was almost relieved when at last we received a request
from the Factory Workers Union for a meeting. I guessed that Chen might be
using the Union as a cover for serious negotiations. Avoiding direct contact
might be a way of saving face. Li Wei was sceptical, but I thought that
whatever happened at the meeting it would be a good opportunity for us to
get information.
The Union officials came to the little meeting-room in the hotel just behind
reception. They opened by saying that they were very upset that they hadn’t
been consulted about the change in management. I said that I was sorry if I
had offended them, but that it was really the job of the Chinese partner to
keep them updated. I thought to myself that it was probably an opening ruse
to put me at a disadvantage. It was a standard tactic to start a meeting by try-
ing to capture the high moral ground prior to making a concession.
 207/269

The discussions continued in a rather directionless fashion for about half

an hour when I noticed suddenly – and uneasily – that there were now about
thirteen people on the other side of the table whereas at the start there had
only been six. One of the newcomers became quite aggressive and kept inter-
rupting in a harsh croaky voice that what we had done was ‘fei fa, wei fa; fei
fa, wei fa’ – ‘illegal and invalid; illegal and invalid.’ He was being deliber-
ately provocative so I responded aggressively in English and when it was
translated there was a storm of protest from the other side, with the workers
standing up and shouting over the table and shaking their fists in my face. By
this time several more workers had squeezed into the room so I got up to
leave, only to find that my exit was blocked. I could see through the door that
there were about another sixty workers in the reception hall, milling around
and in a state of some anticipation. My heart sank as I realized that I had so
innocently fallen into a trap.
We were held for about nine hours in the tiny room. It had space for a
meeting of maybe ten people; the only window had bars across it. At one
point there were more than forty screaming workers pressed into the tiny
space. One of the original six had been trying to get me to sign a piece of pa-
per that overturned the board resolution. I glanced at the paper. It read, in
badly typed English:

The 29 October event, an illegal activity under Foreign partner’s elabor-

ate plot, which snatched the Chinese partner’s management right under
the contract by way of swindle and compulsion, disrupted the normal
operating system, and the Foreign partner should take the whole
responsibility

I didn’t get any further. I was amazed that he seemed to think that I might ac-
tually sign it. My instinct was to tell him to shove it up his nose, but surroun-
ded by workers baying for blood I opted for the less heroic option of stubborn
silence. The worker who was pressing me to sign the document was scruffily
dressed and smoked heavily. He wore a blue cap pulled over his forehead. He
seemed unusually confident and when someone shouted from the back of the
 208/269

scrum that, under Chinese Law, the Chinese side should appoint the Chair-
man of any joint venture, he responded immediately that the recent Chinese
Company Law had changed the regulations. I realized that this ‘worker’ was
no worker at all. He was a local lawyer in factory uniform that the Chinese
partner had drafted in to try to get me to revoke Chen’s dismissal with a letter
that would stick.
Throughout the nine hours of shouting and fist-shaking, I didn’t have much
time to think. My nerves were ragged and my head was aching, but I was
only seriously rattled once when a couple of workers came in, their faces red.
They had obviously been drinking heavily and stood in the doorway, swaying
gently. Even the Union leader seemed worried at that point and I just prayed
that no one would do anything stupid and that there were no knives about. I
clung to the hopes that most of the workers were just play-acting and curious
about the foreigner.
As the time rolled on, I became sure that Chen had drafted them in to put
pressure on me. But there was no way that I was going to sign the document
so we just sat there. I could see that, with one or two exceptions, the workers
weren’t bad people. Towards the end of the afternoon they started to get
bored, so I started chatting with one of the workers during a lull in the
protests. He responded amicably enough until he remembered where he was
and snapped back into mock aggression.
Li Wei was masterful. He just talked the workers out: talked and talked
and talked, in the same circuitous rambling fashion, never getting to the point
and exhausting them on the way. In the end, they got bored with it and by
early evening they were hungry. They started to drift off.
I finally got out in the early evening and realized suddenly how exhausted
I was. It had been a very unpleasant experience. As I walked up the stairs
back to my room, I glanced through a door into one of the many private din-
ing rooms in the hotel. Seated at the head of the table, face sweating and
reddened with alcohol, stuffing local freshwater crabs into his mouth, was
Mayor Shang. The man who’d promised to sort out the mess had been ca-
rousing upstairs with his cronies while his foreign investors were held host-
age in a room below.
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After seeing Mayor Shang upstairs in the hotel, I had almost given up hope of
getting any help from the Government but two days later Li Wei came in
with the news that the Party Secretary of Jingzhou, Liu Heji, was having din-
ner in a private room in the hotel. I put on a suit and went downstairs. We sat
outside the Secretary’s room and waited. Shortly afterwards Secretary Liu’s
office manager came out. I was obviously causing embarrassment inside so
he asked what I wanted. ‘Five minutes with the Party Secretary’ was my
reply and after a brief disappearance the office manager came back with the
message that Secretary Liu would meet us after dinner.
Liu Heji was the Prefectural Party Secretary. It was a position of consider-
able power within the Chinese hierarchy and several rungs higher than Sec-
retary Wu in Ningguo, which was just a small municipality. Jingzhou Prefec-
ture, which included the towns of Jingzhou and Shashi plus the surrounding
counties, had a population approaching ten million. Secretary Liu, unusually,
had been in his position for at least five years, which was ample time for him
to have consolidated his position in the area. Although it was usual for offi-
cials to be rotated regularly from place to place, somehow Secretary Liu had
managed to stay put.
He was a small, neat man who initially gave little away in his words or ex-
pressions. I remember being surprised that he was wearing a tweed jacket
more appropriate for an English country squire than for a Chinese Party Sec-
retary. We met in the little meeting-room where I had so recently been
trapped by the workers. It was a short discussion. I used the deliberately
vague language of Chinese officials. Li Wei had suggested that I should em-
bed the key sentence concerning the stolen land in among other remarks and
use the ambiguous expression zichan guanli queshi you wenti: ‘the asset
management indeed has problems.’
I could gauge from his expression that Secretary Liu knew exactly what I
meant. He replied, equally vaguely, shi chu you yin: ‘when something hap-
pens there is a reason’ and told me to wait for a week. It was a classic ex-
change with a Chinese official. They go to great lengths to avoid any direct-
ness that might lead to confrontation and use an extreme form of vagueness,
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pregnant with hidden meaning. Secretary Liu’s remark said everything and
nothing all at the same time.
He ended the meeting and told me that he would instruct the Government
to find out what had been going on.

Exhausted, bored and rapidly gaining weight after weeks of sitting around in
Jingzhou, we returned to Beijing. I thought we should give Secretary Liu
some time to clarify the facts and come up with a solution to the land but
these illusions where broken when a couple of days later Li Wei came into
my office and told me that three court officials had arrived from Jingzhou.
They were looking for me. I called Lawyer Xie and he told me that I should
meet with them but that I should not sign anything. He would come over
immediately.
The court officials were stiff and formal and I tried to relax the atmosphere
with small talk. The leader of the group, a woman, wore a green uniform with
huge gold epaulettes and a large peaked hat with badges that looked de-
cidedly military. She got straight down to business. They told me that our
joint venture in Hubei was owed a large amount of money by our Beijing of-
fice and that it had sued us. They had come up to Beijing to seize our assets
as security and they had already frozen our bank accounts. I couldn’t under-
stand what had happened. The court officials seemed to be telling me that we
had sued ourselves and frozen our own assets. How could the joint venture
sue its controlling partner? I looked at the writs and slowly the picture came
into focus.
The joint venture did business with a company whose name, when trans-
lated into Chinese, was similar to ours. That company did owe the joint ven-
ture some money so Chen had found our bank details in Beijing and filed a
claim in the Jingzhou Intermediary People’s Court freezing all our assets in
China. This was madness: any claim to the Court had to be chopped by the
company seal. Hou had handed all the chops over to Wang Ping at the
Machinery Bureau and when I compared the chop on the court papers to the
original on file we saw that it was a different chop. In China, using a false
chop is a criminal offence.
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I could see that the fight was beginning to paralyse the whole of our opera-
tion, so we put a call through to the General.

The Chinese press, like that of any other country, wields enormous power.
Mao regularly used it to attack his opponents within the Government as well
as outside. The Government still controls the newspapers but it has cautiously
allowed wider reporting in certain areas particularly in exposing corruption or
wrong doing by mid-level officials. The press has almost been used as an in-
formal police force by the Central Government in its campaigns to root out
corruption. But it a dangerous weapon for the journalists concerned; if they
attacked an official and failed to bring him down, the journalist would be
finished.
The General came in to see us. He told us that in China there are two paral-
lel systems in the media. One system, which gives the filtered version and
concentrates mostly on good news, is for public consumption. The clearer
picture of the Chinese reality is reserved for nei can. This nei bu can kao –
‘internal reference material’ – is a summary of the unvarnished truth to be
read in private by the top leaders of the country. All the major newspapers
produce a weekly pamphlet for circulation to the State Council and the minis-
tries in Beijing. Local officials do not like their names appearing in nei bu
can kao in connection with anything scandalous.
‘This,’ said the General, ‘is the weapon you must choose.’ Making a sud-
den gesture, as if to swipe something off my head, and using a reference to
the formal clothing worn by Tang dynasty ministers, he said, ‘That Old Sec-
retary, he’ll soon back down if you try to knock off his official’s hat!!’
We put together a booklet describing our story in simple terms. The Gener-
al said that we had one chance only so we had to be absolutely clear. The
Chinese partner would exploit any hint of complication in order to confuse
the issue. Over the next fortnight, we embarked on a campaign of saturation
bombing. Every day, for two weeks, we sent faxes to thirty or forty officials
in the Provincial Government.
Then Pat arranged a dinner with several journalists in Beijing and gave
them our story. It was one of those times when his skills for explaining
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complicated stories were put to the test; I knew it went well because the
journalists had already heard of Mayor Shang. He had been involved in a
case where some investors from Macau had lost a lot of money in Jingzhou
and a lengthy and messy dispute had finally ended up on television. They
were non-committal but I was encouraged when they said that the Central
Government had recently started one of the periodic campaigns to track down
cases of corruption involving government officials. We finished the dinner
and they left with smiles but no promises.

Three journalists from the Economic Daily and the Guangming Daily arrived
in Jingzhou the following week. Whereas we had been kicking our heels in
Jingzhou for six weeks, they managed to arrange a meeting with the Govern-
ment within an hour of arriving and spent the afternoon with Mayor Shang
and Chen Haijing. Chen appeared from the shadows for the first time, appar-
ently having staged a miraculous recovery. He gave lots of complicated ex-
planations, but no one was taken in.
That evening Secretary Liu invited the journalists to a dinner. When I
heard the news, I knew that the fight was drawing to a close. His personal at-
tendance at a dinner meant that the Government was seriously rattled. The
General had been right. Liu was worried about losing his official’s hat.
On Christmas Day at about three o’clock in the afternoon I received a call
from Chen Haijing. He had arrived in Beijing and he wanted to meet. I tried
to explain that immediately after lunch on Christmas Day wasn’t an ideal
time for a business meeting, so Ai Jian went to see him instead. He told us
that they’d like to settle the dispute and wanted to know when Pat would be
back in Beijing.
Two weeks later, Secretary Liu himself came to Beijing in the cold. He sat
irritably across the table as Chen and I went through all the tedious details. It
was a long haul, but eventually the land went back in, Chen agreed to resign
from managing the joint venture and we sent a new finance manager to
Shashi who had to sign every cheque.
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Several weeks later we went down to Jingzhou to tour the factory. The trip
was uneventful and operations were back to normal. I noticed one of the
workers who had been in the stormy meeting with the Union, on his lathe in
the little workshop. I waved at him and he returned a wide smile. It was busi-
ness as usual.
In the early evening, we shook hands with the new managers and drove out
of the factory. The car left the city, passing under the gateways and over the
moats, winding its way through the knot of hooting trucks and ringing bi-
cycles. As it sped along the highway through the marshes, the sun set behind
us. I looked at Li Wei and said, ‘Do you really think that Chen was ill, or do
you think the whole thing was staged to try and push us out?’
I couldn’t see his expression as he turned his face to gaze out of the win-
dow. He thought for a moment and then said,
‘Ey-aah, jiutouniao, jiutouniao! Nine-headed birds, nine-headed birds!’
I didn’t know what he meant.
‘Don’t you know the expression? Up in the sky, there are nine-headed
birds, but down on the earth there are people from Hubei!’
The saying rhymes in Chinese and has a resonance to it. It went round and
round in my head. I’ve never found anyone who could really explain what it
meant. But for me, the nine-headed bird is a potent image of something
strange and unknowable, with all the wildness, cunning and unpredictability
that I had found in those marshlands in central China.
 Eleven

The Bottle Finally Bursts:

Nineteen Thousand Catties Hanging by a Single Hair
Han Dynasty literary idiom; 202 BC-AD 220:
a hundredweight hanging by a single thread
or a moment of imminent peril.

The fight with Shi up in the hills had revealed a powerful and explosive char-
acter. He was a man whom I couldn’t help but admire but the skirmishes with
Chen had left a very different impression. After four years in a joint venture,
Shi had felt that we were hopelessly bogged down in problems at our other
businesses that were not of his making. It seemed to him that we had lost the
ability to deliver on our promise; the chance to build the leading components
company in China. Shi was stuck; other entrepreneurs all around him were
raising capital on the newly opened stock markets, but Shi had already sold a
majority of his shares to us so that route was closed. Shi felt that we’d
changed our deal, so he came straight out and told us that he wanted to
change his. This brings into sharp focus a core difference between Chinese
and Western business: for a Westerner, a contract is a contract, but in China it
is a snapshot of a set of arrangements that happened to exist at one time.
When he tried to change the terms, Shi’s mistake was that he underestimated
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our determination to fight. He hadn’t realized that we had no option: there

was nowhere else for us to go.
Shi had been upfront but Chen just helped himself to our assets. Shi had
stood his ground and fought for what he had built but Chen fled into the side-
lines and manipulated events from the safety of his hospital bed. Shi had built
something from nothing. Chen just climbed the bureaucrat’s ladder. In that
sense, Shi’s fight was more honest.
In the next battle, the final rout with its headlong tumble into chaos, we
were repulsed and forced into a tactical withdrawal. The final showdown
took place in China’s capital where we had invested heavily in three state-
owned breweries.

Shortly after we bought up three breweries in Beijing, just as the sounds of

celebration started to die away I received a note from Xu. It was in poor Eng-
lish but seemed to be asking for ‘understanding that he had made some ur-
gent payments while Chairman Pat was out of the country.’
Xu was the Factory Director of the Five Star Brewery that we had just ac-
quired. I didn’t take much notice at first, but asked someone to get me a cash
balance from the joint venture. I was told that there were only a few million
left in the accounts. It couldn’t be true. We had wired over sixty million dol-
lars into the account in early February so I asked again. The answer was the
same so I called the brewery. Xu was not there, but his finance manager told
me that a number of large payments had gone through the account and that
there was now only five million left. About fifty-eight million had been trans-
ferred out over the previous three days. I was speechless. How could that
have happened? The signature cards lodged at the bank required signatures
from our side before payments could be made. It couldn’t be true. As I tried
to understand what had happened, Pat called in from the States. After I had
gone through it with him and explained that fifty-eight million appeared to be
missing, there was a long pause and then: ‘We gotta find that fucking money
or it’ll be time-out from the investors!’
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The beer market in the early 1990s produced a great deal of froth. Multina-
tional brewers piled into China, mesmerized by the prospect of a billion
thirsty beer drinkers. The market was already the second largest in the world
and the signs were that it was about to explode.
I knew that China had a long tradition of distilling spirits from grain and
sorghum and I had been well trained by Mayor Huang in the art of weather-
ing raucous banquets where the initial formality quickly collapsed under a
deluge of baijiu. In imperial times these banquets, with their elaborate drink-
ing rituals designed to push the guests to the point of mental disintegration,
were reserved for the rich and cultured.
Drunkenness was almost considered a virtue. It was said that the best po-
etry and calligraphy came from artists in a state of deep inebriation. The story
inevitably came up at banquets of Li Bai, a Tang dynasty poet who wrote a
thousand years ago:

How many great men are forgotten through the ages?

Great drinkers are better known than sober sages . . .
I only want to drink and never wake up.

His wish was shortly fulfilled when he drowned in a pond. Blind drunk, he
toppled in during a conversation with the moon’s reflection. His accident was
invariably billed as the ultimate sacrifice in pursuit of art rather than as an
idiotic thing to have done. Despite these ancient alcoholic traditions, beer for
the masses is a recent development.
The Germans were the first to introduce beer into China at the turn of the
last century when they built a brewery at Tsingtao on the Shandong coast.
First tastes of the new drink confirmed the local suspicion that the foreigners
were incomprehensibly barbarian: beer was bitter, sent clouds of stinging gas
up the back of the nose, and bloated up the stomach painfully before reaching
the head. But gradually it became more popular. The Russians followed
shortly afterwards and in 1915 set up a brewery in Beijing called Five Star.
They built a strangely-shaped oast house with turrets, Gothic arches and a
 217/269

kiln for drying and storing hops. An image of the building was still used as
the trademark of the beer produced in Beijing the last time I looked.
Over the following decades beer gradually became more popular. Hops
were brought in from Xinjiang in the far west of China and the local barley
malt was adapted for brewing. More and more locals acquired the habit, but
even in the 1970s beer was a luxury. As the Chinese economy opened up dur-
ing the 1980s beer gradually became popular and hundreds of small brewer-
ies sprang up all over China. A brewery was a status symbol for the local
Party Secretary. It not only provided employment but also implied subtly that
the water was pure and that there was enough money around to indulge in
modest luxuries. By the beginning of the 1990s there were over eight hun-
dred breweries all over China churning out beer of dubious quality, mostly on
a tiny scale that was hopelessly inefficient. But these problems were hidden
and, on the surface, the market appeared to be huge. Government statistics
showed explosive growth; China overtook Germany as the second-largest
consumer of beer, guzzling nearly ten million tons every year. With the eco-
nomy booming and wages rising, young Chinese flocked to the bars, pockets
full of cash, in search of a good time and beer consumption went through the
roof.
The big multinationals that came to China had one significant disadvant-
age. Famous brand names such as Budweiser, Carlsberg and Heineken meant
nothing in China. They might as well have tried to launch Chinese brand
names such as King Benefit, Cloudy Lake, Clock Tower or Dragon-and-
Elephant in the States. The real prize for a brewer serious about the Chinese
market was to capture a famous local brand.
Despite the huge number of breweries there were really only a handful of
nationally recognized brands in China: Tsingtao in Shandong, Snowflake up
in the north-east of the country and the two Beijing breweries, Beijing Beer
and Five Star. After Liberation, Premier Zhou Enlai had encouraged Tsingtao
to be China’s national export brand so it became well known outside China.
He chose Five Star as the premium domestic brand and from then on it al-
ways appeared on the banquet tables in the Great Hall of the People.
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Five Star grew into the largest beer brand in China by licensing its trade-
marks to local breweries all over the country. In return for a royalty based on
the amount of beer produced, Five Star agreed that these breweries could sell
beer under the Five Star name and use its labels and the famous blue logo
with the five white stars. For the consumer it was all Five Star beer and often
they didn’t know that it had not been produced in Beijing. By 1993, Five Star
had forty-eight licensee breweries all over the country churning out more
than a million tons of beer a year. It was the ultimate prize for a foreign in-
vestor in this exploding market but something that appeared hopelessly out of
reach. However, we had set our sights high and in early 1994 we got a lucky
break.

In January of that year, Jenny Jiang walked into my office and demanded a
job. There was a lot to do and I couldn’t think of any reasonable objection off
the top of my head so she started there and then. She had just graduated from
Fu Dan University in Shanghai and had an unusually dominant character.
Tall and sinuous, she had an athletic appearance and a brisk manner that told
you she would brook no nonsense. She became my assistant dealing with the
breweries and we worked together for five years.
During the Spring Festival in 1994, Jenny was invited to a dinner where
she met a mid-level official in the Beijing Government. He had been in-
trigued to hear about Pat’s investment strategy and asked her whether
someone might like to visit the Government. I grabbed the chance to go.
The Municipal Government of Beijing presides over its citizens from be-
hind high, nondescript walls along a leafy lane called Justice Street just east
of Tiananmen Square. Inside the compound are groups of buildings that look
like colonial houses, with shutters over the windows. There are walkways
and roundabouts and neatly planted fir trees and the first impression is one of
businesslike efficiency. But after a while I sensed an air of soporific exhaus-
tion, more like something you might expect in a career bureaucrat’s retire-
ment home.
As we sat inside on a huge dusty sofa waiting for our hosts, I took in the
surroundings. The room reminded me of that first trip to the Land Bureau in
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Shanghai all those years ago with the boys in pinstripes from New York. It
looked as though it had last been decorated in the 1930s. It was lifeless and
exuded a strange heaviness. There was a smell of dust and old furniture pol-
ish. The dark-painted wood, thick maroon carpet and the clock slowly ticking
in the corner made me want to tear open the suffocating brown curtains and
grimy windows and let in the light and air.
When the officials finally arrived, I saw from the name cards that they
were unusually senior for an appearance at a first meeting. I went through my
normal introductions and the assistants scribbled in their little brown note-
books. The meeting was uneventful but the next day Jenny received another
call. A tinny voice at the end of the line said that. ‘It all went so well that we
want you to come back. Today, if possible.’ I was puzzled but made no com-
ment. The next meeting was the same as the first except that the officials at-
tending had real power. Layers of secretaries and assistants normally protec-
ted the directors of the Investment Bureau and the Planning Commission and
they rarely appeared in person. They listened politely, without commenting,
and asked me to come back the next day.
Pat arrived back from one of his trips to the States that evening and atten-
ded the next meeting. We were shown into a huge meeting-room where Lu
Yuchang, Deputy Mayor of Beijing was waiting with a dozen bureau chiefs.
Each bureau was responsible for an industry sector and we soon found out
that the one responsible for the breweries in Beijing was the First Light In-
dustry Bureau. In a matter of minutes, Deputy Mayor Lu instructed the Bur-
eau Chief to arrange a visit to Five Star. It was a bizarre stroke of luck; an in-
troduction from the Government would surely get attention at the brewery.
Two days later another call came, inviting us to a fourth meeting. We ar-
rived at the gates of the compound and were shown into the same fusty room.
As we walked in there was an audible hum and a huge array of lights was
switched on. The Mayor himself walked from the shadows and shook Pat by
the hand. A battery of cameramen and sound recordists stood at the back of
the room as Pat sat next to the Mayor and exchanged platitudes. Moments
later, the lights went off. Blinking and confused, we were whisked over the
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road in a line of black limousines to the Beijing Hotel for dinner with the De-
puty Mayor.
This weird sequence of events, culminating in the televised meeting with
the Mayor, a member of China’s Politburo, had taken about ten days. It
would normally take months of patient lobbying to see a deputy director and
a meeting with the Mayor would be unobtainable for an outsider. The real
motive behind these events was only clear in retrospect. It came out a few
weeks later that the State Council had been worried by the slow progress of
trade talks with the United States. The Mayor just wanted to be seen on tele-
vision with an American investor. As always in China, it was a matter of
politics and the officials withdrew afterwards as suddenly and silently as they
had appeared. But we had our prize: the introduction to Five Star.
As we drove back late from the dinner, I was thinking about the officials
that we had met. I didn’t like them. Their remarks were so predictable that it
betrayed an inner reserve that was spooky. I couldn’t decode their hollow
flattery and elaborate words but I felt a heaviness and exhaustion about them.
It was as if a vast weight had crushed out all the joy in their lives. It made me
uneasy. I said that I thought I could hear the echoes of the gunfire in Tianan-
men Square resonating in those fusty corridors with their high ceilings and
antimacassars but Pat was scornfully dismissive.
‘If you can’t deal with that level of people in China, you shouldn’t be
here,’ he said.

We grabbed our chance with both hands and went straight to the man who
ran Five Star. Xu Lushan had been born in the early 1950s. His name, mean-
ing ‘Lu Mountain’, referred to a southern resort town where the Communist
Party had held a famous conference. He was a scruffy man, unshaven and
wearing a shabby grey suit. Years earlier, he had been the factory director of
a famous baijiu factory in Beijing, er guo tou or the top of the second wok,
but he had moved over to Five Star in the mid-1980s. He always looked a bit
sweaty and his collars were brown around the edges. Balding and with fleshy
lips and large watery eyes, he seemed distracted and difficult to pin down.
But slowly, through the hot summer, we made progress.
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The Five Star Beer Company had three breweries. The original site foun-
ded in 1915 lay to the west of Beijing City. Factory Number One was located
at 63 South Handkerchief Junction, next to the south-western railway station.
It was a lively area with bustling shops and restaurants.
Somehow the brewery seemed to have taken over the whole street with its
smells and its bottles and its crates stacked up high against the walls. Much
of the beer in Beijing was delivered on flat-backed tricycles and the tricycle
men sat around in the clogged alleyways, chatting and playing Chinese
checkers, waiting for their next assignments. The restaurants were popular
and were always packed at lunchtimes because the beer was so fresh. The
door of the brewery led straight into the street and it was always open, so cus-
tomers used to come in and order beer from reception. In the entrance hall
there was a huge black and white picture of Zhou Enlai. It showed him at a
state banquet, toasting the Hungarian Prime Minister with a glass of Five
Star.
The brewery itself was chaotic. The oast house stood in the middle of a
large courtyard, surrounded by ancient brick buildings that had seen better
days. Neglected storehouses were piled high with old wooden barrels. Out-
side there was an ancient dray and great heaps of broken pallets. Pipes leaked
everywhere and the smell of bitter hops and sickly malt mixed with the sour
tang of spilt beer. Old Russian bottling lines squirted beer under pressure into
lines of jostling bottles. The crash of the bottles in constant motion was deaf-
ening. But despite this dilapidated appearance, the brewery seemed function-
al and the beer tasted good, so with a little new investment we thought that it
could be restored to its former glory.
Brewery Number Two was much more impessive. It was located on the
northern outskirts of Beijing City and had only been completed in the late
1980s. The cost of construction had spiralled as the building work had taken
much longer than expected. Five Star had huge loans from the local banks
and they wanted to pay them off, so Xu was interested in doing a joint ven-
ture to bring in new capital. There had also been some soft loans from the
Danish and Belgian governments but he didn’t seem particularly interested in
discussing those.
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The equipment at Brewery Number Two was all imported and it shone.
Vast metal brewing kettles held several tons of beer wort at a time and you
could walk up and down staircases surrounding the tanks. A network of
gleaming pipes and filters led to the colossal steel fermenter tanks. These
were in a separate building and were each about forty feet high. There were
thirty-two of them. There was a malthouse and the canning lines could fill
hundreds of cans every minute.
The facility was vast and even had its own dedicated railway spur for the
delivery of bulk raw materials. The noise and the steam and the smells; the
constant activity with cans roaring through the fillers and the shouts of
sweating bare-chested workers as they loaded crates onto the queue of trucks
gave an air of excitement to the place. It was in contrast to the more sedate
pace at Number One.
I never went to Brewery Number Three. It was much smaller and I had
been told that the brewing kettles looked like something out of a Frankenstein
movie. The quality of the beer was terrible; this brewery would clearly have
to be closed but the land was valuable so it was included in the discussions.
During our talks with Xu Lushan, we discovered that there was another
brewery nearby. It was called Three Ring and produced Five Star beer under
licence. It was located in the hills north-east of Beijing next to the huge reser-
voirs that serve the city. We visited the brewery and met the man who ran it,
Fang Jingyu. Tightly wound, this shaven-headed man ruled his brewery with
a rod of iron. It was obvious that, unless we could bring him inside the tent,
Mr Fang would prove a strong competitor for the plodding Xu at Five Star so
we agreed that if we did a joint venture with Five Star we would also invest
in Three Ring.
We beat fourteen other suitors when we signed the deal with Five Star and
Three Ring. We had trounced many famous names and, in the autumn of that
year, amid great celebration, the contracts were signed, making us the major-
ity partner in four large breweries in China’s capital.

A foreign investment in such a famous old brand as Five Star was a sensitive
issue and because of the size of the investment it was beyond the approval
 223/269

limits even of the Beijing Municipal Government. Without the chops from
the state ministries the contract was not effective. Over the coming months,
the Government investment bureaux in charge of approving the contract
raised endless questions and difficulties. We began to despair of ever receiv-
ing approval – and then someone suggested asking Ambassador Carla Hills
for help.
Carla Hills was the United States Trade Representative from 1988 to 1992
and served in the US Cabinet. On leaving office, she became a highly effect-
ive international consultant with particular expertise on China. During the
trade talks between China and the US, she had negotiated face to face with
Madame Wu Yi, the only female politician of Cabinet rank in China. Wu Yi
was in charge of foreign investment.
Carla arrived very late on a freezing evening in early January. I met her at
the airport and despite the fact that she was no longer in office she was given
the most courteous VIP treatment. On the way into town, she grilled me
about the Five Star deal. She was in Beijing only for a few days and visited
the two key ministries involved in the approval, the Ministry of Foreign
Trade and the State Planning Commission. The officials had tried to fob her
off, each promising to approve the deal once the other ministry had signed
off, but she outmanoeuvred them at a banquet in the Diaoyutai State Guest-
house. Spotting the top officials at both ministries, she asked them to step in-
to a side room. Brought face to face, they could no longer blame each other,
so they had to agree to approve the contracts. Carla left the next day, leaving
behind a very satisfied client.
The contracts were approved several days later and the cash injected. It
was one of the largest equity investments ever made in Beijing’s industry and
to mark the event there was a huge celebration in the Great Hall of the People
on Tiananmen Square. This vast Stalinist palace with its cavernous banquet-
ing halls, located on the western flank of the square, can swallow thousands
of people at a time. Our banquet, a modest affair, was attended by only a few
hundred.
Deputy Mayor Lu Yuchang reappeared to host the reception. In his speech
he said, ‘The issue facing every business in China is not whether they should
 224/269

or should not absorb foreign investment, but which foreign partner they
should chose. Pat came to me and he said that he would invest millions of
dollars in Beijing. Many people say that, but he did it.’ Fixing his gaze on the
bureau chiefs’ table and gesturing towards Pat for added effect, he slipped in-
to English and repeated slowly in his thick accent. ‘This is an honourable
man. This is an honourable man.’ There was absolute silence. It was ex-
traordinary for a Chinese politician to endorse a foreigner so directly.

It took a week to unravel the story of our missing fifty-eight million. We

knew that our Chinese partner at Five Star had huge loans from one of the
state banks, loans that had been used to build Brewery Number Two. The
loans were overdue and the bank officials were worried that they could face a
huge bad debt. When they saw such a large balance of cash arrive in the joint
venture bank account, the temptation had been too much. They called in Xu
and persuaded him to take back the signature card for the account, replace it
with one requiring Xu’s signature alone and pay off the loans. Xu, always the
malleable one, had agreed, but he was now very nervous about our reaction.
Xu came to see us with guilt written all over his face, sweating more than
usual and gulping loudly as he struggled through some weak explanations
about penalty interest charges. But it was more or less a fait accompli. The fi-
nal business licence could not be issued until both sides had put in their assets
and without that it was difficult to go to Court. Anyway, that route would
take years and there was a business to run.
Next Xu admitted that he was having trouble transferring the Chinese as-
sets into the joint venture. There was a dispute over a large piece of land at
the Third Brewery and this had created a huge shortfall in the Chinese part-
ner’s contribution. Wherever we looked more problems emerged. Xu con-
fessed that the land at the other two breweries was problematic too. The prob-
lem could be fixed but he needed to pay a large Land Transfer Fee to the
Government and the Chinese partner had no money.
It started to dawn on me that we were sliding helplessly into a huge quag-
mire. After Carla had persuaded the ministries to approve the investment, Xu
had somehow taken in the wrong set of documents. The mid-level officials
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had been given instructions to approve the contracts from the top and had
never bothered to review them. Completely circumventing normal proced-
ures, Xu got the red chops in two days – but the documents approved were
early drafts and contained some horrible inconsistencies. The idea of going to
court to force the Chinese partner to put in their assets on the strength of
those contracts was a non-starter.
Calls to the Beijing Government for help were met with a numbing silence.
Weeks after the praise and flattery the lines went dead. It was a familiar pat-
tern of meetings and elaborate toasts at banquets, followed by a disappear-
ance after the cash had arrived. It left a bitter taste. Our only course now was
to deal with the intermediate level, Xu’s direct boss.

Madame Wu Hongbo, Chief Engineer of the First Light Industry Bureau of

the People’s Municipal Government of Beijing, stalked into the meeting-
room with a scowl and threw her handbag on the table. She had been given
the task of sorting out the mess but clearly had the greatest distaste for the
job. Hunkering down on the other side of the table, she announced that she
would first interview the management and deal with me later.
‘I have here,’ she said, eyeing the wretched Xu suspiciously through old-
fashioned thick-framed glasses, ‘three schedules with the results of each of
the big Beijing breweries for the first quarter.’
Pausing momentarily for Xu to grasp the awful truth that she had armed
herself with facts, she raised her voice and, poking the air with her index-fin-
ger, lashed him with statistics.
‘Why did Five Star use thirty-five renminbi of electricity per tonne of beer
when the others used only twenty?’ she said. Without waiting for an answer
she surged on.
‘And what were we doing about this fourteen per cent beer-loss? Don’t
give me that old excuse about broken filters, you should have fixed that
months ago.
‘Why are sales discounts so high when we can never collect the cash?’
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I listened, somewhat aghast, to the scolding, as I realized that it might be

my turn next. After an hour or so of pummelling, the management team
withdrew.
Plucking a small notebook from the depths of her handbag, Madame Wu
asked me what I proposed to do to sort out the mess. I told her that I really
thought that it was the Chinese partner’s problem.
‘We came up with the cash,’ I said, ‘and investors just want to know when
the deal will close. The Mayor seems to think that we are trustworthy and
wants to sort it out,’ I added.
Brushing aside this transparent bluff, she responded sharply that our in-
vestors were nothing to do with her and that if we really wanted to solve the
problem we could have some workers’ old dormitories instead of the land at
Brewery Number Three. I said that there was no way we’d take them. ‘Those
useless assets would be a huge burden for the joint venture and anyway
we’ve been through all that with Xu.’
‘Well, how about a kindergarten, then?’ she said. ‘There’s one next to
Brewery Number Two.’
‘A kindergarten? What possible use is that in a brewery?!’
Then Madame Wu offered part of a nearby water treatment plant. ‘It might
be valuable if you drain away the pond.’
A huge row developed and we got nowhere. Using a strange analogy she
said, ‘You agreed to buy some teacups, and it was up to you to check whether
they were cracked or not.’ I said that was fine, but if the teacups weren’t there
in the first place she should come up with some cash.
She retorted, ‘Oh, no, I never use money meant for vinegar to buy soy
sauce, so there’s no cash for that sort of thing!’
And so round and round we went. After two hours there was deadlock and
we glowered at each other over the table.
Short, stout, rather flat-footed and, from my point of view, entirely invul-
nerable to reason, Madame Wu had trained as an engineer and worked her
way up to the position of factory director. She had taken on a loss-making
food-processing business and hauled it round into profit by pure force of per-
sonality prior to her promotion to the Bureau. One of five children, she had
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been born in Shanghai but had moved to Beijing as a young girl in the 1960s.
She came from tough stock and her mother was still fit and healthy well into
her late nineties. She was clearly competent at her job, but she had a ranting
style of debating that instantly raised hackles and made me think that she was
more intent on exacting catastrophic loss of face from her opponent than on
reaching any reasoned compromise.

After a while I became less convinced that she had any real motivation to
solve the problems. It seemed as if she deliberately picked on minor issues
and teased them into huge rows by using provocative language or dismissive
gestures. I had realized that she only did it to distract attention when she was
on shaky ground but she was so infuriating that it normally worked. On the
occasions when I managed to control my temper, she would adopt the altern-
ative tactic of working herself up into a rage, closing the little notebook on
the table and leaning back in her chair. With folded arms and defiance in her
face, she’d shout ‘bu tan le!’ – ‘No more discussions!’ The meetings were a
nightmare for the assistants trying to keep notes because we regularly
shouted at each other simultaneously in different languages. It got so bad that
Jenny once completely lost her temper with me, took me into my office and
yelled that I never listened to anything Madame Wu said. It rather shocked
me into listening.
Despite almost weekly meetings it took an exhausting eighteen months of
shouting, rows and door-slamming to sort out the mess. Throughout, Ma-
dame Wu deliberately reinforced her image as a Chinese Boadicea, wrapped
in the national flag and fearlessly defending the nation’s honour against the
wealthy foreigners. It went down famously with her superiors at the Bureau.
She was proud of the image and once told me shamelessly that she ‘used to
be a soft young girl from Shanghai, but what you see now is a battleaxe from
Beijing!’ But, in addition to her innately turbulent nature, I knew that she felt
justified in dealing with us roughly because of the way the joint venture had
been set up. We had approached the Beijing Government, rather than the
Bureau, and had used Car-la’s connections to get the contract approved. All
the normal procedures had been ignored and the first thing that the First Light
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Industry Bureau knew of the deal was when it had been chopped by the Min-
istry. They were livid for having been kept in the dark and probably relished
a certain poetic justice in the way things had turned out. Carla had done a su-
perb job in manoeuvring the ministers, but it had been an object lesson in
how not to use guanxi in China.
The mess was only resolved when I had legal papers drawn up to sue the
Chinese partner and threw the bundle on to Madame Wu’s desk. We’d been
on the brink of agreement for months so I told her that I’d lodge the suit and
go to the newspapers if she didn’t come up with something by the end of the
week. I knew that we had a deal because she didn’t immediately tell me to go
to hell. It was a patched-up compromise but deep down I was pleased with it:
we got stronger management rights, a bigger shareholding and extended the
period of the joint venture from thirty to fifty years. We had to take on some
of the useless dormitories, which increased the burden on the joint venture,
but they were sold a few years later to the employees.

The only thing that Madame Wu and I had ever agreed on was that Xu Lush-
an had to go. She called him into the Bureau after our first meeting and axed
him. I never saw him again. Meanwhile, the business had deteriorated rap-
idly. The Three Ring Brewery, our other factory in the north-eastern suburbs,
was still producing Five Star beer under licence and selling it in Beijing. This
meant that we had the absurd situation where we were competing against
ourselves. The licence agreement between Five Star and Three Ring con-
sisted of one page of extremely vague Chinese with two beautiful red seals at
the bottom. Neither party really understood what it meant. Five Star insisted
that Three Ring should stop using the Five Star labels whereas Three Ring in-
sisted that they should continue. The dispute became highly acrimonious
after Madame Wu called Mr Fang a ‘peasant hooligan’ and I had the thank-
less task of trying to resolve the row. Prices fell and a new competitor from
the eastern suburbs started to eat into our markets. We had little time to pick
a new general manager to replace the hapless Xu and the pressure was
mounting.
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After a few weeks, Madame Wu presented her candidate. He was the Party
Secretary of a piano factory. I rolled my eyes and asked ‘What next?’ but I
suppose that I shouldn’t have been surprised. Pat went down to meet him and
spent a whole day at the piano factory. Lin Huichen had originally been the
manager of a sewing-machine business and had made a success of it. He
moved to the piano factory and hired a German engineer to take the product
upmarket. With the one-child policy, many affluent Chinese couples bought
pianos for their ‘Little Emperors’ and the market was booming. Lin’s factory
was one of the few state-owned Beijing businesses that made money. I had
initially thought that it was a ridiculous idea, but Pat came back impressed
and told me to meet Lin.
I met him at the brewery and was rather annoyed to see Madame Wu there
as well. I had asked to meet Lin alone but she beamed from ear to ear with an
almost maternal pride as she introduced him. He was a handsome man in his
early forties with clear skin and an honest open face. He took me through his
work history, which sounded fairly routine, but when it was my turn to ask
questions Madame Wu repeatedly interrupted or corrected Lin’s answers.
The only time she was silent was when I asked him why, after his success at
the piano factory, he wanted to become the General Manager of Five Star. I
was hoping for some response that might indicate his drive and determination
to turn around a former state-owned business and restore the famous Five
Star brand to its former glory, but he just said flatly, ‘Because Madame Wu
told me to.’ I glanced sideways at Madame Wu but she sat absolutely immob-
ile, purring quietly and looking intently at the curtains. The interview
dragged on a little and I queried Lin’s lack of brewing experience. He said,
‘You aren’t employing me to make beer, you are employing me to make oth-
er people make and sell good beer. I can’t play the piano but at least I can
drink beer.’ By this stage there wasn’t much alternative, so he was duly ap-
pointed by the Board as the second General Manager of Five Star.

Lin started out with great enthusiasm and with a belief that he could turn the
business around. The following year, 1997, showed great progress, with sales
advancing and losses cut to near break-even. Lin was an engaging character
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and his cheery manner did wonders for morale. The sales force was motiv-
ated by a new bonus plan and the atmosphere at the factory changed for the
better. There was even progress on sorting out the dispute with Three Ring
and we encouraged them to seek new markets. Fang and his sales team at
Three Ring put enormous effort into exploring fresh possibilities. They came
out with a new brand that was designed gradually to replace their dependence
on Five Star and they made numerous sales trips all over China. They cap-
tured nearly half the market in a town called Chengde just over the Hebei
border and decided to make more ambitious forays further afield. One of
these early trips was to Outer Mongolia.
In the summer, Fang, the General Manager of Three Ring, together with
his sales manager, Yang Ping, had somehow arranged a meeting with one of
the members of the Mongolian Parliament who they hoped would introduce
them to distributors. Sensing that it would be an interesting trip, Jenny had
tagged along. She came back highly upset. Her normal equilibrium had been
severely knocked and it took me several days to persuade her to tell me what
had happened.
Apparently, they had all set off on the overnight train journey and arrived
in Ulan Bator, the Mongolian capital, on the following day. The main meet-
ing was several days later so there was time for sightseeing. Fang had hired a
translator since Mongolian and Mandarin are mutually unintelligible lan-
guages. On the second day the translator took them on a ‘picnic’ out in the
grasslands. After several hours’ drive out into the grasslands in a couple of
battered Jeeps, Jenny discovered that a ‘picnic’ meant a few hunks of roasted
mutton washed down with several bottles of vodka. She was the only girl on
the trip and she didn’t drink so it was only natural that she felt uncomfortable
in the remote site on a hillside miles from anywhere. Moreover, there were a
number of ragged-looking wild dogs roaming about. Jenny had been
frightened of dogs since she was a child and this added to her discomfort.
Fang and the translator drank heavily and soon got into an argument. Yang
Ping passed out and Jenny spent quarter of an hour trying to get him back in-
to one of the Jeeps. Then she tried to calm the argument, which was still ra-
ging, but Fang and the translator were too drunk to listen to her. They were
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standing on opposite sides of a low table with their red faces pressed up
against each other, screaming at the top of their lungs. By this time, Jenny
was truly frightened and she made her way back to the Jeep.
Suddenly the translator took a step back and in an instant pulled out a
knife, rushed at Fang and with one movement sliced Fang’s ear clean off, just
above the earhole. Everyone was too frightened or drunk to react as the trans-
lator ran to one of the Jeeps and drove off. The shock of the wounding put
Fang almost into a trance, and there was a lot of blood. Jenny eventually
managed to get them back to the city but it had been a horrifying experience.
To crown it all, one of the other salesmen who had not been on the picnic had
severely criticized Jenny for not trying to find Fang’s ear. She was absolutely
livid and yelled at them that it had been eaten by one of the wild dogs. Then
she packed her bags and came back to Beijing.
I would have found the whole story a little far-fetched if I hadn’t known
the participants. But the proof came out at the next board meeting. Fang was
completely bald so there was no way to hide the injury. He attended the
meeting with a badly shaped plastic ear stuck to the side of his head. The re-
mains of his ear were eventually reconstructed rather imperfectly by surgery
and I heard that Fang was a little more careful with drink after the experience.
Madame Wu said gleefully, ‘What did you expect?’ when she heard the
news.
Jenny still won’t talk to him.

Lin’s first full year showed a marked improvement in the business results,
partly because of an unusually hot summer. We knew he wasn’t perfect but
he seemed to be pulling the business in the right direction. But as 1998 rolled
on, it was clear that this upturn had only been a temporary reversal of our for-
tunes. A strong new competitor had emerged in the market. The Yanjing
Brewery had been founded by a local entrepreneur and as Beijing’s only
Chinese-owned independent brewery, it had received many favourable gov-
ernment incentives. It grew rapidly and became a ferocious rival. Without a
level playing field, Five Star found it harder and harder to compete and was
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slowly pushed out of the city centre towards the suburbs where prices were
lower and distribution costs higher.
Under this intensifying pressure, Five Star quickly defeated Lin and his
cheery optimism gave way to a morose exhaustion. Five Star employed eight-
een hundred people existing in a state of almost total isolation from the mar-
kets outside. The main building had offices arranged like monastery cells off
long passages coated to waist height with dark green gloss paint. It was the
absolute image of a Victorian lunatic asylum. This layout only added to the
managers’ sense of psychological isolation, while on the factory floor there
were three times too many workers so there was never enough for them to do.
They sat around in offices with the doors closed, drinking tea and reading
newspapers. Laying them off in those days was impractical; there was still no
social security system in China.
The indolence was infectious – what was the point in working hard if col-
leagues could sit around all day for the same salary? Boredom was a major
problem so middle managers engaged in constant infighting. This incessant
feuding led to the formation of tight cliques so that dismissing incompetent
staff or even moving employees between departments would involve the
most exhausting and draining battles. Extended families worked at the brew-
ery and these blood bonds made promotion on merit virtually impossible.
Many Chinese people share the same family names, such as Chang, Chen,
Wang or Li, so it was well-nigh hopeless for an outsider to try and work out
the true relationships.
There were absolutely no business systems or rules. Nothing was ever
written down in a systematic or ordered way and quality control was a
shambles. In the summer, it hit rock bottom and a popular local saying
seemed to sum it all up in four rhyming characters: ‘wu xing
bu xing’ ‘Five Star’s no good!’
I went to Brewery Number Two many times and watched the bottling line
during the busy summer months. Towards the end of the process, just before
the caps are forced on, the bottles pass in front of a brightly lit white board so
that the operators can see through the glass and gauge the level of beer inside.
Occasionally a bottle will have been slightly misplaced on the automatic
 233/269

fillers and end up only half full. It is the operator’s job to grab these bottles as
they pass in front of the white board and pull them out of the production line.
I watched the operators gossiping and making halfhearted grabs for the oc-
casional bottle but generally watching the containers go past, sometimes even
less than half full. Whenever I went over to yell at them the operators looked
at me as though I was a madman. They had grown so used to lax manage-
ment that they just didn’t bother any more and, together with a thousand oth-
er ills, it was having a terrible effect in the market place. There was a similar
deterioration at some of the licensee factories that were producing Five Star
in other parts of China, so I ordered a survey. I wasn’t encouraged by the res-
ult. When the report arrived, I saw that the licensee breweries had been di-
vided into four categories. The second category was called ‘Breweries recon-
structed from fertilizer plants.’
Late that summer, I was given several samples of our beer that had been
recovered from the Beijing market. One bottle had leaves in the bottom, sev-
eral contained only an inch of beer, and another was full but contained a large
ball of adhesive tape. We could never figure out how it ever got in there. I
had a case of cans that were perfect – except that they were empty.
The worst instance of incompetence was a bottle that had not been washed
properly during the cleaning process. Most breweries in China used bottles
many times, collecting the empties from the market. Five Star recycled old
bottles by putting them through a machine where they were scrubbed and
cleaned before being refilled and labelled. In this case, the original label had
not been washed off and was still stuck next to the new Five Star label. It was
dirty brown, frayed and wrinkled and read Soy Sauce.
(Years later I met a manager from the Fosters joint venture in Tianjin who
had experienced similar problems. He was once shown a bottle that must
have been used for pickling garlic and had been found in the market. The
bottle had been returned to the brewery for recycling in the normal way, put
through the whole production process, filled with Fosters lager, neatly la-
belled, capped, and sent back out into the market packed with garlic bulbs! A
dazed customer had returned it to a supermarket.)
 234/269

On top of the quality issue, we had a very confused image in the market.
As Yanjing, the upstart brewery in the eastern suburbs, pushed us out, instead
of fighting back by reinforcing the brand image Lin kept changing the labels
and bringing out new brands. Some of these only lasted for a few months and
we ended up with countless different labels, names and colours for the same
product. There was Five Star, Nine Star, Five Star Lite, Five Star 10 degree,
11 degree, 12 degree, Fresh Beer, Cherry Beer, Clear Beer, All Malt, Export
Beer and finally Green Beer. Draught beer was available in kegs, which were
marketed as ‘15 litre buckets’. The labels within each category were incon-
sistent and the famous Five Star logo appeared in variant forms in red or blue
or gold – or a combination of these. The actual beer inside this profusion of
different packaging was all exactly the same. Lin was convinced that his new
packaging would help revive the brand but we felt the opposite. I tried to il-
lustrate the point by asking him which companies he felt had strong brand
images and when he picked Coca-Cola I asked him how often he had seen
blue Coca-Cola cans. He just replied, ‘Ah, yes, but beer is different!’
So I would press on and say, ‘Well, how about green Budweiser or orange
Carlsberg?’
‘Yes, but they are foreign brands.’
‘Well, OK, how about purple Tsingtao labels? Tsingtao’s always green,
right?’
‘Yes, but Tsingtao is in Shandong.’ And so on until I was exhausted of fur-
ther examples.
Finally I came across ‘Red Beer’. In contrast to the other types, this was
actually a different beer from the normal lager product. It was a deep rich red
colour and Lin told me about a ‘special situation in Tianjin’, a town some
seventy miles south-east of Beijing, where consumers were apparently clam-
ouring for dark-coloured beer. I found out months later that, in fact, a fire had
broken out at the malthouse in one of the hoppers and a big batch of grain
had been badly singed. Rather than discard it, the workers were told to pick
out the badly burnt bits and use the rest. Whilst the colour of ‘Red Beer’
probably attracted a bit of attention, it had a distinct taste of charcoal.
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At the launch of the new red brand, Lin held a party for distributors in the
Brewery Number Two. Halfway through the celebrations the stocks ran out
and he hastily sent a truck down to Brewery Number One, only narrowly
avoiding becoming the first person literally to fail to organize a piss-up in a
brewery.
With volumes falling dangerously and losses mounting, there was little
choice but to cut costs. But the Chinese side were terrified of upsetting the
workforce and resorted to endless prevarication and delay. Board meetings
got worse and worse. At one there was a huge row after we insisted again on
using uniform colouring on our labels and Madame Wu told me that I was
‘talking in dog farts!’ The ensuing fight was only brought under control when
Lin, who was often caught between the two of us, promised to stop using red
labels and bottle tops and focus only on the traditional blue colour for the
Five Star logo. I confirmed the agreement several times (‘Blue! You’ll only
use blue!’) and Madame Wu stalked off, muttering under her breath. Two
days later I went to the brewery for a meeting with Lin. It was a Saturday
morning and dreadfully hot, and my temper had been frayed by the traffic on
the way over. The constant hooting and barging had scuffed my nerves. My
mood darkened as I stepped over a large turd on the doorstep of the brewery.
I was fuming and I asked myself how the hell any customers put up with Five
Star as I stomped round into the yard at the back of the office building. On
impulse I stuck my head into the bottling-line workshop and, sure enough,
row upon row of bottles were crashing through the fillers. Blood throbbed in
my temples as I saw the red labels and bottle tops churning through the ma-
chines. It was my defining moment of despair after the agreement with Lin
just two days earlier only to use blue. I called Pat from some derelict office
on the ground floor and screamed down the crackling wire, ‘This guy’s gotta
go!’

During the following few months, as I searched for a replacement to Lin, I

suddenly received a fax out of the blue. It came from a man called Ren. The
fax claimed that he had run several breweries and that the Five Star brand
needed revamping. I certainly agreed with that. It concluded with the
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question: ‘Why don’t you try me?’ We arranged for him to come to Beijing
for an interview and he told me the following story.
Originally from Shanghai, Ren had moved to Hong Kong as a boy and had
later been educated in the United States. Fluent in English, Mandarin and
Cantonese, he had returned to China in 1984 and had ended up running a
brewery in Hongzhou, a small seaside town on the mainland just up the coast
from Hong Kong. In 1992, he persuaded Carlsberg to grant the brewery a
licence. Carls-berg was one of the few foreign brands available in hotels all
over China. After a few years, Carlsberg decided to expand up in Shanghai
and Ren went to set up the new project. When it was completed, he was
offered a desk job in Hong Kong. He declined and found a job running an
edible-oils business in Jiangxi. But his heart was still in the beer business and
he wanted to get back into it.
Ren looked like the perfect candidate: a Chinese with experience of inter-
national business, of turning around a loss-making brewery and establishing a
new brand in China and who had a desire to come back to the beer business.
The issue fast became one of how to remove Lin and replace him with Ren.
To do that, we needed Madame Wu’s agreement and I knew we’d never get
that. I saw no alternative other than to present her with a fait accompli so I
drove over to the brewery.
I found Lin sitting dejectedly on the huge plastic sofa in his office. He
guessed what was coming and took it cheerfully enough. The meeting lasted
less than ten minutes. I explained that we had found someone with experi-
ence of turning round a loss-making brewery and before I got into the details
he interrupted to say, ‘ni xiang rang wo zou de hua, wo mei yi jian’ – ‘If what
you are saying is that you want me to go, I have no objection.’ I set up a
meeting with Madame Wu for the next day.

I steeled myself for the showdown. I took a suitcase full of defective bottles
and cans of Five Star that we had found in the market place in case Madame
Wu needed any further convincing. It started off calmly enough, but we were
soon back to the old form. She said that if we tried to manage the breweries it
would be yi ta hu tu – ‘a whole mass of confusion’. I pressed on. After
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another twenty minutes I was getting nowhere so I pulled out the suitcase. I
took out a case of cans that we had found and placed them in a row on the
table.
‘Madame Wu,’ I said, ‘look at these.’
‘They’re fine,’ she snapped.
I opened the first one. Not a sound. Then the second. Not the slightest hiss.
They were all completely flat. At the third, she said, ‘All right, all right, but if
you lot were in control it’d be even worse!’
‘Madame Wu,’ I said, ‘it cannot get worse. It is not possible. We are
already at rock bottom. We are sending out flat beer that tastes like rotten
vinegar packaged in beer bottles with filthy old labels that say “Soy Sauce”.
There hasn’t been “a whole mass of confusion” like this since the collapse of
the Qing Dynasty. At least that was presided over by an Empress Dowager
with six-inch finger-nails who was carried around in a yellow sedan chair!’
Madame Wu raised her finger and opened her mouth. But then she shut it
abruptly. After a few moments of glowering at me, she said, ‘Xing le! Ni lai
guan ba!’ – ‘Fine, you run it then!’ She agreed to meet with Ren.
Ren’s manner was smooth and assured and, as I had expected, it rubbed
Madame Wu up the wrong way. But with Lin’s agreement to go she had little
choice. Ren was appointed as General Manager of the joint venture by unan-
imous resolution of the Board. Madame Wu extracted a concession: she be-
came Chairman of the Board.
With Ren’s appointment as General Manager, a picture of complete and
seemingly irretrievable chaos was brought into sharp focus. It seemed that
Lin himself had enjoyed little control over daily events. He had been new to
Five Star and many of the people he had managed had strong relationships
with his superiors at the Bureau. They could safely ignore his instructions
without fearing any serious consequences. The truth was that Lin had never
been able to assert control. In this respect he had my sympathy. It was virtu-
ally impossible to control a state-run business from within the system. What
was needed was a complete outsider.
Ren realized immediately that drastic action was needed so he spent his
first month recruiting new people, revamping the offices to build a sense of
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pride in the workplace and designing business systems. The first few months
went well and he collected about five million from overdue accounts. But
there were things that Ren knew he had to do which would enrage the
Chinese partner.
When he tightened controls over cash payments there were squeals of
protest from all parts of the business. He had discovered that Factory Number
Two had a substantial cash balance under their own control outside of the re-
cords of the central accounts department: a ‘little gold warehouse’ as it was
known in Chinese. The main accounts department knew about it (and several
others) but didn’t seem to mind that all over the factory there were cash bal-
ances outside their control. A thorough audit of the payments out of the ‘little
gold warehouse’ showed that they were all related to the business and ap-
peared perfectly reasonable. It was purely a matter of convenience; the em-
ployees just wanted to decide how to run their part of the business independ-
ently. So, although there was no evidence that the money was being used
wrongly, it nevertheless made the business hopelessly unresponsive to central
management.
Ren tightened employee regulations with new rules specifying misdemean-
ours that would result in dismissal. No one had ever been fired from Five Star
so the new rules came as a shock. Most of them were recognizable in a
Western context: dismissal for theft of company property, suspension for per-
sistent lateness and so on, but some had been tailored to deal with the specific
problems at Five Star. These included a ban on making insurance claims on
behalf of the company and then keeping the proceeds; organizing gambling
syndicates in the office; growing vegetables for personal use on the factory
sites. Finally there was a new rule calling for dismissal for ‘fighting with cus-
tomers’. Apparently there had been cases where point-of-sale girls promoting
Five Star in supermarkets around Beijing had set upon customers who com-
plained about the quality.
I could believe it. Over the years I had seen several instances of customers
being insulted by shop assistants, most notably in the Beijing Friendship
Store where, during an altercation with a customer over ice cream, a shop as-
sistant threw a tub of it at the customer. Breaking free from the other shop
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assistants restraining her, she ran after the retreating customer and attempted
to give him an enormous kick up the backside before being dragged off be-
hind the scenes by her colleagues. Now it seemed that Five Star’s customers
faced a situation where if they drank the beer they could end up with a
mouthful of leaves and risk being assaulted if they complained about it.
Meanwhile, Pat was hell-bent on an export scheme to push Five Star in the
States and had been spending months negotiating with a drinks distributor.
There was a contrary argument that, since we had such difficulties in selling
our beer in the Beijing suburbs, concentrating on the home market might do
us more good. But he persisted and signed an agreement with the distributor.
Pat made a big splash about the deal and appeared in a double-page spread in
Forbes Magazine standing on Tiananmen Square near the Gateway of
Heavenly Peace. For some reason the article was entitled ‘Mao’s Brew’. It
took months to get the first shipment out of the factory and when it arrived in
the States the distributor found that most of the bottle tops were rusty and that
some of the labels were on upside down. We never sold a cent and, about
three months later, the distributor went bust so that was the end of that.
Back in Beijing, Ren was becoming more and more unpopular and I knew
that Madame Wu was getting nettled. But there didn’t seem to be any altern-
ative so I encouraged him to plough on. The denouement in Ren’s attempts to
restore discipline came when he finally tackled the accounts department.
They were much too cosy, having worked together for years, and I had al-
ways been nervous about their habit of providing elaborately confusing an-
swers to the simplest questions. When Ren issued a notice reassigning thir-
teen accounts clerks to other parts of the factory it provoked a rebellion and
they barricaded themselves into the offices, refusing to come out. Aware that
the factory was by now a tinderbox, Madame Wu arrived at the brewery.
Fearing that the situation might escalate now that Boadicea herself had ar-
rived on the battlefield I went over as well.
As I turned down the corridor towards Ren’s office I could hear her raised
voice – I could have heard it a hundred yards away. Ren was obviously get-
ting a severe larruping. As I walked in, she leant back in her chair and folded
her arms, bristling with righteous fury. ‘I told you it’d be a complete mess if
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you lot got control,’ she said triumphantly, ‘and now we’ve got a right stir-
fry of pubic hairs and garlic!’
Ren had arranged for Madame Wu to meet with the staff and I offered to
go and support her. Surprisingly, she thought that would be a good idea.
I left several hours later, impressed with the way that Madame Wu had
handled the situation. The accountants were in a state of high emotion, altern-
ating between hysterical rage and sobbing, complaining bitterly about Ren’s
unfairness to them after their lifetimes’ devotion to the factory. She was calm
but firm and extraordinarily patient as she listened to their complaints. I real-
ized that she was using the standard tactic of ‘talking them out’ just as Li Wei
had done with the Union workers in Jingzhou; but I feared that this could be
a marathon session. At her request, I left after a couple of hours in the late af-
ternoon but heard later that the accounts staff had finally agreed to the reas-
signment after Madame Wu stayed until three in the morning listening to
their outpourings of woe.
Over the coming months my role changed. Madame Wu and Ren became
more and more disputatious and I became the buffer, adopting Lin’s role of
former days. The state of the business, with depleted cash, beleaguered mar-
kets and low morale, had provoked a real crisis that drew us together. Ini-
tially I really couldn’t handle her but after a while I grew to enjoy how im-
possible she was. She was a class-act when angry and deep down, beneath
the turbulent surface, I knew that she wanted Five Star to succeed even if she
didn’t agree with our methods. Unfortunately, there were strong undercur-
rents in the relationship between Ren and Madame Wu. They were both from
Shanghai and were of a similar age, but Ren had left for Hong Kong and an
American education. His salary was astronomically high in comparison to her
bureaucrat’s wage but he seemed to regard any of the petty perks that are the
sole consolation for a Chinese offical as a type of corruption. He detested the
fawning and flattery that, as a senior official, Madame Wu received from her
other factory managers. Madame Wu in turn resented Ren’s high-handed
style of management and felt that his capitalistic training had crushed out any
real feeling for the ordinary workers. They were never able to get on.
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The defining moment in Five Star’s crisis arrived early in Ren’s tenure as
General Manager. Every year in China, exploding beer bottles seriously in-
jure scores of people, even killing one or two who bleed to death before help
can arrive. The glass used in the bottles is of poor quality and thin patches in
the bottles’ walls become weak after they are thrown about in rough crates.
Moreover, the bottles are reused many times and blasted with steam during
the cleaning process. In the freezing Chinese winters, these extremes of tem-
perature can produce minute but dangerous cracks. So in early 1999 the
Government decided to act and introduced new regulations requiring brewer-
ies to use ‘B-bottles’. These new bottles were much stronger, made of robust
glass and with a minimum thickness specified for the walls. They were also
much more expensive. Nevertheless, the government directive was clear and
notices were circulated specifying heavy fines if the regulations were not
observed.
Ren invested heavily in new B-bottles. I asked him how he would be able
to collect the B-bottles back from customers rather than being fobbed off
with old, obsolete stock but he said he could address that with deposits from
customers.
The new regulations were a disaster for Five Star. Except for a handful of
foreign-invested breweries, every other brewery in China – including
Yanjing, which had the Beijing Government as a big shareholder – refused
point-blank to implement the new regulations and continued using the old
bottles. The authorities made a halfhearted attempt to enforce the rules by
raising fines but the breweries refused to pay since everyone else was also
breaking the rules.
Faced with the prospect of trying to fine the entire domestic beer industry,
the Government retreated and business went back to normal. Customers de-
manded back their deposits and our precious B-bottles disappeared into a sea
of broken glass. Within a few weeks, we had lost over 90 per cent of the new
bottle stock and, together with it, the cash investment that we had made. Mar-
ket share continued downwards and with loans already standing at several
hundreds of millions of renminbi the banks withdrew any further support.
Morale at the factory was at rock bottom and key managers were leaving. By
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this time, it was obvious that Five Star’s condition was terminal and, faced
with this unpleasant reality, the Board decided to dispose of the business.
I was given the job of selling it.

After the euphoria of the earlier years, an ugly mood had settled over the beer
industry. The newspapers dubbed it ‘the biggest bar-room brawl in history.’
More than a billion dollars had poured into the Chinese brewing industry in
the three years to 1996 and the capacity at the high end of the market far out-
stripped demand. Foreign brewers realized that they had hopelessly over-in-
vested but when they tried to tap into the medium-level market where de-
mand was stronger they faced vicious price wars.
Hundreds of the smaller inefficient local breweries across China were vir-
tually bankrupt but local governments, anxious about unemployment, kept
bailing them out. These dying breweries churned out beer at or below cost
and dragged down pricing in the whole market. It was quite impossible for
any foreign brewer to make money at any level since local protectionism,
creaking distribution systems and conservative consumer buying habits
meant that foreign brands failed to achieve any credible market share. The
cold winds of reality about the Chinese beer market started to blow through
boardrooms all over the world and, one by one, the foreign brewers fled,
scrambling out of China with the same haste that they had shown in getting
in.
Fosters bailed out first at a fraction of their original cost, followed closely
by Bass. Carlsberg and Asahi followed suit, selling their businesses to local
brewers. Becks got embroiled in a trade-mark dispute and the others were
caught with no exit and facing years of operating losses. In this environment,
the prospects for selling Five Star were bleak indeed. Nevertheless, I found
introductions to the top managers of most of the multinational brewers in Ch-
ina to see if any of them might take on Five Star, but not one of them re-
turned my phone calls. The only alternative was to look for buyers inside
China.
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The two top brewers in China were Tsingtao and Yanjing. They each pro-
duced about a million tons of beer a year and were locked in a bitter struggle
for the number one slot, using different statistics to show that they were the
largest. Both companies had gone public on Chinese stock exchanges so they
had plenty of cash and started making cautious plans to buy up breweries in
other parts of China. Tsingtao bought a brewery in the western city of Xi’an
and another on the banks of the Yangtse at Yangzhou. Yanjing ventured fur-
ther south with an acquisition in Hengyang. But these were all timid first in-
vestments in Chinese-owned businesses and neither had attempted to pur-
chase a large brewery from a foreigner. However, there weren’t many op-
tions, so I arranged a visit to Tsingtao.
The Tsingtao Brewery was the first PRC company ever to raise capital on
Hong Kong’s stock market when, in 1993, it netted an equivalent of sixty-
five million bucks. Shortly afterwards it came out that Tsingtao’s manage-
ment had taken the cash and, instead of investing it in the brewery as they
had promised, had lent it to their friends – who happened to be property de-
velopers. Investors were outraged but there was little that they could do as the
management retreated to Tsingtao and ignored the furore. However, the Cent-
ral Government was embarrassed by the scandal and eventually the Tsingtao
Municipal Government kicked out the old management team.
The episode had a lasting effect on the town. On the northern side of a
little peninsula that juts out into the sea, across from the old town of Tsingtao
with its quaint German architecture, stands a vast new city centre. A cluster
of glass skyscrapers has sprung up on the farmland and, across a well-appoin-
ted plaza with fountains and palm trees, the palatial offices of the Local
Government, crowned with the red emblem of the People’s Republic of Ch-
ina, stare magisterially out to sea.
The man who was brought in by the Government to restore the Tsingtao
Brewery’s tattered reputation was called Peng Zuoyi. I went to Tsingtao in
the early autumn and spent an hour with him. Short, pugnacious, able and
down to earth, Peng reminded me of Old Shi down in Ningshan. He had the
same easy manner and charisma, combined with a quick mind and the
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inclination to make decisions. Above all he gave the impression that he was
on top of his business and that he was enjoying it immensely.
I was cautious at the first meeting but my hopes leapt inside me when he
said that he had thought of contacting us but that he ‘knew that we wouldn’t
be interested in selling a majority of Five Star’. Thinking inwardly that he’d
be welcome to the lot, I hinted that there might be some flexibility. He took
the lead and the discussions progressed over the coming weeks, quickly mov-
ing on to substantive negotiations.
Meanwhile, through the autumn, Five Star lurched from one crisis to the
next. After the banks withdrew support, cash quickly ran out and payment of
wages became delayed. Inevitably, the desperate state of the business became
clear to Tsingtao and they suspended negotiations. Madame Wu and I agreed
that whatever happened we had to keep the business going; if it collapsed,
Tsingtao would just wait on the sidelines until we were so desparate that
we’d sell at any price. A war of nerves began.
A few weeks later the first blow fell in the form of a writ from one of Five
Star’s main suppliers who were suing for payment of overdue accounts. It
was from the Tsingtao Can Company, which seemed more than a coincidence
to me. The news quickly spread and several other suppliers decided to get in
on the act. I was in New York at the time and just before I stood up in front
of the Board to run through the progress with Tsingtao I was handed a piece
of paper. It said that Ren had resigned, the joint venture’s assets had been
frozen by Court Orders, production had stopped, the Chinese partner had
withdrawn the rights to use the Five Star trade mark, the banks had called
their loans and the Beijing Environmental Bureau had issued an order to
close down Factory Number One.

As soon as I got back to China I went to see Madame Wu. Faced with such a
dire situation, and with Ren now gone, the quarrels swiftly became a thing of
the past. We had to restart the business so we focused on the few remaining
customers who were paying their bills and the handful of suppliers who
would still give us credit. For four months we ducked and weaved, hopping
around suppliers and bailiffs as they pursued us from bank to bank.
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Whenever we were tipped off that a new freezing order might have been is-
sued we rushed to the bank, took the remaining cash and hid it in a new ac-
count out of the reaches of the Court officials. The Court then went back to
issue a new search order and, if they found any new accounts, they’d come
out with another freezing order, so we’d hurry off to the bank and move the
cash on. Payment of wages got later and later, but that was nothing unusual
for China and the workforce remained stable.
For four months we lived on a knife-edge expecting collapse at any mo-
ment, but for the first time we were the beneficiaries of the chaotic legal sys-
tem: the Court orders proved too impractical to implement. We managed to
restart the fermenters and Tsingtao realized that the business would not col-
lapse. By May we were back at the negotiating table.
Two months later the contracts were ready and Tsingtao invited two hun-
dred journalists to a signing ceremony in Beijing. The ordeal was still not
over and Tsingtao’s lawyer demanded several late concessions. We refused
point-blank and the journalists were kept waiting for two and a half hours as
we haggled in a back room. Finally, Peng and I signed the deal. The relief
was intense. We had retrieved more than twenty million dollars from the
wreckage. Our Board was amazed by the price but I was just happy that it
was all over. The arguments with Madame Wu had finally come to an end.
The Financial Times summed it up when it reported the event. Asked how I
felt about the whole Five Star experience, I had been lost for words.
‘Not thrilled,’ was all I could manage.
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Twelve

The Iron Tree Blossoms,

The Cockerel Lays Eggs and the Rope on a
Seventy-two-year-old Cradle Suddenly Snaps
From the writings of a Song Dynasty monk:
‘Something extraordinary and difficult
to bring about may unexpectedly occur.’
c. Eleventh Century AD

The three struggles with Old Shi, Chen Haijing and Madame Wu all came to
a resolution at about the same time. These main battles had been rumbling
along during the same period together with smaller skirmishes elsewhere. In
the end, during those three years, we replaced fifteen out of the original sev-
enteen Chinese factory directors; almost a clean sweep. Sometimes we had to
do it more than once when our first choice didn’t work out. And each fight
was different: some took a couple of meetings with a bit of straight talking,
but not many were so clear-cut. Most needed months, maybe a year, of labor-
ious, convoluted negotiations which often came to nothing; then, and only
then, if patience failed us completely, would we resort to the pitched battles.
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Booting out the factory directors affected the company’s results almost im-
mediately. In our worst year, when the battles were at their height, we repor-
ted losses of about forty million; a few years on, and the company was mak-
ing profits of nearly twenty million and it was churning out cash. Of course,
the turnaround was helped by some other factors: we were lucky with the
market and Michael eventually figured out a system of proper incentives for
the new Chinese managers. But if we hadn’t hurled out the original Chinese
factory directors, it would all have come to nothing. Even with the turn-
around, according to Wall Street’s equations the whole endeavour had failed
dismally; the hole we had made for ourselves in the earlier years was too
deep and the investors lost a lot of money. But on a human level it had been
the ultimate turnaround in China, one that ultimately saved thousands of jobs.
Somehow it had happened. Our iron tree finally blossomed.
The turnaround was better news for the investors but for me, sadly, it was a
paradox. There were no more battles to fight; no more deals to win; no more
sieges to plan. I realized that I had worked myself out of a job.
As I started thinking about what to do next, I knew that we were anything
but an isolated case in the combat zone of Chinese investment; the whole
business landscape was littered with the wrecks of failed joint ventures. Ten
years after we had first raised the money hardly anyone did joint ventures any
more. Even Pat had learnt a little humility; he developed a habit of describing
China as ‘the Vietnam War of American business.’ Most of the big multina-
tionals set up their own wholly owned companies unless the Government
threw up restrictions. All but the most innocent of newcomers had concluded
that joint ventures were just too hard to be worth it. And of the billions
already invested, much of it was languishing in dysfunctional joint ventures
entangled in all those familiar circuitous cross purposes where no one was in
control.
The experience at Five Star had shown that, with careful handling, consid-
erable value could still be extracted from the most dire of situations in China.
Five Star had been utterly bankrupt by any customary standards of business:
wages were four months late, the bank had called in the loans and we had
been pursued from bank to bank by Court officials with freezing orders for
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months on end. When I called around to talk to the multinational brewing

companies to see if they might be interested in Five Star, I knew in my heart
that buying the business would make no sense for them. So I hadn’t been sur-
prised that no one had returned my phone calls.
And yet Tsingtao had paid more than twenty million dollars for a share in
the breweries, offshore and in hard currency. It made no sense in a conven-
tional business context – but it was worth it for Tsingtao. They had raised
plenty of capital on the stock exchanges in Hong Kong and Shenzhen so cash
was no problem. Moreover, local investors still seemed so keen on buying up
shares that Tsingtao’s stock was trading high and their shareholders appeared
relatively unconcerned with short-term profits. Paradoxically, that meant that
Tsingtao’s management could take the long-term view and try to buy up mar-
ket share in China.
Acquiring the Five Star breweries enabled Tsingtao to establish a strong
foothold in a major market in China without the pressure for short-term re-
turns. They were building market share to the stage where they could reach
economies of scale and, as Pat had said years earlier at that dinner with the
Mayor of Changchun, ‘take out the opposition.’ It was an irony that he had
been right that Chinese industries would inevitably consolidate along lines
that would seem familiar to a student of American history. It was just that the
consolidators were Chinese and not from Wall Street.
The same process of industrial consolidation was happening in the com-
ponents industry. One spark-plug factory in Hunan, which I had visited eight
years earlier, had grown from a small company about the same size as our
business in Jingzhou into a large multiproduct group that was bigger than all
of our seventeen businesses put together, just in the space of eight years. It
had managed to get money from the stock exchange and buy up several lar-
ger companies that were exporting components to America. At one stage it
expressed an interest in buying some of our businesses. Although it might
have got money back to the investors, Pat would have none of it. Selling out
to more flexible and quick-footed Chinese was something that wasn’t in the
original plan; it was something that simply could not be accommodated with-
in his view of the world. But with plenty of well-funded Chinese companies
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out looking for businesses to buy, and the huge stock of dysfunctional joint
ventures like Five Star all across the country, I felt that there might be an op-
portunity to put the two together and recover value. So I parted company with
Pat and went out to look for opportunities to extract value from difficult
situations.

As China moved into the new millennium, it became obvious that the minor
mishap with a few hundred billion dollars of foreign investment during the
1990s was dwarfed by the problems of China’s domestic banking system,
which is a cock-up of truly astronomical proportions. Buried under a moun-
tain of non-performing loans or ‘NPLs’ left behind by the state planners, the
banks were struggling with bad debts that some economists estimate to be the
equivalent of seven hundred billion dollars. But even there, in those most dire
of situations, which the financiers rather coyly called ‘distressed’, I became
convinced that some value could be recovered, that some of the ‘distressed’
businesses could somehow be resuscitated and given some hope. So I ended
up wading into the new morass of the Chinese NPL market to see what I
could find.

It was only after I left the company and emerged blinking into the sunlight
that I realized how completely out of touch I had become. I was so preoccu-
pied with the battles that I had failed to see what had been going on all
around me. I quickly realized that where one iron tree had blossomed for us it
was as if a whole forest had burst into flower along the Chinese coast.
Everything had changed in those ten short years; there had been a seismic
shift in the economy. China began to generate its own cash from the stock ex-
changes in Shanghai and Shenzhen.
As huge amounts of cash had trickled slowly down to street level the lives
of hundreds of millions of ordinary Chinese had improved unrecognisably
and, probably irreversibly. Everything had changed in the coastal cities: the
appearance and dress of the people living there, their access to information,
transport, food and decent living accommodation, their choice in education
and health care. Many families began to send their children overseas to
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university while back in China the cityscapes had changed so much that I felt
like a complete stranger in the country that I had made my home.
When I went down to Shanghai after a three-year gap, I didn’t recognize
the place. I told the taxi driver to keep driving around on the huge elevated
roads that sweep across the city so that I could gape at the vast towers and
skyscrapers dominating the skyline; I felt like a child staring out of a car win-
dow at the Christmas illuminations. Occasionally I could pick out the odd fa-
miliar building squashed in between the towers, but not often.
I thought back to the time years earlier, in the late 1980s, when I had first
gone over to Pudong on the eastern bank of the river in Shanghai. Pudong
lies opposite the Bund, the line of imposing colonial buildings where I had
visited the Land Bureau with the pinstriped bankers from New York. Back
then, before it was chosen as China’s main development zone in the early
1990s, I had enjoyed a walk in the country. I remember seeing the occasional
water buffalo squelching around in the mud and an ancient temple where wo-
men with perfect white hair and faded blue cotton jackets hobbled across the
stone flags to push joss sticks into the huge piles of ash in the three-legged
bronze incense burners. Ten years later, the fields had disappeared for ever
but the temple had been preserved and made into a museum. It stood just op-
posite the Shanghai Stock Exchange. The crush of skyscrapers towered
eighty storeys above the temple roofs, the towers of steel and glass over-
whelming the stooping curves of the old temple eves and the cracked glaze
on the tiles; no one burns incense there any more.
Further on, the roads through the industrial parks behind the city stretch for
miles towards the horizon, past huge car-assembly plants, software institutes
and microchip foundries. Shanghai had been swept up in the same mad dash
for growth that had gripped Shenzhen and Zhuhai in the days after Deng’s
Southern Tour. But whereas the Pearl Delta down in the south has a popula-
tion of maybe a hundred million, the Yangtse River Delta, which spills
through the sprawling waterways and oyster beds into the sea near Shanghai,
is home to nearly three hundred million people. The river connects the finan-
cial centre to the huge population of the inland provinces: Sichuan alone has
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a hundred million people, Jiangxi eighty, Hubei another ninety, and so it goes
on, each province bigger than a European nation.
The inexorable industrialization of the Chinese countryside creeps further
inland, crawling along the river’s banks, seeping into the mountain villages in
its never-ending search for labour. There is an inevitability about China’s
march onwards; those stamping feet have their own relentless rhythm – in a
few years the Yangtse basin will be the largest manufacturing base in the
world. It’s only a matter of time, and the changes churned up in its wake will
affect the whole world. At its centre, in ten years the Shanghai Stock Ex-
change had grown from nothing into one of the largest in Asia; for a well-run
Chinese company, raising a hundred million has become almost routine. The
Chinese economy has reached a self-sustaining momentum and it seems as if
the explosion that Pat predicted all those years earlier at dinner with the May-
or of Changchun has finally happened. The foreigners helped light the fuse
but much of it has been powered by the Chinese themselves.
It seemed for a while that this new economic growth might spark a second
foreign investment wave, a decade after the first; billions were lost by foreign
investors, but they still kept coming. I had been forced to dismantle entirely
my assumptions about China and relearn all the basics, but many investors
still appeared supremely confident that China would eventually view the
world their way, that it would eventually ‘see reason’ and begin to conform
to the familiar business school model. But as China continues to press ahead
with opening up to the world at a speed that can be astounding, my hunch is
that it will always retain an intense sense of its own place in world history. It
remains more complex, more in tune with its unique ‘Chineseness’ and in
tune with its own past and much less conformist than can be imagined by vis-
itors like Charlene Barshevsky, the US Trade Representative who described
the World Telecoms Agreement as ‘a triumph for the American way.’ We’ll
see.

As I thought about Old Shi, Chen Haijing and Madame Wu with a clearer
perspective once the battles were over, those three characters, for me, gave a
picture of China in transition. Old Shi, the risk-taker, the entrepreneur always
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running out of time, had escaped from the system. To me, he represented the
type of Chinese who took all those experiences of turmoil and wild reversals
under Mao and Deng and learnt to survive by keeping ahead of the game.
Completely unbound by convention or regulation, he remained an irrepress-
ible showman with the short-termism, adaptability and speed needed to run
rings around his opposition. Unsurprisingly, his business is thriving down in
the valley and he recently set up a new factory in Shanghai. He started to get
export orders from America and every so often he calls me in Beijing and we
have lunch.
Chen Haijing has his foot in both camps; he has traces of Shi’s business
flair but for some reason he hasn’t made the break. Stuck in some middle
ground, halfway between official and entrepreneur, he has been forced into a
constant compromise, endlessly balancing interests within his business and
the local government. He represents the entrepreneur within the system, the
man struggling with the basic incompatibility between China’s economic and
political systems, the mismatch between Shi’s raw Victorian capitalism and
the largely unreconstructed and poorly paid Communist bureaucracy that still
controls the country. In retrospect, it was not surprising that our difficulties in
Jingzhou involved land; problems concerning land are common throughout
China. It is a highly valuable asset that is still controlled by officials who
earn a miserable wage. It is hardly surprising that there have been so many
problems with officials misallocating land in return for favours.
And Madame Wu. For me, she represents the change-lessness of China.
She is the Qianlong Emperor who will argue for months about the kow-tow,
accept the tribute gifts and then continue serenely on her path, undeflected by
the foreigners who have come before her. In the end, she had survived
without needing to compromise. In fact, she came out on top. She had started
off with a Beijing brewery with millions of dollars of bank debt but ended up
with the loans paid off by American investors and a new partner, Tsingtao,
which was the strongest beer company in China. I had to admire her for that.
And some understanding had sprung up between us. We’re still in touch and
every Mid-Autumn Festival she sends me mooncakes, little round pastries
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stuffed with red bean-paste. It makes me laugh. I’m sure I told her that I can’t
stand mooncakes.
Pat is still there, running his components business. The plan to consolidate
the industry has been quietly jettisoned, but he is still on the trail for new cap-
ital. Last time I heard, he was raising more money in the States to invest in
the export business. In the earlier years, some of his rivals used to mutter that
raising so much money and getting into difficulties after investing so quickly
had ruined the private equity market in China. But that always sounded like
sour grapes to me. Out of all the China funds set up in the early 1990s, his
was the only one to survive. And you know, I still admire him; China didn’t
work out according to his financier’s equations but at least he had the guts to
try.

China had been modernized in a way that I wouldn’t have believed possible
ten years earlier, and the Government delivered on its promise of stable
growth. The lives of millions of ordinary Chinese had been improved beyond
recognition as the planners began to fade into the past. But I still knew that
the coastal region was the showcase and that the inner provinces remained
poor. Whenever I flew west from Beijing, I gazed down over the endless ex-
panse of ‘Yellow Earth’, the great loess plateau that stretches inland beyond
the Taihang Mountains at the western fringes of Beijing. It was there, in
Shanxi Province, that Ai had worked with the peasants. I tried to imagine
what it would be like down there on the dusty yellow soil, in the landscape of
crumbling earth pitted with ravines. On a flight out westwards, a colleague
once told me that she had heard how a group of peasants in Shanxi had won a
competition and had been invited up to Beijing where their hosts had treated
them to a banquet. Some of them had cried when they saw the table: so much
food, so much waste when back home there was nothing.
I wanted to know what it might have been like for Ai in the fields; I
wanted to get some feel of the land. I’d travelled through Shanxi by car and
by train, but that was too insulated. I decided to go by bike. I would go right
into the guts of China, unprotected so that I could see what it was really like.
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I flew to Xi’an in central China, bought a bike and rode it back to Beijing
alone. It was a journey of nearly a thousand miles through some of the
poorest parts of China. The first few days were uneventful as the roads
wound through rolling countryside and picturesque villages with neat cave
dwellings carved out of the hillsides and vines and gourds growing around
the doorways. But on the third day the landscape changed.
Over the course of the morning the countryside became rockier and steep-
er. The road became narrower and more congested as I climbed up through a
valley. I suddenly noticed a couple of coal mines over on the other side. I
knew that up in Datong where Chang Longwei had spent all those years in a
gearbox factory there was a big coal-mining region, but that was several hun-
dred miles to the north. It hadn’t occurred to me that I would need to go
through a coal-mining area so far south, but I pressed on.
By midday the entire landscape was black. The valley narrowed down to a
few hundred yards across and the craggy sides towered over me. I realized
that I was in a ‘third front’ area where Mao had hidden all the military facilit-
ies in the 1960s. Huge factories were tucked up in side valleys under great
clouds of yellow smog. The smell of sulphur hung in the air.
I’d never seen such pollution: the soil was black, the air was thick with
diesel fumes and factory smoke. The rivers had run completely dry, their
beds a mass of smashed rock and thorn bushes. Every few miles I saw slag
heaps and the towers with the wheels on top that lowered down the miners in
their cages. Even from a distance these coal mines looked badly managed and
much too small to be economically viable. Local village committees ran
them, but they had no access to cash or resources to put in proper safety
measures.
Everywhere was black and the whole valley was filthy: the rocks were
black, the soil was black, clothes and faces were black, and there were no
trees. Coal dust was in my eyes and in my lungs, its smell was in my nose
and the taste was in my mouth. By the time that I struggled to the head of the
valley, I was filthy and exhausted. I stopped for a rest.
As I sat by the roadside to catch my breath, I looked up and my heart sank.
A few hundred yards ahead the road disappeared into a tunnel. I hadn’t
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thought of that particular hazard so I took out my maps. Avoiding it would

involve a thirty-mile detour. I just didn’t have the strength for that; I’d done
nearly eighty miles and had to travel another forty to the next big town and it
was already early afternoon.
I looked into the darkness, past the hulking trucks and through the thick
fumes, and I could make out the vague shape of the tunnel’s exit at the far
end in a yellowy light. So I plunged in. But halfway through I was in pitch
darkness. Trapped next to a wall I couldn’t see, with huge trucks rumbling
past next to me, I was choked with filthy diesel fumes and deafened by the air
horns blasting in my ears. Suddenly I ran into something sticky on the road’s
surface and I felt my wheels twitch sideways. Eventually I got out, with my
nerve almost broken, black from head to foot. That was the only time in Ch-
ina when I remember being really frightened.
As I came out of the tunnel and into the sunlight, I saw that an oncoming
truck speeding towards me was shedding its load. The driver hadn’t noticed
and carried on as huge thick logs ten feet long bounced along the road to-
wards me like matchsticks. I managed to avoid them but the near miss com-
pletely shattered my nerve. I threw myself on the ground and lay in the dirt
and rubbish at the side of the road, my chest pounding.

I often think of that valley in Shanxi. Every day, mine workers go through
that tunnel. Every day, they breathe the polluted air and the diesel fumes and
scrape the coal dust from their eyes. There’s nowhere else to go; no other em-
ployment. Many have to serve a life sentence in those horrible mines. When I
got back to Beijing, I saw in the papers that fifty-two miners had been killed
in an underground explosion the day after I had been there.
The vast majority of rural Chinese, like those miners in Shanxi, are still
yoked to the land, mired down in the daily struggle, stuck out on the yellow
earth. Their lives are also improving, but slowly, too slowly. And the others,
the ones who have just emerged from that five-thousand-year tunnel to face
the oncoming logs, the people with their mobiles in the smart restaurants
along the coast, they know that they’re just one step ahead. That’s why they
fight so hard for what they’ve got. To understand that context – the ancient
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country with its archaic but beautiful writing system, its burden of five thou-
sand years of history where for hundreds of millions of ordinary people the
iron tree might finally blossom – to understand all that is to see the Chinese
for what they are. Then the Shis and the Chens, the Changs, the Ais and the
Lis become people just fighting for a better life. The illusion is broken and
our differences melt away.
If by writing this book I can make the Chinese people seem more human,
less mysterious or threatening, just flawed and beautiful like us, then the
troubles of the past ten years will all have been worthwhile.
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Author’s Note

We live in a monopolar world but this state can’t last for ever. Unless, by
some bizarre turn of events, the people of Europe opt for real political union
the key global power balance in the next hundred years will probably be
between the United States and China.
The Americans and the Chinese have a lot more in common than they
think. Acutely aware of their current disadvantage, many Chinese have con-
sciously gone out to educate themselves about America. Their conclusions
tend to be balanced and favourable. But, so far, not so many Americans have
shown an interest in China or made much effort to understand it. As the ef-
fects of the steady migration of jobs and manufacturing across the Pacific to
China start to hurt in Middle America, a slow realization is dawning that
Washington is going to have to deal with Beijing increasingly as an equal
over the coming decades. I hope there might be a short cut in the process of
misunderstanding, conflict and reconciliation that I have described here. If
these two great peoples can develop a relationship underpinned by their sim-
ilarities and where differences are respected and enjoyed, that would be a
source of great hope for everyone.

* * *

My thanks go to Jenny Lawrence, who ploughed through early drafts with a

sharpened pencil and an enthusiasm that was quite unwarranted by the con-
tents. I wish that her other students would realize how lucky they were.
James Kynge was a constant source of ideas and encouragement and is as
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close to a real live zhongguo tong as any of us can get. Jasper Becker, Rowan
Pease, Ian Maskell, Susan Watt and Paul Cartwright all helped with changing
a mass of jumbled papers into something resembling a book. Michael Cronin
is a rock in stormy seas, a great friend and colleague in difficult times. Jung
Chang had the kindness to remember a student from a decade earlier when
she introduced me to Toby Eady. As she said years ago, he is the best agent
that anyone could have. Nick Robinson and Gary Chapman were brilliant
with their new ideas and images and I am grateful to them for providing me
with a much clearer direction. I also want to thank Ludwig Meier for giving
me a break early on, Catherine Pugnat for her great kindness in France and
Lizzie Hicks for suggesting a trip up to China in the first place.
As always, my love and gratitude go to my mother who set us out on our
own paths to happiness. And, of course, those same feelings go to Lorraine.
She was there throughout all the ups and downs. Despite the odd moments of
exasperation, she unfailingly filled the lives of four marvellous children with
love and hope and never lost her nerve.

Tim Clissold
Beijing 2003,
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Postscript

You Only Get to Know Someone After a Huge Exchange of Blows

From ‘The Water Margin’,
an unattributed Ming Dynasty Novel

Just before Chinese Spring Festival, almost twelve years after I first went to
meet Old Shi, Ai Jian and I retraced our steps up into the bamboo groves of
central Anhui. We were trying to buy a company in Europe that made the
same products as Old Shi, so we went to see if we might work together again.
I knew I’d have to be careful, but the rumour was that Old Shi was thriving
down in the valley and there was no denying that he was one of the best oper-
ators around.
All those years earlier, I’d arrived at Hangzhou in a small propeller plane
in the fog and the rain. But this time, under a clear wintry sky, Ai Jian and I
sped along the raised expressways westwards from the coast. We brought a
new business partner, a UK industrialist who had ended up as CEO of a big
engineering group, but who still preferred a good argument on the shop floor
to sitting around in board meetings. I felt a lot safer now we had someone
who knew how to run a large company.
The driver wanted to take the new expressway through Wuhu, but I in-
sisted on going through the hills – just for old times’ sake. I loved the journey
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through the villages, past the houses with sloping roofs and the courtyards of
beaten earth with the thicket fences around. And, besides, I was excited about
seeing my old adversary again. It had been nearly five years.
We lost our way in Hangzhou but eventually found the familiar road that
wound up through the tea bushes towards the bamboo. On that first trip, the
driver stopped for a cigarette at the high point where the road crosses the bor-
der between the two provinces of Anhui and Zhejiang. Over the years, it had
become one of my favourite spots in China. I used to stop there on my
weekly journeys down to Zhongxi during the Battle of Ningshan. I never
tired of the scene: the valley with its stone bridges and little streams, the
winding paths between the little embankments, the farmers scraping about
with their hoes; and in the autumn, after the harvest was in, the odd lonely
tree waving its golden branches out above the sea of rustling bamboo.
The muddy, potholed section of the road that falls towards Thousand Au-
tumns Pass is just the same as it was; but shortly afterwards, the old road dis-
appears off to the right into the undergrowth. Blasted through the rock, a new
four-lane highway roars down the valley. Further on, the valley floor widens
and the highway now sweeps around in a broad arc bypassing the long stone
causeway that leads to Zhongxi Village.
Of course, I couldn’t resist stopping for a look. It had been more than six
years since we kicked Old Shi out of his factory. After I left the company, Pat
soon got fed up with Chang Longwei’s earthy ways and booted him out a few
months later. I didn’t know the new management team so I stood outside for
a few moments. I gazed through the new factory gates that Chang had in-
stalled before his famous firework display, out across the river to the factory
buildings on the other side. There was a slight air of neglect; the factory cer-
tainly needed a coat of paint. I searched for the familiar signs of smoke rising
from the chimneys, but the boilers must have been cold. Old Shi’s lawn in
front of the factory had been dug up and planted with a few ornamental trees,
but they looked lank and brown. Although it was January and I knew I
couldn’t expect the luminescent green of the summer, I felt that the place
looked battered and unloved.
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The village had hardly changed; in the run up to Spring Festival, the road
had been turned into a street market. There were red paper-cuts, Chinese
pastries and ornamental shadow puppets set out on temporary stalls along the
pavements. Occasionally the air was split apart by the roar of Chinese fire-
crackers and there were rows of coal-fired braziers with stacks of bamboo
steamers filled with dumplings on the top. But it was damp and muddy under
foot. The same bored young men sat loafing about on broken bamboo chairs;
and no one had fixed the drains.
The road down the valley from Zhongxi to Ningshan had changed com-
pletely from the pitted, winding road I remembered so well. Occasionally I
could catch sight of a familiar section winding through the countryside in the
distance, but it was clogged with thorns and bushes. After a while, it disap-
peared completely.
Perched on a hilly mound just outside the town, Shi’s factory dominates
the whole area. Just inside the main gates, there were the familiar rows of
fruit trees and signs with quotations from the old philosophers, Lao Zi, Con-
fucius and Mencius. Old Shi kept us waiting for a while, just like the old
days. I thought he looked a bit tired when he arrived. But I found out that he
had only got back from Shanghai at two o’clock the previous morning. He’d
been at the celebrations for a new joint venture he’d just signed with a big
German multinational.
Old Shi still has the magic touch. His business is now six times the size of
the old factory up the valley. Everything about the place is immediately re-
cognizable: the straight lines of machines in the workshops, the clipped box
hedges outside, the neatness of the workers’ uniforms and the slight hush that
falls as Shi walks into the machine shops. He’s feeling successful again these
days and I found that we could talk about the fight without rancour. He told
me that he very nearly went under but the tables have turned again; he thinks
he could put the old factory out of business just by cutting prices in a few of
his older competing lines. But ‘What would be the use of that?’ he said
adding an old Chinese idiom; bu yao ba shiqing zuojue le, ‘We should never
take things to the extreme.’ ‘If the old place went under,’ he said, ‘I’d just
end up having to take care of more workers.’
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For me, that new road through the hills of central China symbolizes a change
that has swept over the whole country. Just like the road, the world has by-
passed joint ventures and now beats a path straight down the valley to the low
cost labour and the successful Chinese entrepreneurs that Shi so perfectly
typifies. Shi’s business has grown from about six million bucks in sales when
we kicked him out, to more than a hundred and fifty million, much of it in ex-
ports. He has factories in Shanghai, Shandong and Shenzhen and dreams of
buying a business abroad. This encapsulates the biggest change in China;
successful businesses no longer need money in the same desperate way as
they did in the early nineties.
I remember, back in 1994, when we wired the fifteen million dollars to
Su’s gearwheel factory down in Sichuan, the bank held the cash in a special
escrow account. It was the biggest transaction they’d ever handled so they as-
sumed that there must have been a clerical error with the amount. They wor-
ried that they’d have to send it back. Later on, when Mr Su decided to grab
the cash and build a gearbox factory without telling us, he did it because he
was absolutely convinced that he’d never, ever get another chance like that in
his entire life.
As capital poured into the country and the domestic banking system gradu-
ally started to fund private businesses, Chinese entrepreneurs seem to have
overcome the extreme short-termism of the early nineties. As their businesses
move up the value chain, Chinese entrepreneurs are more preoccupied with
accessing markets outside China, developing new products and establishing
brands than they are about raising their next hundred thousand. Many are
contemplating acquisitions abroad. It may be that the Chinese will make as
many mistakes investing outside their country as the foreigners did coming
in. Whatever the outcome, Chinese businessmen, and Government officials,
now see the benefits of long-term cooperation with foreigners; and the crucial
result of that change is that they’re much more inclined to play straight.
But don’t be fooled; there are still plenty of opportunities to lose money in
China and the old problems are still there. Anyone who doesn’t believe it
should read the recent New York Stock Exchange filings of China Yuchai, an
SEC listed company which has invested in a big diesel engine business in
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China, run by the redoubtable ‘Chairman Wang’. The accounts, which are
written by lawyers but read like a farce, explain that the company had:

‘repeatedly reminded Mr Wang of his duties as CEO to ensure that the .

. . dividend be paid to . . . shareholders . . . (but) Mr Wang has nonethe-
less continued to withhold payment’. They go on to explain that ‘the re-
cent action by Yuchai management to lock out the Company’s repres-
entatives is improper and contravenes resolutions of Yuchai’s board of
directors’. When the Board eventually tried to sack Mr Wang he de-
clared that ‘termination of his employment as CEO can only be effected
by a board resolution’. And guess what! ‘Mr Wang is refusing to hold a
board meeting . . .’

You can imagine the rest. Wang was eventually forced out years later
when the local government finally tired of the fighting. So while problems re-
main, China has tidied up its act. But how about the foreigners? Are there
still adventurers out there who want to be Mr. China?
There seems to be much more realism than in the glory days of the early
nineties and foreigners have more options now over how to invest. The
Government has relaxed the regulations so most multinationals set up wholly
owned businesses, often for export, and insulate themselves from local haz-
ards that way. Service industries have developed so now there are account-
ants who count and even lawyers who’ve read the odd statute. And there are
plenty of smart young Chinese returning from abroad clutching MBA certi-
ficates. Even so, fifteen years on, some are still chasing that illusive ‘China
Dream’. Billions lost and they still keep coming.
Take the banking industry, for instance, which in 2005 absorbed billions of
foreign capital despite a series of well-publicized scandals. Towards the end
of that year, the China Construction Bank raised eight billion dollars on the
Hong Kong Stock Exchange, which was, according to the Financial Times,
the world’s largest IPO ever for a bank. The shares were oversubscribed forty
times in the retail market even though the Chairman had been forced out six
months earlier because of a corruption investigation by the Central
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Disciplinary Committee. Even he had been in the job for only two years after
the previous Chairman had been convicted of taking bribes and was jailed for
twelve years. Investor confidence wasn’t even dented by the sixty-four frauds
mentioned in the prospectus that occurred in the year, or the storm that erup-
ted the day before the offering when the Chairman of the SEC said that the
bank wouldn’t have been able to list in New York because it couldn’t have
met ‘regulatory requirements’. Meanwhile, the Industrial and Commercial
Bank is busily preparing for an even bigger listing with plans to raise ten bil-
lion dollars.
There’s even the occasional regression back to the 1990s with foreigners
paying stratospheric prices in traditional industries. In the epic battle for con-
trol of the Harbin Brewery between two testosterone-crazed multinationals in
2004, one of them eventually agreed to pay nearly $750 million for the
brewery; three-quarters of a billion dollars for a medium-sized brewery up in
Harbin’s old rustbelt, in a non-core market with high unemployment, where
it’s well below freezing from late October to April so no one drinks beer! The
valuation was reported as being equivalent to a price/earnings ratio of nearly
fifty; a dot.com price for a brewery.

So the business environment is improved but what about the more general
picture? In the past twenty years, the Chinese Government has presided over
the longest sustained period of wealth creation in history. Set against the
background of the past two centuries, the achievements are even more
impressive.
China in its present form has been a unitary state only for less than the av-
erage human lifespan. Before that, there was more than a hundred and fifty
years of chaos as the Qing Dynasty slowly buckled under the weight of a cor-
rupt court, colonial invasion and repeated rebellions. As early as 1775, cracks
started appearing in the edifice when Wang Lun, a martial arts expert and
herbal healer, supported by a motley collection of peasants, bean curd sales-
men, travelling actresses and money-lenders, led the White Lotus Rebellion.
This was the first in a series of huge uprisings against the Qing court and was
put down only after the Qianlong Emperor ordered the mobilization of almost
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the entire army. Wang was eventually cornered and met his death, according
to contemporary accounts, ‘wearing a purple robe, cross-legged and motion-
less, his clothes and beard aflame’.
After that, there were several Muslim revolts until, in the middle of the
nineteenth century, a massive rebellion erupted when insurgents set up a rival
state known as the Taiping Heavenly Kingdom. Orchestrated by a young
Chinese who, after failing the Imperial Examinations for the third time,
emerged from a delirium convinced that he was the younger brother of Jesus,
the Taiping rebellion lasted twelve years and, together with other civil dis-
turbances, was the main cause of a decline in China’s population of fifty mil-
lion people. In four out of five of the worst affected provinces, it took a hun-
dred years before the population returned to the same level.
During the same period, in a scenario strikingly relevant today, foreign
trade imbalances between China and the West eventually led to war. The
Qing tried to stop the importation of opium from British-controlled India, be-
cause of the appalling effect on the local population. Britain launched the
Opium Wars. Defeated and forced into a series of humiliating treaties with
foreigners, the dynasty eventually collapsed completely in 1911 and central
authority dissolved. China descended into a state of warlordism in which the
lives of millions of ordinary people were dominated by the threat of famine
or an immediate violent death.
Over the next few decades, the variations of suffering were endless: in
1931, flooding in the Yangtse inundated an area the size of New York State
and left fourteen million homeless; a few years later, the Japanese invasion
culminated in a frenzy of killings at Nanjing that saw off three hundred thou-
sand civilians in seven days. In a desperate attempt to halt the Japanese ad-
vance towards central China, Chiang Kai-shek ordered the blasting of the
ditches along the Yellow River. The giant flood destroyed four thousand vil-
lages and changed the course of the river by hundreds of miles. Then, when
Japan fell in 1945, China slid into full-scale civil war.
Even after Mao declared the founding of the People’s Republic, there were
a series of policy-induced disasters, including the Great Leap Forward, which
led to sixteen million starving to death, and the Cultural Revolution. So it’s
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only really in the past twenty-five years that China has got its act together.
And the progress is spectacular.
Since the Open Door policy in 1979, China has lifted two hundred and
fifty million people out of absolute poverty, probably the greatest improve-
ment in the human condition ever. The country has attracted more than five
hundred and fifty billion dollars of foreign direct investment, and currency
reserves have risen from about thirty billion at the time we were first looking
at the factories out in the Third Front, to nearly a trillion dollars today if one
includes Hong Kong. A colossal manufacturing infrastructure has been as-
sembled on the Yangtse Delta, which is creating the most profound chal-
lenges to businesses everywhere in the developed world. The lives of mil-
lions of ordinary Chinese have been improved beyond recognition as the ef-
fects slowly trickle down to street level. They now have choices which we
take completely for granted but which would have been unimaginable two
decades ago: choices in clothing, in housing, schooling for their kids, maybe
the chance to buy a car or take a holiday abroad. So the progress is fantastic.

But the challenges that remain are of a completely different order to those
faced by western governments; the complexity seems overwhelming and it
looks as though China may have reached a key moment in its history. To use
a Chinese analogy, the boat has reached the middle of the river: there is no
turning back to the old Maoist certainties of the planned economy; but
equally there is no chart to help that very small group of people, the seven or
eight men and one woman who constitute the core Chinese leadership, to
navigate more than a billion passengers safely over to the other bank.
China suffers huge wealth imbalances between the coast and the inland
provinces, which have sent a hundred and fifty million itinerant workers
swirling towards the sea. That’s the equivalent of the entire US workforce
tramping the streets of the coastal factory towns in search of a job. Corrup-
tion in the middle ranks of the Chinese Government means that the central
government has to make the most extreme efforts in order to transmit sens-
ible national policies down to the local level and tackle the root causes of re-
curring unrest – forty million people took part in demonstrations in China last
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year, almost all of which were against corruption in one form or another,
mostly involving land. There are massive challenges to core structural indus-
tries under the WTO; the protective barriers have come down and domestic
industries are no longer shielded from direct competition with much larger
and more powerful multinationals. In many senses, given the different stages
of business development, it is difficult to imagine a more unlevel playing
field. In the financial sector, integration of the Chinese banks with the global
financial markets brings with it the most extreme dangers because of the as-
tronomical sums of money that have started to flow through creaking systems
in China. On top of all this, there are comprehensive foreign policy chal-
lenges as China tries to access resources it needs to grow and deal with the
great sparking point over the Taiwan Straits.
Finally, further inland, in many places there is almost complete degrada-
tion of the natural environment: seven out of the ten most polluted cities in
the world are in China. In places, the sun sets at two o’clock in the afternoon;
the sky is black, the ground is black, the riverbeds are just smashed rocks and
thorn bushes; the deforestation and dense smog that hangs over the cities are
unbelievable; it will take billions and thirty years to fix. In the meantime, Ch-
ina has to feed nearly a quarter of the world’s population on a seventh of the
planet’s arable land.
The people with their hands on the tiller – that small band of political and
business leaders – are attempting to manoeuvre the boat through all these
obstacles knowing that China is fragile and difficult to govern. They know
that, every so often, at regular intervals in its long history, China has suffered
complete system collapse and that the whole of its political economy and
civil society has dissolved into chaos. If that happened again it would be a
catastrophe that would render the whole of the past twenty-five years’ pro-
gress to be completely meaningless and, because of the size of China and the
degree of integration with the global economy, it would be a disaster for the
whole world. So it is in the context of this huge struggle to modernize China,
with the knowledge that the cost of failure is so immeasurably high, that the
full magnitude of the task faced by the Chinese leadership finally becomes
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clear. As they take on this awesome responsibility, we should hope for all our
sakes that they find a way to succeed.

Tim Clissold
North Yorkshire 2005,
@Created by PDF to ePub