Mr. China

  TIM CLISSOLD has worked in China for sixteen years and travelled there extensively. After graduating in Physics from Cambridge University and working 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-China 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 investment in brand-new markets.’

  Economist

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

  ‘Such a good book. It is a must-read . . . don’t leave home, heading for China, without it.’

  China Economic Review

  Mr. China

  Tim Clissold

  ROBINSON

  London

  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 other than that in which it is published and without a similar condition including this condition being 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

  For

  Christian, Honor, Max and Sam

  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.’

  Everything under heaven is in utter chaos;

  the situation is excellent.

  Chairman Mao

  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

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

  The Iron Tree Blossoms

  Author’s Note

  Postscript

  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 China’ 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.

  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 colleague in Shanghai had set up my meeting and I had no particular expectations. 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 carpet 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 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 another wealthy US business executive using the boom in Hong Kong as a cover 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 matching 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 announcement 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 t
o 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.’ 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 investment 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, persuading 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 division. 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 other 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 capital infusion to take it to the next level. Pat had led the protracted and complex 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 – 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 infectious, 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 successful,’ 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 Asian 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 annual bonus of twelve million dollars. Bill was convinced that the Asian economies were on the way up and decided that Hong Kong would be one of the 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 modernize 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 leaders 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 factories 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 capital 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 economy 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?’

  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 carelessly 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 th
e 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 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 trailing 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.