Mr. China Read online

  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. Making 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 proposal 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 ambitious. 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 workshops, hundreds of yards long, extending into the distance, a vast new factory complex with chimneys, new power lines and rows of gleaming heat-treatment 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 partner’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 business when we didn’t even know if we could even make the product? But on 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 attitude 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 particular 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 into 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 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 matter 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 electricity’. 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 molten 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.’

  ‘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 always moving equipment. The constant rearrangement of machines seemed almost 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 suggestions 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 customer 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 noticing the exact moment when we lost the thread. We faced enormous difficulties 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 machiner
y 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 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 bringing 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 situation 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 focused 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 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-fashioned, 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 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 balances 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 ellipses, never really getting to the point and blowing up minor details into major 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 constant 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 running the business.

  The relationship deteriorated even further throughout the autumn. Pang had insisted on buying some specialist equipment through an import company 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 profits nowhere in sight and with the business still haemorrhaging cash. Something 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 discussed it with us and he had made us look like fools in front of the other factory directors who, of course, found the spectacle highly entertaining. We decided 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 issue to the back of our minds.

  Late in the afte
rnoon 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 occasions, 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.

  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 contradictory 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 into 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.