Mr. China Read online

  As time wore on, the types of businesses that Pat wanted to buy became increasingly 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. ‘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 customers. 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 authorities 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 continued, ‘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 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.

  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-Autumn 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 contact 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 management 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 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 travelled much beyond the mainland except to Hong Kong. As well as soft features 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 local 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 problem. Attention shifted back to tracing Wang.

  The following day another call came in from Zhuhai. It was the finance department 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 whirring 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 international 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, 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 h
as one of the best golf courses in China. 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 harbour gradually grew into a colony known as Macau, or Ao-men in Chinese. 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 alleyways 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 magnificence, 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 missing. She stood swaying to the music with a large gin in one hand and the other 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. Inside, 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 Portuguese had only a few more years in which to govern.

  There was a particular problem in Macau. The southern Chinese are notorious 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 destination for Chinese businessmen. Gradually, more sinister activities grew on 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 Guangdong had always been difficult to administer from Beijing due to the huge distances involved and both Hong Kong and Macau were governed by remote and distracted European capitals. With these three different legal jurisdictions, 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 territories 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 restaurants 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 negotiations we agreed a deal and signed up to invest about eight million in a 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 developing 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 realized 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 lawyers. 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 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 Amazonite registered in Panama with all the correct references.

  ‘That’s your ship, all right,’ he said. ‘But it left Singapore on 14 November, 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 Institute 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 document 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, facilitating secret communication between officials and undertaking much of the political infighting necessary for climbing the Chinese hierarchy. Consequently 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 politics which we, at that time, so clearly lacked. I liked Li Wei when I met him. 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.