Mr. China Page 20

  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 his corner. I liked what I saw: Old Shi, the risk-taker, the opportunist, the optimist, 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.

  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 combative 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 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 water 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 currents 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 dynasties 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 easily 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 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 created 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 elevated position, disgorging limitless quantities of water across the land. Every year in early summer the people of Hubei look anxiously up at the skies, hoping 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 surrounded 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 gateways 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 salesmen, 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 compound 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. 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 casings 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 introduced 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 Jingzhou 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 downstream. He joined the factory, working his way up through engineering and product development before he took over the ma
rketing. 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.

  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 during 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 firecrackers, we became the holder of a 51 per cent interest in one of China’s leading electrical motor factories.

  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 Customs 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 elsewhere. The whole area had the purposeful feel of the modern commercial district 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 noticeboards 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 going 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 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 accept 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 exchange 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 endurance, 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 beyond the point of insensitivity. He was deeply suspicious of everything and he 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 hopelessly 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 surrounding the hig
hway are dotted with scores of ancient oil rigs. In the evenings, 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, gathering momentum. The geography of the region magnified the floods. When the river was forced into the gorges it became compressed into successive 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 countryside 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 Jiujiang 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 themselves 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.