Mr. China Read online

  ‘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, meaning ‘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.

  The Five Star Beer Company had three breweries. The original site founded 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 customers 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. Outside 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 deafening. But despite this dilapidated appearance, the brewery seemed functional 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 venture 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.

  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 reservoirs 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 majority 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 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 receiving 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 effective 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 Guesthouse. Spotting the top officials at both ministries, she asked them to step into 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 banqueting 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 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 into English and repeated slowly in his thick accent. ‘This is an honourable man. This is an honourable man.’ There was absolute silence. It was extraordinary 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 final 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 assets 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 partner’s contribution. Wherever we looked more problems emerged. Xu confessed that the land at the other two breweries was problematic too. The problem 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 quagmire. After Carla had persuaded the ministries to approve the investment, Xu had somehow taken in the wrong set of documents. The mid-level officials had been given instructions to approve the contracts from the top and had never bothered to review them. Completely circumventing normal procedures, 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 pattern of meetings and elaborate toasts at banquets, followed by a disappearance 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-finger, 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?’

  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 investors 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 invulnerable 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 personality prior to her promotion to the Bureau. One of five children, she had 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 alternative 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, Madame 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 Industry Bureau knew of the deal was when it had been chopped by the Ministry. 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 superb 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 t
o 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 Lushan 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 rapidly. 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 consisted 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 insisted that they should continue. The dispute became highly acrimonious after Madame Wu called Mr Fang a ‘peasant hooligan’ and I had the thankless 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.

  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.