student days were short-lived and I soon joined an investment firm run by a Wall Street veteran who was building the first large foreign direct investment business in China. Over the period of a few years, he’d raised $400 million and pumped it into twenty factories across China, ending up with nearly twenty-five thousand employees.
The speed of China’s development in those years was difficult to take in; around the Yangtse and Pearl River deltas, shiny new cities rose up out of marshlands in just a few months. Little fishing villages became gigantic container ports, hydroelectric dams choked mighty rivers, and four-lane superhighways were blasted through rock faces. For more than a decade, China existed in a state of supreme upheaval. The government fought to maintain order as it embarked on a programme of massive reform, removing the props of the command economy while billions in foreign investment poured into the coastal provinces. As China awoke from a century of slumber, deep within the interior 150 million workers rose up out of the country villages like a tidal wave and swirled towards the coast.
Many of the factories we had invested in were in remote regions of China, where central authority was weaker. ‘The mountains are high and the emperor is far away,’ goes the old provincial saying about the distant authorities in Beijing. The country is too big to be controlled from a single centre, and unless events catch the attention of Beijing, local interests can often take over. We became embroiled in unequal disputes in far-flung places. Land was transferred out of our joint ventures to prop up loans for other local businesses. Bank transfers and capital investments were made without approval, cash was stuffed into safes in back offices with no records, and contracts were routinely ignored. For a long time, it looked as though we might lose the investment.
It took years to sort out the mess, and during that time, I travelled to almost every province in China. We had strikes and lockouts, sieges and court cases, and had been pursued across the country by officials with writs and freezing orders. But gradually, over a period of several years, the relationships with our Chinese partners smoothed out and the businesses started making money. We got better control of the assets and sales started to grow on the back of the China boom. Most of the investment was saved, together with the jobs of the twenty-five thousand workers, but after nearly seven years in the combat zone of Chinese investment, I was exhausted. I needed some time out to think.
Several years earlier, I’d married my old college classmate – ou duan si lian, as the Chinese would say of a reconnected love-affair: ‘lotus roots may snap but their threads stay attached.’ When Lorraine came to live in Beijing, life’s possibilities multiplied overnight. She had arrived with two small boys – my stepsons Max, aged five, and Christian, who was three – followed a year or so later by our children, Sam and Honor. Weekends were taken up by trips out to remoter parts of the Great Wall, scrambling up the Ming Tombs with a couple of dogs or splashing about on Kunming Lake at the Summer Palace. The foreign community was small in those days and there was still a sense of adventure about a posting to Beijing.
Around the time I was thinking about moving on from the investment business, Lorraine came home one day with news that she had found an old courtyard home for rent about a mile or so east of Tiananmen Square. Hidden in a backstreet, it had been part of the former residence of a Qing Dynasty official; I didn’t need much persuading to move back to the old alleyways.
The courtyard had a large south-facing hall behind a row of red lacquered columns. It stood on a stone terrace looking out onto a garden where an old wisteria climbed up into the carved woodwork under the eaves. The alleyway outside was named after the old imperial grain warehouses. Farther down, clouds of steam rose from a line of shabby street restaurants. At lunchtime, they were packed with labourers from the provinces. Oil drums stuffed with red-hot coals lined the street; cooks in white hats threw handfuls of Sichuan peppercorns into their woks as they shouted out for customers. At the end of the street, there was an old Buddhist temple with big bronze studs on the doorways and glazed black tiles on the rooftops. Inside, a drum tower stood next to a huge cherry tree that burst into blossom in springtime. During festivals, there were concerts in the temple and the air was filled with the smell of incense and the strange chanting of monks. For me, it felt completely natural to be back in the hutongs and connected to the old way of life. On our first night, as I sat in the courtyard with the children, a storm rolled across the city and chunks of ice fell down among torrents of warm water. But after the downpour, the skies quickly cleared and the familiar smell of stir-fry drifted over the wall from next door. The stars came out and, high above our heads, a kite tugged a long trail of candlelit lanterns across the sky, tiny red dots dancing about against a backdrop of darkening blue.
After we moved to the hutong, I took a few months off from work to try to make sense of what happened to the investment business. The prospect of losing so much money and the lessons learned in the fight to recover it had forced me to dismantle entirely my ideas about dealing with China. I had been made to rethink some of my most basic assumptions. One thing was for sure: if you stuck by Western rules, you were finished.
I’d learned my hardest lesson after we’d been hit by a fraud in the southern city of Zhuhai, which sits next to the old Portuguese colony of Macau, far away on China’s southern coast but not so far from Hong Kong. We’d invested about $8 million in a brake-pad factory down there but a few months after we wired in the money, the factory director went on a trip to the United States to attend a trade fair in Las Vegas – and he didn’t come back. We discovered subsequently that he had gone to Hong Kong with four letters of credit – like unbounceable cheques drawn against our account – with a face value of $5 million. There he exchanged them for cash and – carrying what the police described as ‘a large suitcase’, presumably containing the banknotes – he boarded a plane for America. That was the last that we heard of him. In the seat beside him on the way out was the deputy bank manager of the branch that had opened the letters of credit. It was obviously a scam.
Our response to the news had been catastrophic. When I tried to explain what had happened over the crackling phone lines to New York, there had been an instant, knee-jerk reaction. The directors there immediately ordered a highly sophisticated legal operation involving hordes of expensive lawyers all waving worldwide Mareva injunctions, which were aimed at freezing the bank’s assets on the basis that the branch officials must have known about the scam and that the bank was therefore liable. The case ended up in China’s Supreme Court and, after two years of pointless arguments, we lost. It was a disaster – I remembered bitterly that when the factory director had disappeared from Zhuhai, our cash was still in the account because the letters of credit had not yet been presented. One of our other Chinese factory directors had looked at me with a slightly puzzled expression and asked, ‘Why did you go to the court? You could have just transferred the cash out in small amounts without the bank noticing and when the documents arrived, they’d be left with the bill.’ We’d done the opposite; the board had metaphorically marched up to the city gates, announced a full frontal assault, and then assailed the bank with highly sophisticated legal weaponry that was completely useless for dealing with the actual problem. As soon as the bank realized what was going on, they took one look at the court papers, made a quick call to the local government, and froze all our accounts. We never recovered a cent.
Those seven years on the front lines of Chinese business taught me that foreigners had no way to impose their ideas on China from the outside; I’d learned the hard way that if you wanted to survive in China, it had to be on Chinese terms. I had been forced to think through new ideas as basic as how society, business and government could be organized and how to compete on foreign terrain. There seemed no option but to abandon some of the basic assumptions I’d brought with me from the West. I could see that China had its own modes of behaviour, its own conventions, and accepted ways of doing things that were different from our own. China’s way of working seemed difficult to pin down, but every country, every society has its own internal logic; it may not be obvious from the surface but I felt there must be some overarching rationale, some consistent narrative to how China worked. Perhaps it was something in my background that made me seek a more ordered explanation to
