Mr. China (14 page)

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 machinery 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 afternoon 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.

Harbin was famous for its ‘Ice Festival,’ where life-sized statues and buildings, even castles, were carved out of great blocks of ice and lit up from the inside. For a few weeks
around Chinese New Year, the city had a carnival atmosphere: acrobats walked around on stilts, juggling, while Chinese opera singers, their features exaggerated with grotesque pink and purple
face-paint, wailed in the background. Street peddlers milled through the crowd selling
tang hu lu,
long sticks of red sticky sugar-coated crab apples. The sticks were pushed into bundles of
cloth on the back of the bicycles so that they looked like enormous pincushions.

The festival probably gave the people of Harbin a welcome distraction from everyday life; for the rest of the year, getting by was a struggle for most of the locals. Work was scarce and there
wasn’t much around to keep up the spirits with temperatures below freezing from late October until the April thaw. In the depths of winter, it could reach forty degrees below and a bottle of
beer solidified in minutes. On my first trip up to Harbin, I noticed that the ice on the pavements wasn’t slippery: the extreme cold had hardened it to rock. At times it seemed to me that the
air itself had frozen as I saw the smoke from the factory chimney stacks hanging in great black funeral wreaths over the city.

A few weeks after Ironman Jiang came to the factory, Pang decided to counter-attack. He embarked on a campaign of disruption aimed at pushing us out of the factory. He called
suppliers and told them that the joint venture had run out of money. They stopped sending us copper wire and production ground to a halt. He called customers and told them that we’d soon be
out of business. If they delayed payment until we went bust they might never have to come up with the money to pay for goods they’d already taken. Cash dried up and the business stalled, but
Ironman managed to hold it together into the spring. Then, just after Chinese New Year, we received a writ: Pang had lodged an arbitration claim in Beijing. His claim asked the China National
Arbitration Commission to overturn the board resolution and reappoint him as Factory Director. This only served to stoke up the differences between the rival factions in the factory. Pang started
to use the Factory Party Committee to pressure the workers and held meetings where individual managers were forced to declare in favour of ‘the factory or the foreigners’.