Mr. China (15 page)

By this time, it was obvious that I had hopelessly underestimated what we were up against and, after months of fighting, the business became dangerously unstable. The banks started calling in
the loans and production was squeezed. There was a growing sense of crisis among the workforce. In China there is no social security so the workers had to rely on their ‘work unit’ for
survival. If the factory collapsed, they would have nowhere else to turn. I went up to Harbin to try to stabilize the situation and met with the banks, the local government and the management team.
There was a clear consensus that Pang had to go. But no one knew how to get rid of him.

I went to the local Municipal Government offices in Harbin and noticed again the Russian influence in the high ceilings, ornate cornices and chandeliers down the hallways. While I was inside,
meeting with the Foreign Investment Bureau, there was a large demonstration outside in the square in front of the government building. It was blocked by hundreds of angry workers. A business had
collapsed and the workers had been left stranded. After nearly fifty years of Communism, it wasn’t surprising that they looked to the government for rescue. We had to leave by a side
gate.

The meeting had been awful; the local government wouldn’t get involved because they were nervous of the Ministry in Beijing. By that time, the Ministry had turned against us. We had
unwittingly become enmeshed in a bizarre triangular dispute involving Pang, the Ministry and ourselves. In fact, the Ministry had wanted to get rid of Pang as much as we did. But when they saw us
at loggerheads with him, they figured that they could divide and rule and grabbed what they reckoned was an opportunity to regain control of the factory. We didn’t know at the time but they
had never authorized Pang to let us have a majority in the joint venture; now they wanted to regain control and wouldn’t help us get rid of Pang unless we agreed to give up some seats on the
Board. It was a complete mess.

Sucked deeper and deeper into the mire, and appalled at the sight of the factory sliding towards bankruptcy, I flailed around trying to find a way to save the business. Finally I heard that one
of the local banks had claimed that they had a mortgage over the land that Pang had supposedly agreed to put into the joint venture. It was a total deadlock.

Back at the factory, I tried to rally the management and gave a speech standing on a little wooden platform next to Ironman Jiang in a workshop at the top of the factory block. It was the only
room big enough to fit in the whole management team. The room was battered, its walls covered with shabby peeling paint. Everyone wore thick padded coats even though they were inside. It was an
uphill battle; I did my best to conceal my growing sense of despair. I had seen earlier that many of the workshops were in a shocking state, with piles of semi-assembled parts on old wooden tables
and uneven stone floors disintegrating underfoot. I knew that the workforce’s morale was at rock bottom, but I tried to raise their spirits and appealed to them to get back to work and unite
around Jiang. If we all pulled together, we would be able to weather the crisis and they should not worry about the court case in Beijing. I was encouraged by some of the comments afterwards but
became dispirited again as I left the factory in the extreme cold of the late afternoon. I had caught sight of Pang’s pinched face squinting through a grimy window. He was hunched up over a
desk, haranguing a group of workers who were sitting dejectedly opposite.

In the coming months, as the business sank further into the mud it started trading on barter. Lack of cash was a common problem in China at that time and many businesses began to exchange
product instead. The knock-on effects passed from customer to supplier and spread throughout the country at an alarming rate. Reinforced by a multiplier effect, soon whole industries were illiquid,
trapped in a mesh of ‘triangular debt’. At one stage, the problem threatened to bring down the entire economy and the Central Government was forced to intervene with a massive cash
injection.

I remember that many of the larger truck manufacturers were so tight for cash that they had to hand over trucks in lieu of payment for components. Several of our businesses had large truck
fleets parked inside the gates. But this made the situation even worse as component suppliers, desperate for cash themselves, dumped the truck fleets on to the market at a discount, forcing the
truck makers to lower prices even further.

Many businesses, particularly in north-eastern China, became like ‘the living dead’, clean out of cash and just limping onwards from day to day in a zombie-like trance without any
real plan for the future. Suppliers kept sending raw materials without much prospect of getting paid except with components, factories shipped goods to customers without expecting anything in
return but trucks, and the workers kept turning up to make product without any prospect of being paid in cash. I heard that one factory down the road in Harbin had been paying its workers in hair
shampoo. The Factory Director had accepted a shipment of soap and shampoo in payment for goods and passed it on to the workers who then sold it in the local markets for cash.

Throughout this time, I had to go back to New York for quarterly board meetings. I had come to dread them; the mood by that time was invariably black and they often ended in
‘scenes’. The meetings took place on the fifty-sixth floor of a glass tower in midtown New York, right at the heart of Manhattan Island. There were six directors on the Board
representing IHC and a big pension fund. By then, the pressure from the Board for profits was intense and there had been strident demands for cost cuts, including radical reductions in the
workforce. But that was completely impractical at that time in China because these was no social security. So the meetings became more and more difficult. My main mental challenge had become
figuring out how to convey accurate news from the Orient without provoking mushroom clouds and streams of molten lava on the other side of the table.

Early in the spring of 1997, as I sat in a little side office and stared out of a window, high up in the clouds, waiting for the meeting to start, I gazed past the crush of colossal towers of
polished glass and marble on Sixth Avenue towards Central Park. I could see the yellow cabs inching slowly along the straight lines of the streets far below. I thought fleetingly that those vast
towers seemed to exude the same feeling of overwhelming power swamping the individual that the Stalinist colossi in China did. But then my mind flew back to the factories and smokestacks and the
knots of bicycles. The two places were on opposite sides of the world and, at that moment, they seemed further apart than ever.

I was soon called into the meeting room. After a brief attempt to compose myself, I walked in with what I hoped was a cheerful smile and said, perhaps just a little too loudly, ‘How
y’ doing!’ I took in the familiar room with its serious faces, the pinstripes and pink ties and the tortoiseshell glasses and I settled down on the far side of the vast table. It
stretched ‘the whole nine yards’ either side of a sleek speakerphone in the middle. Line prints of tall ships hung on the wall and there was a sideboard at the end of the room, laden
with muffins and Danish pastries for breakfast. The smell of coffee filled the room.

‘Diet Coke’s in the fridge if you wannit,’ someone said.

I went into the kitchen in the annexe at the end of the room. The fridge was huge: a hideous white monstrosity that seemed to be about the same size as an apartment back in Changchun.

I went back to my seat and looked through the agenda. I was down to give the Board an ‘update on the issue in Harbin.’

‘Issue?’ I thought. ‘Seems more like a knuckle fight in subpolar temperatures with a Chinese car-horn salesman.’

Whatever: I was relieved to see that I was on just before lunch. With a bit of luck that might distract the others’ attention.

The meetings followed a set pattern, with Pat starting off. He gave a broad-brush summary of the economy in China and any major political developments, plus an overview of what might happen in
the next quarter. Then it was left to Michael to go through the actual results. He often had a hard time explaining the numbers. Translating Chinese accounts into something intelligible on Wall
Street was no easy feat.

One of the directors from the pension fund obviously fancied himself as a hardball player: he was huge, with an enormous pendulous neck that rolled from his ears down to his shoulders. He seemed
to have established the dominant position when it came to tearing apart Michael’s numbers. Every so often, when he’d scored a particular point or sensed some squashiness in the figures,
he’d say, ‘Now, let’s all just push back on that one, shall we?’ Taking his lead, with perfectly choreographed timing, the heads of all the six directors on the other side
of the table would go down. All six leather chairs would roll back silently in unison. A long silence would follow until Hardball signalled a change in the mood; he’d move back in, hunching
over his binder with a frown as the other five chairs rolled inwards to the table with synchronized motion.

‘Michael, what we need here is traction! You gotta get traction!’ It was the buzzword of corporate America at the time; Michael and I often wondered what it really meant. But neither
of us ever had the guts to pretend we’d misunderstood it for ‘tractors’ and say that we didn’t need them because we already had fleets of trucks in the joint ventures. That
particular morning there were no memorable scenes, and the discussions droned on in the background as I went through my presentation in my mind.

As I stood up to go through the Harbin dispute, lunch was wheeled in. I figured that for the next few minutes the ‘Fat Directors’ would be much more preoccupied with choosing between
pastrami sandwiches on rye bread or tuna mayonnaise bagels, so I hurried through the difficult bits. But I knew from experience that this was the time when the ‘Thin Directors’ were at
their most dangerous. They had spent the first two hours of the meeting looking through their diaries, calling their secretaries, receiving important messages and checking their air tickets, but by
the end of the morning, they had exhausted the distractions and they were concentrating. I saw the one with red hair stirring towards the end of the table. He was smart, that one, always asking the
most difficult questions, so I held my breath. Further down, Rubel was scratching his palms, fidgeting about, cleaning his glasses on his tie and rummaging through his papers. He was wagging his
foot so hard that I thought that it might fall off if he carried on much longer. I pressed on but inevitably ignition point was reached soon.

‘Goddammit, look at these numbers. You’re hosing out cash and you’ve got negative gross margins. That means every time you make another one of those things – what are
they, ignition coils or horns or whatever – you’re losing money. We may as well just write the whole lot off and close the thing down. How much did we put in there, anyway?’ he
asked, tearing through the schedules.

‘Er, well, yes, it is problematic, I admit. But we’ve got our man in there and–’

‘But what about the other Chinese guy, Pong or whatever he’s called?’ said Rubel.

‘Pang.’

‘Pang?’

‘Yeah, Pang. Er, he’s still in there as well,’ I replied sheepishly.

‘Well, why don’t you just fire him and have done with it?’

‘What?’

‘Fire him!’

‘Yeah, fire him!’ the others joined in, passing congratulatory glances among themselves.

‘Well, we tried, but he just stayed in the factory.’

‘Fire him!’

‘It’s not as simple as that!’

‘Fire him! Fire him! Fire him!’

The chant seemed to take on the rhythm of some primeval war dance, bodies swaying back and forth to the same beat.

‘Fire him! Fire him! Fire him!’

When it eventually died down, one of the directors said, ‘Well, what does his employment contract say?’

‘His what?’

‘His employment contract,’ he repeated slowly, spitting every syllable through his teeth. ‘What does it say?’

Of course, we didn’t have employment contracts with any of the factory directors. What conceivable use would an employment contract have been up in Harbin? We’d got a cast-iron joint
venture contract that had been approved by the Government and Pang had completely ignored it. But how was I going to explain that? As my mind raced through all the possible escape routes, I thought
fleetingly of telling them that they should just be grateful that they didn’t have to accept dividends in shampoo.

After the board meeting in New York the whole edifice in Harbin collapsed. Ai Jian had just returned from a trip together with someone from the Ministry to try to sort out the
mess with the banks. He had to get through demonstrations at the factory gates and, once the news spread that someone from Beijing had arrived, a group of workers tried to get into the meeting
room. There was a struggle as some of the middle managers tried to block their way in, and a glass door was smashed. One of the workers broke free of the managers restraining him and his shirt was
torn off in the process. He burst into the meeting room half-naked and bruised about the face and picked up a very heavy old-fashioned projector from the middle of the table. As he raised it above
his head, apparently to throw it against the wall, he accidentally struck the ministry man a heavy blow on the side of the head, which sent the official reeling to the floor, concussed. Everyone in
the room froze with the shock; there was absolute silence for a long time. No one dared move. The silence was eventually broken by the sobs of the worker as he sank down slowly onto the table.

Later that day, the demonstrations became ugly after an old woman died on the picket lines. I had heard that she had died from natural causes but Ai would never tell me exactly what had
happened. He just felt that he was lucky to have got out of the factory and wanted to put the whole experience behind him.

Throughout those long months, the arbitration ground slowly forward in Beijing and at the end of the year the decision came out. We won hands down. It ruled that the Board
decision to remove Pang was valid and that he should compensate us for assets that he had failed to put into the joint venture. We had won. Pang left the business, we appointed a new factory
director and Ironman Jiang was able to come back to Beijing. But it was a Pyrrhic victory and it did us no good. The business had been so severely damaged by the dispute that it never recovered.
Years later it was still struggling on, trading on barter and living from day to day under the constant threat of collapse.