Mr. China (22 page)

As I started to think about what to do next, I felt that the core problem was that we had somehow completely failed to get the Chinese on our side. We had invested vast sums of
money into China; that was unusual in itself. There were some global giants who had invested more, but not many. We were the only foreign investor to have put such huge amounts into the inner
provinces where money was most needed but where few investors were willing to go. Su’s gearwheel factory, for instance, was in a tiny village in Sichuan. When I went there in late 1993, I was
the first Westerner ever to visit. When we wired in our investment of fifteen million, it was held in escrow by the Prefectural Bank for four days while they confirmed the amount with the remitting
bank. It was the largest transaction that they had ever handled and they assumed that there had been a clerical error with the amount.

Later we invested in a Third Line factory in Shanxi near where Ai Jian had lived with the peasants. When we arrived, the factory had nothing. It was a huge iron foundry originally built to
supply parts for tanks, but they had never had enough money to get it up and running. Some of the buildings, which had been started in the 1970s, were still not complete. There was hardly an
unbroken window in the whole factory. In winter, it was freezing inside; at dinner, they couldn’t afford beer and in the surrounding fields people still lived in caves. But when we eventually
invested twenty-five million in the factory, we still didn’t seem to get them on our side.

There seemed to be an almost total mutual incomprehension. According to our world-view, we thought that we had something enormously valuable to bring to China, which would enable the factories
to prosper and develop. But the factory directors had seemed to be quite uninterested in building something together with us once the money had arrived. It was as if some things hadn’t
changed in the two hundred years since George III first tried to open up China for business.

In 1793, the British king had sent an emissary to the Chinese Court to negotiate trade relations. The mission lasted two years and involved seven hundred people – doctors, musicians,
painters and soldiers among them – all loaded up with telescopes, porcelain, fabrics and chronometers, models of gunships and a planetarium as gifts for the Emperor. The emissary arrived in
Beijing but was only granted an audience with the Qian Long Emperor after months of bickering over whether he would
kow-tow
by banging his forehead on the ground nine times before addressing
the Emperor. Britain, at the time, was an advanced mercantile nation, on the brink of industrialization and with the most powerful navy on earth so George III, understandably, considered himself an
equal when dealing with the Emperor. But that was utterly removed from the Chinese picture of the world. It never occurred to them that George III would consider himself anything other than the
petty administrator of some distant vassal state and prostrate himself before the Emperor. After months of haggling, a formula was eventually agreed where, according to the emissary, as
representative of the King, he went down on one knee. But after he had been finally ushered into the imperial presence, he was handed an edict by Court officials that had been prepared weeks
beforehand. It read:

It went on to deal with the King’s key request – that permission be granted for trade representatives to reside in China – as follows:

The British eventually responded by blowing up Nanjing. But at the time, the emissary returned to England, completely mystified as to why the Chinese didn’t want the
benefits of trade and technology that he could bring from Europe. The Chinese probably never gave it another thought. To be sure, almost two centuries later Deng had ripped open the doors and let
in the outside, but there were still times when I felt traces of this traditional thinking, the sense that China had endured temporary invasions for centuries but had eventually absorbed the
invaders; that it didn’t need to accommodate a better relationship with foreigners but just take what might be useful at the time and continue on its own chosen path.

There was no point in trying to change China. We had invested the money there and we had to learn to play by its rules.

On the other side, I found the Wall Street world-view almost as immutable as that of China. I had little faith in being able to persuade the Board back in New York to meet the
factory directors on their own terms. When Wang Jinwen had taken out the letters of credit that eventually exposed us to a bill of ten million dollars, the money was still in the bank. We just knew
that there was a commitment that would eventually come home to roost, but it could have taken months to find its way back to Zhuhai. The Chinese solution would have been to transfer most of the
money out of the bank account quietly and in small amounts, until the bank noticed and froze the account or until there was no money left to argue about. We had done the exact opposite and
precipitated a crisis by blustering into the bank’s head office. As soon as the bank’s senior people knew that there was a problem they made a couple of phone calls to the local court
and froze our money while we were embroiled in all-night board meetings with hordes of lawyers discussing injunctions and Worldwide Mareva Orders. There had been a knee-jerk reaction from the US to
hire battalions of private investigators and lawyers in a highly sophisticated response that was completely useless in dealing with the actual problem. Our whole case in Zhuhai rested on our belief
that the bank had not been properly authorized to issue the letters of credit. But we subsequently discovered that, even though he had no authority to do so, Wang had chopped some of the documents
with the company seal or ‘chop’. Chops are little round seals, which are rubbed on red inkpads and are needed to approve virtually every type of document in China from train tickets to
declarations from the Politburo. Under Chinese law, a red chop can authorize a document regardless of whether or not the person who actually chops the document has any authority to do so. This had
made no sense to us as Westerners used to seeing signatures as approval. In China, the system of using chops can lead to a separation of responsibility and power since no one can prove which
individual actually chopped a document. Li Wei used to describe it as a kind of ‘collective irresponsibility’ but the system has been around for thousands of years and it is not about
to change.