Mr. China (24 page)

The factory started in the mid-1970s as a tiny workshop making plastic sheets. For years, a handful of workers sweated blood to make ends meet, eking out the most basic existence. Then one day
Shi arrived in the village, a stranger from the distant flat-lands near the coast. In little more than a decade he had built a business that transformed the tiny hamlet and, by the time I first
went there, it provided job security to the three thousand workers who lived in the village and the surrounding fields.

*   *   *

Old Shi was born in Jiangsu in 1947 in the low-lying coastal region just north of the Yangtse Delta. In the early 1940s Japanese invaders had smashed this whole coastal area but
the occupation collapsed shortly before Shi was born, leaving chaos in its wake. I never heard Shi talk about his early days but they can’t have been easy. By the time he reached his
twenties, the turmoil of the Cultural Revolution was at its peak. The local gossip was that Shi had met with some trouble in Jiangsu and had been sent up to Harbin where he had been locked up in a
freezing cell. When I first heard the story, it was long before my first trip to Harbin, so I didn’t know that the winter there was so cold that many people freeze to death each year. The
conditions in a Harbin prison in the Cultural Revolution are hard to imagine. When Shi finally got out, he came to Zhongxi as an outcast in search, so he said, for the peace to read. I think that
it must have been more to escape and forget.

Back then, the locals had absolutely nothing but for the clothes they stood in, a few cooking stoves, the plastics workshop and some wretched houses. Getting enough to eat was a constant worry
and life was unremittingly harsh, especially in winter. The only source of work was farming or the tiny factory. Shi was interested in the business and soon the workers asked him to take over. He
agreed and took out his first loan. It was five gallons of diesel to run the old generator. Electricity had not yet made its way up the valley.

Several years later, Shi struck up a friendship with an old Japanese man who had retired but, for some reason, wanted to help a struggling Chinese business. With this newly acquired know-how,
the tiny business signed up customers in China’s mining industry. Rubber seals were a particular problem on the hydraulic supports used in China’s deep coal mines. The whole mining
industry in China had a terrible safety record and Shi soon found willing customers. In a short time, he was able to persuade the local Agricultural Bank to lend him thirty thousand
renminbi,
which, at the time, was about six thousand dollars.

Once Shi had access even to these meagre resources, the business grew rapidly. Shi was a born optimist and his engaging character was perfect for a business leader. He was a great storyteller,
always had a quick answer and he inspired his workers with his optimism, his theatrics and his appetite for risk. He was entirely self-educated; all the schools had been closed during the Cultural
Revolution. He read voraciously and his conversation drew on the poems handed down by the ancients. He was in his early fifties when I first met him and he had a slightly wild appearance, with
unruly hair and rather staring eyes. He seemed to lean forward at an odd angle when he talked to you. He smoked continuously, fretting about his health at the same time. In earlier years, he was
given to wearing a jacket and trousers with enormous checks that didn’t quite match. Years later, after we had made our investment, these outfits raised the odd eyebrow on Wall Street and
they disappeared quickly afterwards.

By the mid-1980s business was good and Shi started to make a bit of money. The little business borrowed to buy more technology from a Japanese company introduced by his old friend. This was
progress but there was a problem. The rubber available in China was of poor quality. It wasn’t good enough to make the new products and difficulties in importing good rubber threatened to
strangle the business. At that time, China’s economy was tightly controlled and access to foreign currency was restricted. No one abroad would accept
renminbi.
As a solution, Shi set
up another factory. In a hook of the river, a stone’s throw downstream, he built a new factory that made simple car jacks. Although they would never make fat profits, the jacks could be
exported to America for much-needed dollars. Through his jack factory, Shi had ingeniously created a currency exchange.

In the following years, the business won many awards for quality and Shi’s reputation spread far beyond the valley. By 1990, sales were several million dollars a year and he started to
export to his old friends in Japan.

Then, after Deng’s Southern Tour, when the State banks opened up the coffers, Shi grabbed the opportunity. With a hugely ambitious plan, he tried to quadruple the factory’s output at
a stroke and started building a gigantic facility on the opposite side of the river. He did this by taking out short-term loans that could be approved locally under China’s bizarre rules of
central planning. These were meant only for working capital, but Shi invested the money in a huge building and lots of new equipment. By early 1994, just at the time that we raised our first fund,
it looked as if China was overheating and the government took fright. It tried to rein in the exploding economy and called in short-term loans. Shi had to repay the money. He was caught with his
checked trousers round his ankles and embarrassing discussions with the bank commenced. This gave us our chance. We had the cash to give him a way out.

The negotiations to buy a share in the business were straightforward. Shi always knew his mind and made quick, precise decisions. He was flexible and only dug his heels in on
two points: our cash had to come quickly and he was to remain in charge. After a couple of meetings, we agreed a handshake; twelve million for 60 per cent of the new business. Accountants and
lawyers were dispatched to work out the details. That was the time when Shi suddenly came up to Beijing and persuaded Pat to sign the investment contract.

Despite the explosions from the Board in New York and the mess with the accountants and lawyers, it had all been sorted out in the end. On 8 September 1994, we made our first investment and the
money was wired across to Shi’s account in Ningshan.

We got off to a good start. The joint venture was officially opened with a fusillade of Chinese firecrackers that lasted several minutes. After a tour of the factory, during
which one of our factory rats dropped a cigarette on the ground and Shi pointedly bent down and picked it up, we withdrew to hold the first board meeting. Shi was relaxed and in good form, but at
precisely the moment when he declared the meeting open a huge landscape painting, twelve feet in length, fell from the wall and crashed to the ground. There was an uncomfortable pause.

1995 was a happy year and the honeymoon endured as the seasons turned. 1996 was even better. Newly acquired plant and machinery had been put to work. Revenues doubled, profits trebled, new
products started to flow and everybody was happy. On visits to the factory, I could feel the place humming. Shi bought himself a Mercedes and was enjoying his success.

The careers of local Party officials often benefited from a big foreign investment and ours was by far the largest in the whole prefecture. As his friends in the Government rose up the political
hierarchy on the back of his achievements, Shi’s reputation grew. He was appointed as a People’s Deputy in the Provincial Assembly. The road between Zhongxi and Ningshan, the main town
of the county, was repaired and Shi gave a handsome donation to the Village Committee for a new office building. His influence waxed and, stirred by these successes, the seeds of wider ambitions
grew silently in his mind.

During the summer, there are often heavy rains in central China and that year was no exception. The river that ran through the factory compound rose to dangerous levels and
finally burst its banks in the small hours of the morning of 16 July. Muddy water surged into the dormitories and the factory buildings, submerging large areas and damaging equipment. For several
days beforehand, the workers had desperately shovelled sand and ballast on to the banks but finally the flood had been too much. Exhausted, they retreated up the hills and waited miserably until it
receded.

The next day, one of our junior managers telephoned Shi from Beijing and pressed him on details of the insurance cover. I was horrified when I heard. It made us look indifferent to the human
side of the disaster and as though we were only interested in recovering our losses. Pat asked Ai to visit Shi in an attempt to atone for the blunder and he found him greatly upset. His niece had
been badly hurt in a traffic accident on the road up into the mountains and her friend from the village had been killed. Ai Jian met with Shi very early in the morning in his office. A tear had
appeared as Shi turned his face to the wall and said
waiguoren meiyou renqing gam ‘
Foreigners have no human feeling.’ It had been a dreadful blunder.

1997 saw slower growth but we were preoccupied with the problems in Harbin and Zhuhai. The business in Ningshan was still profitable after all. But I had an ominous conversation in April. Shi
had received permission from the Central Government to take his company to the stock market in Shanghai. This might net him a huge profit but in order to list he needed more than 50 per cent of the
business. He had already sold 60 per cent to us so he wanted to know if he could buy back some of the shares. When I declined the conversation became tetchy. He complained vigorously about the
performance of the other factory directors. ‘Most of them are just old state-run bureaucrats, like Pang in Harbin,’ he said, ‘but the others, you foreigners don’t know how
to control them. Now that Wang has stolen your money in Zhuhai, you don’t trust any of us.’ When Shi had signed up with us, he thought that he had found a strong financial partner who
could give him all the money that he needed. He had readily bought into Pat’s strategy of buying up many businesses in China and building a national company but by then he felt that he was
being dragged backwards by the problems at the other businesses.

Although the relationship was a little strained on the surface, whenever I spent time with Shi he was immensely reassuring. The business was running smoothly and Pat brought in a large US
partner with modern technology. Shi seemed happy and the future still looked promising.

Then, suddenly, Shi arrived in Beijing. He said that the rubber business no longer needed his undivided attention. Several senior officials from the Prefectural Government had recently paid a
visit and they needed his help. Many of the state-owned businesses in the area were making losses and unemployment was a big headache for the Government. They hoped that Shi might buy some
factories and turn them around; the government might even get some cash in the transaction. Shi was interested in a paper factory in the nearby town of Guangde but he needed money. Would we buy
another 20 per cent of the joint venture from him? He was looking for $10 million.

As the months rolled on, we talked round and round. There was a dilemma. If we refused, we might further alienate Shi. He was our best manager so switching horses at that stage was not an
option. But if we bought more of his shares, he would only be left with 20 per cent and he might lose interest. After much debate, we agreed to go ahead. The price was eventually bargained down to
six million. But we had one absolute condition where we would not compromise: Shi had to sign an agreement promising that he would not use the money to compete with us. The papers were drawn up and
on 17 December we became 80 per cent shareholders. By the end of the year, Shi had another six million in his bank account. We were pleased with the result. We had kept our management team happy
and motivated, and we had an extra 20 per cent for a good price. The future looked rosy and any uneasiness about Shi was put on the back burner. A couple of months afterwards, I went to France.

When I went down to Ningshan after recovering from my illness and first heard about Shi’s second factory, I wasn’t sure what to believe; there were plenty of
stories but not much hard evidence. I raised it with Shi, but he was blandly reassuring. ‘China is always awash with rumours,’ he said, ‘but you should be able to work out the
truth.’

When the time came to leave the factory at the end of that trip to Ningshan, I remember that the car was a little late. I walked out on to the perfect lawn in front of the factory. The green of
the grass was cool and almost luminescent in the late-afternoon sunlight. I looked around me and took in the neat office building, the workers’ dormitories, the rows of magnolia trees, the
clipped hedges, the sound of the river, the mountains and the birds around me. The scent of viburnum drifted over from the river bank. I felt a profound sense of calm and order. Workers in uniform
chatted contentedly as they went quietly about their business. In the distance, the garden of Shi’s apartment was bright with the blossoms of the fruit trees. I dismissed the rumours. Nobody
could be so stupid as to risk all this.

Pat went to Ningshan a month later and came back saying that the meetings had gone well. However, I heard later from Li Wei that Pat had arrived at the factory at about one o’clock and
wanted to meet Shi as soon as he got there. But Shi had left instructions that he didn’t want to be disturbed from his lunchtime nap until three. He kept Pat waiting and when Shi eventually
walked into the room his hair was uncombed and he yawned and stretched ostentatiously. It was not a good omen.

Six months on, again without warning, Shi arrived in Beijing. We all met with him in Pat’s large semicircular office. Shi said that he had been thinking about the future and that he was no
longer so interested in the rubber business. His whole demeanour had changed; his manner was impatient and bored. It was as if he found talking to us a laborious chore and he made little effort to
conceal his feelings. As he spoke, he pointedly lapsed into the familiar form of address in Chinese and said that he would be prepared to carry on but only if we changed the arrangements. He would
pay us some interest on the money that we had invested, but he would keep the profits. From then on, we would have nothing to do with managing the business but he would send us the occasional set
of accounts. ‘It’s the norm nowadays in taking over state-run companies,’ he said. He then announced that if we didn’t agree, he would simply leave and his people would go
with him. We would be welcome to the empty buildings. Then he left.