Mr. China (33 page)

Over the following decades beer gradually became more popular. Hops were brought in from Xinjiang in the far west of China and the local barley malt was adapted for brewing. More and more locals
acquired the habit, but even in the 1970s beer was a luxury. As the Chinese economy opened up during the 1980s beer gradually became popular and hundreds of small breweries sprang up all over
China. A brewery was a status symbol for the local Party Secretary. It not only provided employment but also implied subtly that the water was pure and that there was enough money around to indulge
in modest luxuries. By the beginning of the 1990s there were over eight hundred breweries all over China churning out beer of dubious quality, mostly on a tiny scale that was hopelessly
inefficient. But these problems were hidden and, on the surface, the market appeared to be huge. Government statistics showed explosive growth; China overtook Germany as the second-largest consumer
of beer, guzzling nearly ten million tons every year. With the economy booming and wages rising, young Chinese flocked to the bars, pockets full of cash, in search of a good time and beer
consumption went through the roof.

The big multinationals that came to China had one significant disadvantage. Famous brand names such as Budweiser, Carlsberg and Heineken meant nothing in China. They might as well have tried to
launch Chinese brand names such as King Benefit, Cloudy Lake, Clock Tower or Dragon-and-Elephant in the States. The real prize for a brewer serious about the Chinese market was to capture a famous
local brand.

Despite the huge number of breweries there were really only a handful of nationally recognized brands in China: Tsingtao in Shandong, Snowflake up in the north-east of the country and the two
Beijing breweries, Beijing Beer and Five Star. After Liberation, Premier Zhou Enlai had encouraged Tsingtao to be China’s national export brand so it became well known outside China. He chose
Five Star as the premium domestic brand and from then on it always appeared on the banquet tables in the Great Hall of the People.

Five Star grew into the largest beer brand in China by licensing its trademarks to local breweries all over the country. In return for a royalty based on the amount of beer produced, Five Star
agreed that these breweries could sell beer under the Five Star name and use its labels and the famous blue logo with the five white stars. For the consumer it was all Five Star beer and often they
didn’t know that it had not been produced in Beijing. By 1993, Five Star had forty-eight licensee breweries all over the country churning out more than a million tons of beer a year. It was
the ultimate prize for a foreign investor in this exploding market but something that appeared hopelessly out of reach. However, we had set our sights high and in early 1994 we got a lucky
break.

In January of that year, Jenny Jiang walked into my office and demanded a job. There was a lot to do and I couldn’t think of any reasonable objection off the top of my
head so she started there and then. She had just graduated from Fu Dan University in Shanghai and had an unusually dominant character. Tall and sinuous, she had an athletic appearance and a brisk
manner that told you she would brook no nonsense. She became my assistant dealing with the breweries and we worked together for five years.

During the Spring Festival in 1994, Jenny was invited to a dinner where she met a mid-level official in the Beijing Government. He had been intrigued to hear about Pat’s investment
strategy and asked her whether someone might like to visit the Government. I grabbed the chance to go.

The Municipal Government of Beijing presides over its citizens from behind high, nondescript walls along a leafy lane called Justice Street just east of Tiananmen Square. Inside the compound are
groups of buildings that look like colonial houses, with shutters over the windows. There are walkways and roundabouts and neatly planted fir trees and the first impression is one of businesslike
efficiency. But after a while I sensed an air of soporific exhaustion, more like something you might expect in a career bureaucrat’s retirement home.

As we sat inside on a huge dusty sofa waiting for our hosts, I took in the surroundings. The room reminded me of that first trip to the Land Bureau in Shanghai all those years ago with the boys
in pinstripes from New York. It looked as though it had last been decorated in the 1930s. It was lifeless and exuded a strange heaviness. There was a smell of dust and old furniture polish. The
dark-painted wood, thick maroon carpet and the clock slowly ticking in the corner made me want to tear open the suffocating brown curtains and grimy windows and let in the light and air.

When the officials finally arrived, I saw from the name cards that they were unusually senior for an appearance at a first meeting. I went through my normal introductions and the assistants
scribbled in their little brown notebooks. The meeting was uneventful but the next day Jenny received another call. A tinny voice at the end of the line said that. ‘It all went so well that
we want you to come back. Today, if possible.’ I was puzzled but made no comment. The next meeting was the same as the first except that the officials attending had real power. Layers of
secretaries and assistants normally protected the directors of the Investment Bureau and the Planning Commission and they rarely appeared in person. They listened politely, without commenting, and
asked me to come back the next day.

Pat arrived back from one of his trips to the States that evening and attended the next meeting. We were shown into a huge meeting-room where Lu Yuchang, Deputy Mayor of Beijing was waiting with
a dozen bureau chiefs. Each bureau was responsible for an industry sector and we soon found out that the one responsible for the breweries in Beijing was the First Light Industry Bureau. In a
matter of minutes, Deputy Mayor Lu instructed the Bureau Chief to arrange a visit to Five Star. It was a bizarre stroke of luck; an introduction from the Government would surely get attention at
the brewery.

Two days later another call came, inviting us to a fourth meeting. We arrived at the gates of the compound and were shown into the same fusty room. As we walked in there was an audible hum and a
huge array of lights was switched on. The Mayor himself walked from the shadows and shook Pat by the hand. A battery of cameramen and sound recordists stood at the back of the room as Pat sat next
to the Mayor and exchanged platitudes. Moments later, the lights went off. Blinking and confused, we were whisked over the road in a line of black limousines to the Beijing Hotel for dinner with
the Deputy Mayor.

This weird sequence of events, culminating in the televised meeting with the Mayor, a member of China’s Politburo, had taken about ten days. It would normally take months of patient
lobbying to see a deputy director and a meeting with the Mayor would be unobtainable for an outsider. The real motive behind these events was only clear in retrospect. It came out a few weeks later
that the State Council had been worried by the slow progress of trade talks with the United States. The Mayor just wanted to be seen on television with an American investor. As always in China, it
was a matter of politics and the officials withdrew afterwards as suddenly and silently as they had appeared. But we had our prize: the introduction to Five Star.

As we drove back late from the dinner, I was thinking about the officials that we had met. I didn’t like them. Their remarks were so predictable that it betrayed an inner reserve that was
spooky. I couldn’t decode their hollow flattery and elaborate words but I felt a heaviness and exhaustion about them. It was as if a vast weight had crushed out all the joy in their lives. It
made me uneasy. I said that I thought I could hear the echoes of the gunfire in Tiananmen Square resonating in those fusty corridors with their high ceilings and antimacassars but Pat was
scornfully dismissive.

‘If you can’t deal with that level of people in China, you shouldn’t be here,’ he said.

We grabbed our chance with both hands and went straight to the man who ran Five Star. Xu Lushan had been born in the early 1950s. His name, meaning ‘Lu Mountain’,
referred to a southern resort town where the Communist Party had held a famous conference. He was a scruffy man, unshaven and wearing a shabby grey suit. Years earlier, he had been the factory
director of a famous
baijiu
factory in Beijing,
er guo tou
or the top of the second wok, but he had moved over to Five Star in the mid-1980s. He always looked a bit sweaty and his
collars were brown around the edges. Balding and with fleshy lips and large watery eyes, he seemed distracted and difficult to pin down. But slowly, through the hot summer, we made progress.

The Five Star Beer Company had three breweries. The original site founded in 1915 lay to the west of Beijing City. Factory Number One was located at 63 South Handkerchief Junction, next to the
south-western railway station. It was a lively area with bustling shops and restaurants.

Somehow the brewery seemed to have taken over the whole street with its smells and its bottles and its crates stacked up high against the walls. Much of the beer in Beijing was delivered on
flat-backed tricycles and the tricycle men sat around in the clogged alleyways, chatting and playing Chinese checkers, waiting for their next assignments. The restaurants were popular and were
always packed at lunchtimes because the beer was so fresh. The door of the brewery led straight into the street and it was always open, so customers used to come in and order beer from reception.
In the entrance hall there was a huge black and white picture of Zhou Enlai. It showed him at a state banquet, toasting the Hungarian Prime Minister with a glass of Five Star.

The brewery itself was chaotic. The oast house stood in the middle of a large courtyard, surrounded by ancient brick buildings that had seen better days. Neglected storehouses were piled high
with old wooden barrels. Outside there was an ancient dray and great heaps of broken pallets. Pipes leaked everywhere and the smell of bitter hops and sickly malt mixed with the sour tang of spilt
beer. Old Russian bottling lines squirted beer under pressure into lines of jostling bottles. The crash of the bottles in constant motion was deafening. But despite this dilapidated appearance, the
brewery seemed functional and the beer tasted good, so with a little new investment we thought that it could be restored to its former glory.

Brewery Number Two was much more impessive. It was located on the northern outskirts of Beijing City and had only been completed in the late 1980s. The cost of construction had spiralled as the
building work had taken much longer than expected. Five Star had huge loans from the local banks and they wanted to pay them off, so Xu was interested in doing a joint venture to bring in new
capital. There had also been some soft loans from the Danish and Belgian governments but he didn’t seem particularly interested in discussing those.

The equipment at Brewery Number Two was all imported and it shone. Vast metal brewing kettles held several tons of beer wort at a time and you could walk up and down staircases surrounding the
tanks. A network of gleaming pipes and filters led to the colossal steel fermenter tanks. These were in a separate building and were each about forty feet high. There were thirty-two of them. There
was a malthouse and the canning lines could fill hundreds of cans every minute.

The facility was vast and even had its own dedicated railway spur for the delivery of bulk raw materials. The noise and the steam and the smells; the constant activity with cans roaring through
the fillers and the shouts of sweating bare-chested workers as they loaded crates onto the queue of trucks gave an air of excitement to the place. It was in contrast to the more sedate pace at
Number One.

I never went to Brewery Number Three. It was much smaller and I had been told that the brewing kettles looked like something out of a Frankenstein movie. The quality of the beer was terrible;
this brewery would clearly have to be closed but the land was valuable so it was included in the discussions.

During our talks with Xu Lushan, we discovered that there was another brewery nearby. It was called Three Ring and produced Five Star beer under licence. It was located in the hills north-east
of Beijing next to the huge reservoirs that serve the city. We visited the brewery and met the man who ran it, Fang Jingyu. Tightly wound, this shaven-headed man ruled his brewery with a rod of
iron. It was obvious that, unless we could bring him inside the tent, Mr Fang would prove a strong competitor for the plodding Xu at Five Star so we agreed that if we did a joint venture with Five
Star we would also invest in Three Ring.

We beat fourteen other suitors when we signed the deal with Five Star and Three Ring. We had trounced many famous names and, in the autumn of that year, amid great celebration, the contracts
were signed, making us the majority partner in four large breweries in China’s capital.

A foreign investment in such a famous old brand as Five Star was a sensitive issue and because of the size of the investment it was beyond the approval limits even of the
Beijing Municipal Government. Without the chops from the state ministries the contract was not effective. Over the coming months, the Government investment bureaux in charge of approving the
contract raised endless questions and difficulties. We began to despair of ever receiving approval – and then someone suggested asking Ambassador Carla Hills for help.

Carla Hills was the United States Trade Representative from 1988 to 1992 and served in the US Cabinet. On leaving office, she became a highly effective international consultant with particular
expertise on China. During the trade talks between China and the US, she had negotiated face to face with Madame Wu Yi, the only female politician of Cabinet rank in China. Wu Yi was in charge of
foreign investment.

Carla arrived very late on a freezing evening in early January. I met her at the airport and despite the fact that she was no longer in office she was given the most courteous VIP treatment. On
the way into town, she grilled me about the Five Star deal. She was in Beijing only for a few days and visited the two key ministries involved in the approval, the Ministry of Foreign Trade and the
State Planning Commission. The officials had tried to fob her off, each promising to approve the deal once the other ministry had signed off, but she outmanoeuvred them at a banquet in the
Diaoyutai State Guesthouse. Spotting the top officials at both ministries, she asked them to step into a side room. Brought face to face, they could no longer blame each other, so they had to agree
to approve the contracts. Carla left the next day, leaving behind a very satisfied client.