Mr. China (16 page)

I felt an appalling guilt at these developments. We had handled it badly, that was for sure. In retrospect I could see that we had missed opportunities to draw the ministry on to our side or
moments when we might have negotiated our way out of the mess. But who would have guessed that the situation would ever get so complicated or so severe, or that Pang would go to such lengths to
protect his own position? Or that the contract would have been so useless? It didn’t make sense. All we had wanted to do was to build a strong business where all parties could benefit but
we’d ended up achieving the exact opposite. I felt confusion and anger – and a deep sense of frustration that such an opportunity had been wasted by our inability to rein in one
individual. All I could do then was survey the wreckage: the broken buildings and the broken lives, up in the ice and the cold.

During the time that the dispute in Harbin was rumbling on I had my first disagreements with Pat. Tension crept slowly into our relationship as he continued to push forward
full steam with new investments rather than sort out what we had already got. He wanted to start investing in other industries like float glass and cement. I felt that it was as if the whole of
China had been reduced to a business-school case study; as if we were dealing with the abstract, a place where theory remained undisturbed by reality. Pat had never tried to learn any Chinese and I
felt that this kept him more remote from what was actually happening in the factories. None of the Chinese ever dared to tell him what was really going on, and he had no way to wheedle it out of
them. Of course, he was meant to be leading from the front; part of his undoubted charisma was that he’d never take ‘no’ for an answer. But sometimes I was confused by this
optimism. I remember once reading in the
South China Morning Post
that he had announced that we were planning to go public on the Hong Kong Stock Exchange the following year and raise
another hundred million. ‘We need at least $100 million to ensure adequate trading volume,’ he said. It was the first that I had heard of the plan, and we were bleeding red ink in every
direction.

As time wore on, the types of businesses that Pat wanted to buy became increasingly bizarre. He had met a Madame Yu who had several businesses in southern China. She was looking for four million
to invest in an auto-repair shop and a bonded warehouse. I thought that it was too removed from our core manufacturing business, and we had several rows before Pat insisted on doing the deal. I was
eventually ground down and went along with it reluctantly.

Several months later, I went down to Shenzhen to take a look at the premises for the first time. When we were picked up from the hotel, the driver said that the repair shop was a fifty-minute
drive outside the city. ‘What?’ I said, ‘Who’s going to drive nearly two hours out into the country and back to get their car repaired?’ On the way over, after about
forty minutes, we came across a large checkpoint across the road and we had to show our passports. It was the border of the Shenzhen Special Economic Zone so not only did it take a fifty-minute
drive but local Chinese needed a special travel permit to get to the repair shop from the city.

When we finally arrived we found something that had quite obviously been designed as an office block; it was a six-storey building in the middle of a rice paddy. I was told that the repair shop
was on the fourth floor. It was reached by an extremely narrow circular ramp that required specially trained drivers to manoeuvre the cars round. The walls of the ramp were covered with colourful
marks scraped off the paintwork on the cars of previous customers. I wasn’t remotely surprised when, in our first year, the repair-service income came out at about 5 per cent of budget.

The bonded warehouse was even worse. It didn’t have a licence to import goods into China, which rather defeated the object. The Chinese customs authorities strictly controlled the licences
and we couldn’t start trading without one. A year later Madame Yu finally obtained customs clearance and we held our first board meeting. She told us that in the time since we had signed the
contract rampant smuggling in the region had affected the business case for the warehouse since it undercut our pricing. ‘However,’ Madame Yu continued, ‘if we could all agree to
compete more directly with the others in the market, we will definitely make money.’

I missed the point at first, but Pat knew immediately what she meant. He held up his huge hands in the shape of a big ‘T’. ‘Time out, Madame Yu. Our shareholders are major US
financial institutions and we’re not going into smuggling, period, the end!’

We agreed to dissolve the joint venture instead.

By this time, some of the investors, as well as the Board, had started asking unpleasant questions. Dogged at every step by self-doubts in such a complex and alien environment,
and feeling intense stress, I was caught between Pat’s fearsome optimism, driving ceaselessly forward, and the awful reality at the factories as they spun off in a thousand different
directions. As I tried to rein in both sides, lurching across China from one mess to another, the pressure started taking a physical toll as well. Then, just before Christmas, an incident occurred
that felled me in my tracks. It happened at a factory in the south of China, in a new town on the coast, just across the border from the Portuguese colony of Macau.

One clear winter’s morning in Beijing, as I stared out at the perfect blue November sky and the mountains in the distance, I was interrupted by a phone call. I was
faintly annoyed; blue skies in the Beijing winter are a rarity.

It was a call from Zhuhai. The previous year we had invested in a factory down there in the new town on China’s southern seaboard next to Shenzhen. The factory made brake pads. One of its
managers called me with the news that Wang, the Factory Director, had gone to America just after the Mid-Autumn Festival to attend a trade fair in Las Vegas. But that had been nearly a month
earlier and Wang had not returned as expected. His wife had lost contact with him ten days ago and she was worried. The last time that he had called home he had been in New York and had seemed very
agitated, as if he was frightened that someone else might have been listening. The management team down in Zhuhai didn’t know what to do and wanted our help. We contacted Wang’s host
organization in the States but they were none the wiser, so we filed a missing-person report with the FBI. Another three days passed with no news; Wang’s family were beside themselves with
worry.

I was anxious too. Wang appeared to me to be rather naive; he hadn’t travelled much beyond the mainland except to Hong Kong. As well as soft features and clear skin that made him look
younger than his thirty-seven years, he had a slightly hesitant manner as if he was seeking approval all the time. But it was difficult for me to get the real measure of him. He spoke in the local
dialect, Cantonese, which I could not understand. My immediate worry was that he might have been mugged or had his money stolen in the Big Apple. I wasn’t sure that he’d know what to do
in an emergency and I had heard that he was alone and without translators. A few days later, we sent a letter to Wang’s family and the employees of the joint venture telling them that we were
working with the authorities in America and that we would bear any costs in the event that Wang had been hurt. There wasn’t much else that we could do.

I hadn’t thought of it at first but someone suggested that we should check the bank account at the joint venture, just in case. We called down to ask for the accounts department to check
the balances with the bank and get them to confirm it directly to us in Beijing. The confirmation duly came over the wires; there was still a large balance of US dollars in the account. No problem.
Attention shifted back to tracing Wang.

The following day another call came in from Zhuhai. It was the finance department of the joint venture. They said that they had received a second fax from the bank and wanted to send it up to
me. I said, ‘Fine, go ahead, you know the numbers.’ But the voice said, ‘No, this is an important fax. You need to go and take it from the fax machine yourself.’

I walked down with Michael to fetch the fax. It was already slowly whirring out of the machine. I saw the bank’s letterhead and the first few lines in blurred characters referring to some
letters of credit. That was the first alarm. A letter of credit is like an unbounceable cheque. They are used in international trade when the seller doesn’t know the buyer well enough to send
the goods purely on trust. All the seller needs to do is take the letter to his bank, together with proof that the goods have been sent, and the bank has to cough up the cash.

I stared at the list as it ground slowly out of the machine. There were four letters of credit for equipment that I didn’t recognize – ‘scorching machines’, whatever they
were. The total came to just under five million. Michael and I looked at each other. How could we have issued all these letters to buy this equipment without knowing? The fax was still churning
laboriously out of the machine, along with one of the contracts. I saw that it had been signed and chopped by Wang and was an agreement to buy scorching machines and presses from a company called
Solarworld based in Hong Kong.

‘Solarworld? Who the hell are they?’ said Michael, rapidly scanning across the page. ‘Oh, look – here, at the bottom of that page.’ He pointed out a note to the
contract. It said: ‘Eighty per cent of the proceeds to be paid to Che Lap Hong Company, attention Mr Max.’ We stared at each other. ‘Che Lap Hong?’ My heart sank.
‘Isn’t that one of the shareholders of the Chinese partner?’

‘Yeah, I think so.’

‘So isn’t this just hooking money out of China and straight into one of the Chinese partners’ bank account in Hong Kong?’

We stared at one another.

It was a scam.

Zhuhai is a modern city that sprang up just after Old Deng’s famous Southern Tour. It is rather like a miniature Shenzhen with modern high-rise apartment blocks, smart
restaurants and multi-storey shopping centres. Its streets are broad and lined with palm trees and it has one of the best golf courses in China. And right next to Zhuhai, across a narrow canal,
about forty miles from Hong Kong, lies the old Portuguese colony of Macau.

By the estuary of the Pearl River, where the sluggish muddy waters spill lugubriously into the South China Sea, there is a little bay on the coast of Guangdong. Portuguese merchant ships have
dropped anchor there since the early 1500s. The early trading outposts on the hilltops around the natural harbour gradually grew into a colony known as Macau, or
Ao-men
in Chinese. Portugal
administered it until 1999 when it went back to China, just two years after Hong Kong. On the top of the hill there is a stone fort with extinct cannons still pointing out to sea. Just below,
standing out from the twisted alleyways leading up and down the hillsides, stands the gaunt frame of a wrecked church. The front façade remains intact but nothing besides still stands.

Macau’s position, squashed up between its brash new neighbour Zhuhai and the sea, seemed to emphasize the Portuguese influence on the old trading settlement, with its winding lanes and
ochre-painted villas. At the old Bella Vista, Macau’s famous hotel that stood on the hill behind the harbour, they still served
olla podrida
and
vinho verde
on the veranda
overlooking the bay. The hotel had seen better days but it still retained a faded colonial magnificence, with its columns, arches and stone-tiled floors. Every Saturday night an opera singer,
slightly overweight and well past her ‘sell-by date’, stood belting out her arias under a glass chandelier that had most of its pieces missing. She stood swaying to the music with a
large gin in one hand and the other resting on the top of an upright piano that hadn’t been tuned for years. Down below, in the broad Market Square, there was a handsome town hall with
green-shuttered windows and with stonework all in terracotta tones. Inside, tiles of white and blue lined the staircase that led up to an ancient library.

The hundreds of tiny inlets and coves along the coast meant that the border between Macau and China was almost impossible to police. Smuggling was rife, and secret criminal societies thrived
during the mid-1990s. China was booming and Portugal had little incentive to control the gangs since the Portuguese had only a few more years in which to govern.

There was a particular problem in Macau. The southern Chinese are notorious for their love of gambling. After Liberation it had always been illegal in China. However, under Portuguese rule there
had never been any restrictions in Macau and there were scores of casinos on the seafront and in the large boats moored to the quaysides. Towards the late 1990s, as passports for Chinese nationals
became easier to obtain, Macau became a favourite destination for Chinese businessmen. Gradually, more sinister activities grew on the fringes of Macau’s gaming industry: loan sharking,
extortion and prostitution.