Authors: Tim Clissold
The contracts were approved several days later and the cash injected. It was one of the largest equity investments ever made in Beijing’s industry and to mark the event there was a huge
celebration in the Great Hall of the People on Tiananmen Square. This vast Stalinist palace with its cavernous banqueting halls, located on the western flank of the square, can swallow thousands of
people at a time. Our banquet, a modest affair, was attended by only a few hundred.
Deputy Mayor Lu Yuchang reappeared to host the reception. In his speech he said, ‘The issue facing every business in China is not whether they should or should not absorb foreign
investment, but which foreign partner they should chose. Pat came to me and he said that he would invest millions of dollars in Beijing. Many people say that, but he did it.’ Fixing his gaze
on the bureau chiefs’ table and gesturing towards Pat for added effect, he slipped into English and repeated slowly in his thick accent. ‘This is an honourable man. This is an
honourable man.’ There was absolute silence. It was extraordinary for a Chinese politician to endorse a foreigner so directly.
It took a week to unravel the story of our missing fifty-eight million. We knew that our Chinese partner at Five Star had huge loans from one of the state banks, loans that had
been used to build Brewery Number Two. The loans were overdue and the bank officials were worried that they could face a huge bad debt. When they saw such a large balance of cash arrive in the
joint venture bank account, the temptation had been too much. They called in Xu and persuaded him to take back the signature card for the account, replace it with one requiring Xu’s signature
alone and pay off the loans. Xu, always the malleable one, had agreed, but he was now very nervous about our reaction.
Xu came to see us with guilt written all over his face, sweating more than usual and gulping loudly as he struggled through some weak explanations about penalty interest charges. But it was more
or less a fait accompli. The final business licence could not be issued until both sides had put in their assets and without that it was difficult to go to Court. Anyway, that route would take
years and there was a business to run.
Next Xu admitted that he was having trouble transferring the Chinese assets into the joint venture. There was a dispute over a large piece of land at the Third Brewery and this had created a
huge shortfall in the Chinese partner’s contribution. Wherever we looked more problems emerged. Xu confessed that the land at the other two breweries was problematic too. The problem could be
fixed but he needed to pay a large Land Transfer Fee to the Government and the Chinese partner had no money.
It started to dawn on me that we were sliding helplessly into a huge quagmire. After Carla had persuaded the ministries to approve the investment, Xu had somehow taken in the wrong set of
documents. The mid-level officials had been given instructions to approve the contracts from the top and had never bothered to review them. Completely circumventing normal procedures, Xu got the
red chops in two days – but the documents approved were early drafts and contained some horrible inconsistencies. The idea of going to court to force the Chinese partner to put in their
assets on the strength of those contracts was a non-starter.
Calls to the Beijing Government for help were met with a numbing silence. Weeks after the praise and flattery the lines went dead. It was a familiar pattern of meetings and elaborate toasts at
banquets, followed by a disappearance after the cash had arrived. It left a bitter taste. Our only course now was to deal with the intermediate level, Xu’s direct boss.
Madame Wu Hongbo, Chief Engineer of the First Light Industry Bureau of the People’s Municipal Government of Beijing, stalked into the meeting-room with a scowl and threw
her handbag on the table. She had been given the task of sorting out the mess but clearly had the greatest distaste for the job. Hunkering down on the other side of the table, she announced that
she would first interview the management and deal with me later.
‘I have here,’ she said, eyeing the wretched Xu suspiciously through old-fashioned thick-framed glasses, ‘three schedules with the results of each of the big Beijing breweries
for the first quarter.’
Pausing momentarily for Xu to grasp the awful truth that she had armed herself with facts, she raised her voice and, poking the air with her index-finger, lashed him with statistics.
‘Why did Five Star use thirty-five
renminbi
of electricity per tonne of beer when the others used only twenty?’ she said. Without waiting for an answer she surged on.
‘And what were we doing about this fourteen per cent beer-loss? Don’t give me that old excuse about broken filters, you should have fixed that months ago.
‘Why are sales discounts so high when we can never collect the cash?’
I listened, somewhat aghast, to the scolding, as I realized that it might be my turn next. After an hour or so of pummelling, the management team withdrew.
Plucking a small notebook from the depths of her handbag, Madame Wu asked me what I proposed to do to sort out the mess. I told her that I really thought that it was the Chinese partner’s
problem.
‘We came up with the cash,’ I said, ‘and investors just want to know when the deal will close. The Mayor seems to think that we are trustworthy and wants to sort it out,’
I added.
Brushing aside this transparent bluff, she responded sharply that our investors were nothing to do with her and that if we really wanted to solve the problem we could have some workers’
old dormitories instead of the land at Brewery Number Three. I said that there was no way we’d take them. ‘Those useless assets would be a huge burden for the joint venture and anyway
we’ve been through all that with Xu.’
‘Well, how about a kindergarten, then?’ she said. ‘There’s one next to Brewery Number Two.’
‘A kindergarten? What possible use is that in a brewery?!’
Then Madame Wu offered part of a nearby water treatment plant. ‘It might be valuable if you drain away the pond.’
A huge row developed and we got nowhere. Using a strange analogy she said, ‘You agreed to buy some teacups, and it was up to you to check whether they were cracked or not.’ I said
that was fine, but if the teacups weren’t there in the first place she should come up with some cash.
She retorted, ‘Oh, no, I never use money meant for vinegar to buy soy sauce, so there’s no cash for that sort of thing!’
And so round and round we went. After two hours there was deadlock and we glowered at each other over the table.
Short, stout, rather flat-footed and, from my point of view, entirely invulnerable to reason, Madame Wu had trained as an engineer and worked her way up to the position of factory director. She
had taken on a loss-making food-processing business and hauled it round into profit by pure force of personality prior to her promotion to the Bureau. One of five children, she had been born in
Shanghai but had moved to Beijing as a young girl in the 1960s. She came from tough stock and her mother was still fit and healthy well into her late nineties. She was clearly competent at her job,
but she had a ranting style of debating that instantly raised hackles and made me think that she was more intent on exacting catastrophic loss of face from her opponent than on reaching any
reasoned compromise.
After a while I became less convinced that she had any real motivation to solve the problems. It seemed as if she deliberately picked on minor issues and teased them into huge
rows by using provocative language or dismissive gestures. I had realized that she only did it to distract attention when she was on shaky ground but she was so infuriating that it normally worked.
On the occasions when I managed to control my temper, she would adopt the alternative tactic of working herself up into a rage, closing the little notebook on the table and leaning back in her
chair. With folded arms and defiance in her face, she’d shout ‘
bu tan le!
’ – ‘No more discussions!’ The meetings were a nightmare for the assistants
trying to keep notes because we regularly shouted at each other simultaneously in different languages. It got so bad that Jenny once completely lost her temper with
me,
took me into my
office and yelled that I never listened to anything Madame Wu said. It rather shocked me into listening.
Despite almost weekly meetings it took an exhausting eighteen months of shouting, rows and door-slamming to sort out the mess. Throughout, Madame Wu deliberately reinforced her image as a
Chinese Boadicea, wrapped in the national flag and fearlessly defending the nation’s honour against the wealthy foreigners. It went down famously with her superiors at the Bureau. She was
proud of the image and once told me shamelessly that she ‘used to be a soft young girl from Shanghai, but what you see now is a battleaxe from Beijing!’ But, in addition to her innately
turbulent nature, I knew that she felt justified in dealing with us roughly because of the way the joint venture had been set up. We had approached the Beijing Government, rather than the Bureau,
and had used Car-la’s connections to get the contract approved. All the normal procedures had been ignored and the first thing that the First Light Industry Bureau knew of the deal was when
it had been chopped by the Ministry. They were livid for having been kept in the dark and probably relished a certain poetic justice in the way things had turned out. Carla had done a superb job in
manoeuvring the ministers, but it had been an object lesson in how not to use
guanxi
in China.
The mess was only resolved when I had legal papers drawn up to sue the Chinese partner and threw the bundle on to Madame Wu’s desk. We’d been on the brink of agreement for months so
I told her that I’d lodge the suit and go to the newspapers if she didn’t come up with something by the end of the week. I knew that we had a deal because she didn’t immediately
tell me to go to hell. It was a patched-up compromise but deep down I was pleased with it: we got stronger management rights, a bigger shareholding and extended the period of the joint venture from
thirty to fifty years. We had to take on some of the useless dormitories, which increased the burden on the joint venture, but they were sold a few years later to the employees.
The only thing that Madame Wu and I had ever agreed on was that Xu Lushan had to go. She called him into the Bureau after our first meeting and axed him. I never saw him again.
Meanwhile, the business had deteriorated rapidly. The Three Ring Brewery, our other factory in the north-eastern suburbs, was still producing Five Star beer under licence and selling it in Beijing.
This meant that we had the absurd situation where we were competing against ourselves. The licence agreement between Five Star and Three Ring consisted of one page of extremely vague Chinese with
two beautiful red seals at the bottom. Neither party really understood what it meant. Five Star insisted that Three Ring should stop using the Five Star labels whereas Three Ring insisted that they
should continue. The dispute became highly acrimonious after Madame Wu called Mr Fang a ‘peasant hooligan’ and I had the thankless task of trying to resolve the row. Prices fell and a
new competitor from the eastern suburbs started to eat into our markets. We had little time to pick a new general manager to replace the hapless Xu and the pressure was mounting.
After a few weeks, Madame Wu presented her candidate. He was the Party Secretary of a piano factory. I rolled my eyes and asked ‘What next?’ but I suppose that I shouldn’t have
been surprised. Pat went down to meet him and spent a whole day at the piano factory. Lin Huichen had originally been the manager of a sewing-machine business and had made a success of it. He moved
to the piano factory and hired a German engineer to take the product upmarket. With the one-child policy, many affluent Chinese couples bought pianos for their ‘Little Emperors’ and the
market was booming. Lin’s factory was one of the few state-owned Beijing businesses that made money. I had initially thought that it was a ridiculous idea, but Pat came back impressed and
told me to meet Lin.
I met him at the brewery and was rather annoyed to see Madame Wu there as well. I had asked to meet Lin alone but she beamed from ear to ear with an almost maternal pride as she introduced him.
He was a handsome man in his early forties with clear skin and an honest open face. He took me through his work history, which sounded fairly routine, but when it was my turn to ask questions
Madame Wu repeatedly interrupted or corrected Lin’s answers. The only time she was silent was when I asked him why, after his success at the piano factory, he wanted to become the General
Manager of Five Star. I was hoping for some response that might indicate his drive and determination to turn around a former state-owned business and restore the famous Five Star brand to its
former glory, but he just said flatly, ‘Because Madame Wu told me to.’ I glanced sideways at Madame Wu but she sat absolutely immobile, purring quietly and looking intently at the
curtains. The interview dragged on a little and I queried Lin’s lack of brewing experience. He said, ‘You aren’t employing me to make beer, you are employing me to make other
people make and sell good beer. I can’t play the piano but at least I can drink beer.’ By this stage there wasn’t much alternative, so he was duly appointed by the Board as the
second General Manager of Five Star.
Lin started out with great enthusiasm and with a belief that he could turn the business around. The following year, 1997, showed great progress, with sales advancing and losses
cut to near break-even. Lin was an engaging character and his cheery manner did wonders for morale. The sales force was motivated by a new bonus plan and the atmosphere at the factory changed for
the better. There was even progress on sorting out the dispute with Three Ring and we encouraged them to seek new markets. Fang and his sales team at Three Ring put enormous effort into exploring
fresh possibilities. They came out with a new brand that was designed gradually to replace their dependence on Five Star and they made numerous sales trips all over China. They captured nearly half
the market in a town called Chengde just over the Hebei border and decided to make more ambitious forays further afield. One of these early trips was to Outer Mongolia.