When You Do Business In China Everything Gets Thrown At You – Including a Wrench
When the talk turns to Asia, I (P.J.) turn to “Tom” and “Mai” in Hong Kong. We’ve been close friends for 30 years. I prize their view because they refuse to view Asia from “on high.”
They don’t give a damn about the analytical smoke spewing out of the International Monetary Fund, the World Bank, or the Group of Seven blowholes. They could care less about the ego avalanches tumbling from the huge snow jobs in Davos or the tsunami of foreign-trade ignorance rising from Trump tweets measuring 10 on the Richter “earthflake” scale.
They’re successful businesspeople who care about the ground floor of doing business in Asia. And they got in on the ground floor at the very beginning of China’s “Open Door” policy.
Tom has spent the best part of 50 years in Asia, not always of his own free will. During the Vietnam War, he was a surfer dude studying engineering in Southern California. He had a student deferment, but his hippie girlfriend tore up the letters from his draft board.
One day, he came home from surfing and a couple of FBI agents escorted him to the nearest induction center, still wearing his bathing suit. He became an Army Ranger and spent two years as a prisoner of war. He’s the toughest guy I know. He’s made a fortune in mining, metals trading, and steel production.
And Tom tells the truth. Except, maybe, when he’s got a gun to his head. Which has happened in his various business adventures in Africa, Russia, China, and elsewhere.
Tom has spent the best part of 50 years in Asia, not always of his own free will.
I accompanied Tom on a business trip to Egypt right after 9/11. (We were the only guests in the Mena House Hotel overlooking the pyramids.) He and I traveled to the Palestinian areas of the West Bank during the Second Intifada. One night, a couple of Palestinian kids attacked us with a Molotov cocktail. They underestimated the range and the bottle full of gasoline clanked down an alley and sputtered out. Tom looked at the kids and yelled, “If you’d learn to play baseball and didn’t throw like a girl, you could have killed us!”
Tom’s wife Mai is a Hong Kong native fluent in English, Cantonese, and Mandarin. She understands the fabric of the Chinese economy. Literally.
In 1980, when China was beginning to emerge from its Marxist dark age, Mai and her bothers started a textile machinery brokerage firm.
Mai’s job was to take Mainland startup entrepreneurs to Europe (where they encountered their first fork, first escalator, etc.) and arrange for them to purchase used spinning, weaving, and dyeing equipment from the faltering textile companies of Belgium and France.
Tom and I had a long phone conversation the other night. His answers probably make more sense than my questions, since it was breakfast time for him on Victoria Peak and cocktail hour for me in New England…
P.J.: Xi Jinping, general secretary of the Communist Party of China – threat or menace?
Tom: Frankly, I like the guy. He’s getting things done. He’s thinking things through. Nothing but electric cars in China by 2040? Gonna happen. It’s not pillow talk. And he’s getting rid of a lot of corruption. Kicking ass. Or kicking as much ass as he can without getting his own ass kicked out.
P.J.: Doesn’t Chinese military expansionism worry you?
Tom: War? It’s a misplaced worry. The Chinese have their own way of doing things without war. Have you heard the latest news about the disputed Spratly Islands in the South China Sea?
Tom: That’s because there isn’t any latest news. The issue has gone quiet. Even though China is practically building a new continent with landfill in the Spratlys. Why has the issue gone quiet? Let me guess… China went to the Philippines with one big bag of money for the country and one big bag of money for the country’s president Rodrigo Duterte.
P.J.: But what about Vietnam? The Vietnamese are involved in the dispute too, and they’re no pushovers.
Tom: The Chinese will figure something out. Anyway, when it comes to war, China is much more worried about Russia than the U.S. and our so-called friends and allies. The Chinese think the Russians are nuts. They don’t think we are, even with Trump in charge. It’s Russian ships that China wants to keep out of the South China Sea.
P.J.: What about Xi’s crackdown on dissent? That gets a lot of bad press over here.
Tom: Most of the businesspeople on the Mainland don’t care about dissenting against the central government – as long as they can sneak some of their money out to Hong Kong or Singapore or wherever. Most other people don’t care either.
It’s a different country than it was when Tiananmen Square happened. People aren’t working “Mainland Hours” anymore. They say, “No time for dissent.” They’re trying too hard to get a better life. And they’re succeeding. Xi Jinping is seen primarily as promoting business and the economy.
Middle class and what I guess you’d call “upper lower class” Chinese are all about prosperity. If they want anything political, it’s a separation of politics from business and the economy. Again, Xi Jinping is perceived as promoting the separation of politics from business and the economy – although, obviously, they are still connected at the top.
P.J.: Speaking of business and the economy, can you give me your quick-take comparison of the Hong Kong stock market and the Shanghai stock market?
Tom: The Stock Exchange of Hong Kong is tightly linked to U.S. markets. The Shanghai Stock Exchange is not under control. That is to say, it is under control – by certain major “players.”
P.J.: Another problem I can see with China’s economy is rural poverty. You and I have been out in the country. Just a few miles from the big cities, it’s like stepping back into another millennium. And China is still a very rural country, with controls on permission to move to find opportunity.
Tom: Yep. The Chinese government is smart, but not so smart that they’ve been able to figure out what to do about this. Keeping people down on the farm is tough for them. Everybody says, “Maybe if I go to Shanghai, I’ll have a Lexus.”
P.J.: Then there’s the matter of restive ethnic groups, such as the Uyghurs and Tibetans. [There are 55 officially recognized ethnic minorities in China, totaling approximately 117 million people.]
Tom: Also a problem. China wants everybody to be the same. Some say the guiding principle of China is “Confucian.” That’s wrong. “Confusion” would be closer to the mark. Or, rather, the guiding principle is “Lack of Confusion.” The Chinese government’s motto could be, “Nobody Wants Confusion.” Ethnic minorities confuse things. The government is willing to tolerate them. But only in a way that’s… “Stay on top of your mountain and dance around and do your thing. But don’t ask for any special benefits.”
P.J.: I’ve been pestering everybody who knows anything about Asia with the North Korea question. The question being, “WTF?” But in your case, you’ve spent time and done business in China’s Jilin and Liaoning provinces up along the border between China and North Korea. So…
Tom: I have no idea what China’s going to do about North Korea. But I do know that China doesn’t get enough sympathy for what it’s dealing with.
In China, the Northeast is the “Wild West,” a poor and comparatively lawless area with a lot of ethnic Koreans and Mongolians. The place would be a headache even if North Korea never existed. The border is almost 900 miles long, some of it though extremely mountainous terrain, the rest through swamps and along meandering rivers, and all of it highly permeable. Patrolling it is like building Trump’s wall. The North Korean soldiers paddle across at night and steal everything from the Chinese. If Pyongyang ever gets a stock market, go long on the North Korean inner tube industry.
Then Tom and I talked for a while about getting things done in China. It’s not always an easy matter…
In 2006, Tom took me to a Mao-era steel mill in the Guangxi province that his company had bought from the Chinese government for $1, on the condition that Tom keep it operating.
Tom had turned over the steel mill’s operation to his Chinese management team a few years before, but often visited. He loved the place.
The machinery was old-fashioned. Sir Henry Bessemer, who invented the Bessemer converter to mass-produce steel in 1856, would recognize every part of the mill.
What would have baffled Sir Henry was the 2,000 workers that Tom had to fire because they weren’t doing any work. Not to mention the 300 “ghost workers” who were on the mill’s payroll and who didn’t exist at all.
The mill’s workforce was now smaller than the number of ghosts it used to employ.
Tom had to cope with labor unrest. As we were climbing the tower to the blast furnace Tom said, “Here’s where a guy threw a wrench at me.”
“What did you do?” I said.
“I knocked him down the stairs,” Tom said. “After that I got along fine with the workers.”
When it comes to war, China is much more worried about Russia than the U.S. and our so-called friends and allies.
I said, “When you knocked him down the stairs were you wearing an Armani suit like you are now?” Tom said, “Yep.”
There was also a family in the nearby village that, by tradition, had “Theft Rights” at the mill. They stole a railroad train full of iron ore. Tom caught them by the simple expedient of following the train tracks.
Tom bought a 150-pound guard dog from the People’s Liberation Army. Shasha (“Killer”) was still there, delighted to see Tom and wagging a tail that could drive railroad spikes.
Tom’s longest-running difficulty came from a millhand having an affair with a woman working at the chemical factory next door. They “hooked up” in an electrical equipment closet. Midst the throes of passion, the millhand backed into high-voltage circuitry and was electrocuted. (His girlfriend survived – with her hair a bit frizzier than is usual in China.)
The millhand’s widow brought her entire ancestral village (a different village from the “Theft Rights” one) to block the steel mill’s gates. As compensation for her husband’s death, the widow demanded his salary in perpetuity, a job for their mentally disabled daughter, a new house, and payment of her husband’s gambling debts.
“I had to call in the Communist Party officials,” Tom said.
“Did they ship her and her village to a prison camp?” I asked.
“They didn’t do anything. They said it was my problem. I finally settled with the widow for a couple hundred bucks.”
Tom, on the phone to me: But it’s a different country now.
P.J.: Is it really?
P.J.: I wondered.
Tom: It’s still pretty much the same in terms of getting things done.
P.J.: But you haven’t had a wrench thrown at you in a long time.
Tom: Nope. It is a different country – the problems come from much better educated people at a much higher level. It’s a lot easier on the Armani suits.