Chinese Rules: Five Timeless Lessons for Succeeding in China

In the early summer, the trees awoke and birds filled the hedgerows. On my daily run through the woods, I’d often pause by an old rickety stile and watch the wild deer jumping through the cornfields or the rabbits diving through the thickets. But my mind always flew back to the dusty skies and congested cities, the dry riverbeds threading across the plains, the persimmon orchards out by the Ming Tombs, and the ancient rice terraces on the hillsides where generations of farmers toiled in the squelching mud. I felt stranded at the opposite end of the earth, so I was in a restless, searching mood when I suddenly received that call in the quiet coach, asking me to go back to China.

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WHEN THE HORSE HAS REACHED THE EDGE OF THE CLIFF, IT’S TOO LATE TO DRAW IN THE REINS; (#ulink_8ce274b0-9f44-5a88-a996-69926fa270af)

When the Boat Has Reached the Midst of the Stream, It’s Too Late to Plug All the Holes

Traditional peasant saying

On the same day that I’d received the call from Mina, Rufus Winchester had driven his hybrid-electric car across Hyde Park towards Mayfair in the perfect summer sunshine. Tall, regimental, uptight, and buttoned down, this former British Army officer was an energetic and blustering serial entrepreneur who had survived a string of botched business start-ups. Things had never quite come right for Captain Winchester. But now, he thought to himself, we’re about to hit the big time.

His company, IHCF, had finished its first fund-raising and had signed up nearly €100 million from investors. Together with his partners, an assortment of earnest, well-meaning, and moneyed Englishmen, he had rented a large Georgian mansion in Mayfair as an office and set about hiring a team. Just like an Old Boys Club, the new headquarters had a ballroom on the first floor with high, corniced ceilings, but all the real work took place in cramped attic rooms where the juniors toiled behind computer screens hedging carbon credits in the City. Downstairs, the founders floated about between oak-panelled meeting rooms with the effortless self-confidence that comes from a good public school education. Excitement about carbon credits had just taken hold of the financial markets and IHCF’s fund-raising had been splashed across the front pages. Winchester took in a deep breath, pushed back against the steering wheel, and smiled. He was in the right place at the right time and he knew it.

Immediately after the first hundred million euros rolled in, IHCF had turned its attention to China. Winchester knew that over the past two decades, thousands of new businesses had sprouted up along the coast of China, and that, together with the old state-owned factories in the rustbelt cities of the north, they were cranking out greenhouse gases like there was no tomorrow. It was fertile ground for Winchester’s new firm and in a couple of months his team had found several big projects in China. By the summer, they’d initialled their first transaction. It was a landmark deal to buy a big tranche of carbon credits from a chemical factory in Quzhou, the biggest ever attempted by private investors. There wasn’t enough money in their first fund to cover the contract so they had to go out and find more. Eventually they managed to syndicate the deal with their chums in the City.

It had been three months of exhausting and stressful work, but they’d finally lined up investors. Deutsche Bank had agreed to underwrite the financing and they were ready to sign the contracts. It was a real coup; a big chunk of the first hundred million would be invested well ahead of schedule and the investors were happy. But much more exciting was that they had ‘circles’ around another €500 million from some big European pension funds to put into a second, much larger fund. ‘Just close that deal in Quzhou,’ Winchester thought to himself, ‘and the money’ll come rolling in. If we get those Dutch pension funds signed up, we could end up with a billion and we’ll be the largest carbon fund on the planet!’ It looked as though the last pieces were sliding perfectly into place just at the right time. But then they got a message from Quzhou. Chief Engineer Wang had called unexpectedly from the chemical factory and said that he wanted to change some key terms of the deal.

When they heard about Wang’s last-minute demands, the investors in the syndicate started to waver. It seemed as though the entire financing structure would collapse. The millions that Winchester had lined up from the Dutch pension funds started to crumble in his hands. It looked as though they might lose everything. A few hours later, I got the call from Mina.

At the end of the conversation in the carriage just outside York, Mina had insisted that I drop by at her offices as soon as the train arrived in London. I could see from the address that IHCF was located in one of the most expensive areas of London, so I had hesitated; I’d come down to London to see friends and hadn’t expected to go to a meeting. I was covered in stubble and in need of a haircut. My glasses were twisted out of shape from one of the children standing on them and I was wearing a pair of torn jeans and a thin cotton jacket that was a bit ragged about the elbows, but I had an hour or so to spare so I took the tube over to Mayfair. IHCF’s offices were in a long row of handsome merchant’s houses near to the American embassy; ornate iron railings ran around the ground-floor balconies and a row of Grecian urns stood out along the roofline. Underneath a white portico, a flight of stone steps led up from the pavement towards a highly polished black door. I’d heard that Condoleezza Rice was in town that day so the roads around Bond Street were blocked off and snarled with traffic. I was glad I hadn’t taken a taxi.

I grasped the brass knocker and, after a few moments, there was a click and the door swung open. Inside, a hallway led towards a pair of tall double doors of elaborately inlaid mahogany. There was a marble fireplace on the left with vases at each end. Pale grey panelling reached up towards ornate plaster mouldings on the ceiling. I sat down next to a low glass-topped table strewn with magazines – Country Life and Horse & Hound – crossed one leg over the tear in my jeans, and waited.

After about ten minutes, the double doors burst open and a tall blonde woman bounded in. ‘How you doing? Thanks for dropping by,’ she said, pushing back her hair with one hand and balancing an armful of files on her hip with the other. ‘This week’s been a nightmare!’ she said shaking her head. ‘Let’s grab a coffee and I’ll fill you in on the details.’

We walked through the doors, up a wide staircase towards the back of the building and out onto a terrace, where we settled on a stone balustrade overlooking a garden. There were neat flower beds and clipped box hedges and a lawn that spread out under the shade of an enormous plane tree. Overhead the skies had cleared; the sun’s fading light fell across the leaves with the familiar sharpness of early evening at the end of a perfect summer’s day.

‘Right,’ she said, folding her arms on top of the stack of papers in her lap. ‘We’ve got a bit of a tricky situation here.’ She paused, drew a breath, and looked rather intently at me. ‘It’s like this. We signed up to do the carbon deal I told you about in Quzhou. It’s about a hundred miles inland from Hangzhou. Hangzhou is down on the coast, just south of Shanghai near—’

‘Yeah, I know where Hangzhou is,’ I interrupted.

She paused and glanced at me briefly before continuing with the story.

‘Okay, so we found this big chemical factory out in the sticks,’ she continued. ‘It’s enormous – you wouldn’t believe it – something like eighty thousand people stuck in the middle of nowhere. The factory’s behind these big walls and no one can get in or out except through the gates at the front. I think most of the workers live inside. The factory makes solvents, plastics, that kind of thing, and right in the middle, there’s a reactor that makes coolants, you know, for air conditioners, fridges, and the like. The waste product from the coolant line is really bad; it’s a greenhouse gas that’s thousands of times more potent than CO

and they’re just venting it all into the air.’

‘Well, can’t they get rid of it somehow?’ I asked.

‘That’s the point; they can use incinerators to burn up the gas, but they’re only available in Japan. We’ve signed up to buy carbon credits so the factory can use that income to get loans to buy the equipment. We both initialled the deal a month ago, but it’s huge. Our first fund wasn’t big enough to cover it so we organized a syndicate to come up with the rest of the money. We ended up with about twelve other investors. I can tell you,’ she said, rolling her eyes, ‘getting them all to agree at the same time has been like herding cats!’

‘But why would anyone want these credits?’ I asked.

‘There’s a huge new market for them in Europe and Japan. Under the Kyoto Protocol, governments have capped the amount of greenhouse gases that businesses can emit; if they go over the cap, they have to go into the market and buy up extra permits. Prices are expected to rise as the caps on emissions get tighter. Anyway,’ she said, reverting to the story, ‘they were all about to sign the formal documents, but Wang just called our rep in China and told us he wants to change the terms. Now the syndicate is wobbling and the whole thing looks like it’s about to go belly-up.’ Her nose wrinkled. ‘Fifteen rounds of negotiation, everything was agreed, and now he wants to change the deal.’

‘Sounds familiar.’

‘I was hoping you might say that,’ she said. ‘We’ve been working with a law firm in Beijing and when this all blew up, they gave us your number and said you might help.’

‘Any clues why he suddenly wants to change the terms?’ I asked.

Mina was stumped. Wang was the chief engineer of the chemical plant in Quzhou and seemed to be leading the negotiations even though he had no legal background. But there were others involved as well. She told me that there was a Mr Tang, who seemed to be deputy manager; Mr Yang, who looked after contracts; a Fang, who was in charge of the factory; and a Zhang, who did the accounts. ‘This is ridiculous,’ she sighed, pulling her hair back again, rubbing her eyes, and fumbling around with some name cards. ‘It’s just all so confusing.’

‘Anyway,’ she went on, ‘it’s Wang who’s just called and he wants to change a whole bunch of clauses. Wouldn’t normally matter, but some of them require changes to the financing. You can imagine – as soon as Wang said he wanted more changes, Winchester went ballistic. There’ve been so many different deals along the way that everyone completely lost it when they heard Wang wanted more changes and that they’d have to go back to the syndicate; they’re all terrified that the Chinese side will just walk away from the deal, find another buyer, and leave us stuck with commitments to the banks and nothing left in China.’

‘Well, I can understand that,’ I said. ‘But what do they want to change? Price? Delivery? Any other of the key terms of the deal?’

‘We just got a message from Cordelia in Beijing saying that they want to change the volume under the contract – the number of credits we have to buy – and the investors are all wobbling. There have been so many changes that they’re all starting to think that nothing will stick.’

‘Cordelia?’ I asked. ‘Who’s that?’

Mina explained that Cordelia Kong was a Chinese broker who had introduced her to the project. It seemed that she had established a strong position in the new markets out there. She’d been one of the first movers in the carbon space and had a network of contacts in the ministries in Beijing. But Mina found her to be erratic; after making the initial introductions and running a brief auction for the factory, she seemed to lose interest. She would disappear for long periods without leaving contact details and then suddenly burst back on the scene without warning. Now it looked as though she’d gone down to Shanghai on business but no one could find her.

‘She just sent a message telling us to speak to the Chinese party directly,’ Mina continued, ‘and now her mobile is off. I’ve been calling her office, but they can’t find her, either. I can’t believe it! We’re paying Cordelia a ton of money and she just disappears right when we need her. I heard some Japanese buyers are visiting the factory in a few days; they might even be there already,’ she groaned. ‘If we lose this deal, I’m stuffed!’

‘Okay,’ I said, ‘so we just need to slow everything down, put everything on hold. Try to freeze things where they are now and buy some time till we get out to Quzhou.’

We talked it through for a few minutes and figured that we should send a message out to the factory immediately. If we told Wang we were coming to visit him in a few days, it might stop him from making any final decision to go with one of the other buyers. But it was nighttime in China so we couldn’t just call him. I figured the best thing to do was type out a message in Chinese and fax it over. That way, Wang would find it first thing in the morning. So we trooped upstairs into one of the attic offices. It was crammed with people squinting into computer screens, with electric fans on each desk trying to blow the heat out of the tiny windows.

Mina introduced me to her boss, a pale, wiry New Yorker who tugged at an unruly mop of black hair as he talked about Wang. ‘There’s a standard way of doing these deals,’ he said, shaking his head. ‘I’ve done it a hundred times at Merrill. Just stick to the term sheet, keep the lawyers on a tight leash, and the deal’ll get done. The Chinese just don’t seem to get it!’ he said.

‘I’m not sure it works quite like that over there,’ I said.

‘Why not?’ he replied blankly. ‘It does everywhere else.’

I sat down at Mina’s desk and pulled over a computer but there was no Chinese software to write up a letter. It wouldn’t look right just to send a handwritten message and anyway I hadn’t brought a dictionary. I was stumped. I suggested sending a draft in English to Cordelia’s translator but there was no way Mina was going to agree to that.

‘She’s hopeless!’ Mina said. ‘Last time she dealt directly with Wang, it took a week to sort out the mistranslations.’

‘Okay, so I’ll write it in English but use Chinese-style sentence structures,’ I explained. ‘I’ve done it plenty of times before; that way the translator knows exactly how to put it into Mandarin and we’d be sure that a clear message gets through to Wang by the morning. We don’t have a minute to lose.’

Mina was sceptical but there didn’t seem to be much alternative, so I started typing and two minutes later handed her a piece of paper.

‘I know this looks a bit odd, but it’ll go straight across into Chinese, no problem. The translator won’t be confused by it. Just put it on company letterhead, get your CEO to sign it, and send it over to Beijing. The translator can add in the Chinese in these gaps and you can get her to fax both versions down to the factory first thing in the morning. It’ll be fine.’

‘Er … perhaps you should explain this to Winchester,’ she said after reading the note. ‘I don’t think he’d sign this for me.’

She took me down to Winchester’s office and left me outside the door. I knocked hesitantly and a voice from inside barked, ‘Come!’ Inside, there was a couple of worn leather-backed chairs arranged around a fireplace, with a table strewn with teacups and a plate of half-eaten scones. On the sideboard, a decanter and some glasses stood on a tray next to a couple of old sherry bottles, and over the mantelpiece there was a photograph with rows of men in uniform graduating from Sandhurst.

‘I hear Mina called you in for a recce,’ said a tall man, folding up a copy of the Daily Telegraph and rising stiffly from the desk. Behind him, a set of French windows opened out onto the garden and the breeze ruffled a few papers on the desk. On the wall, there was a large map of Eastern Europe, a sign, perhaps, that the Cold War was still in full swing in Mayfair. ‘Jolly good,’ he continued. ‘Jolly good. Tiresome business, this – the old girl seems a bit down on her chinstraps so it’s good to have you on board. There’s a lot hanging on this mission, you know.’ He paused and looked at me more closely. ‘In mufti today are we?’ he said, raising his eyebrows and peering at my clothing as if over a set of imaginary spectacles.

‘Er, well sort of,’ I replied weakly, scratching the stubble on my chin and trying to cover the holes in my trousers. ‘Let’s just see what they want first, shall we?’ I said, trying to sound more cheerful. I handed over the letter.

Respected Chief Engineer Wang: Hello!

My side, at the day in front of now, received your valuable side’s telephone and felt ten-out-of-ten happy. We straight through believe, through twin sides’ effort and sincerity, our project fixedly will succeed. Now, if your side, amongst a hundred busy things, pulls out a length of time, my side shall grasp fully empowered representative Project Director Mina and send her respectfully to visit your valuable factory for friendly negotiations on top of the spirit of mutual benefit and equality also. According to my side’s arrangement, Project Director Mina arrives at Hangzhou at the day behind tomorrow. Ask valuable side to confirm that arranging.

Ten thousand things just as you please!