Chinese Rules: Five Timeless Lessons for Succeeding in China

Delivered from,

Winchester

Winchester didn’t get much beyond the bit about ‘receiving your valuable side’s telephone and feeling ten-out-of-ten happy’ before he swelled to a purplish hue, and I found myself abruptly dismissed from the room. I heard later that as soon as I left, he called Mina over an intercom and exploded. At first he refused to sign the letter, ranting that it looked as though it had been written by a six-year-old and demanding to know how she could have contemplated asking such a dishevelled-looking halfwit to represent the company in China. But eventually peace returned to the offices; the letter was rearranged into a more recognizable form, Winchester signed it, and it was sent over to Beijing. Wang replied the next morning. By the following evening, only a few months after arriving back in England, I found myself on a plane out to Hong Kong.

4 (#ulink_6ff14e62-40bb-5f1b-83c4-87e438b770f2)

UP IN THE SKY THERE IS PARADISE, BUT DOWN ON THE EARTH WE HAVE HANGZHOU (#ulink_6ff14e62-40bb-5f1b-83c4-87e438b770f2)

—from Illustrious Words to Instruct the World, by Feng Menglong, c. AD 1620

As I threw a few things together for the trip out to China, I knew that I was dealing with an explosive mixture. On one side, Winchester seemed nervous and volatile. He was under tremendous pressure, knew little of China, and was working through a harassed and exhausted negotiator. The syndicate was fragile and he wasn’t in control. On the other side, Mina’s descriptions suggested that Wang was a wily and experienced operator with a number of different options to choose from. The project could be worth a lot of money and other buyers were already circling. On the surface, it looked as though Winchester had a lot more to lose than Wang. I knew that a good Chinese negotiator would sense that and know how to extract maximum value. Finally, Cordelia was lurking unpredictably in the shadows. I knew almost nothing about the carbon industry and had none of the specialist vocabulary even in English, so I felt unsure of myself. When I arrived at the airport with an hour to spare, I found the business lounge and pulled up a computer. I was searching for websites with the technical terms in Chinese when Mina came bounding up behind me. Later she admitted to me that her heart had sunk when she found me there. Winchester had already concluded that I was a halfwit and now she’d seen from my Web search that I didn’t even know the Chinese for ‘carbon credit’. With more than €150 million of carbon hanging by a thread and one last chance to recover it, she knew that her job was on the line.

As the plane flew over Russia and on into the night, I could see from the bundle of papers that Mina had dumped on my lap that IHCF had agreed to buy carbon credits from the chemical factory in Quzhou for a period of five years. At the back of the files, behind bundles of contracts and spreadsheets, I found some background information on the carbon industry. It explained how there was a growing demand for emission allowances because the European Union and Japan had agreed to impose strict limits, or ‘caps’, on big greenhouse gas emitters, including power stations, steelworks, chemical factories and cement plants. If any of the plants failed to meet the cap, they had to go into the carbon market and buy emission allowances, which were expensive. The system was known as cap-and-trade and had some similarities to the system that had been used in the United States to cut back on gases that cause acid rain. The idea was to force businesses to pay for emissions they made in order to create an incentive to reduce them. The emission allowances came mainly from the EU and Japanese governments, but the United Nations was also involved and could issue equivalent allowances, called ‘international offsets’ or ‘carbon credits’, from projects that reduced greenhouse gases in developing countries. IHCF intended to buy carbon credits from the chemical factory in China and sell them in the European markets to companies that needed additional allowances in order to meet their caps. From the figures included in the investor proposal, it was clear that carbon trading in Europe had taken off in a big way. In the previous three years, the market in Europe had grown from a few hundred million to around €60 billion.

The documents were full of jargon and acronyms that were difficult to follow but I figured out that the UN could issue carbon credits under something called the Clean Development Mechanism, or CDM. Over the past decades, emissions had soared in China, India, Brazil and parts of Africa as these countries began to industrialize. The CDM aimed to encourage the use of low-carbon technologies in the developing world by providing an opportunity to make money from the sale of carbon credits. If a project based on low-carbon technology was too expensive and wouldn’t make returns by itself – as was often the case – developers there could apply to the UN to generate credits and boost their profits so they became financially viable.

On the surface, the CDM seemed like an imaginative way to help reduce the carbon footprints of the vast new infrastructures being built in the developing world. It didn’t just apply to chemical plants; cement factories, coal mines, ironworks and steel mills could all apply for credits if they led to lower emissions. The most important area seemed to be the power sector, which was encouraged to move away from coal, but by far the largest number of credits seemed to come from projects aimed at cutting industrial greenhouse gases from chemical plants in China. While I still wasn’t clear about the technical details, it was obvious that IHCF thought they could make a fortune from the deal.

We changed flights in Hong Kong and by late morning, we had arrived in Hangzhou under clear summer skies. Hangzhou was the capital of China for a time during the Song Dynasty and the ancient city lies around the shorelines of a lake immortalized over the centuries for its spectacular natural beauty. As the car sped along the embankments, I could see the peaks of little islands jutting out of the water. In the far distance, the powdery blue silhouette of mountains rose up above the canopy of trees on the opposite bank. Reeds and rushes lined the water’s edge. On the stone-flagged pathways that meandered around the lake, women in high-collared jackets practised tai chi between clumps of rustling bamboo. Sunlight flashed on the ripples that trailed from little wooden boats. Nearby, from the tops of the sloping temple roofs, the faintest trace of smoke drifted up from the incense burners inside. I caught a glimpse of a pagoda rising up through the sandalwood trees on the hill behind the lake and commented to Mina on how beautiful it all was. ‘Too right, mate,’ she said, looking across the water. ‘If I had me swimmies with me, I’d be right in there!’

Just after lunch, we drove over to meet Wang. He was staying near Hangzhou’s main railway station in a hotel owned by the factory. It was one of a string of hotels left over from the days of China’s planned economy, when everything was owned by the state. In those days, everyone belonged to a work unit that provided schools, hospitals, housing and, in this case, even hotels, where the factory managers could stay during the long and tedious meetings with the province’s Chemical Bureau.

Bundles of laundry hung from the upstairs windows of the rows of shabby shops around the station. Long loops of wires sagged between telegraph poles and the narrow streets were congested with traffic. The whole area was dilapidated and the heat was oppressive as we sat in a taxi lined up at some broken traffic lights. On the cracked pavements outside the hotel, hawkers sold bowls of fried bean curd and chives from under sheets of canvas slung between bamboo poles. Inside, there was a wooden counter at the end of a lobby, with a couple of bored receptionists playing games on their mobile phones. On the wall behind them, the name ‘Quintessence Hotel’ stood out in gold letters and a line of clocks told the time in London, Moscow, Sharjah and Beijing. On the end of the counter there was a stack of company brochures that advertised paints, dyes and adhesives, with photographs of the reactor towers in the factory at Quzhou.

We signed a slip of paper and went up to the fourth floor. Next to the elevator there was a little pantry where a girl was asleep over a table with her head cradled in her arms. Enamel mugs were piled up next to a big water boiler that bubbled gently in the corner with hot water to make tea. Down the corridor, the carpets were wrinkled and stained and around the doorways the paint was battered and scratched. Everywhere smelled of mildew. At the end of the hallway there was a sign in English that read ‘Holding Talks Room’. As we approached the door, Mina held back to let me go in first, but I took her arm and gently pushed her forward. It was important that she lead the discussions. I still knew almost nothing about the business, so I couldn’t negotiate with Wang. I planned to spend most of the first day invisible and listening.

Inside we found the familiar scene of a big circular table in the middle of the room with a bunch of plastic flowers in a dusty glass vase at the centre. The wallpaper was peeling away at the bottom of the walls and a row of badly fitting windows looked out onto a schoolyard below. The shouts and cries of a children’s playground rose up through the air. In the corner, a broken metal coatrack leaned against a huge air conditioner that had a notice pasted across that said ‘Under Maintenance’. The air was hot and damp.

Wang was waiting inside with a couple of assistants. He was plumper than I had imagined, quite short and balding. He leaped to his feet as we walked in and was obviously pleased to see Mina. He didn’t bother to ask who I was; I guessed that the team from IHCF had changed so much that his curiosity wasn’t aroused by just one more new face.

For the next five hours, I sat and listened, occasionally helping to straighten out the odd confusion with Wang’s translator. The table was big enough to seat at least fifteen people, so there was plenty of space; I sat away from Wang, near one of his assistants, who chain-smoked his way through the afternoon. Mina and I had agreed beforehand that she should run through the contract, clause by clause. That way we might nail down the differences between each side and start to trade them off. It was tedious work. Throughout the afternoon, there were constant interruptions as people came in, delivering messages and collecting bits of paper. I had to get up several times to clear the waves of jet lag washing over me and I wandered around the corridors outside. As Mina went through the contract, Wang seemed alternately distracted or overfocused on details. After his initially friendly manner, he quickly grew irascible and stubborn. I couldn’t tell whether it was because he was under pressure or he was just being deliberately awkward, pretending not to understand issues or dragging up old arguments that Mina thought had been settled months beforehand. He didn’t seem particularly interested in discussing price or payment terms but he wanted to increase the number of carbon credits to be covered by the contract. But that was impossible; the syndicate had been put together in London to cover the number of credits that had been fixed at the last meeting and it was far too late to change it. Mina just passed on the point without comment and moved on.

After the first few hours, there were frequent lulls in the conversation. Several times, Wang wandered over to a battered old sofa at the back of the room and stretched out, with his trousers rolled over his calves, slurping tea out of a big jam jar and fanning himself with a copy of the Hangzhou Daily. He had a bowl of roasted melon seeds on his lap and, leaning forward against the arm of the sofa, he sat cracking the seeds between his teeth and spitting the shells out into a wastepaper basket at his feet. On other occasions, he’d get up, yawn loudly, stretch, and push his hands deep into his pockets before wandering off down the corridor with a rolling, slouching gait for twenty minutes. By ten in the evening, the room was insufferably stuffy; my head was aching from the clouds of cigarette smoke from Wang’s assistant and I felt dizzy with jet lag. I moved over to the windows and tried to drag one open, but Mina yelled at me to stop. She had opened one on the first visit and been eaten alive by mosquitoes. Hot, tired, bad-tempered and hungry, we were getting nowhere so we decided to call it a day. We agreed with Wang that we’d meet up at eight the following morning, hailed a taxi to take us back to the hotel by the lake, and sat dejectedly on the lumpy seats in the back contemplating the day. We had achieved nothing, ended up with more questions than answers, and felt exhausted all at the same time.

Back at the hotel, we made straight for the bar and perched up on a couple of high stools. Through the pine trees in the hotel grounds and reflected in the lake, we could see the shapes of exploding chrysanthemums and shooting stars from an enormous firework display above the distant city skyline.

The hotel was originally built as a state-run training school for the Party cadres, so it occupied a prime position on the hill below the pagoda. It was built like an aircraft hangar, with echoing hallways and draughty corridors. I heard that a Hong Kong property group had taken over the management of the hotel just after China opened up and had tried to spruce it up with yellow wallpaper, thick carpets, and flouncy curtains. There were chandeliers in the hallways and gold fixtures in the bathrooms, but I noticed that sections of the hotel seemed cordoned off by dusty lacquer screens and lines of tired-looking rubber plants arranged in pots across the landings.

After the first beer, jet lag evaporated. I suddenly felt wide awake. Mina said she thought that the day had been hopeless but I tried to keep our spirits up. ‘Look on the bright side,’ I said. ‘At least they agreed to meet us.’

It was true; if they’d reached an agreement with one of the other buyers, Wang wouldn’t have agreed to meet. Slowly, as we mulled over the day, the mood brightened. Halfway into the second beer, I began to take the measure of Mina. She told me that she had read law at Melbourne University, snatching the odd moment for study between her commitments to the Student Union, the women’s rowing team, and a punishing regime of daily exercise and training. On graduation, she joined one of the big law firms, before moving on to the Sydney Stock Exchange, where she worked on designing forestry credits, one of the world’s first financial instruments for environmental investing. By the time she was thirty, she had joined the World Bank. Based in Washington, DC, she travelled throughout Asia negotiating carbon deals.

She felt passionately about preserving the natural environment and her conversation often reverted to pet topics, such as water conservation, forestry management, or digging wells in Africa. Mina’s tall, athletic build, her pale blue eyes, and the distinctive chunky jewellery she wore gave her a striking presence. People remembered her. She had that knack of walking into a room and connecting – of making people she’d only just met feel individual and special. I could tell that Wang liked her even though they couldn’t communicate directly. Years later, he told me that the reason that they’d chosen IHCF as their foreign counterparty was that they felt comfortable dealing with Mina.

As I got to know her better, I began to realize that Mina’s energy levels elevated her above the normal confines of time; strictly vegetarian, she never drank alcohol and needed hardly any sleep. I’d often find out that she had spent several hours before sunrise wading through some turgid documents while doing forty klicks on an exercise bike, or that she’d run fifteen miles before breakfast. Her energy bordered on the inexhaustible; she once mentioned in passing that she’d just completed an Ironman event, which apparently involved swimming several miles before riding a bicycle uphill for about five hours and then blithely embarking on a marathon. I wasn’t in the least bit surprised when she broke her hip years later while running two hundred and fifty miles across the Sahara. On top of the almost limitless physical output, she had developed ‘blue sky thinking’ into an entirely new art form; she had a thousand new ideas a minute that used to burst into the conversation unannounced from random angles.

Over the time that she’d been travelling to Asia, Mina had developed an affection for China, which I liked; she felt comfortable there and, like me, she enjoyed its eccentricities. She was easy to be with, that was for sure, and completely focused on the task at hand; but at times it was tough to keep up.

We both agreed that Wang had seemed strangely disconnected and never seemed to answer any of the questions directly. It felt as if he wasn’t telling us the real reason for wanting to change the contract; the whole day had been taken up fencing over side issues. We had to figure out his real objective but with Cordelia still impossible to contact, there wasn’t much we could go on.

‘There’s an old Chinese military saying, “Know yourself and know the other and you’ll survive a hundred battles”,’ I said. ‘Trouble is we have no idea what Wang really wants. We need to figure it out and find out who he reports to, what pressure he’s under, what other options he has.’

Mina grunted.

‘That doesn’t give us very good odds for winning this particular battle,’ I said.

‘Well, that’s all very interesting,’ said Mina impatiently, ‘but this isn’t warfare, is it? It’s a negotiation.’

‘Sure,’ I said, ‘but the ideas are still useful. That’s why Chinese people are so good at all this. Just think, The Art of War was written more than two thousand years ago and they still use it every day. Anyway, your lot seem pretty military, too,’ I added. ‘I bet Winchester’s been reading Clausewitz at bedtime for years.’

‘Well,’ she continued, ignoring that comment, ‘if Wang won’t tell us what he wants, how do we figure it out?’

I’d seen from the company brochure that a part of the chemicals group had gone public in Shanghai a couple of years earlier. They were one of the larger manufacturing groups in China, so Wang could easily develop other options; we knew that he was already talking to some Japanese buyers, so that closed off the possibility of threatening to walk away from the deal if we didn’t get what Winchester wanted. We had to be smarter than that.

‘We can’t ask Wang directly,’ I said, ‘so we’ll have to go around him. Let’s try to find someone else to tell us what’s really going on. Sunzi always talks about the importance of using spies. That little guy – you know, Wang’s assistant, Chain-smoking Chen – he looks as though he might be converted.’

We agreed that the next day Mina should continue through the contract with Wang and that I’d start to work on Chen. It was well past midnight by the time we turned in, but at least we had a plan for the next day. I was still wide awake and only drifted off just short of three o’clock, so I was in a deep sleep when the phone rang at quarter to seven the next morning. ‘Where are you?’ she said. ‘I’ve just got back from a run.’

Mina and Wang spent the whole of the second day arguing about the timing of some obscure approval documents. I soon lost the thread of the argument, so I started working on Chen.

Chain-smoking Chen was twenty-four and had spent his whole life in Quzhou. Both of his parents worked at the chemical factory. He told me that he had never travelled outside the province, but when Wang assigned him to work on the carbon project, he’d grabbed the chance to come to Hangzhou. He was shy and reserved but he brightened up a little when he saw that I wanted to chat. After his first trip to Hangzhou, he had joined an evening class in English, dreaming of finding a job in a foreign company somewhere along the coast. But his mother and father lived in the factory; Chen was an only child so it looked as though he was struggling with the dilemma between his loyalty to his parents and his desire to break out of this country backwater. He was cautious and I found it difficult to draw him out.

By the second evening in the bar, Mina was becoming frustrated; I’d hardly said a word for two days. I sensed that she was losing patience and beginning to think that Winchester might have been right about me being a halfwit after all. A stream of anxious and distracting messages had been arriving from London all demanding updates on our progress. Meanwhile, Wang frequently revisited parts of the contract that we thought had already been agreed, so it was almost impossible to convey a clear picture back home. Whenever Mina tried to explain that Wang was switching back and forth, the team in London grew even more aggravated, which led to a further cascade of anxious messages. I encouraged her to be patient, but with the drumbeats from Mayfair getting louder and louder, I knew that it couldn’t be easy.

Throughout the whole of the morning of the third day, Wang didn’t even call us. He kept us cooling our heels at the hotel. Chain-smoking Chen had told us that the mayor of Quzhou was in town so we figured Wang was detained in meetings. That wasn’t a good sign; he seemed to be prioritizing routine meetings with a government official ahead of sorting out our contract. By the early afternoon, there was still no news, so we took a long stroll around the edge of the lake, wondering what to do. Suddenly, at about four thirty, Wang called and told us that a car was already waiting for us back at the hotel. He wanted to know where we were. Sprinting back around the lake, we changed into business clothes and were whisked off to another, much smarter hotel in a different part of town. There we were ushered into a large room with low chairs arranged around three sides of a square. Embroidered doilies were draped over the backs of the chairs and between each of them, a ceramic teacup with a lid sat on little wooden tables. After a while there was a commotion outside, and a man in an immaculate black suit strode in and shook Mina’s hand.

‘Ni hao!’ she said. Hello!

‘Ey!’ said the mayor, tilting his head back and smiling at Mina admiringly. ‘Nide Zhongwen zhen bang!’ Your Chinese is truly marvellous!

Mina stared back blankly, searching around for a translator.

The next thirty minutes were taken up with minor pleasantries: how far we’d travelled to get to China; how the pagodas around West Lake had been famous throughout history; how the scenery had been celebrated in Song Dynasty poetry. The mayor’s entourage nodded in agreement and laughed at all the appropriate moments. Next we had a description of the municipal transport systems; the number of Chinese tourists; the delights of the local fresh fish; the esteem in which Hangzhou’s dumplings were held throughout China. I could see Mina fidgeting and glancing at her watch. She’d arranged a call back to London for seven o’clock and it looked like we were in for the long haul. Just before six, we were suddenly whisked off to a banquet, stuffed with about fifteen courses, plied with several bottles of beer – each presented with a large white ceramic statue of Confucius – and, less than an hour later, loaded into a car and driven back to the hotel, puzzled by the whole episode. The project had never been mentioned.

When I saw Mina the following morning, she was at her wits’ end. She’d been on the phone all night and Winchester was beside himself with impatience. A meeting had been scheduled with the syndicate underwriters for the next day in the City and the pressure was mounting. Winchester ordered a further teleconference with the whole team in Mayfair as soon as they got into the office, which, given the time difference, was early afternoon in China.

When we arrived at the ‘Holding Talks Room’, Wang turned up late again and the conversation continued for the whole morning without much progress. Just before lunch, Wang wandered off again so I told Mina to take a break downstairs. I took my chance with Chen; there was no time left for subtlety.

I told Chen that I thought it was a pity that progress was so slow on such an important project. Perhaps there was some misunderstanding between the two parties; of course, if he had any suggestions, we would take them very seriously. He was cautious at first and just said that we should continue to talk with Wang. ‘This is a big project,’ he said, ‘so Wang reports directly to General Manager Gao.’

‘Manager Gao.’ I said. ‘I thought Tang was in charge.’

‘Gao is the head of the Shanghai listed company and he pays great attention to this project,’ said Chen.

‘So what does Gao think we should do?’ I asked.

Eventually Chen came to the point. ‘It’s all about the second line,’ he said. ‘Old Gao needs you to take in the second line.’