Chinese Rules: Five Timeless Lessons for Succeeding in China

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‘I don’t even have my passport with me,’ I explained. ‘It’s up in Yorkshire.’

‘We’ll send a taxi to fetch it.’

‘Are you crazy? That’s a couple of hundred miles! And anyway, I don’t have any business clothes with me.’

‘Buy some at the airport.’

‘But I don’t know anything about carbon or Kyoto or any of that stuff …’

‘Read up on it on the plane,’ she said.

‘And my visa’s just expired,’ I said.

She seemed momentarily stumped.

‘We’ll get you one in the morning. I’ve got plenty of mates at the embassy. Hang on a moment …’

She put her hand over the mouthpiece and there were a few muffled comments before she came back to me.

‘Okay, we’ve got seats out tomorrow,’ she said. ‘We’re on the four o’clock flight out to Hong Kong.’

‘But …’

‘I’ll meet you in the business lounge.’

‘I …’

‘And by the way,’ she said, ‘the name’s Mina.’

2 (#ulink_14036b3f-73a5-5b10-af7d-4480f9bc4450)

A TREE MAY GROW TO A THOUSAND FEET, BUT THE LEAVES STILL RETURN TO THEIR ROOTS (#ulink_14036b3f-73a5-5b10-af7d-4480f9bc4450)

‘Wanderers eventually return to their native soil.’

—The Story of a Marital Fate to Awaken the World, an unattributed Qing Dynasty novel

Behind the Forbidden City stands a hill, which – legend has it – hides a vast reserve of coal for use in times of siege. Each morning, just before dawn, people gather in the park below the hill for exercises. A group of women practise swordplay with their arms outstretched and blades held upright, turning on one heel. An older man shambles past with a battered canvas bag, half running, half walking, towards his usual spot among the flowerpots by the dragon-claw scholar-trees. There he fills a bucket with water, dips in a long brush, and silently practises calligraphy, writing with long, flowing brushstrokes in the dust on the paving stones at his feet. All around, hidden among the bushes, the exercisers stretch and bend and shout to greet the dawn.

I often looked out from the hill as the first rays of sunlight struck the corner watchtowers on the Forbidden City below. In the 1980s it was easy to imagine that Beijing had hardly changed since imperial times. Around the palace complex with its maze of pavilions and passageways, the sloping roofs of a thousand courtyard houses stretched out flat towards the horizon. In the late springtime, a thin layer of mist would trap the smell of fresh leaves in the damp air hanging in the alleyways. Towards the end of the summer, in the main Party compound beside the Forbidden City, lotus flowers poked through the greenery that floated about on the lakes; crooked pathways ran over little stone bridges between the pavilions along the banks. Back then, there was something about Beijing that felt simple and content; the city ran in a daily routine where everything had its own allotted place and a clear role in life. There was a pattern to the day in the old hutong alleyways, a rhythm to the hours and seasons, a closeness to nature that felt unusual in the midst of such a vast city. Up on the hill, it seemed as if the odd honk of a passing Liberation Truck was the only reminder of the turning of the centuries. But when I looked more closely through the haze towards the west, I could pick out the vague and distant outline of factories standing out against the mountainsides. Smokestacks and towers of twisted pipework rose up at the foot of the hills. A trail of smoke drifted from an iron foundry. In the other direction, heaps of coal and ash marked the site of the city’s main power station and electrical towers marched off in straight lines towards the south. These were all the early signs of modernization and in those days, I never gave it a thought. But if you were to go back to that hill and look out over the great city today, you would find a very different sight.

I first arrived in Asia in the eighties after I was posted to Hong Kong from London. I’d never been there before, and from the moment I stepped from the plane and through the wall of dense wet heat, I knew I was in a different world. Giant Chinese characters shone in neon lights from the tops of ten-storey buildings. Wherever I looked, there were people hammering in tiny factories, unloading from boats, bargaining in alleyways. Office workers sat crammed into dumpling restaurants between stacks of bamboo steamers. The streets reeked of dried seafood and Chinese medicine and the air was filled with the honking of taxis and clattering of trams. I had no idea that such a concentration of human life could exist in such a state of perpetual motion. The intensity of life in Hong Kong was something completely new to me. Almost immediately, I felt drawn to China.

The following year, I quit Hong Kong and found a place at a university in Beijing to learn Mandarin. It was the year after the tanks had rumbled onto Tiananmen Square and there were almost no other foreigners around. At first the students there sought me out to practise their English, ignoring the bizarre rules about ‘spiritual pollution’ that were meant to keep us apart. But their English was so good that I felt awkward speaking Mandarin with them, and so I started spending more time away from the university, in places where people knew nothing of foreigners. After a while, I could manage simple conversations and slowly grew to recognize the Chinese characters on the shop signs and the notices around me. I found my way more easily through the tangled network of old hutong alleyways that spread around the old imperial buildings at the centre of the city. I often went back to Coal Hill to find the calligraphy man practising his characters with his water brush on the dusty paving. He would write out characters on the stones at his feet while I tried to catch the meaning of the flowing brushstrokes before they began to fade and disappear.

My student days were short-lived and I soon joined an investment firm run by a Wall Street veteran who was building the first large foreign direct investment business in China. Over the period of a few years, he’d raised $400 million and pumped it into twenty factories across China, ending up with nearly twenty-five thousand employees.

The speed of China’s development in those years was difficult to take in; around the Yangtse and Pearl River deltas, shiny new cities rose up out of marshlands in just a few months. Little fishing villages became gigantic container ports, hydroelectric dams choked mighty rivers, and four-lane superhighways were blasted through rock faces. For more than a decade, China existed in a state of supreme upheaval. The government fought to maintain order as it embarked on a programme of massive reform, removing the props of the command economy while billions in foreign investment poured into the coastal provinces. As China awoke from a century of slumber, deep within the interior 150 million workers rose up out of the country villages like a tidal wave and swirled towards the coast.

Many of the factories we had invested in were in remote regions of China, where central authority was weaker. ‘The mountains are high and the emperor is far away,’ goes the old provincial saying about the distant authorities in Beijing. The country is too big to be controlled from a single centre, and unless events catch the attention of Beijing, local interests can often take over. We became embroiled in unequal disputes in far-flung places. Land was transferred out of our joint ventures to prop up loans for other local businesses. Bank transfers and capital investments were made without approval, cash was stuffed into safes in back offices with no records, and contracts were routinely ignored. For a long time, it looked as though we might lose the investment.

It took years to sort out the mess, and during that time, I travelled to almost every province in China. We had strikes and lockouts, sieges and court cases, and had been pursued across the country by officials with writs and freezing orders. But gradually, over a period of several years, the relationships with our Chinese partners smoothed out and the businesses started making money. We got better control of the assets and sales started to grow on the back of the China boom. Most of the investment was saved, together with the jobs of the twenty-five thousand workers, but after nearly seven years in the combat zone of Chinese investment, I was exhausted. I needed some time out to think.

Several years earlier, I’d married my old college classmate – ou duan si lian, as the Chinese would say of a reconnected love-affair: ‘lotus roots may snap but their threads stay attached.’ When Lorraine came to live in Beijing, life’s possibilities multiplied overnight. She had arrived with two small boys – my stepsons Max, aged five, and Christian, who was three – followed a year or so later by our children, Sam and Honor. Weekends were taken up by trips out to remoter parts of the Great Wall, scrambling up the Ming Tombs with a couple of dogs or splashing about on Kunming Lake at the Summer Palace. The foreign community was small in those days and there was still a sense of adventure about a posting to Beijing.

Around the time I was thinking about moving on from the investment business, Lorraine came home one day with news that she had found an old courtyard home for rent about a mile or so east of Tiananmen Square. Hidden in a backstreet, it had been part of the former residence of a Qing Dynasty official; I didn’t need much persuading to move back to the old alleyways.

The courtyard had a large south-facing hall behind a row of red lacquered columns. It stood on a stone terrace looking out onto a garden where an old wisteria climbed up into the carved woodwork under the eaves. The alleyway outside was named after the old imperial grain warehouses. Farther down, clouds of steam rose from a line of shabby street restaurants. At lunchtime, they were packed with labourers from the provinces. Oil drums stuffed with red-hot coals lined the street; cooks in white hats threw handfuls of Sichuan peppercorns into their woks as they shouted out for customers. At the end of the street, there was an old Buddhist temple with big bronze studs on the doorways and glazed black tiles on the rooftops. Inside, a drum tower stood next to a huge cherry tree that burst into blossom in springtime. During festivals, there were concerts in the temple and the air was filled with the smell of incense and the strange chanting of monks. For me, it felt completely natural to be back in the hutongs and connected to the old way of life. On our first night, as I sat in the courtyard with the children, a storm rolled across the city and chunks of ice fell down among torrents of warm water. But after the downpour, the skies quickly cleared and the familiar smell of stir-fry drifted over the wall from next door. The stars came out and, high above our heads, a kite tugged a long trail of candlelit lanterns across the sky, tiny red dots dancing about against a backdrop of darkening blue.

After we moved to the hutong, I took a few months off from work to try to make sense of what happened to the investment business. The prospect of losing so much money and the lessons learned in the fight to recover it had forced me to dismantle entirely my ideas about dealing with China. I had been made to rethink some of my most basic assumptions. One thing was for sure: if you stuck by Western rules, you were finished.

I’d learned my hardest lesson after we’d been hit by a fraud in the southern city of Zhuhai, which sits next to the old Portuguese colony of Macau, far away on China’s southern coast but not so far from Hong Kong. We’d invested about $8 million in a brake-pad factory down there but a few months after we wired in the money, the factory director went on a trip to the United States to attend a trade fair in Las Vegas – and he didn’t come back. We discovered subsequently that he had gone to Hong Kong with four letters of credit – like unbounceable cheques drawn against our account – with a face value of $5 million. There he exchanged them for cash and – carrying what the police described as ‘a large suitcase’, presumably containing the banknotes – he boarded a plane for America. That was the last that we heard of him. In the seat beside him on the way out was the deputy bank manager of the branch that had opened the letters of credit. It was obviously a scam.

Our response to the news had been catastrophic. When I tried to explain what had happened over the crackling phone lines to New York, there had been an instant, knee-jerk reaction. The directors there immediately ordered a highly sophisticated legal operation involving hordes of expensive lawyers all waving worldwide Mareva injunctions, which were aimed at freezing the bank’s assets on the basis that the branch officials must have known about the scam and that the bank was therefore liable. The case ended up in China’s Supreme Court and, after two years of pointless arguments, we lost. It was a disaster – I remembered bitterly that when the factory director had disappeared from Zhuhai, our cash was still in the account because the letters of credit had not yet been presented. One of our other Chinese factory directors had looked at me with a slightly puzzled expression and asked, ‘Why did you go to the court? You could have just transferred the cash out in small amounts without the bank noticing and when the documents arrived, they’d be left with the bill.’ We’d done the opposite; the board had metaphorically marched up to the city gates, announced a full frontal assault, and then assailed the bank with highly sophisticated legal weaponry that was completely useless for dealing with the actual problem. As soon as the bank realized what was going on, they took one look at the court papers, made a quick call to the local government, and froze all our accounts. We never recovered a cent.

Those seven years on the front lines of Chinese business taught me that foreigners had no way to impose their ideas on China from the outside; I’d learned the hard way that if you wanted to survive in China, it had to be on Chinese terms. I had been forced to think through new ideas as basic as how society, business and government could be organized and how to compete on foreign terrain. There seemed no option but to abandon some of the basic assumptions I’d brought with me from the West. I could see that China had its own modes of behaviour, its own conventions, and accepted ways of doing things that were different from our own. China’s way of working seemed difficult to pin down, but every country, every society has its own internal logic; it may not be obvious from the surface but I felt there must be some overarching rationale, some consistent narrative to how China worked. Perhaps it was something in my background that made me seek a more ordered explanation to the chaos I had found around me; perhaps it came from studying physics in university, where universal laws are used to explain diverse and seemingly unconnected observations. I found myself searching for an underpinning to the Chinese universe, reference points or clues to a larger framework that might help me navigate these foreign waters, something that might reveal how it all fitted together. China’s special logic was elusive and hard to define precisely, but I knew I’d never be satisfied if I didn’t at least make an effort to uncover it.

In the southwest of Beijing there is an area of winding alleyways around Tile Factory Street where, in the fifteenth century, ornate ceramic ornaments were fired in charcoal kilns for the rooftops of the great Ming Dynasty palaces. Three hundred years later, the area around the factory had grown into a cultural centre, where scholars, poets, and artists gathered to exchange ideas and practise calligraphy. Today the narrow streets are lined with shops piled to the roofbeams with books and scrolls; local painters come there to find paper, brushes, ink stones and seals. I often visited the bookshops, with their rickety staircases, dusty display cases, and the burnt, earthy smell of Chinese calligraphy ink. At the back of one of those bookshops, there was a room lined with battered bookcases devoted to Chinese history and ancient theories of war. I had heard about Sunzi, but had never really taken TheArt of War too seriously; tales of battle plans from the sixth century BC had seemed too remote to be of much use in the modern age. But I found the shelves there lined with piles of cloth-bound books I had never heard of, like the Book of Qi and the Records of Tan Daoji. I discovered an enormous volume of historical records covering power struggles, plots, and intrigues stretching back well past the time of the European Dark Ages. At first I couldn’t understand the antiquated Chinese language, with its ancient, recondite characters, so I sought out translations, trying to put the Chinese and English together to look for the deeper meaning. I dipped into an old collection of battle plans called the Thirty-six Ruses. There I found set-piece strategies, with strange names like ‘The Beauty Trap’, ‘Take the Wood from Under a Cauldron’, and ‘Kill with Borrowed Knife’. Elsewhere, I found a Han Dynasty strategy that set out the ‘Five Baits for Enticing Foreigners’. I sensed an obliqueness in the approach that contrasted with the direct assault favoured by Westerners. I found more emphasis on timing and surprise, on harnessing external conditions rather than just relying on firepower, and on ways of deceiving a more powerful enemy. There were unexpected twists: in Sunzi’s world, the supreme general avoids war altogether and overcomes without fighting. ‘Overcomes without fighting,’ I thought. ‘What did that mean?’ I bought several of the books and found ideas that helped explain things that had happened at our factories. I was wondering whether they could all be collated into a more coherent pattern when I was suddenly contacted by some investors in Hong Kong.

At the turn of the millennium, as China prepared to join the World Trade Organization, the government realized that the banking system was crippled with uncollectible loans and they decided to do something about it. I found myself tempted by the idea of helping to clear up the mess, so I went to work for one of the big American investment banks that had just entered the new market for ‘distressed debt’ in China.

During the forty years of the planned economy, Chinese banks had given money to factories and work units under the central state plan rather than on the basis of commercial logic. Many of the borrowers had no hope – or even intention – of making repayments. The result was a mess of truly astronomical proportions, with about $700 billion worth of uncollectible debts – known as ‘nonperforming loans’ or ‘distressed debt’ – clogging up the banking system. Faced with the prospect of a complete financial meltdown, the Chinese government started restructuring the banks and selling off tranches of these nonperforming loans to foreign investors at reduced prices. The American bank had bought up several of these portfolios and I was hired to retrieve something from the wreckage.

Over the coming six months, I travelled across China visiting factories that owed amounts under these bad loans, often meeting with the local governments in charge of the area. Many of the loans had been in arrears for years and the relationship between the lender and borrower had broken down completely. Just having a new face to negotiate with often unlocked a knotty situation. At first I felt that the work could bring a lot of benefit to local communities: the factories could be released from their debts for a partial repayment; clearing out the backlog might open up the possibility of new loans; the restructuring assets could make them useful again; and management teams might get an infusion of new talent. But some of the cases were much murkier. I heard that one of the borrowers had been held under house arrest; at another, there’d been riots when a local bank had tried to seize machinery. After a while I became uneasy about the effect of some of the settlements on the local community or the individuals concerned.

During those months, as I worked in the plush offices at the bank during the day and returned to the hutong in the evening, I noticed the city beginning to change, gradually at first. When we moved into the courtyard, even though we were in the midst of an enormous city, we felt somehow connected to nature and aware of the turn of the seasons. In winter, it was so cold that the children sometimes wore coats in bed; by summertime, it was sweltering and flash thunderstorms flooded the courtyard, sending us retreating up the steps to listen to the rain splashing on the clay tiles above our heads. In the local vegetable markets, pots of pickled vegetables or white cabbage lined the stalls throughout the winter, and in the late summer, we’d find cut flowers, lotus root and ginger. But the changes around us gathered pace as the city began to modernize. I’d often notice that an old restaurant had vanished and a mobile phone outlet had appeared in its place, or that a corner shop had been demolished to make way for a wider road.

In the early days I hardly noticed, but the pace became more rapid. Suddenly a long line of shops had gone; then the whole side of a road would disappear. I heard rumours about an old woman in Xicheng District, on the west side of Beijing, who had chained herself to a tree inside her old courtyard as an official read out the eviction order. She’d lived there for sixty years and had nowhere else to go. Grabbing my bicycle, I rode over to see what was going on and found a sea of rubble with the odd solitary tree standing where the old courtyard gardens had been. Window frames and roofbeams lay scattered on the ground; broken saucepans and smashed pots sat among the heaps of shattered tiles.

Once Beijing won the hosting of the 2008 Summer Olympics, there was an inevitability to the fate of the old city. Twenty billion dollars had been set aside to upgrade the capital, and for several years large sections of it vanished behind the perimeter fences of construction sites. Huge areas of the ancient city disappeared forever. Miles of old alleyways and winding backstreets fell beneath the hammer. A hundred thousand workers poured in from the countryside and swarmed over the old buildings, uprooting ancient wisterias from courtyard houses and dumping them on the heaps of broken bricks outside. Ornate doorways were torn away; tiles were pulled from roofs. I sank into a kind of siege mentality and shut my mind to what was happening. All around, the air shook with the roar of bulldozers and I could feel the distant pounding of pile drivers through the ground beneath my feet. I heard that more areas of old hutongs in the north had disappeared, but I couldn’t bear to go and look. All around us, an ancient way of life was dismantled brick by brick.

One day, we came back to find that a character I had seen written inside a circle on hundreds of other courtyard walls was now painted on the wall of our own.

The character means ‘demolish’, ‘strike down’, ‘strip’, or ‘tear apart’. It was the only notice we had that the bulldozers were about to move in. At first I put up a fight; a famous author had owned the courtyard in the 1930s, but of course my argument that the old building should be preserved because of its historical value fell on deaf ears. Then I told them we’d refuse to move out. ‘Wo bu zou le!’ I said. I’m not going anywhere! But the old woman at the Street Committee just shrugged and squinted at me briefly before adjusting her glasses and turning back to her newspapers. ‘Hao ba! Xingqi san ting shui le!’ she said. Okay then! Wednesday the water will stop! So I sat in the courtyard as the workers climbed onto the roofs around me with their hammers and picks, and bits of old tile and plaster fell down onto the lawn beside my feet.

Nowadays, the view from the top of the hill behind the Forbidden City is often obscured by smog; the air of the Beijing summer is opaque. Down below, the traffic snarls and tempers fray. Cyclists clutch at their mouths and turn their faces away from the fumes. In my mind’s eye, I fly westward across the mountains, out towards the dusty orchards, the country villages, and the crumbling loess soil on the plains of central China. Beijing is a vantage point to survey all the desperate activity across China; inland, millions toil in search of a better life. Miners descend in black cages; workers hack at rock faces and dig tunnels for the next intercity highway. Engines roar and sirens scream; the rivers inland have run completely dry, their beds a mass of smashed rocks covered with thornbushes, and there are no trees. Dead fish float about in filmy water. Plagues of river rats ravage the crops, deserts devour the fields, and acid rain falls across the land.

On Beijing’s old foundations, a new metropolis of vast proportions has been thrown together in a few years. Glass spikes rise skyward and elevated highways dominate the landscape now. In a few small areas of Old Beijing, around the lakes and drum towers of the Ming Dynasty city, the government preserved the ancient courtyards, but they cower in the shadows of high-rise apartment blocks. The alleyways there are clogged with rickshaws full of shouting tourists. China has moved on as it prepares to take on its new role in the world. Beijing had become less foreign, less different, and consequently – for me – less interesting.

I had begun to feel doubts about whether I was doing the right thing at the bank. Besides, the children were growing up so quickly. I felt a growing sense of inevitability about a move back to England. But it was with a heavy heart the following summer, after nearly twenty years in China, that I called a shipping agent and we started the journey back.

We had found a place in a small rural village tucked in among the hills at the foot of the Yorkshire Dales. It was close to the place where I had grown up, and at first I enjoyed the familiar sight of the stone walls arching across the fields as they rolled up the dales, the grass clipped short by the sheep, the smell of bracken and heather. Lorraine seemed relieved to be back in the fresh air and countryside and quickly gathered a menagerie of animals around her. She stocked up the vegetable garden and left grain in the little dovecot. The children threw themselves into the outside life, racing in horse shows, falling out of trees, and galloping through the mud in the hills and in other people’s gardens. Three cats and an indeterminate number of horses joined the two dogs we brought back from China.

Stupidly, we chose an old house that was far too big for us and needed an enormous amount of work. The place was so infested with field mice that even the cats despaired; the window frames were rotten and after poking around in the cellar, we saw that part of the foundations were propped up with stacks of newspapers dating from the 1960s. I discovered a row of buckets in the attic for collecting the drips, and throughout the interminable damp of the first Yorkshire winter, the rain cascaded through the roof and ran down the walls, short-circuiting the electrical outlets and providing impressive blue sparks around the light switches. Downstairs, the coal fires barely took the frost off the carpets and the wind howled through the shutters. After nearly twenty years in China, it was tough to adapt to such a different life. I found it difficult to re-engage and fit in.

Over the following months, I took long walks in the countryside in the drizzle, musing about China and slipping about in the mud with the two dogs from Beijing. My mood recovered slightly with the onset of spring, when the banks along the country lanes were scattered with snowdrops and then daffodils. But I still found it difficult to reorient my thinking to the old English ways. How do you explain to one of the local farmers that if your dog strayed onto their land just to enjoy chasing the odd sheep, they would only respond to instructions in Mandarin? I’d often end up yelling at the dogs outside the village post office; they’d cock their heads and look at me in bemusement if I said ‘Sit!’ but were instantly responsive to ‘Zuo!’

Lorraine hardly fared any better as she tried to make new friends, and was regarded as eccentric by the locals. She had kept up her Chinese diet and once, when she went to buy eggs early one morning, the postmistress sniffed and asked – quite rudely, I thought – whether she’d had garlic for supper the night before. In fact, Lorraine ate a kind of Chinese boiled rice porridge for breakfast each day, flavoured with spring onions and spices. So she eyed the group of nosy customers who had gathered at the end of the wooden counter and said, ‘No, I just had raw onions for breakfast.’

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.