Chinese Rules: Five Timeless Lessons for Succeeding in China

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 The Art 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.

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