by Ian Hamilton
“To begin with, you’ll have to file a proposal,” Peng said, reaching for a file on his desk. He picked it up and passed it to Uncle. “There are several forms in here that need to be completed. The guidelines are attached.”
“Thanks.”
“In essence our goal is to initiate as many joint ventures with foreign companies as we can. Although investment money is important, our government values almost as much the transfer of management skills, production expertise, market knowledge, and product development information that would come with the money.”
“We are open to all of that,” Uncle said, not quite sure what they had to contribute besides money. “But as I’m sure you can understand, our first interest is in how things would function financially. What are the benefits for us of making an investment, aside from helping Ming increase his production?”
“You won’t pay duties on anything going in or out of the factory. There’s a flat tax of fifteen percent on profits. Your labour costs will be about a quarter of what they are in Hong Kong — though I hasten to add that you won’t have to sign labour contracts or abide by any government employment or salary requirements, so you can recruit and pay your workers whatever you wish.”
“Those are very sensible regulations,” Uncle said. “But there must be some we won’t find as agreeable.”
Peng nodded. “This is China, and we do need to protect our sovereignty.”
“What does that mean?” Uncle asked.
“As a foreign investor, you aren’t permitted to own land, and a condition of all joint ventures is that the Chinese partners must own a majority share,” Peng said.
“We wouldn’t have a problem partnering with Ming under those conditions,” Uncle said.
“Excellent, but there is one other thing that might not please you,” Peng said. “Foreign investments are currently capped at approximately fifteen million Hong Kong dollars.”
Uncle saw Ming shift uncomfortably in his chair. “That would rule out the possibility of building a new factory for Ming,” Uncle said.
Peng smiled wanly and reached towards his cheek. He took hold of one of the hairs sprouting from his mole and rolled it between his fingers. “Uncle, can I assume that you make the decisions for your group?” he asked.
“Decisions are made in concert with my colleagues, but I am, you could say, the first among equals.”
“Then perhaps your colleagues and Ming could leave my office for a few minutes so you and I can speak privately.”
Uncle hesitated, then said, “Sure. I don’t think they’ll mind.”
Peng sat back in his chair until the three men had left the room. As the door closed behind them, he said, “Your colleagues could have stayed, but I thought it would be rude to ask only Ming to leave.”
“You would be the best judge of that.”
Peng leaned forward with his hands clenched on the desk. “If there was a way for you to put thirty million into his business, do you have the money to actually make it happen?”
“We have the money.”
“Excellent. Then all that leaves is the matter of working around our present investment limits.”
“I’m sure there must be a way to make it happen,” Uncle said, already quite sure where the conversation was headed.
Peng assumed a thoughtful expression and then said, “There may be a route we can explore. For example, do you and your business colleagues by any chance own more than one corporate entity?”
“We own several, maybe as many as ten.”
“That could be the solution to this little problem.”
“How so?”
Peng tapped the folder in front of Uncle. “When you make your investment proposal, submit it as a venture that has multiple corporate partners at your end. Each of their investments should be in compliance with our guidelines.”
“Will company names be sufficient for these partners, or do we have to identify owners and shareholders?”
“We’ll need the names of the primary owners.”
“What if the same partners own all the businesses?”
“You don’t have to list all the partners for every business. You can pick and choose. As long as there’s a different name attached to each business, we should be able to get by.”
“Is someone actually going to check?” Uncle asked.
“The proposal will come to me and I have the main responsibility for approval, but there are other eyes that might look at it, so it’s wise to be cautious.”
“Other eyes?”
“The customs department, the office for municipal border defence, and even some units within the PLA have the right to examine investment proposals,” Peng said. “But they usually restrict their interest to those that have a technical component. I can’t imagine they’d care about a clothing factory.”
“That’s good to know. I have to say that I really appreciate your help.”
“My job is to make things run smoothly for foreign investors.”
“That is much appreciated.”
“And it doesn’t have to end with your submission,” Peng said with a tight smile. “Some other investors have found it difficult to deal with local officials on matters such as building permits. We can help ease and speed up those processes. It does take a bit of persuasion, but we’ve discovered what they respond to best, and we’ll be glad to do it on your behalf.”
“What do they respond to?” Uncle asked.
Peng cocked an eyebrow as if trying to gauge Uncle’s seriousness. “What do you think?” he said.
“Money?”
Peng nodded.
Uncle shifted in his chair. “Truthfully, I’d be reluctant to pay money directly to an official like that. It could cause problems with the authorities down the line.”
“That’s why I’m here to help,” Peng said. “I can arrange to have it done at arm’s length. No one would be able to trace the money back to you.”
“So you’ve done this before?”
“More times than not, our investors use the services that my colleagues and I provide. It’s an extra cost of doing business, but when you think of it as a way to ensure that your plans run according to schedule, it’s a small and very justifiable cost,” Peng said. “I mean, a building permit can take anywhere from one week to six months to be issued, and that’s only one example of the power the local officials wield. I’m quite sure you’d rather have them supporting rather than hindering you.”
“Of course I would,” Uncle said. “But what is the cost?”
“We typically charge three percent, but given the size of your potential investment, I think two percent would be sufficient.”
“That’s more than half a million Hong Kong dollars if we choose to do everything we’ve discussed with Ming.”
“Yes, or thereabouts, but I can live with that as a round number.”
“And how would this payment be made?” asked Uncle.
Peng reached into the top drawer of his desk, extracted a slip of paper, and slid it over to Uncle. “The Shenzhen Research Partnership has this account at Barclays Bank in Hong Kong. You can deposit the money there.”
“When would we be expected to do that?”
“Before you send me your submission.”
“What if our proposal is turned down?”
Peng laughed. “Believe me, if you’ve visited the bank, there isn’t much chance of that happening.”
“And what if it is approved and then we run into problems with permits? What guarantee can you offer that things will run as smoothly as you say?”
“You have my word, and that’s all you need.”
Uncle nodded. He had other follow-up questions, but he knew some of them might be thought of as insulting. Like it or not, he figured he needed Peng if he was going to do business in Shenzhen. �
�One last thing,” he said, “if we do make the payment, is it the only one or will more be expected?”
“That’s all that would be required for this project, but if you decide to start additional businesses here, they would naturally incur additional one-time costs,” Peng said. “That’s only fair, isn’t it?”
“I guess it is,” said Uncle.
“So what do you think? Will we be getting a proposal from you?”
“I’ll have to discuss it with my partners and we still have to finalize some cost estimates,” Uncle said slowly. “But, on balance, I think you can assume that you will.”
“Wonderful. Now why don’t we invite your partners and Ming to rejoin us.” Peng stood and walked to the office door. When he opened it, Uncle saw Fong, Xu, and Ming standing against the wall in the corridor. “Gentlemen, come back inside, please,” Peng said.
As they re-entered the room, Peng held out his hand and shook all of theirs in turn. “You have some very fine partners here, Mr. Ming,” he said. “I’m sure they’re going to have a lot of success with your garments.”
A few minutes later Uncle led his team out of the office. As they started down the stairs, Xu said, “What did Peng want?”
“He wanted to demonstrate to me that China is now well and truly open for business,” Uncle said. “If he’s any indication of what we can expect to find here, then there’s even more opportunity than I imagined.”
“Does that mean you’re leaning towards making an investment in my business?” Ming asked.
“No, there’s no leaning,” Uncle said. “We are going to put up the money for you to re-equip your current plant and for you to buy all the raw materials you need to run at full capacity. We’ll make a decision about the second factory after Xu has analyzed those numbers and Fong has felt out the market at our end, to make sure we have a home for that much volume of product.”
Ming stopped walking and grabbed Uncle by the arm. “I don’t know how to thank you. This is a dream come true,” he said, tears welling in his eyes.
“You can thank me by moving as fast as you can to gear up production,” Uncle said. “And my dream is that in three or four months I’ll be the one thanking you.”
( 6 )
September 1981
Uncle arrived at his office at nine a.m. It was a Thursday, the day after the nighttime racing card at Happy Valley, and he was anxious to see the returns from the betting shops. Normally he would have waited until Xu had processed the numbers, but they were scheduled to leave for Shenzhen at eleven for the official opening of the re-equipped Ming Garment Factory and the start of work on the second factory, which would stand alongside it in three months or so, thanks to the support of the gang’s bank. The ceremony itself would be over by mid-afternoon, but Ming had arranged for a grand dinner that would start at seven and probably not end until midnight.
In between the ceremony and dinner, Uncle had scheduled a meeting with two Mountain Masters, Yin from Kowloon and Tse from Happy Valley, and some of their key people. They were allies and potentially important customers, and, as important to Uncle, both were sufficiently forward-looking to understand what he was trying to do in Shenzhen.
But his immediate attention was on the numbers from the previous night’s betting, and he didn’t like what he saw. During the summer break from racing, the Hong Kong Jockey Club had opened even more off-track betting shops, and they were now siphoning off an ever-increasing amount of the gang’s revenue. “Damn,” he said.
“Boss, we have a problem.”
Uncle looked up from the papers that covered his desk and saw Fong standing in the doorway. “What’s going on?”
“Ming just called me. He wants to postpone the ceremony.”
“Why?”
“He doesn’t have the materials he needs to start full production, and he doesn’t think we should reopen the plant if it isn’t completely operational. He says it would make us all look stupid.”
“Why doesn’t he have the materials? Didn’t he order them in time? Is there a shortage?”
“He ordered them ages ago, but they’ve been sitting in customs for weeks.”
“Why are we just now finding out about this?”
“His customs brokers kept telling him there wasn’t a problem,” Fong said. “I guess he believed them.”
“If there isn’t a problem, why haven’t they been released?” Uncle asked.
“I don’t know, boss.”
“Has Ming talked to Peng?”
“Peng isn’t returning his calls.”
“What time does Peng usually get to the office?”
“He should be there now.”
“We need to sort this out,” Uncle said. “We’re paying Peng to prevent problems like this.”
“Even if it is sorted, we may not have time to get the materials to the factory in time to begin production,” Fong said. “If we can’t, do you still want to go ahead with the reopening?”
“Don’t forget the meeting I’ve scheduled, and the dinner.”
“No, of course not.”
“Because Yin and Tse most certainly won’t,” Uncle said. “They and their men will be leaving for the border in a few hours, and it’s far too late to tell them not to.”
“What do you want me to tell Ming?”
“We’re going ahead. If the plant isn’t fully operational, so be it. I’ll think of something to tell our brothers,” Uncle said. “Truthfully, I don’t think they’ll know the difference. What they want to see is that we really do have a footprint in China.”
“I’ll call him right now.”
“While you’re doing that, I’ll try to reach Peng,” Uncle said.
When Fong had left, Uncle searched his Rolodex for Peng’s number and then dialled it.
“Mr. Peng’s office,” a woman’s voice answered.
“This is Mr. Chow — Uncle, in Fanling. I need to speak to Mr. Peng.”
“He’s not available at the moment.”
“Then I’ll wait.”
“I’m not sure how long you’ll have to do that.”
“Young lady, please listen to me carefully,” Uncle said briskly. “I want you to find Mr. Peng, wherever he is, and tell him I’m on the line and that I’m in a very unpleasant mood.”
She hesitated and then said. “Yes, sir, I’ll do that right now.”
What could have happened? Was Peng playing games? Was he angling for more money now that the plant reopening was imminent? Did he think that gave him leverage?
“Uncle, sorry to keep you waiting,” Peng said, interrupting his thought process.
“Do you know why I’m calling?”
“I have a very good idea.”
“Then tell me why our goods haven’t been released by customs.”
“I haven’t been ignoring your problem.”
“From what I’ve been told, though, you have been avoiding Ming.”
“That’s only because I had nothing to tell him,” Peng said. “I’ve been trying to get to the bottom of this and this morning I think I finally did.”
“Does that mean we can pick up our goods?”
“No, unfortunately. It’s a lot more complicated than that,” Peng said. “It appears from what I was told that the customs department has decided to go into business for itself.”
“I thought you had them under control.”
“So did I.”
“What has changed?”
“A new director of customs was appointed by Beijing about a month ago. He’s younger but he has strong Party connections, including an uncle on the Politburo Standing Committee. The man who had the job originally came from Guangzhou the same time as I did. He and I were close. Now they’ve shipped him back to Guangzhou and this new guy has appointed his own team. He seems determined to do things his way.”
“What is his way?”
“It appears he’s set up his own customs brokerage business. It is called the Shenzhen Master Customs Brokerage House. He did it indirectly, of course. The owners of record are M.K. Chen and L.A. Gao. It took a lot of digging, but I finally discovered those are the names of his wife and his uncle’s wife.”
“So we use them as our broker now?”
“No, he’s too smart for that. And besides, he wouldn’t want to hire the staff he’d need to process everything coming in and going out,” Peng said. “Instead he’s set up the business as a clearing house, a conduit. Instead of the brokers sending their paperwork directly to the customs department, now they have to channel it through Master Customs, where all they do is initial it and pass it along to the customs department. It probably takes them five seconds.”
“And they collect a fee on every transaction.”
“They do. It’s actually quite small, so it hasn’t caused any real fuss or raised questions, but when you multiply it by all the shipments, it adds up.”
“If it’s so small, why hasn’t our broker paid the fee?”
“He’s refusing to do business with them.”
“Why?”
“He’s from Hong Kong and has his own sense of how business should be done,” Peng said.
“What’s that supposed to mean?”
“He resents having to do a deal of that nature. He says he won’t pay bribes.”
“Then how come we had no problems with the equipment we bought for the factory?”
“That was before the new customs director was appointed.”
Uncle paused and then said, “I don’t disagree with our broker that this is a crap way to operate.”
“Neither of you understand how many people the new customs director may be indebted to for his appointment,” Peng said. “The income from the Master Brokerage may be his way of repaying them.”
“In that case, why don’t you look after this master broker until I can sort out things on my end?”
“It isn’t possible.”
“Why not?”
“It would raise too many questions. For example, they’d want to know why I was prepared to pay the fee. They would assume I was being paid to do it. I don’t know this new director well enough to risk that.”