by Rob Schmitz
Mr. Huang wagged his fingernail in the air. “Gatewang is a super Taobao!”
He waited for my reaction. Seeing none, he turned to his wife. “Mrs. Shao will tell you how it’s done.”
Mrs. Shao was younger than him—in her forties—and had curled her hair and dyed it auburn. She wore a black jacket, tight jeans, and a red scarf. Hearing her cue, she walked from the side of the room, her high-heeled shoes making a loud clopping sound upon the Pergo floor. She stopped beside a bookcase and positioned a computer screen toward us.
“Don’t turn it on yet,” said Mr. Huang softly.
“Don’t turn it on!” yelled Auntie Fu.
Mrs. Shao glared at her. “I’m not turning anything on,” she spat back.
My presence seemed to make Auntie anxious. She had hand-delivered two potential investors, one of them a foreigner. I assumed there was something in it for her should we decide to invest. Mrs. Shao regained her composure and ordered Auntie to go and find a mouse pad. She fired up the monitor. It showed a picture of a refrigerator-sized computer terminal with “Gatewang” emblazoned on its side. It looked like what I used to play Pac-Man on at the arcade.
Mrs. Shao explained that Taobao required an online transaction to buy products, but Gatewang’s customers could instead buy credits offline. They could spend these credits at standing terminals located at convenience stores, restaurants, and barbershops throughout China.
Mr. Huang cut in. “We already have fifty-two thousand types of products available on Gatewang: you can even buy a house, gold bars, and luxury cars such as BMW or Mercedes-Benz. In developed countries, shopping this way is very popular, but Gatewang is the first of its kind here in China.”
I thought of saying: In developed countries, shopping this way is unheard of because buying a house or a car with credits at a terminal inside a barbershop is a terrible idea. But I held my tongue.
Mrs. Shao turned to me. “If you’re interested, the initial price is just two yuan per share, and you’ll get free credits with that,” she said. “The listing price on the London exchange will be at least five pounds per share. That’s equal to fifty yuan. If you buy ten thousand shares, it’ll be worth at least twenty-five times more when Gatewang lists!”
Auntie Fu had heard the pitch before, but this part still made her excited. “Now’s the time for us Chinese to make money off of foreigners!” she shouted, forgetting who was sitting a few inches to her left.
I had a lot of questions about Gatewang. Who owned it? A man in Guangzhou, replied Mrs. Shao. Who set the price of the stock? The man in Guangzhou, answered Mrs. Shao. When was the listing date? January 31, but that was up to the man in Guangzhou, said Mrs. Shao.
Gatewang hadn’t listed anywhere else. Why start with the London exchange? Mr. Huang took that one: The UK market was the world’s most regulated, he claimed, and the man in Guangzhou determined it to be the best place to list.
“Who is this ‘Man in Guangzhou’?” I asked.
Mr. Huang showed me a photo on his phone. The Man in Guangzhou was stout, had a full head of hair, and stared at the camera with beady eyes. His right hand appeared to be in mid-shake with that of a distinguished-looking foreigner wearing a suit. Behind them on the wall was Gatewang’s company seal. “Look who visited our office,” said Mr. Huang, “the British consul general of Guangzhou!”
This raised even more questions. Sensing I would ask another one, Mr. Huang chose the distraction strategy. “Look at this,” he said, directing my attention to a book on the coffee table. It was bound in leather and bore a nonsensical title in Chinglish:
CAPITAL INVESTMENT OF NEW THINKING CONSUMER BUSINESS
It was written by someone named Pang Bofu, who was identified as a researcher at the Chinese Academy of Social Sciences in Sichuan province. “Our company philosophy is based on this book,” he said, reaching across the table to caress the cover.
The book had been placed on the table so that it lay precisely in the middle, allowing nothing else to touch it. The entire volume—all 148 pages—was about the Gatewang machine, Mr. Huang explained.
Back at my office, a quick online search revealed that Pang Bofu makes a living giving talks at investment conferences and is a strong advocate of Amway, an American company accused of being a pyramid scheme. An Internet forum devoted to Gatewang was filled with posts alleging the company was a scam, and its founder, Mr. Li—the Man in Guangzhou—had operated several pyramid schemes throughout China and was already moving his assets overseas. But sitting on the sofa staring at the Gatewang bible, I didn’t know any of this. I only knew that investing in the company seemed like a very bad idea.
Mr. Huang could sense I was skeptical. But he was a salesman. “I sell Chinese medicine, too,” he said, his voice trailing off.
He reached around me—I shifted sideways in surprise—to produce a tiny brown bottle from a box that had been resting behind the sofa. “If you are drunk and you drink two bottles of this, you immediately become sober,” he claimed.
He opened the bottle and offered me a taste.
“I’m not drunk,” I said.
“Drinking this can also help you lose weight. A friend of mine said his son lost five kilograms after a few bottles.”
“Then I’ll buy some!” said Auntie.
She took a sip and then offered the bottle to Xia and me. I took a swig. It tasted sweet, like prune juice.
“You can give these bottles as gifts to your Chinese friends if you don’t like the taste,” suggested Mr. Huang. “They will be grateful. The market price for a bottle is sixty-eight yuan, but the price among friends is only ten.”
I politely declined. I asked the couple how they had met Auntie Fu.
“We met at the Gatewang meeting in Shanghai a couple of months ago,” said Mrs. Shao. “Since then, we’ve recruited a couple dozen friends to invest, too. You get credits for each new investor you find.”
I asked Mrs. Shao why I had never seen a Gatewang terminal in Shanghai. “Oh, people from Shanghai are very suspicious of this type of business,” she said. “They don’t believe they can actually make money from this. But in Wenzhou, these machines are everywhere. People in Wenzhou are very advanced.”
AUNTIE FU SEEMED surrounded by people from Wenzhou. The city was three hundred miles down the Pacific coast from Shanghai. The leaders of the underground church she attended were from Wenzhou, as were many investors in Gatewang. This wasn’t a coincidence. Wherever in China I traveled as a reporter, the people from Wenzhou—Wenzhou ren—were usually characterized as the worst kind of capitalist, running Ponzi schemes and get-rich-quick scams throughout the country. It was Wenzhou ren, the reasoning went, who had pooled money to buy up urban homes, driving up property prices to bubble-sized proportions. It was Wenzhou ren who swindled seniors desperate to get a piece of China’s fast-moving economy. And it was Wenzhou ren who made up a dense web of informal networks of lenders who charged outrageous interest rates for off-the-books loans to family businesses too small to obtain legitimate credit from state banks. They were greedy fiends, those Wenzhou ren, and apart from Auntie Fu, my neighbors on the Street of Eternal Happiness didn’t have anything nice to say about them.
“They call us the Jews of the Orient!” Huang Fajing told me proudly during a visit to his Wenzhou factory.
I met Huang in the autumn of 2013 while reporting a story on China’s underground lending networks. He had made a fortune exporting lighters to Europe and the United States. He was the chairman of Wenzhou Rifeng Lighter Company, and for years his company dominated the global market. If you used a lighter in the 1990s, the odds were it came from his factory. Wenzhou ren called him Dahuo Wang—the Lighter King. He had a gentle, sincere face, a raspy voice from using his product too many times to smoke cigarettes, and he dressed casually in a polo shirt and track pants. Strands of long, black hair caressed his eyebrows, and his soft hands were well manicured down to the tips of his inch-long pinkie nails—high fashion among former peasants,
proof they were no longer working with their hands. I asked His Excellency how Wenzhou ren had earned a reputation for excelling at business.
The Lighter King didn’t mince words. “Geography,” he said with authority.
The city of Wenzhou had always been isolated from the rest of China, surrounded by forested mountains on three sides. Its coastline along the East China Sea was historically the only way out. Because of its proximity to Taiwan, China’s government had viewed the city as a potential target for a bombing campaign or invasion from Taiwan. As a result, Beijing didn’t bother to invest in the city’s infrastructure. Wenzhou would have to fend for itself as a luohou backwater, forgotten by the motherland.
For Wenzhou ren, this was a blessing. It meant the city was spared much of the economic and spiritual destruction from decades of violent Maoist campaigns spreading like cancer through the rest of China. “They left us alone,” the Lighter King told me, “and we made money. It’s as simple as that.”
By the time Deng Xiaoping’s economic reforms surfaced, Wenzhou already had tens of thousands of small businesses built on capital raised through mutual help foundations called chenghui. Each member of a chenghui was required to invest the same amount. Then the group would take turns withdrawing money to fund their business, returning more capital to the pool after they made a profit. The system helped Wenzhou ren develop their own economy built on a credit system that predated banks, harkening back to a time when a loan was simply a pile of cash pooled together by friends and family. “I began making cigarette lighters twenty years ago,” the Lighter King told me, smiling. “Four of my family members each put in fifteen hundred dollars and lent it to me without interest. That’s what we call a Wenzhou loan.”
The city’s economy raced ahead, and Wenzhou businessmen began showing up in other parts of the world. In Europe, they ran garment or shoe factories in the industrial suburbs of cities such as Milan and Barcelona. China’s government even seized on the “Wenzhou Economic Model,” drawing on the coastal metropolis’s entrepreneurial spirit to inspire the rest of the country, but conveniently ignoring how these businesses were financed. As more money flowed into the city, the Wenzhou loan evolved into a more complex and less innocent line of credit. Loans were no longer limited to just family and friends. “Bigger groups of lenders began to form,” explained the Lighter King. “They began lending money with very high interest rates. And they lent it to strangers.”
In the past year, two Wenzhou businesswomen had been arrested for conning investors out of tens of millions. According to court documents, Lin Haiyin promised low risk and high returns to friends and friends-of-friends if they let her invest their money in stock offerings. It was an arrangement not dissimilar to Auntie Fu’s investment in Gatewang. Lin instead used the money to speculate in stocks, losing everything. The previous year, businesswoman Wu Ying—nicknamed “Rich Sister” in Chinese—had persuaded her investors to pour $122 million into her hair salon, foot-massage parlor, and later, copper and real estate investments, enabling her to buy one hundred properties and forty luxury vehicles, including a Ferrari worth half a million dollars. It was a Ponzi scheme of epic proportions that left her investors with nothing. In the end, the intermediate court in Wenzhou sentenced both “Rich Sister” and Lin Haiyin to death, sending a shudder through China’s home of investment scams, shadow banking, and all sorts of pyramid and Ponzi schemes.
“This recent financial crisis has sparked a loss of social trust in Wenzhou,” lamented the Lighter King inside his office. “If things don’t get under control soon, this will spur a fair amount of social instability.”
He pressed a button on a cut-glass stationary lighter on his desk, igniting a tiny cylindrical stream of blue flame that gushed straight up to the cigarette dangling from his mouth. I mentioned to him how, in so many interviews in other parts of China, people had placed the blame for China’s economic woes on the shenanigans of Wenzhou businessmen. Where had Wenzhou’s lending practices gone afoul?
“I think one point should be made crystal clear about what’s going on,” he said, pointing the burning tip of his cigarette at me. “A key reason behind all of this chaos is the global financial meltdown. If it weren’t for the subprime loan crisis in your country, China wouldn’t have had to issue hundreds of billions in stimulus and the country’s financial situation wouldn’t be like this.”
I had pushed the Lighter King into a corner, and he did what any Wenzhou ren does when blamed for a monumental problem: he pointed a long-nailed finger to another scapegoat with an even worse reputation.
A FEW DAYS AFTER the Gatewang meeting, I stopped by Auntie Fu’s home to tell her about my online sleuthing: the accusations of fraud, the background of the Man from Guangzhou, the Ponzi schemes he was accused of running.
It was the first day of December and it was freezing outside. The sun was obscured by thick smog. The air quality index hovered around 300: HAZARDOUS proclaimed my phone in big purple letters. When the air got this bad, the local government recommended that residents stay indoors. Lenora and I kept our boys inside with all three of our refrigerator-sized air filters set on high.
When I arrived at Uncle Feng and Auntie Fu’s, the door to their kitchen was wide open. I let myself in, and Uncle got up and brought me a chair and a fried turnip cake. The cold weather had been good for business, he said, beaming. He had made ¥160 the day before—close to $30. “Have a turnip cake!” he yelled to people passing by the window. “Turnip cakes! Scallion pancakes! They smell so good!”
Auntie emerged from the back door to help her husband serve a group of customers who had formed a line along the sidewalk. “Hey there,” she said to me, realizing she had a referee standing in her kitchen. “Which one tastes better? Turnip cakes or scallion pancakes?”
“Both,” I said carefully.
Uncle handed over a bag of turnip cakes to a customer and peered over at me. “She thinks my scallion pancakes are too tough.”
“You should serve pancakes while they’re hot,” Auntie lectured. “I met an old lady a few days ago who said your pancakes were lukewarm and had become tough and less tasty than before.”
“You’ll always find one or two complainers out of a hundred,” Uncle responded.
Auntie had spent the previous evening at Central Church, and she had saved a seat for me for the Christmas Eve service. I protested, telling her I needed to stay at home with my children that night.
She was undeterred. “Bring your kids, then!”
“Our tradition is to stay at home and attend church on Christmas Day,” I explained.
“All right, I’ll bring someone else. But you should come this Saturday,” she said. “Yesterday we had a preacher from Henan province. His sermon was very good,” said Auntie Fu.
“Was he a reformed gangster, too?” I asked.
“No. He used to be a very bad student,” Auntie said. “The teacher put him in the back row because he never did any homework. But he was a prodigy, and he began to preach in the countryside to the poor. People brought him chickens, ducks, and eggs. They even brought pigs as their offerings!”
Genius move, I thought: spinning tales of the generosity of China’s peasantry to guilt the urbanites into giving a tenth of their salaries. He sounded like a good follow-up to Preacher Jiang.
“It was packed,” continued Auntie. “Not an empty seat in the church. Wenzhou churches always find the top preachers.”
“Fancy a pancake?” Uncle yelled to passersby. “How many do you need? Here. Take the hot ones first.”
Auntie turned to me with a question. “Does Ecuador belong to the United States?”
“No, it’s in South America.”
She handed me a pamphlet. The Chinese on the cover said:
PREPARE TO MEET YOUR GOD!
HEAVEN, HELL, AND THE RETURN OF CHRIST
The first page had images of Jesus weeping, Pope John Paul II with his arms in the air, and a woman engulfed in flames. A map of Ecuador w
as farther down the page.
“Where did you get this?” I asked.
“A Sister gave me this. I’ll make a copy for you. This little girl from Ecuador died and returned to life after twenty-three hours!” Auntie said. “Do you know Mai Ke Er Jie Ke Xun?”
I sounded out the name until phonetics took over: Mi-chael Jack-son.
“She saw Michael Jackson in hell!” Auntie said. “Have you heard of him? He died. He danced like this.”
She stood up and shook her ample hips, pointing her chubby fingers in the air. It was as good a Michael Jackson impersonation as a sixty-four-year-old Chinese auntie could muster. I paged through the brochure. A photo of Jackson was on page 9, holding a microphone and dancing on stage.
“He’s in hell now,” Auntie said matter-of-factly. “He was just like those Hong Kong celebrities who had too much plastic surgery. All of it finally killed him.”
The pamphlet was twenty-two pages. It told the story of an Ecuadorean girl named Angelica Zambrano who said she died and met Jesus. She claimed the two traveled to hell, where Jesus showed her deceased celebrities like Selena, Michael Jackson, and even Pope John Paul II consumed in flames, tortured by demons. Departed children who had watched too many cartoons in their lifetimes were stuck in hell, too. Jesus gave the girl a tour of heaven and showed her a preview of the Rapture on a movie screen. After all this, Jesus ordered the girl back to the land of the living. Her job was to spread the news about what she had seen.
“I’ll make a copy for you. See here. She saw many kids in heaven,” Auntie said, taking the pamphlet from me and beginning to read it out loud. “ ‘Jesus said: Daughter, yes, heaven belongs to the children. The children must come to me. Anyone who comes to me, I won’t abandon him.’ Look. God said that.”
Auntie and Uncle had two children. I asked her if they were believers.
“I brought them to church, but they didn’t believe. We have a seventeen-year-old granddaughter. I saw her yesterday. How old are your kids?”