Tide Players: The Movers and Shakers of a Rising China

by Jianying Zha

  At one point Zhang thought he might solve the problem by hiring more educated, highly qualified young people to build what he called “China’s first-class business team.” But this would take time. And things were happening too fast for Zhang’s normally cautious approach. Gome and Suning simply showed up in his neighborhood one day. Lining the third ring road at about 500 meters apart, the three retail chains now stood shoulder to shoulder, eyeing one another warily.

  Thus, it was big news in April 2006 when Yongle and Dazhong announced their signing of a “strategic cooperation agreement” in preparation for merging. Playing on puns made out of the four big chains’ names, the press excitedly billed the agreement as Happy (Yongle) and China (Dazhong) forging an alliance to fight off the American (Gome) and Soviet Union (Suning) hegemony. This was somewhat true, though after the two companies completed their merger acquisition process, Zhang would become a minority shareholder in the new Yongle-Dazhong corporation. According to the agreement between Zhang and Chen Xiao, Yongle’s founding chairman, Yongle got the priority rights to purchase Dazhong’s stock shares in a year; the price would be calculated in a set formula dependent on Dazhong’s sales performance during that year. To prove their mutual sincerity, Chen paid Zhang a cash deposit of 150 million yuan as a guarantee, while Zhang agreed to pay twice that amount to Chen if he broke the contract. This was essentially like a gentlemen’s agreement, and all was set for a smooth, cooperative merger. Zhang needed only to make sure of one thing: to keep up his store sales over the next twelve months. He knew this was something he could accomplish; after all, his stores still had a 40 percent cut of the Beijing market, the equivalent to Gome and Suning combined.

  What he didn’t know, however, was that Gome was making its move on the Shanghai market, and that Chen was also being courted by Huang. Three months later came the stunning news: Yongle had agreed to be bought by Gome! This meant, of course, not only an instant collapse of the Happy China alliance, but also a stronger America (Gome) against a disadvantaged Soviet Union (Suning). Dazhong was left out in the cold.

  Zhang’s initial response was to take the high road. He gave a press conference and sent Chen an open message that boiled down to two words: Congratulations! Goodbye! He would return Chen’s 150-million-yuan deposit, forget about their previous agreement, and move on. To his utter surprise, Chen said no: Zhang could keep the deposit because their agreement was still on, except now Dazhong was legally bound to join Yongle and become a member of the growing Gome family!

  This enraged Zhang. “Look, a good woman does not marry two men,” he claimed, citing a Chinese proverb to explain. “It’s like I’m engaged to marry someone who betrays me and marries another man, then insists on taking me along as the dowry!” This was adding insult to injury—totally unacceptable. Zhang announced that he was immediately, unilaterally, terminating the Dazhong-Yongle agreement and keeping the deposit. Chen then announced that Zhang had broken their agreement and demanded 300 million as penalty. In the following year and a half, their dispute would escalate and drag out into a nasty legal battle, and the story would grow more complex as new characters entered the scene. While the reporters were having a field day covering all the juicy gossip and every twist and turn, Zhang lowered his head and remained silent, declining all requests for an interview. For some, he had become an object of pity, even mockery. For others, he was a nice guy who finished last and was about to get run over in the coming stampede. Only in hindsight, after all the dust had settled, would people come to realize that, in his last year in the retail electronics field, Zhang had moved beautifully, like a masterful poker player.

  Liu Ge, a lawyer and senior partner at Beijing’s Junhe law firm, had just finished his annual physical checkup on a September day in 2006 and was drinking a cup of coffee in the Lido Hotel’s lobby when his mobile phone rang. He was surprised to hear Zhang Dazhong’s voice on the other end. They had only met once, about five years earlier, when Liu, whose wife worked for Motorola at the time, helped make an introduction between a Motorola deputy and Zhang. Liu had given Zhang his card but had not heard from him since. On the phone, Zhang explained that he was filing a suit against Yongle at the Arbitrators’ Tribunal, an organization under the China International Trade and Economic Commission (CITEC), which was to settle their dispute. Would Liu mind taking a look at the litigation document his lawyer had drafted? Later Liu discovered that, before calling him, Zhang had already shopped around town and gone through a string of lawyers.

  Junhe is a top law firm, one of the biggest in China. With over two hundred lawyers, its offices take up two entire floors in the China Resource Building (Huarun), which, looming over the Jianguomen Bridge, has been noted for its resemblance to Manhattan’s Chrysler Building. The founder of Junhe (the name comes from a phrase from Confucius’s Analects) and nearly all its partners share a common career pattern: Peking University (Beida) law school graduate, further training and a degree from a U.S. law school, working experience at a U.S. law firm, returning to China to join Junhe. Liu, too, had traveled this route. A commanding figure, with his sixfoot-one-inch frame clothed in an impeccable suit and tie, he was the former captain of Beida’s volleyball team, worked for seven years in a Chicago law firm, and plays golf. When he needs a break from his corner office at Huarun, he rides the elevator up eight floors to the American Club, housed on the twenty-eighth floor with a spectacular panoramic view of Beijing’s urban sprawl. Like many of his Junhe colleagues, Liu often takes his clients and friends up here to dine. This is where he likes to relax with a cigar.

  Liu promised he would look at the document. “I told Dazhong if it reads all right he should stick to that lawyer because we are very expensive,” Liu said. “But after reading the document I had to tell him it was no good. Its entire argument was built on one point: the opponent is not playing fair. You can’t win a case like this with a moral argument.” A few days later, Zhang brought a 50,000 yuan ($7,000) check for a consultation meeting at Junhe and listened to Liu present his line of arguments and strategies. “All strictly based on laws and interpretations,” Liu said to me, rattling off legal terms and contract clauses. “But the core theory I employed was a fairly new company theory by an American author. The theory unveils how some companies exploit their corporation status to avoid fulfilling their responsibilities, and it shows how to expose this in court.” Liu gave the American theory a local spin, expounding it in Chinese political catchphrases. Zhang dismissed the other lawyer and formally hired Liu. Analyzing the case together, they concluded that Huang was behind it all along, plotting to shoot two birds with one stone even before the Yongle-Dazhong pact. They were not going to let him get away with it.

  Chen hired a lawyer who also had some U.S. legal background. Like Huang, Chen was not a novice in dealing with foreigners. While Huang listened to men from Goldman Sachs for advice and had set up an investment fund with Bear Sterns, Chen counted J.P. Morgan and Chase Manhattan Bank among his investors—both had bought shares of Yongle stocks. But with Liu onboard, Zhang knew he had found their match. The litigation continued over the next fifteen months. The Arbitrators’ Tribunal held three separate court sessions on their case. For more than a year the lawyers argued on; neither side backed down, and no settlement was reached. Zhang himself went to court once with Liu, while Chen sat on the opposite side with his lawyer. “He sat there mute after I spoke,” Zhang told me recently. As time dragged on, Zhang and Liu became confident that their victory was in sight.

  Only much later, after it was all over, would Zhang talk about why he wanted a clear sell. Besides personal considerations, and the fact that it was too late for the Dazhong chain to go national, his views about the future of retail business in China were not so rosy. “I thought the space for expansion was becoming very limited,” he told me. “Most folks have bought their TV set and their audio system; the first big wave of home purchasing and furnishing is over. Upgrading is a slower cycle. I don’t want to wait to sell when the
business is in a pinched situation.” And after his experience with Yongle, selling for stock options and staying involved as a minority shareholder in a field with a shrinking horizon no longer looked appealing. He wanted a clear, clean way out, with plenty of capital to do something new. “Look, I’ve been in shiye [实业, industry and commerce] for over twenty years; time to move on.” So selling for cash was Zhang’s sole objective now. The crucial thing, of course, was getting a lot of cash.

  Despite his seemingly trapped and precarious situation, Zhang was fully aware of his advantage. He was, as Liu put it, “the last piece of fat meat in Beijing everyone was drooling over.” Or, in the words of a newspaper report: “De Dazhong zhe de Beijing” [得大中者得北京, He who gets Dazhong, gets Beijing]. By then Dazhong was the only large Chinese retail chain not listed on the stock exchange. While this had previously placed Zhang at a disadvantage when he pondered about national expansion, it now made the company more attractive to buyers. Gome and Suning pretended to be cool, but Zhang knew they were both acutely interested. Other suitors were showing up too. Best Buy, which was looking for an entry into China, approached Zhang. Through Liu’s introduction, a major British retail chain also entered the negotiation scene. Zhang let it be known that he was looking for a buyer, but he kept all the talks secret.

  Finally, in April 2007, Suning and Dazhong acknowledged that they were in communication about “development and collaboration.” Rumors started flying right away. In May, a “leak” from Dazhong revealed that Suning had made a purchase offer at three billion yuan. Though unconfirmed, the news must have kept Huang up at night.

  As Gome’s biggest rival, Suning had its own grand ambitions. Indeed, thanks to the hotness of the A shares on the Chinese stock market then, Suning’s market value had just surpassed Gome’s and the company called its stock “the number one IPO among Chinese electronics chains.” If Suning gets Dazhong now, a reporter wrote, it would be like “stabbing at Gome’s heart—Beijing.” This would be intolerable to Huang. And since things were not going his way in court, Huang’s hope of using Yongle to ensnare Dazhong and block out other potential buyers was diminishing.

  Then “Spy Gate” happened. A Dazhong employee gave Gome certain top-secret company information about sales and fled. Word circulated that “the spy” had been planted by Gome. This was in late May 2007. Dazhong’s management scheduled a press conference, saying it would release some “shocking news” and file a suit. The entire local business media showed up and waited in front of a large signboard that read PUNISH ILLEGAL ACTS. BE HONEST IN BUSINESS. But after a thirty-minute delay, a Dazhong public relations director emerged to cancel the event. Pressed by the reporters, the director revealed that due to a private exchange between Zhang and Huang, Zhang decided at the last moment to call off the press conference and drop the “spy” suit. But what did Huang and Zhang talk about? Was Spy Gate a card Zhang was using to play with Huang? The episode only added mystery to the story.

  Ultimately, the biggest card in Zhang’s hand was his company’s sales report. Buoyed by the growing economy and the booming housing market, electronic goods were selling briskly. During the first week of October 2007, during the Chinese national holiday and a big shopping week, Dazhong’s stores were so packed that the sales staff worked in twenty-four-hour shifts. Gome’s and Suning’s stores were doing well too. But when the week ended, Dazhong’s sixty-two stores easily surpassed the combined sales of the others’ eighty stores by more than 10 percent. On October 1 alone, Dazhong stores broke an all-time record by raking in 350 million yuan. Huang called Zhang to offer his congratulations. Suning’s head did the same. Both companies openly courted Zhang. It was a matter of who could pay more cash more quickly.

  The negotiations entered their final stage in December. As Suning was getting close to clinching the deal at three billion, Huang moved with more urgency. “He sent his guys to watch us every day,” Zhang told me. “They hung around my office building day and night, trying to see whether Suning’s people had started to move in.” Finally, Zhang offered Huang a forty-eight-hour “ultimatum.” “I told him if he agreed to pay 3.6 billion [yuan] in cash, plus a penalty of 20 million [yuan] in cash for Yongle’s breaking the contract, then we’d have a deal. Otherwise, I’m signing with Suning.” Two days later Huang conceded to the terms. The next day Suning withdrew its bidding for Dazhong. On December 14, Gome announced its purchase of Dazhong. A few weeks later, the Arbitration Tribunal announced its verdict: Dazhong had won the case; Yongle would have to pay Dazhong a penalty of twenty million yuan for breaking its contract.

  Huang paid the twenty million yuan. But six months later Zhang returned it! “What Chen Xiao did was unethical,” he explained to me. “That’s why I sued Yongle. But it was never about money. I just wanted to set things right.”

  There is something else Zhang would like to set right: the story about his mother. After selling his stores, he had more time on his hands, and his mind often went back to her. He pondered a great deal over the meaning of her life and death. She was, he realized, at the root of everything he had done. Her simple teaching to him when he was a boy, “Zuo ren yao you gu qi ” (做人要有骨气, Be a human being with a backbone and a spirit), is carved into his mind. She had set a fierce example for her son. Where did she get the courage to openly challenge Mao at a time when he was treated like a deity and ruled in absolute power? If, in 1980, the only way to remove the stigma of her “counterrevolutionary” status was to depict her as a “mental case,” he finds it unacceptable now. “It’s a stain on her image. She was not mad; the age she lived in was mad. Everyone knows that. I want a real rehabilitation,” Zhang told me.

  To this end he has hired a lawyer who helps him prepare for an appeal, once again, to reverse the verdict. Zhang is collecting all the data related to his mother from the court, the public security bureau, the work-unit files, the old neighbors, and family friends. Every time I go to his office or speak with him on the phone, he eagerly shows me some newly acquired material on the case or informs me of a detail he has just learned about her. During my first long interview with him, he spent half the time talking about her. An enlarged black-and-white photo of her dating back to the 1950s stood on his desk. She was a beautiful woman, elegant in a simple black coat with a gauze scarf tied around her neck, but her eyes betrayed a melancholy. “I was too young to understand her when she was alive,” Zhang told me repeatedly. “I’m trying now.” He urged me, time and again, not to focus on his story but hers. “My story is not that different from most other private entrepreneurs in China. But my mother’s is truly worth telling. Someone like her should be known and remembered.” I asked him whether this is the deepest wound in him. A silence fell; he looked very pale. Then he quickly nodded and reached for a cigarette. Once, during a visit to the United States, Zhang saw a bronze statue on the street depicting a young hero in his final moment, tied up in ropes and suffering. Suddenly, hot tears streamed down his cheeks because it reminded him of his own mother. “I’m going to commission an artist to make a statue of my mother,” Zhang told me.

  Lately, however, Zhang admits that he is running into a “rubber wall.” Nobody has issued a clear-cut rejection, but the authorities he and his lawyer contacted have found various means to put their request on hold. The government, Zhang concludes, is not yet ready to reopen the closet and stare at the skeletons of the past. “They are worried about too many families making demands like this.” He tells me about another similar case: a Shanghai musician named Liu Wenzhong who was executed during the Cultural Revolution because of his criticism of Mao. “When he was ‘rehabilitated,’ they also said he had a mental disease.” This April, Zhang had a private discussion about his mother’s case with the head of the Beijing High Court. Before they parted, the official said, “Dazhong, tell me how you would handle this case?”

  It’s clear to me that, personal desire aside, Zhang is very cautious about political action and has no intention of doing anyt
hing radical. He tells me: “First, I don’t have a bone to pick with the current leadership. Second, I can actually understand why they don’t want to handle these cases right now. How fast can China change politically? Too fast is no good either. Say we have a democracy like India’s now, then we may not have stability and efficiency. On the whole I’m pretty comfortable with the present pace of change.”

  Zhang’s preference for gradual improvement over radical change reflects not only his own prudence but also a growing consensus among China’s elite. There is a general feeling that the dark side of the country’s recent history must be faced and that the nation needs to democratize, but few expect it to happen soon. This has to do not only with a sobering sense of realism after Tiananmen but also with the increased satisfaction due to economic prosperity and the fact that personal freedom has expanded greatly in the past two decades. And if businessmen as a species are usually pragmatic and politically conservative, then businessmen in China have even more reason to be cautious, as their very existence depends on the policies and goodwill of a regime that did not begin its rule by being nice to the propertied class.

  In his recent works, Wu Xiaobo, a noted expert on the history of Chinese entrepreneurs and the author of many books on the subject, depicted the complex, precarious relationship between the state and the merchant class from the imperial times to the present era. In Wu’s view, Chinese merchants, no matter how rich and successful, have always treaded on dangerous ground with the country’s political authorities, who have a long history of exploiting and controlling them. “In the past one hundred years or so,” Wu said, “many Chinese entrepreneurs were patriotic and passionate about building a strong and modern China. They had sometimes played an important role in pushing for social progress. In certain critical moments of history, many entrepreneurs had shown an idealism that was more rational and real than that of many intellectuals and politicians. But their efforts have not been fairly evaluated, and often they had to deal with a hostile state and public prejudices.” However, according to Wu, in the past thirty years, the situation has improved greatly.