Mr China

By Tim Clissold

Constable & Robinson Ltd: £

“The idea of China has always exerted a pull on the adventurous type. There is a kind of entrepreneurial Westerner who just can’t resist it: red flags, a billion bicycles and the largest untapped market on Earth.”

This is an amazing story. It is amazing because it is true. And, as everyone knows, no one in the investment business tells the truth. Not the whole truth anyway. And certainly not about failure.

In the early nineties China, although it had actively been open to foreigners from the early 1980’s, finally opened its doors for business and an enthusiastic Wall Street was desperate not to be left out. Thus a well-seasoned Wall Street banker with twenty years of experience became anxious to get in on the next big investment wave. He was looking for glory and teamed up with a Mandarin-speaking Englishman (the author – Tim Clissold) and together they raised over four hundred million dollars from investors across America. With the money they used their investment acumen to negotiate and buy several factories all over China. What happened over the next decade, as Tim Clissold tells us in this well-written, gripping and sometimes hilarious story, is a lesson for every hot blooded money manager keen to invest in any emerging foreign market. Contracts may have been watertight, but Wall Street’s millions were not able to deal with the world’s oldest culture. The sleeping Chinese giant simply refused to play by the same rules.

Clissold, working for Arthur Anderson in London, made his first solo three month journey to China in 1988. What he saw changed his life forever. He was amazed at the sheer size of the country - “vast areas of uninhabited frozen wastelands in the west, huge deserts further north and then an incredible crush along the coast." Visiting Hong Kong he travelled back to England overland through China, taking the Trans-Mongolian Railway through Moscow on the way. He went in through the Karakoram Mountains, where Afghanistan, Pakistan and China meet, following the almost disappearing roads down into the deserts in North-Western China and East to Beijing. He then followed a string of oasis towns on the edge of the desert by bus, after which he boarded a train for central China. Three months later, and a stone and a half lighter, he crossed the grasslands to Moscow. Although he had barely scratched the surface he could see that “hundreds of millions of ordinary Chinese were on the march for a better life. It was like Hong Kong but on a cosmic scale …… I could feel the determination to catch up.” There was also an extreme curiosity to foreigners in the 1980’s, and a dogged adherence to incomprehensible rules. There were signs everywhere: ‘Beware of Smoking’ and ‘Stop Spitting’. In the Shanghai Peace Hotel, where Clissold stayed, regulations restricted ‘bringing poisonous or radioactive substances into the hotel’ or ‘letting off fireworks in the room’. Also banned were ‘fighting, gambling, drug taking, whoring or making of great noise’. No guest was ‘allowed to up anyone in their room for the night.’ By the time Clissold left China that year he had found something that completely absorbed him – China. Arriving back in London he found a Mandarin course and handed in his notice.

Returning to China soon after the Tiananmen Square crisis in the summer of 1990 Clissold lived in the Beijing University for nearly two years studying Mandarin – “the only white boy among a thousand Chinese.” Despite a campaign against ‘spiritual pollution’ Chinese students sought him out endlessly begging for English lessons. After surviving two freezing Beijing winters, Clissold applied to a Financial Times advertisement in the spring of 1992: ‘MANDARIN SPEAKER NEEDED BY LARGE, FINANCIAL SERVICES COMPANY’ and found himself first working for his old firm Arthur Anderson in Hong Kong; and soon after that cruising the board rooms of Wall Street raising money to invest in the post Mao China led by Deng Xiaoping. They raised $85 million first from wealthy individuals and then, once this money came in, another $70 million from pension funds and institutional investors. Eventually, after a second wave of fund raising, American investors put up over $400 million. The pitch and the investment climate were irresistible. With the China investment frenzy at its height in early 1993 the Chinese government had authorised nine domestic Chinese companies to list on the Hong Kong stock exchange, which market itself had increased 35 per cent in value in the early part of 1993. By the end of that year Americans had started moving money into Hong Kong. “Here was a unique opportunity, the chance to bring capital into China on a scale that could rejuvenate businesses that employed thousands; and in a scheme where both sides could win.” Clissold found the prospect of bridging the colossal cultural and financial gap hugely inspiring. “We were about to embark on an adventure, that was for sure, but it was one that might bring hope to those forgotten communities that had no way to access the resources that they needed to survive.” The new American investors – the ‘outsiders’ from Wall Street – had one-upped the ‘insiders’ from Hong Kong who were supposed to have all the inner chamber contacts in Beijing. They were featured all over the press. But they now had to start investing. It wasn’t easy.

Of the many case histories described in Clissold’s Mr China (which I believe should be compulsory ready for every ambitious foreign market investor) were:

and finally,

ll this is almost unbelievable reading. More discussions. More fifteen course dinners. More Baijiu. “We owned the controlling stake in each business but we weren’t in control.” In the end fifteen out of the original seventeen Chinese factory directors were replaced. A clean sweep. Sometimes the American investors had to do it more than once when their first choice didn’t work out. “Booting out the factory directors affected the company’s results almost immediately. In our worst year, when the battles were at their highest, we reported losses of about forty million ……. The whole endeavour had failed dismally; the hole we had made for ourselves in the earlier years was too deep and the investors lost a lot of money.”

Although somehow the American investor company survived Tim Clissold eventually worked himself out of a job. He still lives and works in China – and is quite philosophical about what he calls “the combat zone” of Chinese investment where “the whole landscape was littered with the wrecks of failed joint ventures.” As China moved into the new millennium the disasters of foreign investment were eventually “dwarfed” by the problems of China’s domestic banking system. It is estimated that banks had to deal with over seven hundred billion dollars of bad debts. But then, extraordinarily, there was a major change in the Chinese economy and China began to generate its own cash from the stock exchanges in Shanghai and Shenshen. Everything changed and in a mere ten years the Shanghai Stock Exchange grew from nothing into one of the largest exchanges in Asia. Billions were lost by foreign investors who “helped light the fuse.” But in the end China’s march onwards has been “powered by the Chinese themselves.”