In the Belly of the Dragon: An Account of Working as a Foreign Expert Inside a State Enterprise of the People’S Republic of China

By John-James Farquharson

The Peoples Republic of China have hired several hundred so-called foreign experts and assigned them to specific state-owned enterprises (SOEs) to help transform these into modern world-class companies. As far as I know, I was the first and only foreigner heading up the human resources in such an enterprise.

The purpose of this short book is to provide a snapshot of what really happens inside: how the party functions in the company; how people issues are addressed, including industrial and social unrest; the problems around petty irregularities and resistance to change; the daily challenges facing non-Chinese nationals; and finally, how companies outside the Peoples Republic are bought and integrated.

• Language: English
• Publisher: Xlibris UK
• Release date: Nov 25, 2015
• ISBN: 9781514464762

John-James Farquharson

John-James Farquarson was born in 1956, son of a British Diplomat, He went to school in France and the UK, has an MA from Oxford and an MBA from Insead, Fontainebleau. He served in the British Army, in Germany, India, Pakistan, Cyprus and Northern Ireland. He has spent about thirty years in the Chemical industry, in Finance, Sales, running a plant and HR, living and working in many different countries. He is married to a German National and they have two children.

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Copyright © 2015 by John-James Farquharson.

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Rev. date: 03/31/2016

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Contents

Preface

Acknowledgements

1 Opening

2 The Background Situation

3 The Legacy Issues and Challenges That Follow

4 Hiding People

5 Finding and Keeping the Right People

6 How the Party Functions in a State Enterprise

7 A Typical Day

8 And a Typical Evening

9 The Internet

10 Appraising and Rewarding

11 Petty Irregularities: Why and How

12 Dependence on Consultants

13 Organisation Transformation

14 How Did We Buy Companies?

15 Industrial Relations and Social Stability

16 Close

About the Author

PREFACE

I T IS NOT my intention to put anyone in a difficult position, and I have therefore decided not to mention any company’s or individual’s names in the text. I have been frank, sometimes even a little ironic, but not malicious. A sense of humour, and particularly a dry one, is essential if you are to survive as a w ai-guo-ren or foreigner working for the Chinese state. As you will see, there are a number of flashbacks of my childhood, my time in the army, and incidents I encountered as a chemical-plant manager in Europe. The situations described did actually happen. This is not a novel. The opinions expressed and conclusions drawn are my own based on what I encountered.

ACKNOWLEDGEMENTS

F IRST TO MY HR crew in Beijing, a group of young PhDs and masters—all scientists—who put up with me for three years and embarked on the transformation process the company desperately needed. One of the team became my successor, and I wish him a good hand and the very best of luck. A special thanks to my first two party secretaries, without whom many of the necessary changes would never have happened. I refer to these two as my co-pilots.

When I left Beijing, one of them presented me with a scale model of an Air China 747, the sort of thing you find in the window of a travel agent (and just what you want at the last minute to squeeze into your airline luggage!). Passport photos of the co-pilot and myself were pasted up front on the cockpit. The co-pilot sits on the right and flies the plane; the captain sits on the left. Our crew’s snaps were glued on to the upper deck a little further back on either side. Our wives (photos included) were living it up in first class downstairs in the nose of the plane, and even our children featured, raising merry hell back in economy. The plane is angled steeply upwards and stands on my bookshelf here in our house in the south of Germany.

Finally, I would like to thank my wife, who joined me in Beijing. Every third week, we were on a plane to the north, east, deep south, or to the far west. The only angry thing we ever came across was a camel on the edge of the Taklamakan Desert, who sprang up the second she started to climb aboard, flinging her up into the sky and breaking her arm on the landing. Otherwise, we never felt in any kind of danger anywhere at any time. After that little incident, I bought her a camel-skin rug from Tajikistan when we were in Kashgar so she could pace back and forth on it and take her revenge.

1

Opening

A T 10 A.M., I gather my ‘platoon’ for gymnastics in a cold, unheated corridor; people fight to get past us to the lifts. Our building is a 1960s concrete block, a retired one-star lodging (putting it kindly) to house those working up the road for the Ministry of Chemical Industry at the time. I’m wearing my drab green T-shirt with a big red star on the front. I stand in front of my crew. The gymnastics martial music, together with a faded video clip, are on my laptop, so it is available at any time. I switch the mute off, and my dear old Lenovo leaps into action as the music gets underway. I have a separate panda-shaped loudspeaker that plugs into a USB port. I twist the left ear, and up goes the volume. The plastic panda’s eyes turn deep red, out comes the noise, and we’re ready to go.

We’re on gymnastics series 8 now, and they have been modified (slightly) over the last sixty years. More than a hundred million state employees across China will probably be doing exactly the same. My colleagues complain that they grew up on series 6 at school (sometime during the 1980s when I was in the British Army). They are lucky; they know the form. In the early days, I used to make a few mistakes, a bit like Johnny English of MI7 in the comedy movie which starts somewhere in Tibet; the music stops, and you’re suddenly facing the wrong way. But now I can do the movements with my eyes shut. There are eight exercises, and we do each precisely eight times and complete two sequences of this. After we finish, we all clap. I press the panda’s nose gently (the off switch) and retire to the unheated washroom with my green towel. If I’m lucky, there’ll still be some soap somewhere, and of course, some cold water to freshen up…

How Did I Come to China?

We have a home not far from Heidelberg in the south-west of Germany on a slope with forests behind us and vineyards sloping down towards the Rhine Valley in front of the village, and it’s where I’m sitting and writing this book. Before China, I was working for a Swiss company, and frankly, I was getting a bit bored.

At seven fifteen on a Saturday morning, I was jogging through the vineyards when my cell phone rang. Who on earth could that be? It was a headhunter from Beijing, working for a state-owned company. ‘I have all your details in front of me. How about spending three years in China, helping us to transform HR into a state enterprise?’ That was how it all started.

I had worked briefly in Japan, but I had never lived or worked in China and, at the time, spoke no Mandarin. I also had no real emotional link or affinity with the people or culture. In the army back in the 1970s, during target practice, they were always cardboard Chinese faces we would take aim at (I hope that’s changed now). The Chinese faces then were like the characters who appeared in old (I mean, really old) Bond movies and mostly as the bad guys, I’m afraid, like Dr No, if you remember him, po-faced, seemingly remote-controlled, and without emotion. How wrong that impression would prove to be!

If you asked me at the time why I wanted to go to China, I would have answered you with one word: ‘curiosity’. How does a communist system work with such an obvious capitalist agenda, work on the whole successfully, and all that in a state-owned enterprise? This short book tries to address this question and dilemma.

2

The Background Situation

T HE PEOPLE’S REPUBLIC of China has hired several hundred so-called foreign experts and assigned them to specific state-owned enterprises to help transform these into modern world-class companies. The circa 110 companies (likely to be consolidated further over the coming years) report to the State-Owned Assets Supervision and Administration Commission (SASAC) with an estimated total value in 2015 of about 15 trillion US dollars.

I was told I was the first and the only foreign expert working in the field of HR. I hope there will soon be some more. The account that follows describes my experiences in human resources in one of those enterprises, most of them very positive, some of them slightly less so.

The company I served was an unusual joint venture between a large state-owned industrial company (whom I will refer to as our principal parent), who held 80 per cent, and a US private-equity company (whom I will call our minority shareholder), who held the remaining 20 per cent. This investment made back in 2008 was, by the way, the first time that a private-equity firm had bought directly into a state-owned enterprise in China. As you can imagine, the agendas of our two parents did not and do not always overlap.

There were two further unusual characteristics. First, more than half of the company’s 10-billion-US-dollar turnover was outside China, following acquisitions made in France, Australia, Norway, and the UK. Second, we had an unusual leadership team comprising an Australian chief operating officer, German chief planning and strategy officer, US chief manufacturing officer, Dutch chief commercial officer, and US chief information officer among others—each of us reporting to a Chinese chief executive officer.

What’s Different about Working for a State-Owned Enterprise?

Many foreign executives who work for overseas Western companies in China and sip their latte macchiato on a Sunday morning on Shanghai’s Bund think they are living in China; they aren’t. Most of them—indeed, some of them were my colleagues in global chemical companies—have very little idea about what’s really going on here.

Let me be slightly rude for a moment. There are three kinds of foreigners working in mainland China, and imagine for a second the country is like a giant lake—deep, wide, and complex. About 60 per cent are waterskiing on the surface, and that’s all they see. This includes—I’m afraid to say—a number of diplomats I’ve met, some of whom speak quite-good Mandarin. They, of course, are barred from visiting large swathes of the country, including the autonomous province of Tibet. Another third, typically those working for Western joint ventures with Chinese companies, are exposed to party, security, and some of the petty irregularities. They are at least swimming in the water, and the better ones among them are snorkelling and are able to look down at the debris on the lake floor. They get a first-hand glimpse of the massive legacy issues this sixty-year-old republic has to address.

Finally, those of us who work for the state, and there are very few, get a completely different perspective. We don’t ski or swim. We put on a neoprene wetsuit and sink vertically downwards into the murk. We don’t just hear about the social-stability issues China faces (or rather, those carefully selected for the China Daily that most foreigners are allowed to know about); we have to deal with these hands-on. If you’re in HR in a state enterprise, you’ll be addressing strikes, grudges, mass demonstrations, and overnight trainloads of visiting petitions, including the pensioners you look after, but more of that later. China faces massive challenges, and these are heavily concentrated in the state-owned enterprises. The average foreigner gets a very limited glimpse of these.

State enterprises are faced today with many complex legacy issues—social and economic, environmental, health, safety, and medical challenges—which most overseas enterprises have simply not had to inherit (at least not in recent years). A large proportion of the 50,000 people (including pensioners) I had the privilege to look after in China lived a very long way from Shanghai, Beijing, or Guangzhou in locations that are remote, still desperately poor, dark, and freezing cold for much of the year or sweltering with dust storms in the summer. This is the real China, and the issues these people and those that lead them have to face are fundamentally different. These are not the guys who sip lattes on the Bund; in fact, many would need a day’s wage just to buy a single espresso.

So let’s leave the glossy malls of Shanghai behind, the Bentleys in Beijing, and go into the country. We’ll focus on the chemical industry, where I’ve worked most of my life in different countries, and first try to understand how these legacy issues came to be the way they are.

Many of the locations we visited, most Westerners would not have heard of. If they had heard of them, they wouldn’t want to go there, and even if they did want to go there, they probably wouldn’t be allowed to.

Origins of the Chemical Industry:

A Comparison between China and Germany

During the first half of the last century, China’s chemical production, along with many other essential strategic industries, were deliberately spread out deep into the west—first to survive Japanese bombing, then to remain intact during the civil war, and finally following the Indo-Chinese debacle in 1962 and the Soviet Union–India rapprochement, to survive a Soviet nuclear attack. This last adjustment was the so-called second wave and deliberately penny-packeted chemical production units (like many other strategically ‘essential’ industries) into remote locations, including some more sensitive applications hidden deep in gorges in central China and where some of my colleagues still worked. This may have avoided destruction in a war, revolution, and cold-war scenarios, but the price paid today in peace time’s economic growth is huge. Setting up industry to survive conflict is one thing; setting it up to compete on the global stage is something very different.

Our principal parent company still had well over 100 sites and altogether less turnover than the world’s largest chemical company in its one Ludwigshafen location alone. The opportunities for scale economies (energy, steam, rail, and water transport logistics among many others) that result in this geographic concentration in a town in the south of Germany and where I spent twelve years of my chemical life were enormous, and the estimated bottom-line benefits were well over a billion euros per annum. Directly outside my office window in Ludwigshafen, pipes would carry several different intermediate chemical products. Our plants had virtually everything they needed quite literally on tap. I can remember walking to lunch outside the plant to one of our fifteen canteens. Even in the deepest winter, the 500-yard path was never iced as it was always heated (like many of the town’s apartments) by underground pipes using excess steam from one of the production plants. Overall, the Ludwigshafen site at the time used the same amount of energy as the country Denmark.

From Edinburgh to Algiers

In China, if you are spread out over a hundred locations effectively from Lisbon to Helsinki and Edinburgh to Algiers, these are not advantages you have at your fingertips. The Western press sometimes refer to China’s SOEs (state-owned-enterprises) as giant juggernauts, but the truth is, there is nothing very competitive about how these industries are set up.

Let us look more closely at the price being paid today for being scattered and penny-packeted across this vast republic because they go well beyond raw materials and energy synergies. They have a serious impact too on people and their lives.

3

The Legacy Issues and Challenges That Follow

Health and Safety

W HEN I ARRIVED in China, someone was being killed in one of our forty plants across the country about every seven to nine weeks (in addition to a serious injury every seven days). My cell phone was by my bed. Statistically, on a per-thousand basis, you would probably have been better off serving with the coalition forces in Afghanistan; it was terrible, but after three years, this changed dramatically.

Manhole Cover Sold for Scrap Metal

I remember well my first site visit. Our employees, several thousand of them, all walked twice a day down one road and very often in sub-zero darkness. Halfway down, right in the middle, was a large manhole cover missing, about one yard wide, and below it was a fifteen-foot drop to a murky underground river.

I was walking with the general manager and four other senior people and said, ‘So what happened here?’

‘Oh, the cover was probably stolen and sold for scrap metal.’