Some words of wisdom from old China hand Tim Clissold
People take note when Tim Clissold talks about challenges of doing business on the mainland because of his years of first-hand experience
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Tim Clissold has more than 20 years’ experience doing business on the mainland. In fact, he wrote a book about it, Mr China, which became a must-read for wannabe foreign investors in the country.
After helping accounting firm Arthur Andersen in Hong Kong start up its mainland investment services practice in 1987, he spent two years studying Mandarin and immersed himself in Chinese culture.
In 1993, the Briton helped a private equity fund with US$420 million in American capital invest and run businesses on the mainland, amid a foreign investment craze as China opened the doors wider in the early 1990s. Clissold became the fund’s chief operating officer in 1996.
He published his memoir, Mr China, in 2004, depicting the various tough battles he was drawn into, including being barricaded in a room by angry workers for nine hours in a dispute over illegal land transfers.
He was the middleman between US investors with little understanding of how business and government work in the mainland, and mainland joint venture partners, who refused to cede management control, played political games to undermine the foreign partner’s economic position or committed outright theft.
Clissold later joined accounting firm PricewaterhouseCoopers and then Wall Street investment bank Goldman Sachs to manage mainland distressed assets recovery businesses, stemming from bank loans that went bad. In 2007, he co-founded Beijing-based Peony Capital, where he is chief executive. The private equity firm has €400 million (HK$4 billion) to invest in projects related to the reduction of greenhouse gas emissions and clean energy.
Clissold sat down with the Post on a recent visit to Hong Kong to share his thoughts about what it takes to do business on the mainland.
Mr China has opened many people’s eyes to the pitfalls of foreigners investing and trying to exert control over mainland companies. Do you think things have changed much since you wrote it?
No, I don’t think so. The only difference is the amount of money involved is larger. It is just as dangerous for foreign investors. You still hear stories of private equity investors going there to have big fights with their mainland partners over disappearing company seals [that are essential to authorise various company transactions.] Many people may have read my book and said, ‘Well, I’m sure it’s different now’, or ‘maybe he exaggerates a bit’. A Westerner cannot believe the system is so different unless they go there and personally lose money. You need to experience a big shock to believe the system is so different.
Quite a number of corporate governance scandals in overseas-listed mainland firms were uncovered in the past year. Do you think there is a difference in business ethics due to cultural differences between China and the West?
Is the Sino-Forest fraud scandal worse than that of [multibillion-dollar Ponzi scheme American swindler] Bernard Madoff? Fraud happens in every society. In China, the legal system is less developed, so the ways people commit fraud tend to be less sophisticated. It has taken 200 years for Britain’s legal system to mature. We can’t expect China to suddenly become a legalistic state when it had no tradition of doing that. If foreigners go there and do stupid things, then they are liable to lose money. We need to focus on the risk management and governance.
Is guanxi, or relationship-building, the key to success in doing business in China?
Chinese people respect you if you are strong, not if you are nice. If you only make nice comments and buy them nice meals, it won’t get you anywhere. You have to know how to deal with them and control assets.
What are some challenges facing carbon trading under the United Nations-administered Clean Development Mechanism?
One criticism of the CDM system is that it is administered by UN officials and checked by engineering consulting firms that have little experience in China. A minority of project applicants saw the system as an opportunity to get free money and tried to game the system. The UN found it difficult to decide which projects were real and which were not. So, at one point the UN overreacted and stopped approving projects for a while. The other challenge is the nose-diving of the carbon credit price in Europe due to oversupply of credits and weak demand. Governments are debating whether to curtail supply. Some price-support policies are expected to be made. If not, the whole European strategy to use CDM as the main tool to reach its carbon reduction targets finishes.
Is it a time-consuming process to identify CDM projects that are worth financing?
It is a challenge to find good projects on the mainland. We have looked at 100 projects and we got involved in two in the end. We are very selective. In some we didn’t agree with the asking price, or we lost out in the bidding, or we think they are too difficult technically to implement, or we don’t think they are bona fide projects.
Besides facilitating carbon credits trading, what else does Peony Capital do?
We are seeking opportunities to introduce new technologies that can benefit China’s emissions-reduction efforts. In the 1990s, Beijing was keen to attract investment into the auto industry, and in 2003 and 2004 it wanted investment to help clear the non-performing loans. Now, it is not so much interested in money since it has more than anybody else, but it is interested in new technologies. For example, China has developed its own capabilities to build wind turbines but development has been restricted by power grid shortages. It can benefit from foreign energy-storage technology.
You have been doing business in China since the early 1990s. What were your highest and lowest points?
The lowest points were dealing with frauds and disputes with our mainland partners. Sometimes their motives were understandable, but sometimes they stole money, which had a bad effect on the workers. The high points were when I helped reach resolutions with the Chinese parties, and in the case of distressed debt, when my efforts ended up helping to rejuvenate an asset. By going through tough battles with your counterparties, it’s like you tear the mask off the other person. Quite often I liked what I saw. I am still in touch with some of them.
What have you learned in cross-cultural business management over the years?
I think Chinese people are supremely rational rather than emotional. When dealing with competition, the most important thing for them is to avoid conflict. They do this by obtaining information indirectly about their rivals, convert other people to their side and avoid a war. This was written down 2,500 years ago in [ancient military text by Sun Tzu] The Art of War. People were recently upset by reports of Chinese hacking into multinationals’ computer data. Westerners shouldn’t be surprised that they have been doing this. It is up to them to deal with competition and conflict the Chinese way.
Do you plan to write more books about China?
I hope to publish next year a new book that would use a carbon credit trading business story as a basis to illustrate the different rules of doing business in China. The rules are not black and white but are more like themes and principles.
Do you want your four children to be fluent in Chinese and do business in China?
My family now lives in Britain since my children have started to reach university age. I wouldn’t force them to do anything. I just encourage them to do what they feel most passionate about. My oldest son’s Mandarin is quite good.