A Fistful of Yuan 1: Introduction

China: History of a Nation, Emergence of a Market

Business with China today seems almost routine, with the enormous volume of goods and services that pass between the People’s Republic of China and the United States (and just about everybody else too.) It’s easy to forget that geography and outlook have made China something of a civilisation unto itself through most of its history. This was especially true in the years after Mao Zedong and his Communist Party took control of the country in 1949, an event that was especially chilling for the U.S. The two countries were locked in a very Cold War, punctuated with hot events like the Korean War and (to a lesser extent) proxy wars like Vietnam (although the Soviets were the main sponsor of that adventure.)

To his credit, it remained for Richard Nixon to re-open the door with China as the U.S.’s involvement in Vietnam wound down and the Chinese crawled out from under the landslide of the Cultural Revolution. Nixon wisely saw the natural rivalry between China and the then Soviet Union. United by ideology, the two nations were divided by history, a division that manifested itself when Soviet “experts” were given the boot in the early 1960’s. (This should give pause to enthusiasts of a China-Russia front against American “hegemony” today.)

But it took a long time for that division to manifest itself in commercial terms. The event that began real forward movement was Mao’s own death in 1976, followed by the fall of the “Gang of Four” (lead by the Hillaryesque “white-boned demon” Jiang Qing) and the ascendancy of Deng Xiaoping. The rise of such a “counter-revolutionary double-dealing capitalist roader” (to use the Communist rhetoric of those days) had one obvious result: it put China back on the capitalist road, a road that has led the country to become a world-class economic powerhouse today.

While “experts” (which seem to gravitate to China) were examining the changes taking place in Chinese society and politics, business people were asking the obvious question: is there money to be made in this place? After all, China has the largest population of any country on the planet. But, as anyone who is familiar with a country operated on Marxist-Leninist principles can attest, doing business can be problematic.

But done it was. The first group to come in a major way were the Japanese, helped by geographical proximity and an aggressive export programme. Although there is a lot of “bad blood” between the Japanese and the Chinese (which still bedevils their relationship today,) in the late 1970’s the Japanese became well entrenched commercially in China. They were followed by the Europeans, especially the British and the French, all in spite of a recent, bitter colonial legacy. The Chinese are supremely pragmatic, and although both Marxism and history might slow their progress, they could not stop it.

The Americans were in a more difficult situation, mostly because of the Cold War. In addition to the export restrictions and complete lack of government support, there was always the matter of Taiwan, which sticks in the Chinese government’s craw just about worse than anything else (although the commercial activities of “Overseas Chinese” such as those from Taiwan and elsewhere also helped to re-open China for business.) But progress was happening there too, lead in part by the most “politically incorrect” of industries: the oil business.

Liberal pseudo-sophisticates may sneer at the idea of “dirty” oil men (those of us in the business, like Barack Obama, do take regular baths in places where the plumbing permits) doing anything but going to Mickey Gilley’s after a day in the oil patch, but the truth is that the oil industry has been one of the most internationalised businesses out there, forwarding globalisation long before upstarts like computer technology related businesses were even in the game. Although most people think of the major oil companies in this effort—and they certainly took an interest in China when opportunity became apparent—another vanguard is the oilfield supply and service business. This includes everything from drill bits to disaster response such as Red Adair to construction services for platforms and refineries.

From the start the Chinese supported the development of “home grown” organisations such as the Petroleum Corporation of the People’s Republic of China to lead the way in development of China’s petroleum resources. To get the job done required the proper tools and services, and the Chinese realised early that they could not develop these internally in either a timely or an economic manner. This also illustrates another aspect of the Chinese—they are long term thinkers and planners. Today we speak about the intense international competition for energy, with the Chinese “scrambling” for a shrinking energy pie. But the Chinese have been focused on their energy needs for a long time. The main drawback to their approach is that their “long term” sometimes gets too long, as will be seen in this narrative.

About Vulcan Iron Works

This series is about the sale of offshore pile driving equipment, something most people aren’t familiar with. Fortunately a) the equipment itself is pretty simple, and b) the company and its product are well documented.

Vulcan was founded in 1852. Its history and the product is documented in pictures at Vulcan: the First Hundred Years. 1981, when we made our first trip to China, was Vulcan’s one hundredth anniversary of continuous incorporation, a legacy that proved an advantage with the Chinese. Vulcan became involved in the oil industry with offshore platform construction, which is likewise documented in Vulcan: The Offshore Experience. Although I’ll explain specific items later, it’s important to take a look at these for familiarity with the company and its product.

About Doing Business in China

The best online reference that I know of is Through the Wall: A cross-cultural guide to doing business in China at Asia Times Online. The negotiations and transactions described in this piece are more than a quarter century old, but it’s interesting to see both how much and how little has changed in doing business with the Chinese.

As far as China in the period we’re talking about, the best book was and is The Chinese: Portrait of a People by the Canadian journalist John Fraser. Although he spends little time on business issues, his ability to get inside the Chinese and what they were going through in the early years after Mao’s death is extraordinary.

Some Geography

Although China is a large country, most of the action depicted in this series took place in a relatively small area: Beijing, Tianjin and their environs. Let’s start with a map of the entire area.

The Chinese were exploring for oil in the Bo Hai, the nearly landlocked gulf east of Beijing and Tianjin. Both of these cities are separate from the Hebei province that surrounds them. Tianjin’s port is Tanggu, where the end users of our product (and the people we negotiated with) were headquartered.

Badaling, where the Great Wall is featured, is just south of Yanqing, northwest of Beijing. Northeast of Tanggu is Tangshan, where in 1976 the largest loss of life ever recorded in an earthquake took place (~750,000 people.)

Central Beijing is where most of the negotiating took place. The Beijing Hotel is marked “5” just to the right of Tian an Men. The Forbidden City is marked Gugong (Palace Museum.) The only place of note in central Beijing for this story not in the coverage area of this map is the Friendship Guest House, which is just northwest of the Beijing Exhibition Centre, where the 1982 Society of Petroleum Engineers meeting took place.

About This Series

The obvious question that now need to be answer is, “Why go through these deals? Who will care about business transactions more than a quarter century in the past?”

One thing about the Internet is that it allows things to be put out that don’t need to appeal to “everybody.” The net is both the best home for things that need wide dissemination but is also suitable for specialised things that wouldn’t see the light of day otherwise.

Having said that, many want to know how to do business both internationally in general and in China in particular. One way to teach that is through case histories, the way law and business is frequently taught at the graduate level. This is such a case history, not an academic account but by a participant.

While on the subject of participants, of the three direct manufacturer representatives that negotiated the original sale, I am the only one left on the earth. Vulcan itself passed out of my family’s hands fifteen years after the first sale, and the product line was sold again four years later. This leads to the source of the information: it comes from the remaining corporate records of the transactions, my personal reminiscences and the photographs in my possession. Most of those corporate records didn’t come into my possession until Vulcan left Chattanooga for good in 2005, and I am deeply grateful to Mike Songer, Vulcan’s General Manager, for facilitating access to these.