A Fistful of Yuan 4: On Tour in China

SATURDAY, 28 MARCH 1981

At the invitation of the Chinese we took a historical tour, Chen Gui De being our guide, to see the Great Wall, Ming Tombs, and Summer Palace.

This is a story best told in pictures.

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Other tourist photos

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But the commercial work did not stop while we were tourists.

Upon return I found out that Ian had discussed the 750 hp boiler with He Zheng and found out that this was more than acceptable.

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A Fistful of Yuan 3: Beijing, Week 1

At this point we can use the trip report I wrote at the time to make the main body of the narrative. This will appear on this and the next two pages. Same will be cited followed by some commentary.

SUNDAY, 22 MARCH 1981

Arrived in Beijing after two-day journey from the U.S., Jess Perry came from Florida and met me in Atlanta and Lloyd Berwald of Johnston Boiler came from Michigan and met us in San Francisco. We were met by Ian Stones from Amtech and He Zheng and Chen Gui De from the Oil & Gas Commission in Beijing. We were taken to the Beijing hotel where we were shown our accommodations. There were no additional discussions that day.

The airport was about fifteen miles from central Beijing. Arriving in the evening, we found out that Beijing pretty much “rolled up the sidewalks” after dark in those days. Having grown up in the shadow of the Cold War and heard much about Communist countries, to actually be in one was a very strange feeling as we made our way to the Bejing Hotel.

Narratives such as this spend a lot of time on travel amenities, accommodations, and the like. To get some idea of what travel in China was like in those days, you can take a look at the brochure the Society of Petroleum Engineers put together for their 1982 exhibition in Beijing (which we’ll talk about later.) There’s one thing that needs some explanation and photographs, and that’s the Beijing Hotel itself.

In Imperial Beijing, the “centre of the world” was the Forbidden City, where the Emperor made his abode. One thing that was forbidden was to build a structure that actually overlooked the Forbidden City (a restriction not dissimilar to the height restrictions around the Washington Mall.) After the Boxer (literally in Chinese, the “Righteous and Harmonious Fists”) Rebellion in 1900, when European and American forces occupied the capital, this restriction was done away with, and the first structure built to violate it was the original Beijing Hotel, built by the French.

Beijing-Hotel-Tian-an-Men
The view from the Beijing Hotel looking west. On the right is the southern end of the Forbidden City. On the left is Tian an Men Square and the Great Hall of the People. The street running towards you is the Chang An Avenue. Just over the roof line of the hotel is the place where, eight years later, the lone Chinese faced off the tank after the Tian an Men Square demonstrations were stopped.

That part of the hotel became the “old” part of the hotel. With Soviet assistance two additions were made, one on each side of the original structure. Our first rooms, however, were in the old section, and in good Communist style few changes had been made since 1 October 1949, when just down the street Mao Zedong announced that the Chinese people had “stood up.” The rooms were cavernous, with all of their fancy brass plumbing and tubs with feet (we joked that the Chinese could refurbish the hotel with the proceeds from the antique sale of the plumbing.)

Beijing-Hotel
The Beijing Hotel, from the street. The three divisions of the hotel are clearly seen; the original hotel the French built in the middle, the newest Soviet section towering up in the centre, and the other section between them.

For us “foreign devils” (to use another old Chinese expression,) the Beijing Hotel was more than a hotel; some of its rooms became offices for foreign firms in a city with no rentable office space. Amtech used a suite in the hotel for their offices, using the room they had for their personnel in and out of Houston. The Japanese trading companies had very large suites; every time we went to the elevator we were reminded of the large Japanese presence in China. Next to their offices were the stations for the floor boys that serviced the rooms. We used a room in the old section for our negotiations.

Having traveled extensively in the oilfield, Vulcan personnel did not expect grand accommodations, and I was fine with the old section. But neither Amtech nor the Chinese thought it worthy for the President of the company to stay there, and I was subsequently moved to the new section. This at least gave me my best photo of the Forbidden City after I opened the motorised window curtains, but at 195 cm of height the Chinese bed proved a potential challenge. Ian demanded that the hotel management deal with this problem, so the day I moved they placed a table at the end of the bed and made it up with the bed.

Perry-Berwald-Beijing-Hotel
After I was whisked away to privilege and status in the new section, Jesse Perry (left) and Lloyd Berwald were left in the old one, as you can see here. Rank did matter in the “dictatorship of the proletariat,” but their digs weren’t bad either.

MONDAY, 23 MARCH 1981

We began our first meeting with the engineers from Tianjin, headed up by He Ping. The agenda was set up first and the three topics to be discussed were identified by the Chinese as follows: 1) Their presentation of their equipment and requirements, 2) Our presentation of our equipment and its capabilities and 3) the adaptation of our equipment to theirs. They showed us the basic general arrangements to their IHI built barge. They wanted to mount the boiler on the deck inside a house of their construction and connect the boiler to the crane in one of three places at 90° intervals, the chosen connection depending on the position of the platform under construction. Then the piping would proceed up the boom and into the hammer in the usual manner.

After all of our preparations, we arrived at the meeting room and our discussions started at 0900. The Chinese present at the first meeting (most of them during the remaining technical sessions as well) were as follows:

  1. Liu Ren, Vice Manager , Equipment Department, Oil & Gas Co.
  2. He Ping, Manager (Tianjin) Equipment Import Department
  3. Zhu Li Cai, Mechanical Engineer, Equipment Import Department
  4. Dai Shun Lu, Mechanical Engineer, Equipment Import Department
  5. Tang Jun Feng, Assistant Engineer and Interpreter, Equipment Import Department
  6. Yu Pu You, Mechanical Engineer, Offshore Engineering Department
  7. Wan Nai Kuan, Mechanical Engineer, Offshore Engineering Department
  8. He Zheng, Equipment Department, China Petroleum and Natural Gas Exploration and Development Corporation
  9. Chen Gui De, Interpreter, Equipment Department, Oil & Gas Co.

Mr. Chen was not present during most of the discussions. Mr. Tang was their “lead” interpreter. He Ping had learned English while attending a mission school in Tianjin before 1949; Mr. Zhu also spoke some English as well.

So we—and that included myself, Jess, Lloyd and Ian—sat down across the table from these people, sitting in the lace-draped chairs and with tea service “out of nowhere,” as John Fraser would say. We were completely speechless, not knowing where to begin. Finally Ian turned to me and whispered, “Why don’t you ask them what they would like to discuss?” This seemed like a sensible suggestion, and I did. The threefold response is what came back, and that began our discussions.

This was brief and we followed this by our slide presentation, I giving our presentation followed by Lloyd’s brief presentation for Johnston. We then went into our drawings, which comprised the general arrangements for the individual parts and some of the more important component diagrams and instructions. We also presented them with an expanded field service manual and set of Vulcan Tips although we had no intention of going through this in detail. The most important topic discussed during the drawing presentation was the steam consumption. It seems that they were very confused over our phrase of “from and at 212°F” for the lbs. per hour of steam into the hammer, they first thinking that the steam itself was only that temperature (which is impossible) and then positing that, if the rating were changed to 180°C, then the steam consumption would lower itself. The Menck specifications (we definitely found out our competition at this point) as always showed a lower steam consumption, and they felt that this was either due to a gross inefficiency on our part or more probably a difference in rating systems. We explained to them the speed difference but they did not find this satisfying. We concluded our discussions at approximately 1700…

The slide presentation–and these were literal slides, of course–was the first of its kind I had ever given for Vulcan, and I’m not sure anyone else from the company had ever used the medium.

“Menck” was our usual German competitor offshore, based in Hamburg. The previous October my brother and I went to Hamburg and got to see their “non-facility” for manufacturing (they farmed everything out.) Menck’s hammers used the steam expansively, as a regular steam engine would, which both a) allowed more energy to be extracted from the steam, and b) slowed the hammer down. It also complicated the valving system, which reduced its reliability with economical (rubber-lined) steam hose.

In the breaks in the meetings we had a chance to discuss the general situation with the Chinese with Ian Stones. We learned that the Japanese were very well set up in Tianjin and had sold much equipment before anyone else could even get a chance. IHI had been working on this situation for over a year now and only our rapid responses to their telexed questions had saved our situation here. We also met Angelica Ferguson, Ian’s new Chinese assistant. Because of the steam consumption questions we sent a telex for a quote on a 750 hp boiler.

“IHI” was Menck’s licensee in Japan. They also had sold and built the derrick barge that the Chinese had purchased to install the platform with. That gave us the first clue of the Japanese weakness—they were over-confidently assuming that, since they were well entrenched in Tianjin and had sold them the barge, that the hammer was forthcoming. Our rapid responses were critical, but also critical was Amtech’s strong position as well.

But yet another plus for us was the fact that we were actually facing the end user directly, and not having to deal with Machimpex. Because of their priority for energy development, the Chinese had allowed the Oil and Gas people to deal directly with the potential suppliers. Not a few American business people with whom we had contact in China were envious at our position.

Our original quotation of a 1000 hp boiler was based on a) our desire to give the customer the chance to use larger equipment without having to upgrade the boiler and b) some confusion in our specifications. However, the 560 was perfectly capable of full operation with a 750 hp boiler behind it, so we used this opportunity to get some economy in our package.

Ian’s new “Chinese assistant” was in reality the Taiwan-born wife of an American representative for Computervision in China. Her role would grow as the negotiations proceeded.

At 1800 we attended a banquet given for us by the Oil & Gas Commission in the Beijing Hotel. This was attended by many of the people we had been meeting with from Tianjin and the Oil & Gas Commission, including the Vice Commissioner, Mr. He Yun Chin. When “Tianjin” is referred to here, it is normally referring to the Tianjin Offshore Branch of the Petroleum Corporation where the actual field operations are based out of (which are physically in Tanggu)..

The Chinese system of business hospitality is very straightforward: they give you a banquet when you arrive, and you give them a return banquet when things are concluded. A lot of time is spent dwelling on the toasts and the mao-tai, but I’d like to focus on another item—the fish stomachs.

These are a delicacy in the Bo Hai region. The Chinese esteem them highly. Personally I think they have the taste and texture of a sponge. But being something of an omnivore, and not wanting to offend, I did eat this food. But Jess, he would not eat the fish stomachs. The Chinese were quite concerned about this but Jesse stood his ground, and probably got away with it because of his age (he was 63 at the time of the voyage, Lloyd was 56.) The Chinese respected their ages; they referred to them as the “senior gentlemen,” and that made up for my lack of seniority.

Many years later, a young woman got up at my church and recounted her time in Tianjin. She, like Jess, would not eat the fish stomachs. After this speech she sat down. When taking up the offering, I leaned over and said to her, “I did eat the fish stomachs in China.”

Some mention should also be made about the business of chopsticks. They were pretty much the only utensils offered, either at the banquets or in the hotel. I had two choices: I either learned how to use them or starve. Since the latter was unacceptable, I laboured with these, and the Chinese found my technique “interesting.”

TUESDAY, 24 MARCH 1981

Technical sessions resumed at 0830. Although we had a few drawings left to present, the Chinese requested that we go through all the parts of the hammer, describing their function, maintenance, and expected life. I did this with Jesse filling in many of the important details of the maintenance and operation. We were able in the meanwhile to present the rest of the drawings. They requested a price itemized spare parts list and we told them that we would provide this.

In all of my years involved with this kind of equipment, I have never encountered a customer that wanted so much detail on the functioning of the parts of the hammer. We patiently went through all of this. It was here that we were able to present the simplicity and longevity of our equipment, which was and is its strongest asset. Jesse routinely stated (with justification) that many of the parts could last 20-30 years or more, something the Chinese had a hard time believing. After hearing this for one part after another, a skeptical Zhu Li Cai finally said, “I hope you are right.”

The hammer discussions were completed in the morning. The afternoon was taken up mostly with the boiler, Lloyd providing most of the presentation here. Johnston’s preparation here was quite complete with many drawings. The Chinese presented the system the Japanese had proposed with a very complicated piping scheme crowned by the use of Bunker C oil with the necessary heaters required to use this type of fuel. Lloyd pointed out the advantages of the simplicity of the Johnston system which used light oil and which was completely self-contained and packaged. This made a very favourable impression on the Chinese.

In some ways, this was the real turning point in the negotiations from a technical standpoint. The Japanese were way behind us on this, especially in a cold climate such as the Bo Hai. Johnston boilers are used in schools and industrial heating systems with all kinds of fuels, including pulverised coal and trash.

The sessions ended about 1700 and I sent a telex to Chattanooga asking for a spare parts quotation.

The ability to play trans-oceanic ping-pong with the telex is comparable to using email today, although somewhat more expensive. Without it our ability to negotiate properly would have been seriously crippled, even if we had had a decent voice phone connection (which we didn’t.) The “spare parts quotation” referred to is an itemised list, which the Chinese required.

WEDNESDAY, 25 MARCH 1981

The boiler discussion resumed with the technical sessions at 0830. They continued in much the same vein as the previous day until they brought up the question of the steam output of the boilers, which was from and at 212°F. At this point, we rejoined the discussion and I drew up a diagram of the boiler/hammer system and explained to them how the boiler ratings were arrived at and that the hammer rating’s use of “from and at 212°F” did not reflect a hammer requirement but a boiler rating convention. They understood this and a very important question concerning the hammer’s steam consumption was resolved. Some discussion ensued after this point was resolved concerning water quality requirements of the boiler. Lloyd explained to the Chinese that the water quality requirements of the boiler were not as critical with a fire-tube boiler such as the Johnston as with a water-tube boiler like the IHI we were competing against, and that in general potable water was also satisfactory for the boiler too. He left them with extensive water treatment literature.

The whole business of boiler and steam consumption ratings is a fairly arcane subject, and was so even then. The more flexible water quality requirements were yet another plus for Johnston’s system.

It was probably in this session, however, that one of the lighter moments came in the negotiations. Boilers are furnished with manholes and hand holes to enable cleaning and maintenance. The Chinese, asking everything, asked Lloyd, “Can a man really get through the manhole?” Lloyd was about to answer this question when Jesse interrupted him.

“Wait a minute!” Jesse said. “Your personnel, they can get through, but Lloyd, he is too fat, he cannot get through.” Tan Jun Feng dutifully translated this and the Chinese got a good laugh out of it.

It wasn’t the only light moment in our discussions; both Jesse and Lloyd were affable men and cracked quite a few jokes, avoiding off-colour humour. It was a plus that American negotiating teams had over their Japanese counterparts. Evidently nothing is funny with the Japanese. This endeared us with the Chinese, who dealt with their frequently Kafkaesque society with a good dose of humour, as you could see just going down the street.

Upon completion of the boiler discussions the talks moved into their third phase, namely that of the hammer/boiler system on the barge itself. We established the basic complement of fittings and hoses that they would need. The requirements at this point called for two 6″ lines from the boiler to the point on the boom where the two 4″ hoses would connect with the steam line.

After the end of the sessions I sent telexes to Johnston and VIWI Chattanooga for more parts and technical information.

THURSDAY, 26 MARCH 1981

We met in a different place this day. Previously we were meeting in a conference room in the Beijing Hotel but this meeting was held in the Oil & Gas Building in Beijing. We completed our discussions concerning the technical aspects of the hammer/boiler system. They also presented us with a technical appendix which included performance requirement and a request for quality certificates. With this the technical discussions were completed around 1130 and the group posed for photographs.

That afternoon Ian, Angelica, and our people began the contract preparation. This was preliminary since I had not yet gotten the data on the parts from either Vulcan or Johnston. Ian began some explanations concerning the contract procedure and some of the general situation with the Chinese concerning ourselves and our Japanese competition.

To summarize the changes to the contract to this point the Chinese had added the request for the spare parts for the Johnston boiler and had made some changes in the hoses and fittings but nothing else. By the time the 540 was no longer a consideration and only the 560 was being actively discussed.

SRE-CoverDuring the day Thursday Chen Gui De announced to us that we would be attending a “folk ballet” that evening. Jesse was decidedly unenthusiastic at this proposition, but we went. What we were treated to was the Silk Road Episode, a recently composed piece done in traditional Chinese style with costumes and orchestra/instruments to match. It was presented by the Song and Dance Ensemble of the Ministry of Coal Industry of China, which was interesting since we were negotiating with their counterparts in the oil business.

We were blown away—everything about it was gorgeous. It was my first exposure to traditional Chinese style of music and dance, and it was enthralling. It should be noted, however, that such a piece was more than just entertainment. In the program the description of the Epilogue is ended by the following statement: “The traditional friendship between the people of China and other countries would flourish forever.” “Friendship” in official Chinese parlance generally means foreign trade and other like contacts. By putting together a traditional Chinese ballet on a part of Chinese history where the Middle Kingdom wasn’t so isolated from the rest of the world, the Chinese were both signaling their desire to reinvigorate their culture after the Cultural Revolution and to end their economic isolation as well.

The only downside to it was that Chinese theatres, like many things in China, weren’t designed for people as tall as I am, and my knees certainly felt the pain of that. After this we returned to our hotel to continue to make our own “Silk Road Episode” a reality.

FRIDAY, 27 MARCH 1981

We received the requested information from Johnston and Vulcan and spent all morning preparing the contract. Ian and I went over the usual format of pricing that the Chinese usually expected, and also some of their usual procedures as well. This proved helpful in the long run since, once the contract format is set up, this sets the negotiations on a definite basis.

We began the commercial discussions at 1500. These did not last long as commercial discussions since they reverted to technical discussions concerning some of the boiler accessories and also the piping equipment. Jess and they also got into a long discussion on the spare parts since this was the first time they had seen the spare parts quotation itemized. At the end of the discussion, He Ping gave a long dissertation on the quotation, most of which we had already heard through Ian and Angelica; namely, that the Japanese had been working on this order for a long time, that their ocean freight costs would be lower, that they had already built the barge and that adding the hammer and boiler would make a matched system, that their steam consumption was considerably lower and thus would be the operating costs, and many other items. The conclusion of all this would be that they would like for us to reconsider our discount. We told them that we would do so but not until the equipment list was in order (which it still wasn’t since the final equipment list hadn’t been finalized)…

The meeting concluded at 1730. We had dinner with Ian and talked over the contract in detail, since he was leaving for Hong Kong the next day to meet with some officials in the southern part of China, since this area is the next area of the country to develop offshore (after the Bo Hai). Since they were looking for economies in the package, I suggested to Ian to ask them whether they would be receptive to a 750 hp boiler instead of a 1000 hp boiler. He said he would, so after return to the hotel I worked up the 750 hp quotation and passed it along to his office.

It is interesting to note that on this day Mao Dun, the famous Chinese author, passed away in Beijing. It was not until the following year when I was able to purchase a copy of Midnight at the Friendship Guest House and appreciate what a brilliant novel it is.

Johnston’s coming through with their information opened an opportunity to reduce the price, but until now we had not had time to assimilate it into our proposal. In any event, our last dinner with Ian allowed me to first sample one of China’s real delicacies—lychee.

A Fistful of Yuan 2: The Road to Beijing

Just before Christmas 1980, Vulcan’s Executive Vice President, W. Calvin Bridges, received the following letter:

Amtech represents several well known manufacturers and service companies primarily in the oil and gas and mining industry in The People’s Republic of China. We have been quite successful in China over the past six years and have offices in Houston and Peking.

We recently received an inquiry for pile driving hammers from the Oil and Gas Corporation and contacted Kurt Winters (Onshore Sales Manager) in your organization who turned us over to Pem Warrington (Vice President) and Herman Hasenkampf (Offshore Sales Manager)

It is difficult for us to get complete and accurate information for quotes and this time is no exception. We have requested additional information but to be expedient, I believe we should make the quote with the information we have.

Once the quote and technical material is received, it will be studied by the end users and possibly have some questions forthcoming. The next step is to invite us and a technical team from your company to Peking for technical and commercial discussions. At these discussions, all equipment details and requirements will be worked out and the contract signed for future delivery. The Chinese are not frivolous. They will not invite you unless they plan to buy.

The Chinese always want a complete package with all accessories. For their requirements, Herman has suggested we quote the Model 540 with all accessories, manifold, steam valve, hoses and steam boiler of proper size to drive 24 through 72″ casing using their crane barge. We should quote the Model 560 as alternate.

The quotes including all technical material and specifications available should be enclosed in 12 separate packets (the more technical information available the better). They love hard reading. Make the quote to:

China National Petroleum Corporation
Tianjin Offshore Branch

Mail the original quote and all copies to our Houston office and we will forward to our Peking office by air packet for distribution to the Chinese. The Chinese are good bargainers. It is wise to add 5% to gracefully give away in contract discussions as a discount.

Just quote one complete unit of each with all accessories. The Chinese can multiply by number of units desired.

Overseas packing must be good and a line item of a certain percent must be added for this, as well as your costs for handling and inland freight to point of ocean shipment. I assume this port would be New Orleans or Houston, or other if you prefer shipment FOB vessel. The quote should also be valid for six months and priced firm through delivery.

Also for your review, I have attached a copy of the “Machimpex” standard contract form which will be used to attach to your quote and also as an attachment to the contract. It is simple and none of our clients have had problems with it. We modify it somewhat by adding your bank for the Letter of Credit and stating L/C is to be opened 30 days prior to shipment and held open 30 days after shipment is effected for collections. Arbitration can be changed to Sweden or Canada, if required.

Amtech’s role will be to present, discuss and promote the proposal, lead you through technical and commercial discussions, make any changes required in the contract, accompany your people, and expedite everything through delivery and start up until sign off on the contract…

“Amtech” is short for American Technology, based in Houston, Texas. The letter came from Stan Mills, its Managing Director. Subsequent experience proved that everything Stan stated in the letter was absolutely correct. Vulcan had had experience with many different foreign representatives and agents, but Amtech (and subsequently ATI) was among the best. Much of that was due to its personnel; some of these have had distinguished careers subsequent to this transactions, such as:

To fully understand the letter, we need to define and explain a few things.

  • The “540” refers to a Vulcan offshore hammer, one which dropped five feet with every blow against the pile with a striking weight of 40,000 pounds. The “560” is the same drop height but with 62,500 pounds of weight. The 560 was Vulcan’s “flagship” offshore.
  • “Machimpex” refers to the China National Machinery Import & Export Corporation, the ministry set up to act as an intermediary between the various internal ministries of China and foreign corporations. At that time, virtually all contract negotiations were handled by Machimpex at the “Er Li Gou” in Beijing. Machimpex’ negotiators were dreaded by their foreign counterparts as very tough, although that toughness didn’t always result in the best product for the end user, as is frequently the case with “purchasing departments.”
  • The “package deal” was something of a novelty to Vulcan. Most of Vulcan’s customers bought various components for their pile driving set-up and put them together for use, based on their experience. Fortunately, when it established its own offshore sales offices, Vulcan had become a dealer for Johnston Boiler, the prime mover of the pile driver. This was the key component other than the hammer, and proved very important to our discussions with the Chinese.

The last point became the major issue in preparing our quotation. As we would elsewhere in this relationship, we stretched ourselves beyond our usual way of doing things. However, that had some practical limits, as I mentioned to Stan in my reply of 15 January 1981:

Turning to the offer itself, we have given considerable thought to just what we can include in the offer given the information that we have. You will note that the manifold that Mr. Hasenkampf mentioned has been deleted, along with other piping and valving supplies that would appear either in the boiler feed line or in the hammer feed line. We have done this to avoid any difficulties in supplying what is essentially barge plumbing. Barge configurations and methods of installation vary considerably. Nevertheless, we do not feel that this will prove a major obstacle since none of our other customers, either American or otherwise, have experienced serious difficulty with this hardware.

One item that we have included that Mr. Hasenkampf did not mention was the steam line oiler. This is a very important item in the operation of the hammer and we felt that in this case that offering this piece of equipment will prove beneficial to all parties involved.

At the same time we presented our quotation to the Chinese through Amtech’s office in Beijing. As promised, we included the following:

  1. Vulcan 560 Pile Hammer
  2. Vulcan 540 Pile Hammer
  3. Johnston 1000 hp Boiler to power either of the above hammers
  4. Steam Hose for either Hammer
  5. Steam Line Oiler for either Hammer

The hammer quotations included lengthy spare parts lists, necessary because a) the derrick (construction) barges frequently operate in remote areas, where it is difficult to get parts in and b) have a high hourly operating cost which makes breakdown and idleness very expensive.

Our normal practice in hammer package quotations was to present a lump sum price at the end. This is the first thing the Chinese objected to; they wanted a breakdown. So, on 4 February, we presented a revised quotation with this change (A sample of our quotations can be seen in Appendix 1 of the contract, which will be presented later.)

The Chinese studied our revisions. Then things started to move very quickly. On 4 March, Ian Stones telexed us with a number of urgent questions from the end user. Our Houston office responded on 5 March (the all-caps format is standard with the telex.)

1) THIS IS TO ANSWER YOUR QUESTIONS AND SUPPLY YOU WITH SUPPLEMENTAL INFORMATION ON OUR OTHER SERVICES.

2) A SMALLER BOILER COULD BE USED BUT TAKING INTO CONSIDERATION BOILER LOSSES OVER A PERIOD OF TIME OUR CLIENT WOULD ONLY END UP PURCHASING A NEW BOILER SOONER THAN NECESSARY. THIS IS AN ATTEMPT TO HELP THE CHINESE PLAN AHEAD AND SAVE SOME MONEY IN THE LONG TERM USAGE… (Note: we ended up reducing the boiler size anyway, without a problem.)

3) VULCAN IRON WORKS AND JOHNSTON BOILER ARE PREPARED TO SEND REPRESENTATIVES TO CHINA TO ANSWER ANY TECHNICAL QUESTIONS THE CHINESE MAY HAVE REGARDING HAMMERS AND BOILERS.

4) THE ELECTRIC SUPPLY THAT YOU HAVE MENTIONED (380 VOLT 50 HERTZ) IS AVAILABLE AT AN EXTRA COST OF 778 US DOLLARS.

5) YOU MAY WISH TO MENTION TO THE CLIENT ABOUT OUR FIELD SERVICE. VULCAN HAS FIELD ENGINEERS THAT ARE HIGHLY TRAINED AND HIGHLY COMPETENT TO RENDER SERVICE AND ACTUAL HAMMER START-UP. THEY WILL ALSO BE ABLE TO ASSIST THE CHINESE ON PROPER HAMMER MAINTENANCE AND OPERATING PROCEDURE. THESE SERVICES ARE AVAILABLE AT ANY TIME.

6) THE CLIENT MAY FURTHER BE INTERESTED TO KNOW THAT VULCAN IS THE OLDEST MANUFACTURER OE THE AIR/STEAM HAMMER…OUR COMPETITORS ARE CAPABLE BUT IN THE LONG RUN WE HAVE THE REPUTATION OF MANUFACTURING THE MOST RELIABLE IN ACTUAL USAGE AND RELIABILITY IN AFTER SALES RELATIONS. OUR HAMMERS ARE ON 75 PER CENT OE ALL DOMESTIC PLATFORM INSTALLATIONS. VULCAN SERVICES ALL MAJOR US COMPANIES ALMOST EXCLUSIVELY AND MANY FOREIGN CONCERNS

Ian’s response the next day was as follows:

MET W/HE PING TIAN AND HE ZHENG – THEY WANT VULCAN AND JOHNSTON MEN OVER HERE AS QUICKLY AS POSSIBLE, SINCE THEY ARE KEEPING JAPS WAITING AND JAPS ARE CALLING EVERY DAY.

EQUIPMENT TO BE INSTALLED ON 800 TON FLOATING BARGE.

WANT TO HAVE IN-DEPTH TECH DISCUSSIONS TO CLARIFY THE FOLLOWING:

STRUCTURE
OPERATION
REPAIR AND MAINTENANCE
(WUD LIKES AS MANY DRAWINGS AS POSSIBLE)

FOR BOILER:
WATER QUALITY REQUIREMENTS
DOES IT NEED SOFTENER?
WATER, OIL ELEC REQUIREMENTS
CONTROLS/VALVES, ETC.
IS THE STEEL GRADE SAME AS THEIR CHINESE GRADES?
IF SO, CAN THEY WELD JOINTS! (IF SO, PLS BRING WELDING INFO)

WANT TO DISCUSS SPARES AND WANT EXPLODED DIAGRAMS

PLS GET US NAMES AND THEY ARE HOPING TO SEND VISA AUTHORITY TO AMTECH HOU BY NEXT TUES.

WILL NEED TO BE PREPARED FOR ALL TECH QUESTIONS AND CONTROLS. THIS WAS ALMOST SIGNED WITH JAPANESE BUT VULCAN’S QUICK REPONSE TO QUESTIONS HAS GIVEN US CHANCE. JAPS HAVE HAD 2 TEAMS OF PEOPLE IN TIANJIN IN LAST YR. MTGS PROBABLY IN TIANJIN WHERE THEY CAN SEE CRANE BARGE…

At this point, we had a corporate version of “battle stations.”

The first question was simple: whom do we send? It was obvious that the usual salesman wouldn’t do. We needed some technical fire-power along with commercial savvy. So we ended up with three people.

Vulcan’s Negotiating Team

Getting our visas was a little tricky because China’s consulate network wasn’t the largest. Fortunately they had one in Houston (importance of oil?) and my brother Pem could shuttle my passport down there. China’s visa application form was interesting; it was the first time on such a form that my political party and religion were queried. Once my passport was stamped with the Chinese visa, we realised that in our panic they had stamped a passport that was about to expire. So I obtained a new passport, only to have both old passport and Chinese visa cancelled simultaneously. Fortunately the Chinese consulate was understanding and I departed for China with new passport and visa. (This was the same Chinese consulate where, the same year, the Chinese ballet dancer Li Cunxin was detained for 21 hours in the process of defecting to the US; his life is the basis for the movie Mao’s Last Dancer.)

We made whatever preparations we could, armed with some knowledge but never enough. Vulcan had conducted a good deal of export business before—we generally exported about a third of our output—but no quotation had gone quite like this.

At that time, about the only way to get to Beijing from the US was first to go to San Francisco, fly to Tokyo, lay overnight, and then proceed to Beijing either by JAL (Japan Air Lines, if you valued your life) or by CAAC (Civil Aviation Administration of China, if you didn’t.) As I settled into my two long flights, first transcontinental and then transoceanic, I both left behind an active situation at home (Vulcan was undergoing some substantial management changes at the time) and faced a completely novel one at my destination.

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.

Tian-an-Men-Gate
The Gate of Heavenly Peace, Beijing, 1981. On 1 October 1949, Mao Zedong stood on top of that gate and announced that the Chinese people had stood up. Getting them on their feet economically was another matter.

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.

China-Map

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.)

Beijing-Map

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.