TURBO-CAPITALISM IN SHANGHAI
By Stuart archer Cohen at Jan 05, 2009
I’m sitting at a restaurant in
I’ve known Selena and Peter since 2001, when I came back to
By my standards they are wildly successful. After a few years they bought their own factory, then expanded, and built a new, much bigger factory. They have their own wholesaling arm in the
Last year my friends stood ready to cement their future. They had patented a new kind of industrial machinery that gave them a significant competitive advantage in their field. Their idea was to open a factory spinning silk, and vertically integrate their business. At the time I visited they were talking to various foreign and domestic venture capital companies (VC) to get funding for their new factory.
My friends are fairly sunny people. They’d seen an entire generation blighted by Maoism, and they’re grateful to be able to strive for something different, even if it means working 80 hours a week. On my last visit, though, I detected a note of dissatisfaction about what they called “New Money.” I was puzzled: wasn’t it all new money? Not at all. “Old money,” Selena explained, was fortunes that had been made in the past twenty years. “New money” was fortunes that had been made in the past two or three years. What was irritating is that these new money people made millions as if out of thin air, by promoting an idea and then cashing in on it, rather than plodding along in a real business.
What they were hearing from the Venture Capitalists and other businessmen from
After a year of rejection and advice, they had figured out that better game.
Rather than open a spinning factory, they would instead sell the machines. Not that they were going into the spinning-machine business. The machines were simply the basis of another much larger play that worked like this: They would sign an agreement to sell the machines exclusively to one large company, at the same time load up on stock in that company. With the significant competitive advantage offered by the machine, that stock would increase significantly, and my friends would profit off both the stock and the machine sales. A few years down the line, when the exclusive agreement expired, my friends would go public, cashing in on machine sales all over
Which brings me back to our banquet, and the bowls of shark fin soup that arrived at the table shortly after the sea cucumber. Shark fin soup is even more extravagant than sea cucumber, costing anywhere from $40 to $100 for a small bowl, and there were eight of us at the table. In the highly ceremonial Chinese banquet universe, Shark’s Fin soup is the heavy hitter, the equivalent of a long, deep bow, or maybe of throwing oneself face first on the floor in obeisance to one’s guests. And the guests that night were very important and honorable guests indeed. Two of the men there were renowned textile engineers, in a position to write extremely helpful letters attesting to the efficacy of the machines. Another was the editor of the Chinese textile industry newspaper, and a fourth young lady was a journalist for that newspaper, people who might lavish the attention necessary to boost a stock price. Seated in the chair facing the door, the place of honor, was the well-connected official who had set the meeting up. All five of them had a part to play in my friends’ intricate business plan, and I was witnessing one of the little landmarks on, hopefully, their march to vast wealth. Toasts were drunk, cashmere sweaters were handed around as gifts. The renowned textile engineer agreed to test their machines and write a letter on his findings.
My friends had transitioned from business-people merely making something into people working an intricate scheme, and I had mixed feelings. I wanted my friends to succeed, of course, and I couldn’t help trying to figure out how I could cash in on their success. The lure of easy money is like neon on a dark highway. But as they explained the mindset of the venture capitalists they had been learning from, I felt somehow diminished. These VC people didn’t want to run a business, my friends told me. They wanted to massive profits in a short time and get out, and let someone else trudge along making things or selling things. They didn’t look down on people who did things the old-fashioned way: it was just that they had a better game.
I had always been proud of my small business: it took me all over the world and introduced me to a lot of interesting people. What had always seemed like a great adventure, though, suddenly felt silly and flat. “But you’re a writer!” Serena reassured me. “We have MBA’s! This is our chance!” And I understood that. If you’re a businessperson and you have the chance to go Big, of course you have to grasp it.
In the steady progression of