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Pacific Capital Hong Kong Office, March 1991.

Investment Director Guan Weigang has just returned from Shanghai and is reporting to CEO Mark Thompson.

“Mark, this is the latest list of investment projects from Shanghai.” Guan Wei pushed the document over. “Look at these thirty projects, twenty of them are being discussed by Japanese companies. Panasonic wants to build a TV assembly plant, Sony wants to build a Walkman production line, Toshiba wants to build a microwave oven factory…”

Mark flipped through the list: "The Japanese are quick."

“They started planning this back in the 1980s,” Guan Wei said. “But now China is more open and has better policies. Japanese companies want to expand and move more production lines here.”

"Then what do we do?"

"Grab it." Su Ning's voice came from the doorway; he had just flown in from the United States.

The two men stood up: "Boss."

"Sit down." Su Ning walked into the conference room and pulled up a chair for himself. "I just read the report. Japanese companies want to replicate their Southeast Asian model in China—assembling with cheap labor and selling products globally. We'll follow that path."

"How do I get there?" Mark asked.

“Whatever projects they talk about, we’ll talk about the same projects,” Suning said directly. “Whatever conditions they offer, we’ll offer even better conditions. If they provide technology, we’ll provide more advanced technology. If they want policy support, we’ll agree to more localization commitments.”

Guan Wei was a little worried: "This would directly conflict with Japanese companies and could cause a diplomatic dispute."

“Business competition is normal,” Suning said. “Besides, aren’t we an American company? The Chinese government welcomes American companies investing in China.”

"But……"

"No buts! You must first understand that the Japanese have a deeper understanding of China than we have. Following the Japanese path will not only save us time, but also allow us to save more capital investment."

"Okay! I'm just a little worried about complaints from the Japanese government."

"What's there to be afraid of! Since Japan is our American dog, then we should be prepared to be its saviors."

"A trail-clearing hound?"

"That's right! Japanese companies are our paving dogs."

……

The first target was Panasonic's color TV project.

Panasonic's negotiation team has been in Shanghai for three months, planning to build a factory in Pudong with an annual production capacity of 500,000 color televisions.

The investment amounted to US$80 million, and the company provided some technology. Its products were mainly exported to Southeast Asia.

Pacific Capital's team went directly to the Shanghai Electronics Industry Bureau.

In the negotiation room, Guan Wei got straight to the point: "Director Wang, I heard that Panasonic is in talks about a color TV project?"

"Yes, the talks are almost complete." Director Wang nodded. "Are you interested too?"

“Yes.” Guan Wei presented a plan. “We will invest one hundred million US dollars to build a factory with an annual production capacity of one million units. In terms of technology, we will provide the latest flat-panel CRT technology—Panasonic provides the older spherical tube technology. Moreover, we promise to achieve 80% localization of components within five years, while Panasonic only promises 50%.”

Director Wang's eyes lit up: "The technology is more advanced, and the localization rate is higher... but do you have color TV technology? I remember that Lemon Technology doesn't make TVs, and Pacific Capital doesn't have any very strong home appliance companies under its umbrella."

"Lemon Technology and Pacific Capital certainly won't do it, but we have partners," Guan Wei said. "RCA, the American company that invented television technology. We've already established a joint venture with RCA, specializing in color TVs. Our technology is half a generation ahead of Japan's."

"What about the price?"

"For televisions of the same size, our cost is 15% lower than Panasonic's because we have a higher level of automation," Guan Wei calculated clearly. "If we win the project and export our products to the United States, we can enjoy most-favored-nation treatment, with tariffs 10% lower than those for Japanese products. That's the price advantage."

Director Wang was intrigued: "But we've been talking to Panasonic for a long time. What if we suddenly change people...?"

"In business negotiations, the highest bidder wins," Guan Wei stated bluntly. "If Panasonic can offer better terms, we will voluntarily withdraw. But if not, I believe China should choose the best partner."

Okay! We'll get back to you as soon as possible.

That evening, Director Wang urgently reported the situation to the city authorities.

The following day, Panasonic was notified in Shanghai that the project was suspended and needed to be reassessed.

Panasonic immediately panicked.

Negotiator Yamada went directly to Director Wang: "Director Wang, we've been negotiating for three months, and all the terms have been agreed upon. Why the sudden change of heart?"

“Mr. Yamada, a new investor has offered better terms,” Director Wang said truthfully. “We need to reassess to ensure that national interests are maximized.”

"Is he American? Pacific Capital?"

"Yes."

Yamada's face darkened: "Director Wang, Panasonic has been investing in China for many years. We have a good reputation and experience. The Americans are new here; they may just be here to cause trouble. They might not take the projects seriously once they get them."

"Don't worry! We will naturally conduct an evaluation."

"Could you tell me the terms of Pacific Capital?"

"I'm sorry! It involves trade secrets! To be fair, Pacific Capital is indeed more sincere."

"..."

Yamada returned to the hotel and immediately called the Tokyo headquarters: "Pacific Capital is trying to poach our project with better terms. Headquarters, we need more authorization and better terms."

The Tokyo headquarters replied: "Our budget is limited, and we can't increase it indefinitely. You should assess how much impact it would have on us if the Americans actually did it."

"If they succeed, the price of color TVs in the entire Asian market will be driven down. Our profits will be severely affected."

"Then let's take the project at all costs."

Panasonic then raised new conditions: the investment amount increased to US$90 million, the localization rate was promised to be 60%, and the technology was upgraded to the latest flat right-angle tube.

But Pacific Capital also increased its investment.

After receiving the news, Guan Wei immediately called Suning: "Boss, Panasonic has raised its prices."

“We’ll join too,” Suning said on the phone. “It’s $120 million, with an 85% localization rate, and we’ll provide three years of free technology upgrades. In addition, we can promise to train 1,000 Chinese technicians and send 100 to the United States for training.”

"With this condition... we'll earn less."

"In the short term, it means less profit, but in the long term, it means securing market share," Suning said. "Japanese companies have dominated the color TV industry for twenty years; it's time for a change of leadership."

"Alright! This time, I'm afraid Matsushita will go berserk."

"Remember! Better to die for your fellow Daoist than for me."

"clear."

After the new terms were submitted, Shanghai basically decided: to give it to Pacific Capital.

But Yamada made one last desperate attempt.

He pressured the Shanghai municipal government through the Japanese Consulate General in Shanghai, saying, "This is discriminatory against Japanese companies and damages the investment environment. If this happens, Japanese companies may reassess their investments in China."

That's a really strong statement.

The leaders in Shanghai immediately convened a meeting to discuss the matter.

“The Japanese are threatening us,” a deputy mayor said.

"But we do have to consider the impact," another leader said. "If we offend Japanese companies, it may be difficult to attract investment in the future."

“But Pacific Capital is indeed more sincere! Don’t forget, the Ningxin Semiconductor Park in Pudong is a benchmark, and we have no reason to refuse Pacific Capital’s investment.” In the end, a compromise was decided: the color TV project would go to Pacific Capital, but as compensation, another project would be given to Panasonic—a DVD player production line, which is technologically advanced in Japan.

Matsushita accepted.

Pacific Capital secured its first major project.

The success of the color TV project gave Pacific Capital an opportunity.

Guan Wei's team began a comprehensive scan of Japanese companies' investment plans in China.

Sony's Walkman project – a steal.

Toshiba's microwave oven project – a scramble.

Sharp's calculator project - grabbing.

Hitachi's air conditioner compressor project – a scramble.

The method is the same: investigate the progress of negotiations with Japanese companies, and then offer better terms.

Sometimes they go directly to the local government, and sometimes they go to the central ministries.

There are three key advantages: First, the technology is more advanced, or the technology is equivalent but the transfer is more thorough; second, the investment amount is larger; and third, the commitment to localization is stronger.

By the end of 1991, Pacific Capital had signed twelve major projects in China, with a total investment of US$800 million.

Nine of them were seized from Japanese companies.

……

Japanese companies have also begun a united counterattack.

In January 1992, the China-Japan Chamber of Commerce held an emergency meeting in Beijing.

Representatives from more than 30 Japanese companies participated.

The chairman, who is in charge of Toyota China, spoke first: "Ladies and gentlemen, in the past year, Pacific Capital has snatched away at least ten important projects from us. This is not normal business competition; it is a targeted attack."

Matsushita's Yamada said, "Their methods are all the same: they investigate our negotiation progress and then offer better terms. It's obvious they're watching us. What's worse, whichever industry we're in, they immediately launch the same project, severely squeezing our market and profit margins."

A Sony representative said, "They also snatched the CD production line we just negotiated in Shenzhen. The technology they promised is for a model we're only planning to launch next year. This is very suspicious; how did they get the technology?"

The Toshiba representative was even angrier: "We had already signed a letter of intent for our cathode ray tube project in Wuhan, but then Pacific Capital suddenly intervened, and the government changed its mind. This seriously violates business rules."

In the end, the discussion decided to take action: first, to file a formal complaint with the Ministry of Commerce; second, to jointly report to the Japanese government and request diplomatic support; and third, to create a media frenzy and accuse Pacific Capital of "unfair competition".

The complaint letter was quickly sent to the Foreign Investment Department of the Ministry of Commerce.

After reading the complaint letter, Li Jianguo, the director of the Foreign Investment Department, summoned Director Chen, who was in charge.

"Director Chen, what's your opinion on the Pacific Capital matter?"

Director Chen smiled wryly: "Director, to be honest, Pacific Capital's approach is a bit... aggressive, but it's not illegal. The terms they offered were indeed better, and the local government's choice of them is in line with market principles."

"But Japanese companies say this is unfair competition."

"What is fair competition?" Director Chen asked. "When Japanese companies entered China in the 1980s, they also used better terms to snatch projects from European and American companies. Now that someone is using the same methods on them, they're not used to it?"

Li Jianguo thought for a moment: "But we have to consider the diplomatic implications. Japan is an important trading partner of ours."

“Then let’s do this,” Director Chen suggested, “we’ll meet with Pacific Capital and remind them to be mindful of their approach and avoid escalating the conflict. At the same time, we should reassure the Japanese companies that we will create a level playing field and that if they want to secure projects, they should be offered better terms.”

"can."

……

Two days later, Guan Wei was summoned to the Ministry of Commerce.

Director Li Jianguo spoke to them personally, saying, "President Chen, the Japanese Chamber of Commerce has filed a complaint against you, saying that you are specifically trying to steal their projects and engaging in unfair competition."

“Director Li, we are competing fairly.” Guan Wei, however, was prepared. “We offer better terms, and the local government chooses us; this is a market behavior. If Japanese companies can offer better terms, we welcome them to take them back.”

“But you always focus on projects by Japanese companies, which is a bit too targeted.”

"Because we've found that Japanese companies investing in China have a particular characteristic—they hold back some technology, import key components from Japan, and take the lion's share of the profits back to Japan," Guan Wei said. "We're different. We're willing to transfer more advanced technology, commit to a higher localization rate, and cultivate more local talent. In the long run, this is more beneficial for China."

Sure enough, these words struck a chord with Li Jianguo.

As an official in charge of foreign investment, he was certainly aware of the tactics of Japanese companies: make money in the Chinese market, but refuse to transfer core technologies and hold key components hostage.

"Can you really do it?" Li Jianguo asked.

“We can do it! Ningxin Semiconductor Park has already proven this.” Guan Wei took out the documents, “For the color TV project, our first batch of one hundred technicians have been sent to the United States for training. For the picture tube factory, we have provided complete technical drawings, including production line design drawings. For the microwave oven project, we promise to achieve localization of all components within three years, including the most critical magnetron.”

Li Jianguo reviewed the documents and found that the conditions were indeed much better than those of the Japanese companies. "But diplomatically, we still need to maintain a balance. In the future, we will support you in competing for projects. But don't always try to snatch projects openly. You can communicate with us in advance, and we will help you coordinate to avoid direct conflict."

“Okay,” Guan Wei said. “We are willing to cooperate.”

……

In fact, Japanese companies also knew that complaining to the Ministry of Commerce would not be very effective, since Pacific Capital's terms were more favorable, so they also sent their complaints to Tokyo.

Next, the Ministry of International Trade and Industry (MITI) held a meeting.

"What is the background of Pacific Capital?" the vice minister asked.

"Lemon Technology is an investment company controlled by Suning, the founder of Lemon Technology," a subordinate reported. "Lemon Technology is the largest personal computer company in the United States, with a market value of over $50 billion. Pacific Capital manages approximately $10 billion in assets, primarily investing in global resources and Chinese manufacturing."

Why are you targeting Japanese companies?

"It's still unclear. But some analysts believe that Suning may have personal feelings—he is of Chinese descent and may have historical grievances against Japan. Or, it could be purely a business strategy: Japanese companies have the most mature presence in China, and it's easiest to successfully snatch their projects."

What is the US government's position?

“We asked Washington, and they said it was a corporate action and the government wouldn’t intervene.”

"Baka yarou! The Americans are so bad. We are their sons, how can they treat us like this?"

"So now it's a very difficult situation! If we don't find a solution soon, our company may have to withdraw from the Chinese market."

After discussion, the Ministry of International Trade and Industry decided to exert pressure on the United States through diplomatic channels.

Soon after, the Japanese ambassador to the United States met with the U.S. Deputy Secretary of Commerce. "Mr. Deputy Secretary," the ambassador said, "Pacific Capital's actions have damaged the normal competitive environment for American and Japanese companies. We hope the U.S. government can remind companies to abide by business ethics."

The U.S. Deputy Secretary replied, "Mr. Ambassador, Pacific Capital is a private company, and the U.S. government has no right to interfere with its business decisions. As long as they abide by the law, we cannot restrict them."

"But this will affect US-Japan economic relations."

"Mr. Ambassador, business competition is the norm in globalization. Japanese companies are also very active in the US market, and we have never interfered."

The conversation was fruitless.

Japan then approached the Chinese Ministry of Foreign Affairs, but China's response was equally official: "The Chinese government welcomes all foreign investment and strives to create a level playing field. Specific project selections are determined by enterprises and local governments based on market principles."

There's nothing anyone can do.

...(End of chapter)