Bloomberg News

Heywood-Bo Link Shows Middleman Role in Driving China Deals

April 30, 2012

Former Chinese Communist Party Secretary of Chongqing Bo Xilai. Photographer: Nelson Ching/Bloomberg

Former Chinese Communist Party Secretary of Chongqing Bo Xilai. Photographer: Nelson Ching/Bloomberg

For consultant Manuel Vermeer, cementing a business deal in China may depend on meeting some personal requests -- like helping secure a spot at a school abroad or an internship for a client’s son.

Vermeer, who runs Dr. Vermeer-Consult in Gaiberg, Germany, and has worked in China for more than 25 years, does some of the same sort of mediation that was performed by Neil Heywood, the British businessman whose alleged murder sparked a political crisis in the country. Heywood worked with clients including Aston Martin and got to know former Chongqing Communist Party chief Bo Xilai, reportedly doing favors such as getting his son into the elite British boarding school Harrow.

Heywood’s death has cast a light on the role played by middlemen, consultants and fixers who leverage their knowledge of China and personal networks abroad to facilitate business deals. Consultants with such talents are in demand as foreign firms seek to profit from an economy where U.S. and European chambers of commerce complain about uneven market access.

“It’s a bit difficult to say what is corruption and what is the Chinese guanxi system,” Vermeer said, referring to the Mandarin word that’s become a catch-all term for the networks and connections considered crucial for doing business in the country. “Sometimes it’s just getting an internship in Germany with some company” for the son of a client in China, he said.

Better Guanxi

A survey of executives published this year by the Shanghai- based China Europe International Business School found that 91 percent of 248 executives who responded believe good ties with the Chinese authorities are critical to their success. More than 50 percent spent more time cultivating those ties in China than at home, according to the survey.

“Most respondents agree that the competition in China is fierce,” according to the group. “They consider their major competitors to be Chinese local companies, mostly due to more competitive prices and better guanxi with local government and other institutions.”

The China-targeted consulting industry has expanded with companies offering advice on everything from product sourcing to strategic intelligence and market research. China Concept Consulting, with offices in Hong Kong, Beijing and Shanghai, says it “fuses rigorous business analysis with an insider’s understanding of China’s government, business culture and regulatory structure,” according to its website.

Another consulting firm, Hong Kong-based Sino-Bridge Consulting Group of Companies, offers on its website “to help you skilfully manage cross-cultural and cross-border differences in the demanding economic times.”

Receptive Audience

Heywood, who was found dead in Chongqing on Nov. 15, had his own firm, Neil Heywood & Associates Ltd., which described itself as a “general commercial company” that could “provide any services,” according to documents filed with the Companies House in the U.K. The company was dissolved on March 27.

Heywood was sought out by London-based strategic consulting firm Hakluyt & Co., the company said in an e-mailed statement. It said he wasn’t in Chongqing on the company’s behalf. He also worked for luxury carmaker Aston Martin and Manganese Bronze Holdings Plc, a maker of London taxis.

Lawrence Ang, an executive director of Geely Automobile Holdings Ltd. (175), which owns a 20 percent stake in Manganese Bronze, said Heywood was hired to provide background information on the Chinese taxi market.

‘Rent-A-Laowai’

Heywood developed ties with one of China’s most politically powerful families. When the official Xinhua News Agency reported April 10 that Bo Xilai was being suspended from the ruling Politburo, it also said Bo’s wife had been taken into custody on suspicion of involvement in Heywood’s demise.

Heywood and Gu Kailai had “a conflict over economic interests, which had been intensified,” Xinhua said.

Those economic interests included helping the Bo family move money abroad illicitly, the New York Times reported, citing a person familiar with the inquiry it didn’t identify. Heywood also helped Bo’s son Bo Guagua get into Harrow, which he also attended, according to the Telegraph.

While some middlemen like Heywood have built potentially valuable connections to politicians and government officials, at the other end of the consulting spectrum is a phenomenon that has become so widespread it has spawned its own catchphrase using the Chinese word for foreigner -- “rent-a-laowai.” Some Chinese companies seek out the services of foreigners -- regardless of their skills -- in the belief their presence at a meeting will lend an air of legitimacy.

Box of Tea

PT Black, who has lived in Shanghai for 10 years and works in communications, described in a 2010 blog post how a local company hired him and a friend, who had only been in China for 48 hours, to appear at an office-opening event in the eastern city of Lishui. He received a box of tea for his services, he wrote.

“People rent foreigners because they don’t have any direct connection with the international community at all,” Black said in an interview. “If they had foreign friends or clients, they wouldn’t need to hire a white guy.”

It’s a role that Heywood also played, Shen Wei, a consultant at Beijing HL Consulting Co., said in a phone interview. “Heywood approached us three years ago and wanted to be involved in the business,” Shen said. “We wanted an international look, so we agreed. He was never involved in any projects.”

Indirect is Best

China isn’t the only country in Asia where foreigners use their networks and local business acumen to piece together deals. Bretton Sciaroni, whose Phnom Penh law firm Sciaroni & Associates advises clients on investments in Cambodia, said he had to get used to a different business culture when he set up his practice there in 1993.

“Americans like to deal with situations in a very direct way, and sometimes the direct way is not the best way,” said Sciaroni, a former counsel under President Ronald Reagan and chairman of the American Cambodian Business Council. “Frequently in a place like Cambodia you have to appreciate being indirect is better than being direct.”

Steve Temkin does most of his work in the U.S., connecting American retail firms with a Chinese company based in the eastern city of Ningbo that he didn’t want to name. Claremont, California-based Temkin, 53, says a big part of his job is also making his Chinese employer look good.

‘Flip Out’

“For my boss to have a guy like me opening up the door for him, carrying his bag, showing him deference in front of all these Chinese -- they just flip out,” Temkin said. “You have an American guy who totally kisses your ass? It’s priceless to them to have that.”

The issue of market access is forecast to be among the agenda items for talks this week in Beijing led on the U.S. side by Secretary of State Hillary Clinton and Treasury Secretary Timothy F. Geithner. The meeting is still on track even as U.S. and Chinese officials try to resolve the case of a blind dissident’s flight from house arrest in Shandong province.

As China’s economy has grown and its markets have become more sophisticated, the need for guanxi has receded, said Bruce McLaughlin, chief executive at advisory company Sinogie Consulting Ltd., which has offices in Shanghai, Sydney and Hong Kong, according to its website.

Even though the rule of law has evolved in China, “a lot of foreign companies think that China’s what it was 20 years ago,” McLaughlin said. “Even back then there was this industry of middlemen selling this narrative of guanxi and it’s been a phenomenally successful marketing campaign. People have created this idea that China runs on corruption and relationships.”

‘Guanxi Monsters’

The net inflow of foreign direct investment in the developing economies of Asia was $355 billion in 2010, up from $144 billion in 2000, Asian Development Bank data show. Of that total China received $185 billion in 2010, up almost fivefold since 2000, according to the bank. China ranks 19th on a list of the top 50 places in the world to do business, ahead of Italy, Russia, South Korea and Brazil, according to data compiled by Bloomberg.

Foreign companies now seek out people who understand the business and don’t only offer connections, said Kent Kedl, Shanghai-based Greater China and North Asia managing director for strategic consulting firm Control Risks.

“You see both foreigners and Chinese -- we call them super guanxi monsters -- who just come in and their first phrase is, ‘I know a guy,’” Kedl said. “That may be true. But do you know the business? If you didn’t know the guy, would you know what to do?”

Even so, Vermeer says foreign companies are naive if they think they can do business in China without a middleman.

“They think, ‘we do business in the States, in the U.K., in Africa, so China can’t be so different,’” he said. “That’s a mistake.”

To contact Bloomberg News staff for this story: Nicholas Wadhams in Beijing at nwadhams@bloomberg.net; Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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