A cautionary tale of new China

Japanese educator Yomei Matsuoka admits it’s difficult to miss the irony. How the socialist became a millionaire. How he lost his shirt in “socialist” China. And how his dream of educating young Chinese foundered after teaming up with officials from China’s Education Ministry.

But that hasn’t made his decade-long fight to recover more than $600,000 in charity funds any easier, he adds.

“What they did is an insult to their position and their country,” said Matsuoka, 64. “Now they’re stalling for time and waiting for me to die.”

Matsuoka says his nightmarish experience is a cautionary tale of corruption, lost illusions and, he acknowledges, naivete. His Chinese partners counter that he made a bad investment, knew what he was doing and is now attacking China in a desperate bid to gain sympathy.

No matter which side is telling the truth, Matsuoka’s experience underscores the risks for neophytes entering the Chinese market.

In recent decades, China’s economy has soared like a rocket, even as the nation has grappled with a huge and growing corruption problem. The administration of President Hu Jintao has made containing graft a priority, viewing it as a threat to Communist Party rule.

The near-daily scandals that hit the headlines have some common features, including a lax boundary between government and personal property, undue reliance on personal connections and the use of family members as a conduit for questionable gains.

There was not a lot in Matsuoka’s background that prepared him for this environment.

He grew up impoverished in the 1950s in Fukushima prefecture as Japan struggled to find its footing. On entering college in Tokyo in the 1960s, he embraced socialism and was arrested for participating in student riots.

After graduation, blackballed by Japan Inc., Matsuoka started tutoring, then founded a cram school. By the late 1980s, his Musashi Seminar had 800 students and was earning a quarter-million dollars annually. The former socialist sees a rich irony in how well capitalism treated him.

As retirement loomed, however, Matsuoka says, he felt increasingly guilty about this wealth built on the “blood and sweat” of ordinary Japanese and decided he wanted to build 12 schools in rural China, with small classes and up-to-date computers and textbooks.

In 1995, he mentioned the idea to his Chinese-language teacher, Ben Yongzhong. Ben was a Chinese Education Ministry official working in Tokyo on an exchange program, Matsuoka says, with links to the Chinese Embassy there.

Ben suggested that he lend the money to Tianjin University instead, to rebuild an exchange-student dorm, Matsuoka says. When the money is returned in five years, Ben reportedly said, you can build your schools, achieving two good deeds with one lump sum.

Matsuoka agreed, in part because he needed more time to finalize construction details. He also trusted Ben and took comfort in his link to the ministry. “I saw Ben as the hope for a new China,” he says.

Matsuoka handed over $625,000 at 3% interest rate in two installments in late 1996 and early 1997. The vaguely worded contract didn’t mention the Education Ministry or Ben’s title, using instead the name of his wife, Liu Lifeng. This was the first of many signals Matsuoka says he missed and would later regret having ignored.

Matsuoka also says he didn’t push for a tougher contract because his aim was to bolster Sino-Japanese relations. “In the East, we start with verbal trust, whereas Westerners write contracts,” he said. “I came wanting to touch the hearts of the Chinese and Japanese.”

Ben and Liu didn’t give the money directly to Tianjin University, about 90 minutes’ drive from Beijing, it would later surface in court. Instead, they handed it to Li Hongtao, the twentysomething son of two of their senior colleagues at the Education Ministry. This second contract was even looser than the initial loan documents. Li merely acknowledges receipt of the sizable sum without specifying its use, rightful owner or any terms.

Matsuoka and his colleagues concede that he shares some blame for having an overly trusting nature. “Matsuoka is too pure,” said Takuwa Watanabe, a business partner. “In fact, I was approached by the same high-ranking education official but didn’t take the bait. I’ve done enough business to know better.”

Matsuoka was led to believe that construction of the dorm was going smoothly, he says, until he made a trip to China in May 1999 and stopped by Tianjin University. There he discovered that the money was not going to rebuild an existing dorm, he says, but was going into a for-profit “Friends Garden Hotel” on the university’s periphery. Concerned, he questioned Ben and Liu, who told him not to worry, that the funds were being used “scientifically.”

As Matsuoka’s anxiety intensified, he approached the Education Ministry. In 2001, it agreed to launch an internal investigation. Several months later, the ministry issued an unsigned report: Because it was not named on any of the contracts, the agency said, it bore no responsibility. You are free to pursue this matter in Chinese civil court, however, it added. Officials at the Education Ministry declined to comment.

Once the threat of ministry sanctions was lifted, Matsuoka says, everyone’s position hardened. He funded a lawsuit against Li, but the court ruled in Li’s favor. With his options dwindling, Matsuoka sued Liu, hoping more pressure on Liu would pressure Li. He won that case. But Liu says she has no money.

Nor does Li seem to be feeling much pressure. “This has nothing to do with me. I don’t even know Matsuoka,” Li said. “Liu doesn’t have a direct relationship with me. I don’t know much and don’t want to get involved.”

Matsuoka says his dream of helping Chinese students is a shambles. The last decade has cost him far more than the $625,000 and $90,000 more in legal fees, he says. “It’s eaten me up,” he said, complaining of badly stretched nerves, chronic diarrhea and nightmares. “First mentally. Now physically.”

Liu and Ben don’t dispute Matsuoka’s basic account of events. But they question whether Matsuoka really intended to invest in village schools or whether he was using the deal to launder money.

They say Matsuoka pored over the hotel plans for days, knew it was a money-making venture and understood the risks, contentions he vehemently denies. They’ve been duped by Li as well, they say, didn’t share in any spoils and only acted as intermediaries to help their friends.

“We’re sorry this happened,” Ben said. “I still believe Chinese law is just. If we exhaust all legal options, I’ll do what I can to repay the money.”

Matsuoka says he initially took Ben and Liu at their word that they too were victims. As more questions have come to light on exactly where all the money went, however, he says his doubts have grown.

For his part, Li says, the Chinese courts have ruled in his favor, he didn’t have any direct dealings with Matsuoka, and Matsuoka’s problems are not his concern. “It’s risky to invest,” he said in a telephone interview. “It’s not a savings account with a fixed return.”

Matsuoka, meanwhile, says he still wants to fund a series of rural schools, if he can ever get his money back.

The ultimate losers may be the likes of He Yani, a 13-year-old in the village of Zhonghe in southern China who can only fantasize about the better life she might see if Matsuoka were able to help. Her father died when she was 7. Her mother suffers from an unspecified blood disease. And her twin sister, born partially blind, is consigned to menial tasks at home because the family can’t afford to have both go to school.

Asked what she wants to be when she grows up, she laughs nervously but doesn’t answer. Those in such dire circumstances don’t think so far ahead, village head He Jiguang, 35, explains. Getting through the week is about all they can focus on.

Yani is good at English and Chinese, her mother says, proudly showing off her English composition book. But there are 64 children in her classroom, which leaves little opportunity to practice English.

“We thank the Japanese man and appreciate his thoughtfulness,” said He Jiguang, standing beside Yani and her family. “We would like it even more, of course, if a school could be built here.”

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mark.magnier@latimes.com

Gu Bo of The Times’ Beijing Bureau contributed to this report.