Reversal of Fortune : Mou’s Woes Show Perils of Chinese Capitalism

Not so long ago, Mou Qizhong, China’s most famous entrepreneur, was the toast of the town.

Today, Mou’s business empire appears to be crumbling. He is $50 million in debt and under attack in the courts. He has even been deprived of his passport.

“Business is a battlefield,” Mou, 56, said during a recent interview at the headquarters here of his flagship Land Economic Group enterprise. “I’m under attack on several fronts. I’m trying everything I can to save the company and break out of this siege.”

Mou’s rapid rise and sudden fall from grace adds a new element to China’s nascent capitalism.

There are fortunes to be made--and lost--here. It’s the “lost” part that is new.

In his heyday, Mou--sometimes called “Chairman Mou” because of his remarkable resemblance to the late Chairman Mao Tse-tung--was lionized in the world’s press, invited to speak before the World Economic Forum in Davos, Switzerland, and consulted on economic matters by the Chinese leadership.

Even his most eccentric schemes--such as his idea for cutting a 50-mile-wide swath through the Himalayas to draw wet air from the Indian subcontinent into China’s arid west--were reported seriously in China’s official newspapers. In a journalistic hat trick, he was featured in profiles by the New York Times, Los Angeles Times and Washington Post.

The People’s Daily, official newspaper of the Communist Party, named him as one of China’s wealthiest men and a model for China’s unique “market socialist” economic system.

His life story was detailed in two self-published hagiographic biographies. They told of a man--a “Leviathan in the Sea of Business”--who had survived imprisonment and escaped a death sentence during the Great Proletarian Cultural Revolution and rose to head one of China’s largest private-sector corporations. It was, as the political cant runs here, a Horatio Alger tale with Chinese characteristics.

The most often repeated story of his entrepreneurial prowess involves a 1992 deal in which he brokered a barter exchange of Chinese-made goods packed in 50 rail freight cars for four Russian Tupolev 154-passenger aircraft that he later sold to a regional airline, netting $18 million for his company.

But sometime earlier this year, his string of good luck began to fray. The official press, as though signaled from above, halted the flow of fawning profiles.

Mou (pronounced Moo) said the most devastating blow came when the Hong Kong newspaper Sing Tao Daily reported in June that his company was under investigation by central government tax officials.

A business partner in Inner Mongolia sued Mou and his Land Group, claiming they had failed to fulfill commitments to build an industrial port and a skyscraper. In August, court officers arrived at his headquarters in western Beijing with warrants to seize cars and other office property.

Mou’s application to renew his passport for overseas travel was held up by government authorities fearful he would leave the country and join relatives living in the United States. Financing from state banks dried up, and his attempts to borrow money from overseas banks were mostly unsuccessful.

Government tax officials in Beijing and the port city of Tianjin declined to answer questions about pending investigations against Mou.

And insiders, meanwhile, began to dismantle the Horatio Alger story.

Disgruntled former employees wrote letters to senior officials, including Premier Li Peng and economic czar Zhu Rongji, the highest-ranking vice premier, accusing Mou of exaggerating his achievements and inflating the company’s investments in real estate and Russian-built communication satellites. Some claimed that Land Group was from the beginning a pyramid scheme built on credit.

“Mou’s assets are mostly nonexistent,” said one former Land Group executive, who asked not to be identified, in an interview with The Times. “For example, he claims to own a sizable piece of land in Manzhouli [Inner Mongolia]. But this is impossible.

There is no such thing as private land ownership in China. Mou only has the land rights which cannot be counted as assets or collateral.”

In recruiting brochures, Mou once boasted of paying the highest salaries in China, as much as $5,000 a year.

“An apartment will be assigned the first year an employee enters the group,” said a typical Land Group publicity document, “a car will be provided the second year and a villa will be given the third year.”

But by July of this year, Mou told The Times, Land Group was no longer able to meet its full payroll.

He said the skeleton staff of 300 loyal employees now receives only the minimum wage required by Chinese law, about $40 a month.

Mou, who during the interview was alternately defiant and bitter, blamed his troubles on a vicious anonymous letter campaign conducted by former employees and on negative press.

He said the letter writers include people still angry over his 1989 support for the Chinese army crackdown against pro-democracy demonstrators in Tiananmen Square.

In debt and squeezed for financing in 1989, Mou gambled that the pro-democracy movement would be crushed. Before the tanks rolled into Tiananmen, resulting in the deaths of hundreds, perhaps thousands, of civilians, Mou publicly sided with the government hard liners.

“There is a group of forces against me that is totally in favor of the Western perspective,” Mou said.

“Another faction against me takes the Marxist side. I’m caught in the middle.”

In the interview, Mou admitted that the company has $50 million in outstanding bank loans, about $10 million of which he said is past due. But he claimed the company still has $160 million in domestic and overseas assets.

By rejiggering his investments in other areas, he said, he has been able to save his company’s participation in a $500-million satellite to be launched in 1998.

“I have never feared anything,” he said. “I can tell you that very soon we will save our company.”

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Fall From Grace

Mou Qizhong, renowned for his entrepreneurial prowess, was regarded as somewhat of a Chinese Horatio Alger tale until an inquiry this summer by Beijing government tax officials into his company’s finances initiated a flurry of accusations against the businessman. Some highlights of his tumultuous life:

Personal

* Born in 1940 in Sichua province, China. Now lives in Beijing.

* The former glass factory worker is married and has three children.

His Rise

* Mou was a darling of the media for much of the early 1990s. The People’s Daily, the official newspaper of the Communist Party, called him a model for China’s “market socialist” economic system.

* Named China’s “reform hero” in 1995.

His Fall

* Disgruntled former employees accused Mou of exaggerating his achievements and inflating his investments.

* A business partner sued Mou and his Land Economic Group--purportedly China’s sixth-largest private company--claiming it failed to fulfill building contracts.

* In August, court officers served him with warrants to seize cars and office property.

* Mou’s application to renew his passport was held up by government authorities.

Source: Times reports