Courtyard Houses: From Bronze Compasses to Global Reach

Chapter 382 Reform and Opening Up

October, suite in the North Building of the Peace Hotel in Shanghai.

Outside the window, the Bund's collection of international buildings stretched out, and the sounds of ship horns echoed on the Huangpu River. In the suite's living room, Lin San sat opposite Deputy Director Wu of the Shanghai Light Industry Bureau and Secretary Liu of the Daily Chemical Company.

After exchanging pleasantries, we had had two rounds of tea.

Deputy Director Wu spoke first: "We welcome Mr. Lin's idea. Reform and opening up means attracting foreign investment and technology. However, regarding the shareholding ratio in this joint venture..."

Lin San waited for him to finish speaking.

Deputy Director Wu used cautious language, saying, "We have studied it, and according to the latest 'Law on Sino-Foreign Equity Joint Ventures,' the proportion of foreign investment is generally not less than 25%, but there is no upper limit. However, based on our experience, in order to reflect equality and mutual benefit, many projects adopt a 50% to 50% model."

Secretary Liu nodded in agreement: "Yes, this makes decision-making easier, as the board of directors has an equal number of votes."

Lin San picked up his teacup and blew on the floating leaves.

He put down his teacup. "Director Wu, Secretary Liu, let me be frank. Our Lin family's investment isn't about fighting for a controlling stake. We'll handle everything: technology, equipment, and management. The formula uses the latest enzyme washing technology, with three times the cleaning power of ordinary soap and less damage to fabrics. The production equipment is imported from Germany, a fully automated production line. The management team will be sent from Hong Kong for three years, until your people have fully taken over."

He paused for a moment, then said, "We only ask for two things. First, you can use your existing 'White Cat' brand, or you can choose a new name. Second, you must retain control over production and operations."

Deputy Director Wu and Secretary Liu exchanged a glance. The words were too eloquent, which only served to raise suspicion.

"What Mr. Lin means is..."

"The Chinese side holds 51%, and we hold 49%," Lin San stated clearly. "You have one more seat on the board of directors, you appoint the general manager, and we appoint the chief financial officer. Major decisions require a two-thirds majority vote, but for day-to-day operations, you have the final say."

Secretary Liu leaned forward: "And what about profit distribution?"

"It's based on shareholding ratio," Lin San said. "But for the first three years, all of our profits were used for production line upgrades and employee training."

The room was silent for a few seconds. Deputy Director Wu tapped his fingers lightly on the armrest of the sofa.

"We are very touched by Mr. Lin's sincerity. However..." He carefully chose his words, "some specific issues still need to be addressed. For example, who owns the patent for this technology? If the production process involves imported raw materials, how will the foreign exchange be handled? Also, will the products be sold domestically or exported? What will be the proportion?"

The negotiations have only just begun.

For the next three days, the discussion lasted from 9 a.m. to 8 p.m. each day. The focus was on four key issues:

First, there's the issue of technology ownership. Lin San insists that the formula patent belongs to the joint venture, but the cultivation technology for the core enzyme strains is "technically supported" by the Lin family's laboratory in Hong Kong, with the strains supplied quarterly. Secretary Liu wants complete technology transfer, but Lin San refuses to budge.

"Secretary Liu, this isn't about distrust," Lin San explained. "Cultivating the bacteria requires an extremely clean environment and constant temperature and humidity, which Shanghai currently lacks. If we insist on moving it here, and it gets contaminated, the entire production line would have to stop. We supply regularly, guaranteeing quality, and the cost is included in the raw material cost, which is better for everyone."

Secondly, there's foreign exchange. Deputy Director Wu laid it out: the Light Industry Bureau has no foreign exchange quota, and the joint venture will have to earn the import costs for equipment and additives themselves. Lin San agreed that for the first three years, the export ratio of products would not be less than 30%, and the foreign exchange earnings would be prioritized for imports.

Thirdly, there's the issue of personnel. The Chinese side insisted that a certain number of "backbone personnel" must be assigned to key positions. Lin San agreed, but required all personnel to pass the technical training and assessment from Hong Kong. Those who failed could be reassigned, but they could not occupy positions.

Fourthly, there's the "jointly kept" production process document. The terms are rather vague: the complete set of documents is in triplicate, with one copy each for the Chinese side, the Hong Kong side, and the joint venture company. Access requires the presence of authorized representatives from both parties.

Secretary Liu pointed to this and asked, "Isn't this... a bit inconvenient?"

Lin San smiled and said, "Technological security is important to everyone. If it were leaked and another factory copied it, the joint venture would suffer the loss. This kind of safekeeping is for the long term."

Late on the third day, the draft contract was finally finalized. Deputy Director Wu and Secretary Liu had bloodshot eyes, while Lin San's suit remained impeccably tailored.

Before signing, Deputy Director Wu asked one last question: "Mr. Lin, you've invested so much money and technology, aren't you really aiming for a controlling stake? I've worked in industry for twenty years and I've never seen anything like this."

Lin San was unscrewing the cap of his pen when he heard this and looked up.

"Director Wu, with controlling stake in your hands, this factory truly becomes a 'Chinese factory.' Workers will feel secure, leaders will be at ease, and policy support will be in place." He said slowly, "What we want is for this factory to operate sustainably and become a benchmark. In the future, it will serve as a model for cooperation in other fields."

He paused, his voice growing deeper: "Besides, if this factory is successful and makes money, will our 49% share of the profits be small?"

Deputy Director Wu paused for a moment, then finally smiled. "Insightful. Mr. Lin is a man of action."

The pen tip falls, the signature and seal are affixed.

Late November, Minhang Industrial Zone.

Bulldozers have already entered the site of "Shenlin Daily Chemicals". Lin San stood in front of the temporary workers' shed, while Lao Huang, the site manager from Hong Kong, was giving a report with the blueprints in hand.

"...The German equipment will arrive next month and will be shipped to Shanghai. The installation engineer was hired from Singapore, signed a confidentiality agreement, and will leave once the job is done." Old Huang pointed to the workshop layout on the blueprints. "As per your requirements, the core ingredient preparation area is separated, with an independent ventilation system, two access control gates, and comprehensive surveillance. The videotapes will be changed weekly, and the old tapes will be sealed and sent back to Hong Kong."

"Where are the workers?"

"The Light Industry Bureau assigned fifty people, all skilled workers from state-owned factories. We recruited thirty from the community, mainly educated youth, with higher levels of education," Old Huang said in a low voice. "The key positions—ingredient preparation, quality inspection, and equipment maintenance—are all filled by people we recruited. The people assigned by the Light Industry Bureau are mainly in packaging and warehousing."

Lin San nodded: "The training must be expedited. Everyone must memorize the quality control manual. If quality problems arise in the future, we can trace the responsibility starting from the very first link in the production line."

"clear."

A breeze blew in, carrying the smell of earth and cement. Lin San gazed at the gradually taking shape of the factory buildings in the distance and suddenly asked, "Old Huang, you've been building in Hong Kong for twenty years, what do you think of this place?"

Old Huang thought for a moment: "The land is flat enough, and the workers are willing to work. It's just... there are too many rules; you need permits for everything."

"Then let's follow the rules," Lin San said. "Let's take it one step at a time and build a solid foundation."