In the past two years, the central government has limited investment to slow
the pace of growth in China, fearing that a potentially disastrous real estate
bubble is being fueled by loose credit. Beijing has frowned on Yan's approach,
asserting that it finances roads to nowhere, fortress-like government buildings
and other boondoggles. In January, the central government banned such
financing.
"The decree aims to curb the obsession with infrastructure
projects," said Liu Fuyuan, deputy director of the Academy of Macroeconomic
Research in Beijing, a unit of the state Development and Reform Commission,
which guides economic policy.
Still, Yan expressed confidence that business would roll on. "I've secured
all these contracts and they are going to be completed," he said. "China is so
big that you cannot have one rule for all places. Americans have very strict
laws, but China has very flexible laws. And where American companies focus on
business issues, Chinese enterprises focus on personal relationships."
Yan was born in 1960 in the coastal province of Jiangsu, the youngest of nine
children. His parents were schoolteachers. They occupied a comfortable brick
house near the home of the premier and diplomat Zhou Enlai. But as the chaos of
the Cultural Revolution exploded in the mid-1960s, Yan's family was sent to a
poor village. There, they lived without enough blankets to cut the winter chill,
subsisting on rice husks normally reserved for pigs.
"After all those hardships, I wanted to live a good life," Yan said in the
interview, reclining in a leather-backed chair in the library of a five-star
hotel in Shanghai. Trim and casual with slicked hair, he wore a zipper down
jacket, dark slacks and black leather loafers.
In his 20s, Yan was a schoolteacher on track to become an administrator at a
high school in his hometown of Huaian. His wages were about $150 per month, plus
health insurance and a pension. But in 1986, with China early in its economic
transformation, he joined those "jumping into the sea," relinquishing the
stability of the state system for the new business world.
He took a job as a clerk at a local cement factory, earning a mere $10 a
month. His relatives fretted. But three months later he was appointed manager,
securing $500 a month and a perch from which he would amass an empire.
Yan expanded into the construction-materials business by taking over a
bankrupt state-owned collective. In 1992, he won a $1 million road-building
contract in Nanjing, the provincial capital. The following year, he got the
rights to build a section of a new highway linking Shanghai to Nanjing. He
launched his first private business in 1995, Jiangsu Pacific Engineering Ltd., a
construction company focused on projects in the province.
The business model that would make Yan rich took shape in 2002 with the
launching of China Pacific. Yan took control of 17 state-owned companies with
assets exceeding $750 million, according to the state press. In many instances,
he bought them without putting up any cash by packaging successful operations
with bankrupt factories, relieving local officials of having to pay pensions to
retirees and compensate fired workers.
In China, many private businesses have been launched with assets from
state-owned firms. Yan declined to detail where he got his capital.
"When one project succeeds, I invest the winnings in a bigger project," he
said.
In Baotou, a broad city laid out on a grid where the grasslands yield to the
desert, Yan found a willing customer. The area has substantial precious metal
deposits. Officials want to develop roads to attract investment. They had in
mind a concrete overpass linking the regional highway to their downtown.
"It's our grand entranceway," said an official in the city's Ministry of
Transportation, who spoke on condition that he not be identified, citing rules
barring unauthorized contact with foreign journalists. "The overpass gives
visitors the impression that we are a civilized city."
Baotou first put the project out for bid, awarding a contract to a
state-owned company. But capital controls deprived that firm of needed bank
finance, opening the way for Yan.
Since setting up an office here in the spring of 2004, Yan and his
representatives had feasted with local officials inside traditional Mongolian
yurts, toasting with porcelain cups of horse-milk liquor and dining on such
local delicacies as stewed camel's foot. In the fall of 2004, Yan's company
landed a $23 million contract to build the overpass. The job was finished last
July.
Next, Yan's firm renovated a boulevard known as "Corruption Street," its
sidewalks lined with karaoke lounges and massage parlors. It built a 10-lane
strip of concrete linking City Hall to the railway station, then added lights
and a grand entrance to the government center. This year, China Pacific plans to
put in a riverfront promenade.
For Yan and his company, the isolated city is now the source of contracts
worth as much as $1.5 billion.
Honest money, Yan said. "All the Chinese media has been questioning whether
I've gotten my contracts through closed-door dealing. But the prosecutor has
never come to look for any trouble. Everything is transparent."
