The China Business Conundrum

Revealing account of the struggles and surprises when forming a financial joint venture with China

The China Business Conundrum: Ensure That "Win-Win" Doesn't Mean Western Companies Lose Twice describes former CEO of Silicon Valley Bank (SVB) Ken Wilcox's firsthand challenges he encountered in four years “on the ground” trying to establish a joint venture between SVB and the Chinese government to fund local innovation design—and the Chinese Communist Party (CCP) efforts to systematically sabotage the project and steal SVB's business model. This book provides actionable advice drawn from meticulous notes Wilcox took from interviews with people from all walks of Chinese life, including Party and non-Party members, the business elite, and domestic workers.

Describing a China he found fascinating and maddeningly complex, this book explores topics including:

• Difficulties in transplanting SVB's model to China, from misunderstandings about titles and responsibilities to pitched battles over toilet design
• Ethics and practices widely adopted by Chinese businesses today and why China must be met with realistic expectations
• Wilcox's own honest missteps and the painfully learned lessons that came afterwards

Engrossing, enlightening, and entertaining, The China Business Conundrum: Ensure That "Win-Win" Doesn't Mean Western Companies Lose Twice is an essential cautionary tale and guidebook for all Western bankers, C-suite executives, consultants, and entrepreneurs seeking to do business within China.

Acknowledgments xiii

About the Author xv

Acronyms xvii

Introduction xix

Prologue: the Green Hat Award xxi

Why I Wrote This Book xxii

How I Structured This Account and Gathered My Information xxv

Part I The Long Lead-up 1

Chapter 1 Silicon Valley Bank Goes to China: Inadvertent Tech Transfer 3

1.1 Why Silicon Valley Bank? The Bank for Innovation 4

1.2 Why China? 9

1.3 Why Me? 14

Chapter 2 It Starts with Guanxi : Kissing Frogs and Finding a Prince 19

2.1 A Prince at Last 20

2.2 Reaching the King 23

Chapter 3 Orienting Ourselves: the Staff, the Teams, and The Runaround 31

3.1 Settling In: The Local Staff 32

3.2 Settling In: The Local Experts 37

3.3 Getting to Work: The Secret Team 42

Chapter 4 Pains in the Neck: the New Bank’s Location, Organization, and Identity 51

4.1 The Org Chart 53

4.2 Issues to Resolve 68

4.3 The Letter and What I Learned 71

4.4 Achieving the Impossible 73

4.5 December 2011 74

4.6 Wrapping Up 2011 77

Chapter 5 Slogging Along: Resolving Some of the Major Issues 81

5.1 The Breakthrough in the Tea House at the Zigzag Bridge 86

5.2 A Turning Point 89

5.3 Put in Our Place 91

Chapter 6 The Grand Opening and Yet More Licenses We Didn’t Have 99

6.1 A License to Wait 101

6.2 The Worry of Warrants 104

6.3 Growing Anxiety 105

6.4 Regulation 106

Chapter 7 Staffing: Ccp Offspring, Parents, and Cultural Differences 111

7.1 Recruiting: Sons and Daughters of the Party 112

7.2 Retaining: The Brain Drain 116

7.3 Deeper in the Joint Venture 118

7.3.1 Managing the Lenders 118

7.3.2 Assisting Lao Ding 120

7.3.3 The Bank That Didn’t Pay Graft 120

Chapter 8 Where the Money Goes, Finding My Successor, and More About China 123

8.1 Seeking a Successor 124

8.2 Entertainments, 2012 126

8.2.1 Chinese Medicine 130

8.3 Reflecting 132

8.4 Wrapping Up 2012 132

Part II After the License 137

Chapter 9 Hastening the Timeline: the Four-prong Strategy And What “letting the Customer Decide” Really Means 139

9.1 Complexities 145

9.2 Moving Forward, Maybe 148

9.2.1 How “Letting the Customer Decide” Really Works 151

9.2.2 Making Progress? 154

9.3 The Danger of Hope 156

Chapter 10 The New Sheriff: XI Comes to Power 159

10.1 The Party Committee 163

10.2 Building the Bank’s Culture 164

10.3 Building Guanxi 168

10.4 The Carrot Overhead 171

Chapter 11 Irreconcilable Differences: the More We Knew, The Worse Things Looked 177

11.1 The Successor Is Named 180

11.2 Filling in the Blanks 184

11.3 Wrapping Up 2013 186

Chapter 12 Wrapping Up My Stay: Staff Changes, More Lessons, Still No Rmb 193

12.1 I Could Have Gone Home 198

12.2 Becoming Vice Chairman 201

12.3 Warrants at Last 203

12.4 Conversations in Context 205

12.5 Body Count 208

12.6 Revolution on the Doorstep 212

12.7 Leaving 213

Chapter 13 Success in a Fashion: China’s New Tech Bank (which Wasn’t Us), and Being Vice Chairman 217

Part III The Chinese Communist Party 223

Chapter 14 The Ccp’s Role and Influence 225

14.1 “Party, Government, Military, Civilian, and Academic, East, West, South, North, and Center, The Party Leads Everything.” 226

14.2 The Chinese Banking System and Economy 227

14.2.1 Chinese Economics 232

14.3 Opinions of Others About the CCP 237

14.4 Attitudes of the CCP 239

14.5 Changes with Xi 241

Chapter 15 Practical Guidelines for Working with the Ccp 247

15.1 Contracts and the CCP 250

15.2 CCP Negotiation 251

15.2.1 Random Observations 256

15.3 The CCP and Control 258

15.4 The CCP and History 260

Part IV The other 93 Percent 265

Chapter 16 Chinese Beliefs 267

16.1 Chinese Beliefs 269

16.2 Attitudes Toward Americans 279

16.3 Overseas Chinese 282

Chapter 17 The Lives of the other 93 Percent 287

17.1 The Life of Xiao Hong 290

17.2 Non-Chinese Living in China 294

17.3 Strange Things That Happen 295

Chapter 18 Conclusion: Seeking Truth From Facts, Making Sense of It All, and Trying to Predict the Future 297

18.1 How Western Companies Fail in China 304

Part V Four years lessons, condensed 317

Epilogue 325

References 329

Bibliography 331

Index 339

A 30-year veteran of Silicon Valley Bank (SVB), KENNETH WILCOX was the bank’s CEO from 2001 to 2011 and Vice Chairman of SVB’s joint venture in Shanghai (SSVB) until 2019. He is a former member of the board of directors of the Federal Reserve Bank of San Francisco.

In 2011, after a decade as the CEO of a major U.S. bank—Silicon Valley Bank (SVB), at the time the world’s largest lender to the technology and venture capital industries—Ken Wilcox moved to China. There he would establish a bank, a joint venture between SVB and the Shanghai government, to lend to technology startups.

The China Business Conundrum: Ensure That “Win-Win” Doesn’t Mean Western Companies Lose Twice is an eyewitness account of how that project went awry. But the torturous process of establishing the joint venture bank is just the starting point for this book. Rather than focusing on banking, international relations, or government policy, the book describes the ethics and practices widely adopted by Chinese businesses today, along with the role played by the CCP.

Based on the meticulous notes Wilcox took and from interviews with people from all walks of Chinese life—Party and non-Party members, the business elite and domestic workers alike—this book explores what Western businesses and, more broadly, Westerners who interact with China on any level must grasp to work constructively with China, including their motivations, myths, and beliefs. Wilcox also provides a valuable first-person account of the rise of Xi Jinping and the internal impact of his early strategies.

Despite his frustrations, Wilcox also explains how he found China fascinating, entrancing, alluring, and maddeningly complex, with descriptions of the many delightful individuals he met, from the baijiu-loving history buff to the apartment-hopping Chinese instructor.

The China Business Conundrum: Ensure That “Win-Win” Doesn’t Mean Western Companies Lose Twice earns a well-deserved spot on the bookshelves of all international business leaders seeking to understand the potentially harsh reality of doing business with Chinese companies and how to make the right moves at every step of the process.

Praise for THE CHINA BUSINESS CONUNDRUM

“I couldn’t put down this engrossing tale of Chinese government partners manipulating and milking SVB to create local competitors. While most victims of this all-too-common swindle quietly slink away, Ken Wilcox has the humility and moxie to go public with this cautionary tale.”
—JAMES McGREGOR, author of One Billion Customers

“This account of establishing a bank for start-ups in China simply gallops along with twists and turns and surprises. It’s a salutary tale of how Western assumptions, hopes, and expectations prime companies for failure in the Chinese context. I’m giving copies to all my CEOs, past and present.”
—FELDA HARDYMON, MBA Class of 1975 Professor of Management Practice at Harvard Business School, emeritus; Partner emeritus, Bessemer Venture Partners

“The inside story of how Silicon Valley Bank stumbled in China.”
— DAVID BARBOZA, co-founder of The Wire: China, former two-time Pulitzer Prize winning New York Times columnist

“Ken Wilcox is uniquely qualified to offer insights on doing business in China. In particular, his admonitions about the Chinese Communist Party and its ability to control everything it touches are chilling. As the author of The China Business Conundrum, Ken will bring you to understand that you are most at risk when you come to believe that you have a full grasp of your situation. In all probability, You are not even close! Read it once and then read it again!”
— ALEX W. “PETE” HART, former CEO of Mastercard International and financial services industry veteran, former Chairman of the Board, Silicon Valley Bancshares

“While working in China, banking executive Ken Wilcox kept his eyes open and became deeply skeptical about the CCP’s willingness to actually collaborate with foreign businesses. The China Business Conundrum is a much-needed antidote to Party bromides about ‘win-win’ scenarios.”
— ORVILLE SCHELL, Vice President, Asia Society & Arthur Ross Director, Center on U.S.-China Relations

“I couldn't put down this engrossing tale of Chinese government partners manipulating and milking SVB to create local competitors. While most victims of this all-too-common swindle quietly slink away, Ken Wilcox has the humility and moxie to go public with this cautionary tale.” –James McGregor, author of One Billion Customers

“This account of establishing a bank for start-ups in China simply gallops along with twists and turns and surprises. It’s a salutary tale of how Western assumptions, hopes, and expectations prime companies for failure in the Chinese context. I’m giving copies to all my CEOs, past and present.” – Felda Hardymon, MBA Class of 1975 Professor of Management Practice at Harvard Business School, emeritus; Partner emeritus, Bessemer Venture Partners.

"The inside story of how Silicon Valley Bank stumbled in China." –David Barboza, co-founder of The Wire: China, former two-time Pulitzer Prize winning New York Times columnist

“Ken Wilcox is uniquely qualified to offer insights on doing business in China. In particular, his admonitions about the Chinese Communist Party and its ability to control everything it touches are chilling. As the author of The China Business Conundrum, Ken will bring you to understand that you are most at risk when you come to believe that you have a full grasp of your situation. In all probability, You are not even close! Read it once and then read it again!" – Alex W. "Pete" Hart, former CEO of Mastercard International and financial services industry veteran, former Chairman of the Board, Silicon Valley Bancshares

“While working in China, banking executive Ken Wilcox kept his eyes open and became deeply skeptical about the CCP’s willingness to actually collaborate with foreign businesses. The China Business Conundrum is a much-needed antidote to Party bromides about “win-win” scenarios.” – Orville Schell, Vice President, Asia Society & Arthur Ross Director, Center on U.S-China Relations