The Kowtow Still Works In China. Just Ask Jardine

An apology gets the trading house back in Beijing's favor

Punish the foreign devils. That's the best way to describe China's recent policy toward Jardine Matheson Holdings Ltd., the venerable British trading house. Jardine had drawn Beijing's ire for a number of perceived sins, including support of Governor Chris Patten's democratic reforms. History weighed heavily, too. The Chinese never forgot that Jardine profited from the 19th century opium trade that led to war and humiliation for China.

But in early May, Jardine Chairman Henry Keswick managed to meet publicly in Beijing with Chinese Executive Vice-Premier Zhu Rongji, an encounter that signaled an end to Jardine's punishment. Just as important, Jardine learned that Lu Ping, the powerful director of China's Hong Kong & Macau Affairs Office, has told large Chinese companies to treat Jardine just like any other firm. "The message has gone out that we're a highly acceptable name," says James Bruce, chairman of Jardine Fleming Securities, Jardine Matheson's 50%-owned investment bank. "The door was never completely shut on us, but, my God, in recent years it was hard to push our way through it." It's a remarkable turnabout, but it also shows how difficult life can be for any business that runs afoul of China.

According to company sources, the rapprochement began with a speech in January, 1995, by Alasdair Morrison, the company's new managing director. Addressing the pro-China Hong Kong General Chamber of Commerce, Morrison made what amounted to a kowtow, expressing "regret at any misunderstandings" that had occurred.

Misunderstandings or not, Jardine had angered the Chinese with several moves that showed its distrust of Beijing. They included the company's decision before the 1984 signing of the Sino-British Joint Declaration to incorporate in Bermuda and its 1994 move to delist its stock from the Hong Kong exchange. In 1992, while Jardine Matheson director Martin Barrow was a member of the territory's Legislative Council, his abstention on a key vote allowed the passage of Patten's democratic reforms.

Shortly after Barrow's abstention, the punishment started. When a consortium including Jardine won a bid to build a $1.3 billion container port in Hong Kong, China scotched the deal, saying Jardine was being rewarded for backing Patten. China attacked Jardine's role in Hong Kong's proposed new airport. And Jardine Fleming was frozen out of the lucrative underwriting business for certain international listings of Chinese state-owned companies.

After Morrison's speech, Beijing started easing the pressure. But the company still craved public absolution. Then in January, Sir Charles Powell, a Jardine Matheson director and former foreign policy adviser to Prime Minister Margaret Thatcher, scored a breakthrough. As vice-president of a trade group, he had many contacts in China. Sources say the company had been trying to make official contact with Lu Ping, Beijing's top man for Hong Kong, for three years, and apparently Powell's efforts paid off. After long negotiations, Jardine's top brass met with Lu. Then Keswick managed the coup of seeing Zhu Rongji. The feud was over.

SCANDAL HELPS. Jardine's image in China may have benefited from problems back home. Last spring, the parent company was chastised after British regulators found evidence of stock manipulation and mismanagement at Jardine Fleming. The charges led to Jardine Fleming's loss of some $2 billion in fund accounts. Some Jardine insiders suggest that this scandal may have convinced Chinese critics that Jardine Matheson was not in the pocket of the British Foreign Office.

Barrow says it's too soon to see concrete evidence of a payoff from the improved relationship with China, where Jardine-related ventures generate some $1 billion in sales. But while insisting Jardine never stopped investing in China, he admits that "clearly we need a public perception that we're well received there." Some skeptics say that China's animosity toward Jardine will never completely disappear and that the meeting with Keswick was simply shrewd pre-handover propaganda. Whatever the case, there's a lesson: When you make an enemy of China, be prepared to pay.

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