Last fall, on the afternoon of October 10th, Cheung Yan was preparing to unveil the year-end financial summary for Nine Dragons Paper, the enterprise that she co-founded thirteen years ago and built into China’s largest paper manufacturer. The press conference had drawn reporters and cameramen to a ballroom at Hong Kong’s Island Shangri-La Hotel, and, just before it was scheduled to begin, Cheung sat in a hushed anteroom, alone on a silk sofa, collecting her thoughts.
She wore a chartreuse mandarin-collared jacket buttoned to her chin, and her hair was no-fuss short. At the age of fifty-two, Cheung is petite but sturdy, with an expressive face that radiates intensity. Inside her company, she is known as the Chairlady. Throughout China, she is also known as the Queen of Trash. She earned her nickname by conquering an obscure niche that tunes global trade to peak efficiency: she buys mountains of filthy American wastepaper, hauls it to China at cheap rates, then pulps and reforms it into paperboard for boxes bearing goods marked “Made in China.” One of her factories is the largest paper mill in the world.
After Cheung registered her company on the Hong Kong Stock Exchange, in 2006, she rose to No. 1 on a list of China’s richest people, becoming the first woman to hold the position. The Hurun Report, the Shanghai magazine that produces the list, estimated her worth that year at $3.4 billion. The following year, Cheung’s wealth ballooned further, to more than ten billion dollars, and the magazine calculated that she was the richest self-made woman in the world, ahead of Meg Whitman and J. K. Rowling. She became a star of China’s industrial revolution: a plainspoken manufacturing baroness and a mother of two. When Oprah did a segment on inspirational mothers around the globe, she showed a clip about Cheung and said, “I love a self-made mom.”
Yet to financial analysts the timing of Cheung’s press conference was ominous; as in politics, a corporate announcement reserved for 4:15 P.M. on a Friday is rarely upbeat. They were right: consumer demand was sinking in America, and factories in China that buy cardboard were shutting down. The global trade that had built Cheung’s fortune was now dismantling it. Almost as remarkable was a recent reversal of her public image. Within a few months, she had become the antihero of an era in China in which unbridled capitalism had driven the gap between rich and poor to its greatest divide since economic reforms began, thirty years ago. A labor-rights group had accused Cheung of being a sweatshop boss, and a Chinese newspaper invoked the exploitation of the American Gilded Age to accuse her of “turning blood into gold.” Her stock price had tumbled, slashing her personal wealth by more than seven billion dollars in less than a year, by Hurun’s estimate. Her company was saddled with so much debt that Mark Chang, a Merrill Lynch analyst, told me that the question was “Will they go bust?”
The spectacle of one of China’s richest industrialists reduced to a struggle for solvency suggests some of the pressures posed by a slowdown that has unnerved Chinese leaders in its speed and depth. Deng Xiaoping once ordained a starring role for plutocrats. “Rang yi bu fen ren xian fu qi lai,” he declared. “Let some people get rich first.” In the thirty years since Deng unshackled China’s economy, the entrepreneurs who stitched it into global markets have made China far more prosperous, but also, it turns out, acutely vulnerable. In the southern city of Dongguan, where Nine Dragons is based, Smart Union, a giant toymaker with some sixty-five hundred employees that once supplied Mattel and Hasbro, went bust so fast last October that throngs of its workers swarmed the plant’s gates, demanding unpaid wages. The local government sent riot police to guard the plant and appealed to the angry workers not to do “anything that would hurt or cause concern to your parents and family.” Other factory bosses on the brink have simply fled without a trace. At least six hundred and seventy thousand Chinese businesses failed last year, according to the Chinese Academy of Social Sciences, a government-run think tank. These events hardly signal an end to China’s economic rise—a certain level of labor unrest and business turnover exists in China in the best of times—but the scale has begun to look less like an ordinary downturn than like a pivot in the very nature of China’s surge into the free market. “One of the characteristic features of American capitalism since the Gilded Age has been its ruthless readiness to abandon unprofitable sectors,” Niall Ferguson, the Harvard historian, told me. “Once upon a time, the American textile industry was an enormous part of the economy. It scarcely exists anymore.”
Waiting to face the cameras on October 10th, Cheung let out a short, awkward laugh and told me, “I’m in a good mood.” She scanned the faces around her, which included her husband, her brother, and two executives. “You have to be confident in order to make others confident,” she said, and stalked down the hall toward the press. By the time her event was over, the share price of Nine Dragons had sunk another sixteen per cent, to the equivalent of twenty-three cents, its lowest level ever.
Despite Deng’s proclamation, China is deeply ambivalent about its tycoons. For a long time, they were ciphers. (In 2002, Forbes published its list of China’s richest, with a photograph of people wearing paper bags over their heads.) But in the early years of this decade tycoons preened as more of them took companies public, and their ranks soared. In 2006, the number of Chinese billionaires jumped sevenfold, to a hundred and six people, by Hurun’s count, encompassing property developers, Internet techies, and retail magnates. But this era of glamour has been accompanied by an era of prosecution. Yang Bin, a flower-growing mogul who was once ranked as the second-richest person in China, is serving eighteen years in prison on fraud and bribery charges. Last November, Wong Kwong-Yu, the founder of an electric-appliance chain called Gome and the reigning richest person in China, was reportedly detained in what the Chinese press called an investigation into manipulation of shares in his brother’s pharmaceutical company. (Wong resigned from Gome’s board earlier this year; a company representative would not comment on the investigation.) At such moments, the rich list has come to be called the “death list.”
Cheung hedges by casting herself as a kind of socialist Horatio Alger hero. “We all sacrifice a lot for the company,” she told me when I visited her at her office last fall. “It is very demanding. It’s not like, Today, I expend effort and tomorrow I go off and play golf or go shopping!” The headquarters of Nine Dragons Paper sprawls across a site, nearly a square mile in area, in Dongguan, a port-city fusion of industry and luxury that calls to mind the oil capitals of the Persian Gulf. Cranes and smokestacks shimmer in the heat beside manicured topiaries and overchilled office towers. The twelve-story office of Nine Dragons is topped by an emerald-green glass pyramid directly above Cheung’s executive suite. Visitors to her floor are greeted by a gurgling white stone fountain in the shape of a lotus, roughly as tall as she is. Since her announcement in Hong Kong, Cheung had been inundated with questions from bankers, investors, and securities analysts about the fate of the company, and this had sharpened her characteristic pugnaciousness. “Why are we in debt?” she asked, fixing me with a level gaze. “I didn’t misuse this money on derivatives or something! I took a high level of risk because that is the preparation for the future, so that we will be first in the market when things change.”
Compared with some of the flashier members of China’s new generation of super-rich, Cheung is an unreconstructed industrialist. Where they are cool and serene, she is impish and combustible. They pursue a work-life balance and experiment with Taoism; she maintains devout faith only in production. Like others her age—she is old enough to have witnessed the havoc of the Cultural Revolution and young enough to have recovered from it—Cheung is impatient with ideology, but her faith in efficiency borders on the counterproductive; by her count, she is pulled over for speeding at least once a year, because she “can’t stand wasting time on the road.” Cheung is perpetually leaning forward, propelled around the room by spasms of exuberance. In conversation, she can sound as if she were channelling China’s industrial id. When I asked her about the future of a company that seemed to have grown faster than its market, she shook her head. “The market waits for no one,” she said. “If I don’t develop today, if I wait for a year, or two or three years, to develop, I will have nothing for the market, and I will miss the opportunity. And we will just be very ordinary, like any other factory!” She went on, “We only have a certain number of opportunities in our lifetime. Once you miss it, it’s gone forever.”
Opportunities have vanished faster than expected. A year ago, China’s leaders worried about inflation and an economy that they believed was growing too fast. Since then, economic growth has dropped to its lowest point since 2001, and the World Bank is forecasting that China’s growth will sink to 6.5 per cent this year, the lowest point in at least nineteen years. To check the slide, the government has announced a stimulus plan worth four trillion yuan, or five hundred and eighty-six billion dollars. Nearly half of that will go toward the construction of railways, roads, airports, and power supplies, and a quarter is earmarked for reconstruction following the Sichuan earthquake and other disasters. (Some economists warn that the effect could be limited, because part of that spending was already planned.) Unemployment and crime are increasing, and the state media have begun to warn that social unrest could rise. President Hu Jintao hasn’t bothered to conceal the fact that the crisis has become a matter of political survival—“a test of our Party’s capacity to govern,” as he put it in the official People’s Daily newspaper.
As Cheung and I talked, her husband, Liu Ming Chung, ambled in and slumped into a chair beside her. He had been trained as a dental surgeon, but he now serves as the C.E.O. of Nine Dragons. He is tall and approachably low-key, her physical opposite. When she speaks, she swats and grips the air for emphasis, alternating between Cantonese and Mandarin, which she utters with a pronounced Manchurian accent. To Chinese ears, this identifies her as a product of China’s frigid northeast, a hard-drinking industrial domain known for its prolific production of two species: entrepreneurs and corrupt bureaucrats. Cheung spends much of her time in Hong Kong, a city that sanctifies aristocracy, yet the persona she projects is that of a harried manager. Her fingers are bejewelled, but she shows little interest in amassing influence, real estate, art, or any of the usual trappings of wealth. Over the years, she has shed a wardrobe of loud prints and lacy cuffs in favor of Chanel-style suits, yet she seems interested in name brands only insofar as, in her words, they represent “the kind of image” she tries to maintain. Her ambition is so specific to expanding her business that, had she not become a billionaire papermaker, she would, she thinks, have enjoyed being a stay-at-home mother. At the company’s headquarters in China, she and her husband live in a large converted apartment on the top floor of a managers’ dormitory. In America, where her two sons are in school, they own a ten-bedroom house in Diamond Bar, California, an affluent cul-de-sac town that is also home to Snoop Dogg.
While Cheung was describing her plan to shore up the business, her husband interrupted. “I have something to add,” he said softly. “Recently, many people came to knock on our doors. So I say, if things are as bad for us as the press is saying, why are they still thinking of buying us? If I have a cold and am really sick, why do you still want to sit right next to me?”
“It means we’re still very attractive!” Cheung said, and she howled at her own joke.
Cheung was born into a military family, the eldest of eight children. Her parents named her Xiuhua, a revolutionary-era catchphrase meaning “excellent China.” She later swapped it for Yan, a more contemporary name. (She also goes by Zhang Yin, the Mandarin version of Cheung Yan.) She grew up in the coal-mining city of Jixi, which lies so far northeast—north of Vladivostok—that its inhabitants take a steely pride in being the first Chinese to see the sunrise.
Conditions were austere; the family ate meat only on holidays. Cheung’s father, Zhang De En, had been a company commander in the Red Army, but during the Cultural Revolution he was branded a “rightist” and jailed for three years. Cheung rarely mentions this, and only to explain why she never went to college. She said, “I had eight brothers and sisters and my dad was in prison, so I went out to work when I was young, because my brothers and sisters were even younger.” She added, “It taught me never to retreat, even if things are getting very tough, and that is something I would never have learned in college.”
As the oldest child, Cheung cultivated a sense of discipline and rigor, according to her sister Zhang Xiubo. “There is nothing my sister hates more than lazy people,” Zhang Xiubo told a Chinese interviewer. “We obey her unconditionally.”
When Cheung was in her late teens, the family moved south, to a city in coastal Guangdong Province. At the time, China had recently begun its experiments with the free market. She found work as a bookkeeper in a fabric factory, and studied accounting at a trade school. She then moved to a bigger company to run the accounting and trade departments, which afforded her a good salary and contacts in Hong Kong. While working in the trade department, she befriended an older paper-mill boss from the northern province of Liaoning, who proposed that she move to Hong Kong, in order to get into the wastepaper trade. “I’m thinking, I’m going to go to such a cosmopolitan place to scavenge through trash heaps?” she recalled. “But he said, ‘Don’t look down on wastepaper. Wastepaper is a forest.’ So now I think that old guy was pretty clever.”
By the time Cheung was twenty-eight, she had saved thirty thousand yuan (about eight thousand dollars), and she moved to Hong Kong. She met two partners and they formed a company, Ying Gang Shen, to ship wastepaper up the coast to Chinese paper mills. “She was shrewd, very gutsy, willing to learn,” Ng Waitang, one of her former partners, recalled when I visited him at the trash yard that he runs in an industrial stretch of Hong Kong. More important, Cheung brought the pivotal asset: the paper mill in Liaoning, which promised to buy whatever they collected.
Ng, a thick, genial man with pillowy bags under his eyes, marvelled at Cheung’s audacious charm, even when it seemed excessive. “We were three equal partners, but, in the beginning, she always picked up the check at meals,” he said. “That embarrassed us, so eventually we started splitting the checks equally.” The partners set up shop in a bare four-hundred-square-foot office. They received an early lesson in surviving a business infested with corruption. “People would try to sell you wet paper or moldy paper that’s not usable. It is heavier, so they make more money,” Ng explained, as a fork loader rumbled past the office door. “After a while, you figure out who is good and who is not, who you can trust and who you can’t.” As in America, the Hong Kong waste-management business was dogged by organized crime, the syndicates known in China as Triads. “They would come and threaten us,” Ng said. “But I would tell them, ‘Go ahead and burn the place down! I work for a mainland company, so I don’t care. I just get a salary.’ They were all threats, no action.”
China’s new industries had a seemingly bottomless appetite for recyclable paper, and, after two years, Cheung headed to the mainland in search of more. But Chinese paper wasn’t good for recycling; it relied heavily on vegetable sources, because the nation had been especially short of trees since the nineteen-fifties, when industrialization campaigns denuded the landscape. Instead, Cheung resolved to try the place known in the trash world as “the Saudi Arabia of scrap”: the United States.
Americans use about thirty million tons of containerboard each year, more than any other kind of paper, and enough to cover every inch of the state of Massachusetts, with some left over. The material is made from trees and from what papermakers call O.C.C., for “old corrugated containers.” Around three-quarters of all O.C.C. in America gets sifted from the trash and recycled, and that posed the ultimate target for Cheung’s business. She arrived in Los Angeles in 1990, accompanied by Liu Ming Chung, whom she had met while working in Hong Kong. Although he was of Taiwanese origin, he spoke English with a Latin-American accent, because he had grown up in Brazil, where his parents worked as grocers. When they met, Liu thought, This is a beautiful girl. And very, very smart. At Cheung’s suggestion, he gave up dentistry for the paper business, and they went to America, where they married. (Cheung had a son from a previous marriage that had ended in divorce.) Together, they founded a company called America Chung Nam, which is Cantonese for America South China. They rented an apartment in Monterey Park, an area with a large concentration of Chinese immigrants; the apartment served as both office and home. “I was really happy in the early days of starting the business, no matter how hard it was,” Cheung said. “At least we worked hard together.” Their meagre business consumed only a few hours of the day. “My wife still remembers how I cooked fried beef for her,” Liu said. “She says the last time I did that was seventeen years ago.” These days, their offices are on different floors of the corporate tower; in public, they refer to each other as “Chief Liu” and “the Chairlady.” “At this stage, both of us are so busy we hardly do things together,” Cheung told me. “So I’m delighted if we are simply on the same flight.”
The new partners set out in search of scrap yards that were willing to sell to strangers. “They came knocking on our door—a cold call,” David Cho, the chief financial officer of Bestway Recycling, in Los Angeles, told me. “They came together, in an old red Cadillac, but the initial impression was very positive. They were earnest.” Not every deal went so smoothly. “They had to fight their way in,” Maurice (Big Moe) Colontonio, a paper recycler in South Jersey, told me. Colontonio is a fit and energetic man in his late fifties, with deep-set eyes and a lantern jaw, which give him a resemblance to Joe Torre, the baseball manager. His business, Tab Paper Recycling, works what could be called the Greater Atlantic City area, from a plant opposite a casino-supply outlet in the town of West Berlin.
“The Chinese came to us packers, and they said, ‘Will you sell to us?’ ” Colontonio told me one afternoon as we sat in the plant office. “But it was always an old-boy network in this business. I sold to someone I knew, and that person sold to people he knew. And now we’ve got these people—we don’t know them—and they’re selling to China? How are we going to be paid? Who are we going to chase?”
In the years since, American paper mills have closed in large numbers, but recyclers like Colontonio have thrived, thanks largely to foreign demand. Moe—the son and grandson of “glorified trashmen,” as he puts it—learned to ski in Aspen and to yacht in the Chesapeake. (He recently upgraded from a forty-six-foot yacht to a fifty-foot vessel, which he christened Paradise II.) After dinner at a nouveau-Italian place nearby, Colontonio steered his GMC Yukon Hybrid into the parking lot at Wal-Mart and around back to the superstore’s trash yard, which had been fenced off to keep scrap thieves away. “Let’s get out of the car,” he said. “We’re not going to get locked up. I know all the cops in this town.”
The wastepaper had been lashed into boulder-size bundles known as “sandwich bales,” the kind that Colontonio’s guys collect and break open, in order to fish out the rotting garbage, which professionals call “organic.” The smell was powerful, but Colontonio looked pleased to have brought me to the front lines of his business. The sandwich bales formed a wall of crushed cardboard boxes, each marked with a brand name—d-CON mouse traps, Kit Kat candy—packed layer upon layer, a geological record of modern New Jersey. More than half of it will end up in China. “We have become a country of purchasers, not manufacturers,” Colontonio said.
T he migration of manufacturing was accelerating when Cheung arrived in the United States, and she intended to profit from it. Ships from China were arriving in California fully loaded, only to head home with expensive vacancies. Cheung took advantage of the discounts created by this trade imbalance, and America Chung Nam flourished. It amassed its own fleet of trucks and lured customers by buying wastepaper at prices twenty per cent above the market, one competitor recalled. (An A.C.N. representative denied that the company had ever done this, and Cheung herself said, “Would any rational business pay such a high premium for a commodity that’s available in the market?”) Trash dealers steered more and more of their paper toward China, and before long America Chung Nam was “the six-hundred-pound gorilla,” Cho said. By 2001, Cheung’s company had reached an extraordinary milestone: it had surpassed global giants such as DuPont and Procter & Gamble to become the single largest exporter, by volume, of freight from the United States. In other words, nobody in America was shipping more of anything each year anywhere in the world.
Chinese factories were growing so fast that Cheung returned to China in 1995 determined to climb from the wastepaper trade into the packaging business. It was a trade that had been a curiously keen barometer of the economy ever since 1879, when a Manhattan printer, Robert Gair, blundered into a lucrative discovery. One of his pressmen was printing on the surface of paper bags when he accidentally sliced neatly through the paper. Gair, a tall, thrifty Scotsman and the son of a plumber, realized that he had found a way to mass-produce cardboard patterns—boxes.
Gair’s box, a cheap, light alternative to wood, became “the swaddling clothes of our metropolitan civilization,” Lewis Mumford wrote. Eventually, the National Biscuit Company introduced its first crackers that stayed crispy in a sealed paper box, and an avalanche of manufacturers followed. Gair expanded to ten buildings on the Brooklyn waterfront. Massive migration from Europe to the United States created a manufacturing workforce in Brooklyn, to churn out ale, coffee, soap, and Brillo pads—and Gair made boxes right beside them. He loathed unions, according to his biographer H. Allen Smith, and his plants were sweltering, harsh places driven by his belief that a man “can outwork and outlast a dozen mules.” By 1916, Gair was running the nation’s largest box factory, and had become one of the country’s earliest adopters of group life insurance for his workers. The neighborhood, now part of DUMBO, was known then as Gairsville.
Dongguan, in the Pearl River Delta, was a perfect locale for Nine Dragons. It was a boom town, and soon became the raucous epicenter of China’s capitalist frontier. A demographic bulge of young people, and slumping farm prices, had unmoored tens of millions of people from inland villages who were stepping off trains each day in Dongguan in search of work. Factories sprang up at such cookie-cutter speed that they came to be known as the Dongguan Model. They cranked out clothes, shoes, toys, and, eventually, computers and appliances—all of it destined to be packaged in cardboard boxes.
The term “paper machine” refers to a production line that can stretch two football fields in length and cost between one hundred million and two hundred million dollars. A typical paper mill might revolve around one or two machines, but Cheung used her success in the recycling trade to attract easy financing, and the first paper machine that she installed was followed by another, then another, and then one more; last year, the Dongguan plant had a total of thirteen paper machines, and had become the world’s largest paper mill. The factory runs twenty hours a day on its own coal-burning power plant.
Size itself became an advantage. Economies of scale gave Cheung two to three per cent extra on her net profit margin, and her profits climbed. By 2005, she was preparing to take Nine Dragons public, amid high expectations. “It was kind of a textbook company—you’d see it in a Harvard Business School case study,” Andrew Dale, the head of basic materials research at Macquarie Capital Securities in Hong Kong, recalled. “You pick a name that captures the hearts of offshore investors—Nine Dragons; it sounds pretty exotic, pretty Chinese—you put new machines on the ground, where the demand is. You run a low-cost operation. . . . It all worked very well.”
But, privately, Cheung was chafing under the bankers’ scrutiny. “I was in business for myself for more than twenty years, never having been managed,” she told the Shanghai _Securities News. “_Now, going public, every clause comes up, requiring you to do things like this and like that. Every step of the process makes you agitated.”
On March 3, 2006, Nine Dragons went public, and by day’s end the share price had risen forty per cent. Investor demand was so heavy that the company issued millions of additional shares, raising five hundred and four million dollars—Hong Kong’s biggest début so far that year. And that fall, when the Hurun Report ranked Cheung No. 1, the Chinese media flocked to her story. Headlines declared, “CHINA’S RICHEST WOMAN MADE FORTUNE FROM SCRATCH” and “THE ONE WHO CHANGED THE GENDER OF THE WEALTHIEST.” In interviews, Cheung drank in the acclaim, calling her company “a big family” with “a far-sighted vision,” and touting the virtues of restraint: “If I only have the ability to build a three-star hotel, I will never rashly build a five-star hotel.” One year after it had gone public, Nine Dragons stock was trading at forty times earnings, more than triple what paper-company stocks typically sell for. In the press, Cheung was a national celebrity, mentioned alongside sports heroes as a candidate to carry the Olympic torch on its final relay leg in Beijing. That fall, she ceded her position atop the rich list to Yang Huiyan, a twenty-six-year-old Ohio State graduate, whose father, a property developer, had transferred all the shares of his company’s stock to her, leaving her with an estimated $17.5-billion fortune. But this did little to dim Cheung’s ambitions. In December, Nine Dragons announced its largest expansion yet: nearly a billion dollars in new capacity to be added over a two-year period. Cheung had more than ten thousand workers, and was on pace to double the company’s output in another two years. In a letter to shareholders, she declared, “By June 2008, we expect to become the world’s largest packaging paperboard manufacturer.”
Chinese tycoons are not, in the Russian sense, oligarchs; they enjoy little independent power and offer no opposition. But the country’s leaders keep them close, and Cheung holds a seat on the National Committee of the Chinese People’s Political Consultative Conference, a top government advisory body.
In March of 2008, during the conference’s annual closed-door meeting in Beijing’s Great Hall of the People, Cheung proposed three things: tax reforms that would include a tax cut of one-third for the nation’s wealthiest citizens, lower duties on imported environmental equipment, and, most controversial, exemptions from a new labor law designed to protect low-paid factory workers. But she had badly misjudged China’s political mood: the press seized on what it dubbed Cheung’s “pro-rich” agenda, and took the rare step of reporting an internal political dispute. Shi Dingguo, a fellow-adviser and the former deputy head of the College of Humanities and Social Sciences at Beijing Language and Culture University, denigrated her proposals. “She is speaking for herself and people like her,” Shi said, according to an account by the state news service. “She is rich [and] running a labor-intensive, polluting business that needs to import environmental remediation facilities.” (Cheung disputes this, saying that her company has been praised by the local environmental authorities.)
The labor law, implemented in January of 2008, was supposed to blunt rising unrest among Chinese workers. It forced factory bosses to sign written contracts, limit overtime, and provide severance pay. But Cheung decried it as a return to the “iron rice bowl,” a Chinese term for absolute job security, and echoed other entrepreneurs, who warned that the law would spike labor costs at a time when they were already struggling with stricter pollution controls and rising rents.
Cheung attracted intense criticism. “Excuse me, Cheung Yan: Whose benefit? Whose nation?” the commentator Shi Yong wrote on China Elections and Governance, a political Web site. He accused her of deepening the disparity between “the powerless and the powerful,” and declared that the income gap could lead to a “structural breakdown to the point of explosion.”
The criticism came as a surprise. “I honestly didn’t expect it,” Cheung told me. She had so miscalculated the uproar that her proposals would produce that she had packed sneakers and exercise clothes, in anticipation of a relaxing week in Beijing. They never left her suitcase. Cheung is a poor politician. She remains unapologetically attached to her ideas, even though Chinese political culture would usually require her to yield to the consensus. “If I wanted to be political, I wouldn’t have raised the proposal so directly,” she said. “As a member of the political conference, I am charged with bringing any kind of suggestion to the government. I thought I must look at it from the perspective of my own industry.” When a trade-union official called for a debate with her on the labor law, Cheung thanked him for the invitation but declined. (“I’m frankly very busy,” she said at the time.) To make matters worse, she added a comment that would bind her public image to China’s most sensitive political divide: “If a country does not have both the rich and the poor, it will not become strong and affluent.”
The “pro-rich” controversy was still raging when, on April 15, 2008, Students and Scholars against Corporate Misbehavior, a labor-rights group in Hong Kong, released “Sweatshop Paper,” an investigation in which Nine Dragons was accused of labor abuses, including industrial accidents, inadequate safety equipment, and discrimination against carriers of hepatitis B, a common ailment in China.
The report also made public the “Nine Dragons Paper Employee Handbook,” which sketched an idiosyncratic world inside Cheung’s factories. Do’s and don’ts included: no funeral leave of more than two days for the death of a child, spouse, or parent; no mustaches on men or tattoos on women. Other injunctions were: “Respect the leaders. Stop walking when meeting senior leaders and greet them. Stand behind senior leaders when walking together.” Workers were subject to a wide range of fines, such as three hundred yuan for spitting out the window of a company bus or cutting line in the cafeteria; five hundred yuan for napping, permitting an outsider to view the factory, or playing mah-jongg; a thousand yuan and dismissal for organizing a strike, or “spreading rumors which cause harm to the company.” The handbook also noted that wages are confidential, and that “revealing one’s salary” or “asking others” is grounds for dismissal.
When the report appeared, Cheung was unreachable, on an overseas road show in advance of a three-hundred-million-dollar bond issue. When she returned, she responded angrily, saying, “We became wealthy because we found the right business model to change used paper into treasure—not by treating workers harshly.” (She told a Chinese interviewer, “After my divorce, I had told myself I could not cry again. This was the first time.”) The company gave out more in bonuses than it withheld in penalties, she said. And she questioned the political motives of the labor-rights group, saying that it “received money from Europe” and suggesting, darkly, that it wanted to cast a cloud over the Olympics. (After an investigation, the provincial trade union criticized the penalty system and other management practices but pronounced Nine Dragons “a relatively good enterprise.”) Cheung told me that the company has stopped fining workers. A more calculating executive might have stopped there, but Cheung edged forward in her chair to explain that, in fact, she still believes fines are a legitimate tactic under the right conditions. “If you don’t impose fines, workers are not careful and they will get injured and come back to ask for more compensation,” she said emphatically.
The sweatshop accusation only intensified criticism of Cheung. Sanlian Shenghuo, a prominent magazine, urged her to resign from the People’s Consultative Conference “if she still has any sense.” It went on, “Every piece of paper produced by Nine Dragons . . . is soaked with the blood of labor.”
Labor problems flared. In December of 2007, several hundred workers had staged a three-day strike, blocking traffic in front of the plant in Dongguan because they believed that Cheung intended to cheat them out of benefits to which they would be entitled under the new labor law that was then pending. (She denies any such plan.) The following summer, laid-off workers, who had been employed through an outsourcing agency, protested in front of the factory. Police moved in and reportedly detained twelve people; several others were treated at the hospital for injuries. Cheung’s brother Zhang Chengfei, the company’s deputy C.E.O., told reporters that about two hundred workers had been laid off and compensated, after being replaced by machines that would improve efficiency.
But problems ran deeper. On Wall Street, doubts had emerged about Cheung’s ability to sustain such rapid growth. In July of 2007, Chip Dillon, then a Citigroup analyst, had warned that Nine Dragons “is already experiencing equipment delays.” More important, Dillon calculated that the planet simply might not have enough old boxes to meet Cheung’s demand.
The following March, only six months after her stock had reached its record high of 26.25 Hong Kong dollars, the share price tumbled nearly forty per cent in one day. World markets were slumping and had grown increasingly uneasy about projects laden with debt. Cheung’s expansion plan looked like the Spruce Goose of the paper industry, and her stock price continued to plummet through the summer. By last fall, it had dropped so far that the company’s market value was less than half the value of its own phalanx of paper machines.
In October, Cheung announced that Nine Dragons’ net profits had fallen 6.3 per cent—sixteen per cent below expectations—and that the company would pay back more than a hundred and ninety-two million dollars in loans ahead of schedule, in order to limit credit risk. It would also delay construction on a number of new mills for at least two years.
The company’s future was unclear. “It either goes broke or it survives and you make a lot of upside,” Andrew Dale, of Macquarie, said. “The reality of it is that it got way out of control.” Dale speculated that, once debt markets improved, perhaps a European company would move to buy it; Cheung’s family, which controls more than seventy per cent of the stock, would have to agree to such a proposal.
In December, Standard & Poor’s downgraded Nine Dragons’ credit ratings to junk status, citing the company’s increased borrowing and reduced profitability. The downgrading came shortly after Hurun had released its latest rich list, which showed that Cheung’s fortune had fallen by seventy-four per cent, effectively exiling her from China’s top ten and leaving her with a mere $2.6 billion. Forbes, which calculated her fortune separately from those of her husband and her brother, estimated her remaining wealth at two hundred and sixty-five million dollars.
A few weeks after Cheung released the company’s annual results, she and Liu met me for lunch at the managers’ cafeteria beside their office in Dongguan. Liu’s face looked slack with fatigue. They had been travelling frequently, visiting bankers and meeting with government officials. “I can only rest when I’m asleep,” he said. By now, the problems in their industry had spread to the opposite side of the planet. Chinese factories had stopped buying scrap paper so abruptly that it was backing up in America like a clogged drain. “It’s become a crisis,” Colontonio said when he called me one day. American trash paper, once valuable, was piling up in warehouses. “It’s very bad—very, very bad,” he said. “We’re all taking pay cuts at the first of the month—my sons, my daughter. There’s nothing else we can do. We just have to batten down the hatches and sit tight.”
Trade relationships that had been profitable in recent years were souring fast. In one case, a British scrap-metals vender sent a trader to China to pick up payments and ended up accusing its customer of kidnapping the trader over a disputed shipment of copper, brass, zinc, and other metals. “These people came in and dragged me out,” Anil Srivastav, a trader with Goldarrow Metals, based outside London, told me. “I shouted ‘Help!’ but nobody looked. They put me in this van and drove me off. I was thinking, I’ve only seen these things in movies.” (The Chinese company accused by Goldarrow denied any involvement. The trader left China after Goldarrow agreed to provide shipment documents worth three hundred and fifty thousand dollars.)
Before lunch, Cheung had been meeting with yet another in a stampede of bankers. She and her husband were counting down the days until Thanksgiving, which they planned to spend with their children in America. “Both the kids, they don’t really have feelings towards Chinese New Year’s anymore. So I have to go back for Thanksgiving,” Cheung said. Her older son is in New York, where he is earning a master’s degree in engineering at Columbia. The younger son attends a boarding school in California, and Cheung is determined that he will end up in the Ivy League. At one point during lunch, her assistant passed her a copy of a college recommendation that a teacher had recently written on her son’s behalf. She fell silent to study it and then passed it back.
“His G.P.A. is 4.0 to 4.3,” she announced to the table. Then, with the pride of an autodidact, she added, “His head is full of American education. He needs to accept some Chinese education as well. Otherwise, he’ll be out of balance.” The company’s problems were no secret to her younger son, she said. “We talk about how much the stock has dropped. He asks about it, and we discuss it. He’ll say, ‘Hey, oil is really cheap today!’ ”
Earlier in the week, Liu had heard from the boss of a neighboring factory, one of the world’s largest makers of steel shipping containers. It was shutting its plant. Like cardboard boxes, shipping containers were an early economic casualty. Property prices, consumer confidence, and auto sales were all slumping in China, and gallows humor was prevalent among factory owners: get into the pajama business, because before long everyone will be unemployed and spending their days at home.
The larger fact, however, was that the slowdown was also accelerating a change that Chinese leaders and economists had sought for years. They had come to believe that China relied too heavily on factories churning out low-quality exports, which fuel growth but also result in poor working conditions, environmental pollution, and a growing gap between the rich and the poor—“unsteady, unbalanced, uncoördinated, and unsustainable,” as Premier Wen Jiabao said in March of 2007. Chinese leaders wanted to ignite domestic consumption and use the new labor law to bring the sweatshop era to a close. For many factories in Dongguan, evolution will mean adapt or die. Local politicians prefer a more poetic image: “emptying the cage for the new birds.”
But the slowdown was also politically precarious: cut back too fast and unemployment could lead to political unrest. “So far, there haven’t been large-scale layoffs,” Jiang Ling, a vice-mayor of Dongguan, told me when I visited him at city hall. But when I walked out of the building that day four middle-aged women with tanned laborers’ faces were clamoring, dashing through the topiaries toward the building’s front door. When security guards pushed them back, they sat down in the shrubbery and refused to budge. The young guard tasked with shooing me away told me that the women were shouting for greater welfare provisions from city hall.
The question of what will become of Dongguan is difficult to separate from the question of what will become of Cheung. The city is home to thousands of factories that are based on an outmoded business model, rooted in cheap, unprotected labor and thin margins. China would not be what it is today without them, but it’s not yet clear who among them is prepared to splash out of the primordial free market into a new age. Closing the income divide is no longer an abstraction: life expectancy in the poor province of Guizhou is now a decade shorter than it is in Beijing; a child born on the remote Qinghai Plateau is seven times more likely to die than a child born in the capital. Even some of China’s most energetic cheerleaders of the free market sense the passing of an era. In a recent article on Cheung Yan, the magazine China Entrepreneur declared, “In Chinese society five years ago, maybe a company that had achieved success in business, while not being perfect in other respects, would have been tolerated and worshipped. But things have changed.”
I mentioned to Cheung and Liu that I had spent time the previous afternoon in the nearby village of Da Sheng, where many of their employees lived. The town square looked like a meeting of rival armies. Each worker was color-coded by location in the factory food chain: blue coveralls for production workers, orange smocks for power-plant staff, and mint-green uniforms for the handlers of wastepaper. A production worker told me that the rumor around the factory was that it might be bankrupt in a month or two. Cheung lowered her chopsticks for a moment. She seemed irritated. “It’s very strange that an employee would say that,” she said. “These days, there are people out there who don’t even have food to eat! But we haven’t withheld any salaries. Nobody has gone unpaid.” She seemed less bothered by the rumor than by its implied allowance of failure, its apostasy. She was quiet for a moment, and then she said, “Some people are living in such good fortune that they don’t know what fortune is anymore.”
By the beginning of this year, Cheung’s decision to halt construction and to repay loans ahead of schedule seemed to have improved the company’s prospects. Mark Chang, of Merrill Lynch—which has since been acquired by Bank of America—told me in an e-mail that the risk of failure “seems to be much lower now.” Chinese leaders were helping, too: the economy was souring so fast that they had decided not to let too many birds leave the cage at once. They have suspended minimum-wage increases and restored tax rebates to help some exporters, all aimed at preventing mass layoffs. On February 18th, Nine Dragons released a six-month financial summary that showed that its net profit had dropped 70.3 per cent compared with the same period in the previous year. Cheung said the company had faced a “bleak winter” but thanked government officials, banks, investors, and others for staying supportive. Nine Dragons, it seemed, had become “too big to fail,” said Kary Sei, an analyst at ICEA Finance Holdings, in Hong Kong.
At one point during our lunch, I asked Cheung if she still hoped to be the world’s largest cardboard-maker. She smiled, and answered, “I don’t think it’s my goal to be No. 1 in the world. What matters to me most is this market.” She gestured around her, at China. Outside the cafeteria, we could hear the sound of semitrucks on the rutted road leading to the factory. And from the window the red-and-white striped smokestack of the company’s power plant was visible, towering above everything around it.
Fruit was served, and Cheung attacked a small pile of longans, pulling them from their skins, one at a time. Perhaps it was fatigue, but, as she ate, her usually impregnable optimism seemed muted. “I think the market is going down so fast that some won’t be able to turn it around,” she said.
She went on, “This time is really different. Large and small are all affected. In the past, the big waves would only wash away the sand and leave the rocks. Now the waves are so big, even some rocks are being washed away.” ♦
