Golden Scale [EN]: Chapter 157

The Intertwined Realms of Politics and Economics (Part 1)

Monday was university registration day. Hou Longtao dropped off his precious daughter at the Peking University student apartments, chuckling as his S600 cruised through the dormitory gates.

“What’s wrong?” Xue Nuo asked, sitting up and wiping a bit of drool from her mouth. She leaned into Hou Longtao’s embrace, her left hand still playing with his cock.

“Nothing,” Hou Longtao said, kissing her cheek. “I was just remembering my college days in Beijing. Every year when new students arrived, my buddies and I would check out the girls at registration. Good times.”

Xue Nuo pinched him playfully. “Yuqian’s right, you’re a pervert. Always have been.”

“Hahaha,” Hou Longtao chuckled, rubbing her breasts through her T-shirt. “Couldn’t you learn something better from that girl?”

“Nope,” Xue Nuo said, sticking her tongue in his mouth.

Hou Longtao’s hands slipped under her shorts, kneading her buttocks through her panties.

The Benz stopped, and Xue Nuo hugged his neck. “Brother Tao, I… I don’t want to live at school.”

“I know, you don’t want to leave home, don’t want to leave me. We don’t want to leave you either.”

“Then don’t make me live there.” Xue Nuo looked at him, her eyes pleading.

“My darling,” Hou Longtao said, kissing her neck. “Let’s try it for a while, get some experience, it’ll be fun. When school ends early or starts late, come home. Live in both places. Once you get your driver’s license, I’ll get you a car, and it’ll be even easier.”

“Okay,” Xue Nuo said, pouting, reluctantly accepting his suggestion.

Later that morning, negotiations between East Star and GM [General Motors] were underway, led by Liu Nan. Hou Longtao wasn’t there; Gu Quanzhi had urgently summoned him to the Evergreen headquarters after he dropped off Xue Nuo.

“Your intention to sell hasn’t been approved.”

“What do you mean?” Hou Longtao asked, lighting a cigarette and glancing at the “old fox” behind the desk.

“Someone won’t allow you to sell.”

“Are you kidding me?” Hou Longtao frowned. “East Star is mine. I can sell it if I want. Who’s stopping me?”

“Yes, East Star is yours, but it represents more than just your interests now.”

“I know that,” Hou Longtao said, understanding that “someone” probably meant someone higher up. “But selling shares doesn’t affect them. They still get their cut.”

“Hehe,” Gu Quanzhi said, shaking his head. “Really no impact? Economic interests are only one aspect.”

“What else is there besides money?”

“Okay, since you think it’s just about money, let’s talk about that. You’re listed in the US, and the shareholders are stockholders. Even institutional holdings can’t be controlling, so their purpose is investment, and their shareholding ratio isn’t too large.
In reality, they have no say in the company’s decisions, right?”

“Right. Oh…” Hou Longtao realized. “They’re afraid that after GM becomes a major shareholder, they’ll interfere with my decisions?”

“Yes, if GM becomes the second-largest shareholder and East Star’s non-standard behavior reaches a certain point, they can’t ignore it.”

“Isn’t that alarmist? I can ignore GM, and they wouldn’t dare do anything. We have common interests. Besides, it’s all small stuff that won’t attract GM’s attention,” Hou Longtao said dismissively.

“If you ignore GM’s warnings, they can sell off East Star’s shares at any cost, undermining investor confidence and causing economic losses. GM might also disclose your violations, which would be very troublesome.”

“Are they crazy? Americans won’t give up huge profits for principles. Besides, how would they know I’m breaking the rules? They can’t just make things up, right?” Hou Longtao grinned. “Are they afraid I’ll sue them?”

“Hahahaha,” Gu Quanzhi chuckled. “Don’t they attend board meetings? Don’t they get your financial statements? Can’t they audit the accounts? These are all theoretical possibilities, but unlikely. That’s why I said economic issues aren’t the main reason.”

“Can we get to the point?”

“Sure. The reason no one stopped you from listing in the US is that you only sold 30% of the shares. Now you want to sell another 25%, all to an American company. This risk is what they…” Gu Quanzhi pointed upward, “…are unwilling to take.”

“What risk?”

“The risk of being acquired. Don’t you understand? East Star can only be Chinese, not American. Have you forgotten about Russia’s scrap iron [reference to the selling of Russian military assets for cheap]? Your position is sensitive, and your products are sensitive. You’ll have to do similar things in the future. You can’t just consider economic interests now. Sometimes they’re irrelevant.”

Hou Longtao smiled proudly. He liked his position. “I’ve thought about control for a long time. You’ve calculated it too. The chance of being controlled is small.”

“They…” Gu Quanzhi pointed upward again, “calculate shares differently. After 30% is listed, there may be no risk of acquisition because my 3.5% plus your 47.8% exceeds the 51% safety line, understand?”

“I have an agreement with GM.”

“No matter the agreement, 55% of the shares floating outside is unacceptable. They want 100% safety and reliability.”

“So I can only sell 18% to GM?”

Gu Quanzhi shook his head. “Unless you buy back the shares from Nannan and the others.”

“Why?”

“They don’t care about your relationship with them. You should be happy. They only trust you and me. Shares in anyone else’s hands aren’t completely safe.”

Hou Longtao rubbed his cheeks, pursed his lips, and thought. “Then let’s renegotiate. GM will probably accept 18%, anyway, there won’t be any more shares for sale.”

“No need. Continue to negotiate with them at 25%.”
Hou Longtao didn’t speak, just looked confused.

“All signs suggest this GM delegation has problems, possibly sent by Tian Donghua. If so, his goal is to use GM as a cover to acquire a quarter of your shares. If he has the funds and his purpose is pure, he can buy directly from you. The price is right.”

“Right, that’s what I want to hear.”

“One,” Gu Quanzhi held up a thumb, “where does his money come from? Two, if his purpose isn’t pure, what is it?”

“Tch, those are the questions I asked you!” Hou Longtao leaned back, disappointed. “Why are you asking me again?”

“Hehehe, don’t worry.” Gu Quanzhi pressed down with his hand. “The current 25% requires $3.75 billion. Let’s assume Tian Donghua can get this money, no matter how. You know the saying that the first million is the hardest, right?”

“I know.”

“Okay, since he can get the first four billion, then we must assume he can get the second four billion. If he has another four billion, what can he do?”

“Does that need asking? He’ll acquire East Star’s shares on the stock market. Wait, you mean he wants to control East Star through acquisition?”

“As long as he has the funds.”

“It’s impossible. First, how can GM’s 25% be transferred to his name? Second, even if it can, once someone starts a hostile takeover, we’ll counter-acquire. He needs to buy 26% from the market to gain control, which we can disrupt.”

“The second problem is easy. You don’t need registered capital to open a company in the US, and opening a personal account is even easier. If hundreds or thousands of companies and individuals buy East Star’s shares, we won’t detect the takeover.”

“Okay, then his first problem isn’t solved.”

“The first problem is harder, but not impossible.” Gu Quanzhi lit a cigarette.

“Heh,” Hou Longtao smiled. “That’s why you’re my teacher. Teach me dirty tricks.”

“Hmm…” Gu Quanzhi narrowed his eyes. “Do you know what GMIG stands for?”

“GM Investment Group.”

“Do you know what Investment Group means?”

“Investment group,” Hou Longtao said, annoyed.

Gu Quanzhi stared at him and raised his eyebrows.

“Huh?” Hou Longtao knew the answer was simple. He frowned and scratched his head.

“An investment group can invest with its own money or for others. With its own money, the securities are its own. With other people’s money, the securities belong to others, and it charges a commission.”

“I’ve never heard of GMIG having other accounts. It’s just GM’s investment department.”

“Yes, I haven’t either, but that doesn’t mean it can’t. It has the function of a securities broker in law.”

“Damn it,” Hou Longtao slapped his forehead. “Then the agreement GM wants to sign with me…?”

“The difficulty lies here. If they sign with you, they recognize GM’s ownership of the shares, and Tian Donghua can’t intervene. If they don’t sign, you won’t sell. Signing a document with no legal effect becomes his only way out.”

“How?”

“If it were me,” Gu Quanzhi scratched his throat, “Situ Zhiyuan would be the best scapegoat.”

“How?”

“Wasn’t he just promoted to VP [Vice President]? And he’s in charge of such a big deal? It seems that it’s not because he’s so talented. You calculate that when he was promoted, Tian Donghua had already arrived in the United States.”

“You mean his promotion was entirely to make him qualified to be nominally responsible for this negotiation?”

“That’s right.”

“So what?”

“According to the negotiation records you gave me, there are two agreements to be signed. One is for East Star to transfer equity to GM, and the other is for restrictions on how GM handles those shares. Don’t you think they can be merged into one?”

“They can be, but before I realized this was Tian Donghua’s conspiracy, signing two or signing one didn’t make any difference. But now it seems that the difference should be very big, but I still can’t see how they can make one effective and one ineffective.”

“Michael Sha must sign the first one, and Situ Zhiyuan must sign the second one.”

“How can I let two people sign?” Hou Longtao shook his head.

“That’s why you have to calculate so carefully,” Gu Quanzhi said. “Four conditions are indispensable. First, inadvertently determine that two agreements will be signed; second, convince you that the two agreements must be signed separately; third, Situ Zhiyuan signs the additional agreement first, and Michael Sha signs the transfer agreement later; fourth, make the document signed by Situ Zhiyuan invalid.”

“I’m dizzy.”

“Why are your negotiations still confidential? The news media knows nothing?”

“If it’s leaked beforehand, it will be bad for both parties’ market image if the negotiations fail.”

“Then if it succeeds, will you promote it vigorously?”

“Of course.”

“Will you invite a large number of media on the day of signing?”

“Definitely.”

“I think you must hope that the media will do its best to build momentum for you, right?”

“Yes.”

“Then do you need outside economic experts to speculate on your other agreement?”

“What’s there to speculate about?” Hou Longtao lit another cigarette. “The purpose is very simple.”

“Yes, on the surface, it’s to prevent others from having the opportunity to control the shares, but the more simple your surface purpose is, the easier it is to cause speculation from others. What do those experts rely on to make a living? Certain knowledge and the ability to make unfounded accusations.”

“Hmm.” Hou Longtao nodded. He often saw experts on TV and in newspapers making speculations about large companies, which only had negative effects.

“I estimate that when you have negotiated the price, they will raise this issue. Since I can influence you now, they can probably influence you too. This is something that is beneficial to both parties. If they propose to secretly sign that additional document the day before, would you agree?”

Hou Longtao rubbed his chin and thought. “Probably, there’s no need to squeeze two signatures on the same day, and of course, the additional one should be signed first, so that they don’t take the shares and then deny the agreement.”

“OK, then it will be logical for Situ Zhiyuan to sign with you, right?”

“Yes.”

“For East Star’s stock price, the real good news is that East Star and GM have reached an agreement, so when you officially sign the document is not very important. If they propose to sign the additional document on Friday and the transfer agreement next Monday, would you agree?”

“If the time is right, there’s nothing wrong with it.” Hou Longtao couldn’t find a reason to refuse.

“Do Michael Sha and the others know about Situ Zhiyuan’s performance in 1989 [likely a reference to the Tiananmen Square protests]?”

“Ah… they definitely know.”

“Suppose someone suddenly reports to the National Security Bureau on Thursday that a wanted political prisoner from that year has changed his identity and sneaked back into the country. What will be the result?”

“He’s now an American citizen.” Hou Longtao forgot if he had told him this.

“I know. Although his situation is a bit complicated, it’s not so complicated that the public security organs can’t handle it. From the perspective of current law, he can be detained for at least 48 hours. But considering his current identity, they will probably spend a day to a day and a half to verify and ask for instructions, and then invite him for tea. Tian Donghua is not completely without roots. The people from the National Security Bureau can help him with a favor, and detaining Situ Zhiyuan should not be a problem. In this way, he will not be able to attend the signing ceremony of the share transfer agreement. Would you postpone the ceremony for him? I don’t think so. No one knows when he will come out once he goes in, maybe a day, maybe a year, right?”

“Then I can only sign with Michael Sha,” Hou Longtao stood up, pacing slowly with his hands behind his back, a smile on his face. “You really have a plan. OK, Situ Zhiyuan is arrested, but the agreement he signed is still valid.”

“If he has been dismissed before signing the contract, is that agreement still valid?”

“That’s not so simple.”

“It’s indeed not simple,” Gu Quanzhi smiled, “but I’ve come up with a feasible solution.”

“Tell me quickly.” Hou Longtao was anxious.

“Who reported him to the National Security Bureau?”

“This… is there anyone in particular? Just find someone, right?”

“Hmm, hmm, hmm,” Gu Quanzhi shook his finger, “GM headquarters personally reported it.”

“What?”

“GM headquarters personally sent a fax to the National Security Bureau, saying that they had just discovered that Su Zhan was the Chinese wanted criminal Situ Zhiyuan and had dismissed him. All his actions are no longer related to GM.”

“It’s impossible for them to only send it to the National Security Bureau without telling their own delegation, which means Michael Sha couldn’t possibly not know. That can’t be justified.”

“Of course, GM will also send a fax to its delegation, but they use the hotel’s fax machine. Anyone at GM can pick up the fax from the hotel, including Situ Zhiyuan, as long as a GM employee sees him pick it up but is not seen by him. Of course, such an important matter is not guaranteed by fax alone. They will definitely send an E-mail to Michael Sha, maybe the E-mail was deleted by Situ Zhiyuan. They should also call Michael Sha, maybe Situ Zhiyuan answered the phone, pretending to be Michael Sha. His English should be quite good, without an accent, right?”

“I’ll be damned,” Hou Longtao bit his finger. “But that doesn’t explain why he still wants to sign with me. Even if they’re invalid, I’ll recognize them. This will definitely end up in court.”

“That’s right, why does he still want to sign with you? Because that agreement was reached privately between you and him. It was an act of revenge after he discovered that GM had betrayed him,” Gu Quanzhi signaled Hou Longtao not to rush to speak. “Negotiation records can be forged. You and their two negotiation records are submitted to the court. Your version is that both parties agreed, and his version is that GM did not agree. There is a 180-degree difference. One of them must be fake, but who can tell which one is fake? The key is that no one outside knows that you have this agreement. An American court is unlikely to rule that this agreement is valid without any external influence, let alone the possibility of external influence.”

“Why is it an American court?”

“You are suing GM’s headquarters for breach of contract, and those shares will definitely be transferred to Tian Donghua in the United States, so of course, you will sue in the United States.”

“Okay, okay, then I can continue to sue, without the first agreement, there would be no second agreement.”

“That’s even more difficult than the first one. At least the first one has the document signed by Situ Zhiyuan. The second one is completely dead without proof. Why do you say that without the first agreement, there would be no second agreement? The transaction price is very reasonable. GM didn’t take advantage of it. It’s hard to imagine that he would sign such an agreement to restrain himself. The court probably won’t accept it. In the unlikely event that the court accepts it, in the absence of real evidence, the judge must infer the intentions of the signing parties at the time based on common sense. Many large companies in the world are not controlled by more than half of the shares, so you say that you signed the first one to ensure your controlling position, and without it, you would not sign the second one. It’s not a valid reason, and the court will not support it. And GM itself is buying your shares for others, so in theory, they would not sign that first agreement, and the court should support them. In another unlikely event, the court supports you and rules the second agreement invalid, Tian Donghua must return your shares, and you must return the funds he used to purchase the shares, but out of fairness, you have to pay interest, and at the commercial loan rate. Such a lawsuit cannot be completed in two or three years. How much interest can 3.75 billion US dollars generate in three years? I haven’t calculated it, and I believe you don’t want to calculate it either. The bigger problem is who will be in charge of East Star during the lawsuit? If the agreement is valid, he controls the shares, and if the agreement is invalid, you control the shares. No decisions can be made.”

“Damn it,” Hou Longtao slapped his thigh and stood up, scratching his head. “What a Tian Donghua, so insidious, so ruthless, so vicious.”

“A talent.”

“He’s a damn talent. That’s not right,” Hou Longtao turned around. “Just based on his relationship with Michael Sha? How could GM be willing to risk its reputation?”

“Do you know who Michael Sha’s father is?”

“His mother wouldn’t be Bush, would she?”

“Of course not, but it’s not much different. He’s one of the directors of Lockheed Martin [a major American aerospace, arms, defense, information security, and technology corporation]. If he speaks, the US government may buy several hundred million more H1s [Humvee vehicles] from GM. If Tian Donghua controls East Star, he can also give GM and Lockheed Martin considerable benefits, or even redistribute the shares. He really has devised a seamless plan.” Gu Quanzhi began to admire Tian Donghua…

A humble abode suffices, fragrance need not be abundant (A Goldfish in a Pond) [a Chinese idiom meaning that one should focus on inner qualities rather than outward appearances]