The Portrait of an Olympic Host -- A Chinese (un)success story

http://www.latimes.com/business/la-fg-fleece9aug09,1,7344582.story?coll=la-headlines...

From the Los Angeles Times

A Chinese (un)success story

A Japanese millionaire wanted to help build schools for poor Chinese.
But, he says, an official talked him into lending $625,000 for a
university, and cheated him.

By Mark Magnier

August 9, 2007

Japanese educator Yomei Matsuoka admits it's difficult to miss the
irony. How the socialist became a millionaire. How he lost his shirt in
"socialist" China. And how his dream of educating young Chinese
foundered after teaming up with officials from China's Education Ministry.

But that hasn't made his decade-long fight to recover more than $600,000
in charity funds any easier, he adds.

"What they did is an insult to their position and their country," said
Matsuoka, 64. "Now they're stalling for time and waiting for me to die."

Matsuoka says his nightmarish experience is a cautionary tale of
corruption, lost illusions and, he acknowledges, naivete. His Chinese
partners counter that he made a bad investment, knew what he was doing
and is now attacking China in a desperate bid to gain sympathy.

No matter which side is telling the truth, Matsuoka's experience
underscores the risks for neophytes entering the Chinese market.

In recent decades, China's economy has soared like a rocket, even as the
nation has grappled with a huge and growing corruption problem. The
administration of President Hu Jintao has made containing graft a
priority, viewing it as a threat to Communist Party rule.

The near-daily scandals that hit the headlines have some common
features, including a lax boundary between government and personal
property, undue reliance on personal connections and the use of family
members as a conduit for questionable gains.

There was not a lot in Matsuoka's background that prepared him for this
environment.

He grew up impoverished in the 1950s in Fukushima prefecture as Japan
struggled to find its footing. On entering college in Tokyo in the
1960s, he embraced socialism and was arrested for participating in
student riots.

After graduation, blackballed by Japan Inc., Matsuoka started tutoring,
then founded a cram school. By the late 1980s, his Musashi Seminar had
800 students and was earning a quarter-million dollars annually. The
former socialist sees a rich irony in how well capitalism treated him.

As retirement loomed, however, Matsuoka says, he felt increasingly
guilty about this wealth built on the "blood and sweat" of ordinary
Japanese and decided he wanted to build 12 schools in rural China, with
small classes and up-to-date computers and textbooks.

In 1995, he mentioned the idea to his Chinese-language teacher, Ben
Yongzhong. Ben was a Chinese Education Ministry official working in
Tokyo on an exchange program, Matsuoka says, with links to the Chinese
Embassy there.

Ben suggested that he lend the money to Tianjin University instead, to
rebuild an exchange-student dorm, Matsuoka says. When the money is
returned in five years, Ben reportedly said, you can build your schools,
achieving two good deeds with one lump sum.

Matsuoka agreed, in part because he needed more time to finalize
construction details. He also trusted Ben and took comfort in his link
to the ministry. "I saw Ben as the hope for a new China," he says.

Matsuoka handed over $625,000 at 3%% interest rate in two installments in
late 1996 and early 1997. The vaguely worded contract didn't mention the
Education Ministry or Ben's title, using instead the name of his wife,
Liu Lifeng. This was the first of many signals Matsuoka says he missed
and would later regret having ignored.

Matsuoka also says he didn't push for a tougher contract because his aim
was to bolster Sino-Japanese relations. "In the East, we start with
verbal trust, whereas Westerners write contracts," he said. "I came
wanting to touch the hearts of the Chinese and Japanese."

Ben and Liu didn't give the money directly to Tianjin University, about
90 minutes' drive from Beijing, it would later surface in court.
Instead, they handed it to Li Hongtao, the twentysomething son of two of
their senior colleagues at the Education Ministry. This second contract
was even looser than the initial loan documents. Li merely acknowledges
receipt of the sizable sum without specifying its use, rightful owner or
any terms.

Matsuoka and his colleagues concede that he shares some blame for having
an overly trusting nature. "Matsuoka is too pure," said Takuwa Watanabe,
a business partner. "In fact, I was approached by the same high-ranking
education official but didn't take the bait. I've done enough business
to know better."

Matsuoka was led to believe that construction of the dorm was going
smoothly, he says, until he made a trip to China in May 1999 and stopped
by Tianjin University. There he discovered that the money was not going
to rebuild an existing dorm, he says, but was going into a for-profit
"Friends Garden Hotel" on the university's periphery. Concerned, he
questioned Ben and Liu, who told him not to worry, that the funds were
being used "scientifically."

As Matsuoka's anxiety intensified, he approached the Education Ministry.
In 2001, it agreed to launch an internal investigation. Several months
later, the ministry issued an unsigned report: Because it was not named
on any of the contracts, the agency said, it bore no responsibility. You
are free to pursue this matter in Chinese civil court, however, it
added. Officials at the Education Ministry declined to comment.

Once the threat of ministry sanctions was lifted, Matsuoka says,
everyone's position hardened. He funded a lawsuit against Li, but the
court ruled in Li's favor. With his options dwindling, Matsuoka sued
Liu, hoping more pressure on Liu would pressure Li. He won that case.
But Liu says she has no money.

Nor does Li seem to be feeling much pressure. "This has nothing to do
with me. I don't even know Matsuoka," Li said. "Liu doesn't have a
direct relationship with me. I don't know much and don't want to get
involved."

Matsuoka says his dream of helping Chinese students is a shambles. The
last decade has cost him far more than the $625,000 and $90,000 more in
legal fees, he says. "It's eaten me up," he said, complaining of badly
stretched nerves, chronic diarrhea and nightmares. "First mentally. Now
physically."

Liu and Ben don't dispute Matsuoka's basic account of events. But they
question whether Matsuoka really intended to invest in village schools
or whether he was using the deal to launder money.

They say Matsuoka pored over the hotel plans for days, knew it was a
money-making venture and understood the risks, contentions he vehemently
denies. They've been duped by Li as well, they say, didn't share in any
spoils and only acted as intermediaries to help their friends.

"We're sorry this happened," Ben said. "I still believe Chinese law is
just. If we exhaust all legal options, I'll do what I can to repay the
money."

Matsuoka says he initially took Ben and Liu at their word that they too
were victims. As more questions have come to light on exactly where all
the money went, however, he says his doubts have grown.

For his part, Li says, the Chinese courts have ruled in his favor, he
didn't have any direct dealings with Matsuoka, and Matsuoka's problems
are not his concern. "It's risky to invest," he said in a telephone
interview. "It's not a savings account with a fixed return."

Matsuoka, meanwhile, says he still wants to fund a series of rural
schools, if he can ever get his money back.

The ultimate losers may be the likes of He Yani, a 13-year-old in the
village of Zhonghe in southern China who can only fantasize about the
better life she might see if Matsuoka were able to help. Her father died
when she was 7. Her mother suffers from an unspecified blood disease.
And her twin sister, born partially blind, is consigned to menial tasks
at home because the family can't afford to have both go to school.

Asked what she wants to be when she grows up, she laughs nervously but
doesn't answer. Those in such dire circumstances don't think so far
ahead, village head He Jiguang, 35, explains. Getting through the week
is about all they can focus on.

Yani is good at English and Chinese, her mother says, proudly showing
off her English composition book. But there are 64 children in her
classroom, which leaves little opportunity to practice English.

"We thank the Japanese man and appreciate his thoughtfulness," said He
Jiguang, standing beside Yani and her family. "We would like it even
more, of course, if a school could be built here."