How I “Grew” My Business6 min read

Numbers aren’t always what they seem, says Mu Zongyou – translated by Yakexi

Jack Ma, the richest man in China as of 2018, once asked, “Do accurate statistics even exist in China?” In 2007, Li Keqiang, then vice premier, said that China’s GDP numbers, as reported by China’s National Bureau of Statistics, are man-made and not trustworthy. In 2017 and 2018, the authorities in Liaoning, Inner Mongolia and Tianjin all acknowledged that they had made up their GDP data. As a small business owner, I’ve had personal experience with “Chinese numbers.”

In 1995, I started an advertising agency in a prefecture-level city in China. For the first ten years, I handled everything myself, from bids to planning, design to execution, 24/7/365. But revenue was stagnant. More embarrassingly, most of the time I had no more than 50,000 yuan ($9685 today) free to spend. What kind of a “boss” was I?

One day, my wife said she had heard that some company got a loan and expanded their business all at once. I said you needed to have collateral in order to get a loan.

“They don’t have any,” she replied. “They just have connections. Why don’t we give it a try?”

A bureaucrat introduced us to some bankers, whom we wined and dined. And of course we brought them gifts. In the end the bank said my company had good “assets” and was eligible for a loan. The bank helped us get all of the documents ready. The first year we got a loan of one million yuan; the second year, it increased to three million; the third year, ten million.

Within just a couple of years, my company’s revenue had not only doubled again and again, but the profit margin also increased dramatically. I became one of those laid-back bosses; there was no need to do the work. I just had to eat, drink and have fun with the government and bank officials – and pick up the tab.

One day, a government official in charge of the advertising industry asked me, “Everyone else has gotten their ‘grade A’ certifications. Why don’t you apply? I told him there were strict requirements: your company needed to have revenue of at least 50 million yuan, while mine only had 10 million.

“They just filled out some forms,” the official said. “You can do that.”

Still, I was unconvinced. First of all, the approval process had to go through Beijing, which was going to be hard. And second, it would require a lot of money. What if something went wrong?

But in the subsequent years, many contracts started to require bidding, which necessitated the bidders to have certain certifications. I had no option but to follow the official’s advice. I paid my dues to all levels of officials, and got my grade A certification.

This certification not only made it easier for my company to do business, it also earned me a 200,000 yuan cash reward from the government to “encourage the development of the advertising industry.” For a private company like mine, it was as if they were putting cash directly into the boss’s hands.

Only when I experienced it myself did I truly believe they were handing out “government support funds,” “environment protection bonuses,” “science and technology research and development funds,” and “tax returns” to the tune of tens of millions of yuan. Only then did I come to understand what that warm-hearted official had taught me: Don’t just farm, learn to hunt. It’s a boss’s job to get government support and money.

Here was the grand plan of one big private company in the city:

In 2006, we plan to reach a production value of one billion yuan and become one of the top ten baijiu companies in China; in 2010, production value will reach two billion, and the company will become one of the top five in China; in 2015, production value will reach three billion, and we will be in the top three.

The “real outcome” far surpassed this plan. According to them, the company “realized a production value of seven billion in 2010 and of 51 billion in 2016.” Even more surprising, seven billion didn’t put them in the top five club, nor did 51 billion get them to the top three. That means the companies it was trying to catch up with were growing even faster!

My company was a long-time partner of theirs. I knew roughly what their actual revenue was. Out of curiosity, I once asked their boss, “Did you really make that much last year?”

“Of course not, you know better.”

“Then isn’t that fraud?”

“How is it fraud? Everyone’s doing it! Otherwise, how can you get government support? If your company is small, who cares about you? Who’s going to give you a nice chunk of the national pie? How will the government give you the seat of honor? Besides, if 50 billion makes you sweat, at least we have five billion for real. And isn’t that the number we promised a couple years back?”

Now I truly understand that old business adage: “The bold eat themselves to death, the timid starve themselves to death.”

One year, as the municipal industry and commerce bureau was collecting data on the annual production value of advertising agencies, the chair said: “Everyone else reported huge numbers. We won’t ask you guys for more taxes, rest assured. Just give us the numbers.”

When I finally saw the report from the statistics bureau, they listed the total production value of the advertising industry in our city as 206 million yuan… As you can imagine, this number is much higher than the real value. In the following years, we all reported our annual production value in this way.

Once, I was chatting with a bunch of government official friends, one of whom is the director of the Statistics Bureau. The other officials teased him, “Director of Statistics Bureau is such a good position. There’s not much to do the whole year except a couple of days when we are lead into battle with our rival city by the Municipal Party Secretary. It’s intelligence warfare. If our neighbor reports a GDP of 200 billion yuan, we immediately adjust ours to 205 billion.” (I have no way of verifying this, but I have had similar conversations with local officials more than once. It seems that it’s an open secret among them.)

In January 2017, Liaoning Province acknowledged that they had inflated their 2016 GDP by 23%, and that they had made up some of the numbers in their fiscal data from 2011 to 2014. Then in January 2018, Inner Mongolia adjusted its 2016 general public budget down by 26.3%, and also the 2016 value added by industries worth 20 million or more by 40%. Subsequently, Tianjin’s Binhai New Area adjusted its 2016 GDP number down by nearly a third.

Didn’t these local governments face serious consequences for this unthinkable behavior? In China, a land full of wonders, this is nothing. They dare to report these false figures because they know they won’t face any consequences – if anything, they’ll benefit. Inflated data is a political achievement; so is deflated data.

My years of doing business in China showed me how to “grow.” I’ve seen many companies claim to make millions in just a few years. But I chose to retreat. Perhaps I am the timid one. But those astonishing numbers are buoyed by the people’s tears and the workers’ blood. ∎

Read the original Chinese of this article here.