Toward the end of our dinner at Beacon I mentioned to Tominaga-san that I was looking forward to meeting Mr. Liu, the chairman of ORIX’s Chinese operations. He smiled and pointed at Oishi-san. “PR department,” he said in heavily accented English. I asked Oishi if she knew anything about my interview, and she said she did not but she would make inquiries the next day.

True to her word, I received a polite email the following day from the head of the PR department (with a CC to several people whose names I didn’t know, but also to Oishi-san). He said simply that Mr. Liu Guoping was expecting to meet me at the company’s head office in Hamamatsucho on Thursday afternoon that week. I barely had a day to get my China prep notes in order before it was time to go meet the man in charge of developing China for this expanding financial group.

I was well aware that China was the biggest gap in my research on the ORIX Group. Everyone knows that China is now the second-largest economy in the world and hoping to be number one. For years, it was viewed mostly as a cheap manufacturing base, yet it is now seen as the world’s biggest marketplace. From reading the Annual Report and other research, I knew that ORIX has been active in China for decades. Tominaga had explained to me how the company set up its very first overseas office in Hong Kong back in 1971, when the parent firm was only seven years old. I knew that ORIX had begun operations on the mainland a decade or so after that, and I had originally planned to visit the new China headquarters in Dalian. But now that Mr. Liu was being so accommodating and showing up in Tokyo, I was eager to have a chance to interview him.

The Chinese Ex-Bureaucrat

ORIX’s Global Headquarters (they don’t call it that, but that’s what it is) takes up several floors of the World Trade Center Building in an area called Hamamatsucho in the southern part of central Tokyo. At the appointed hour on the appointed day, I took the elevator up to the main reception area on the sixteenth floor, where I was asked to wait. I looked around the rather large room. A life-size cut-out of Ichiro promoting ORIX Bank, two autographed baseball bats in a case, several team jerseys, and a pair of ORIX Buffaloes caps. (The name of the team was changed yet again a few years ago when the powerful Blue Wave merged with the hapless Kintetsu Buffaloes. Clearly, ORIX was still associated in the public mind with sports and the company likes that association.)

Soon one of the women at the reception desk showed me down a hall to a quiet conference room. I discovered that Liu Guoping was already waiting for me. He wore a dark Western-style suit, white shirt, and unobtrusive tie. His business card informed me of what I already knew—that he was the chairman of ORIX Group China. I quickly discovered that Mr. Liu speaks Japanese, not perfectly, but then, neither do I, so we decided to use our broken Japanese to communicate. We both agreed that talking through interpreters, no matter how good they are, can be one of the slowest and most unnatural forms of communication two people can experience. We chatted a bit, and I learned that he is 62 years old and was formerly a senior official in the Ministry of Railways. I remembered reading about the vast sums of money China was investing to expand its railway system. Consequently, the Ministry of Railways was a very important and powerful organ of government, nothing like its counterparts would be in the United States or the U.K., and a former executive there should have influential government contacts, which according to everything I knew about China, would be essential for doing business.

It turned out that Mr. Liu had only been with ORIX for a couple of years, so his contacts should still be quite fresh. He was nominally in charge of all of the Group’s various businesses in China. I told him I was sorry I couldn’t meet him at the local HQ in Dalian, but he surprised me by saying, “No problem. I am usually in Beijing. That’s where all the important decisions are made, anyway.” He went on to explain, “The company is formally registered in Dalian because the city government offered us an attractive package of incentives, which we would be foolish to ignore. However, Beijing is the capital, so the real business is managed from Beijing. That is a common situation in China.”

After establishing as much of a rapport as I felt we were likely to build in such a short time, I skated straight for the thin ice, asking Liu about what it was like having a foreign firm, and especially a Japanese firm, running the show. This touches on a very sensitive issue, one that Japanese businesspeople usually try to avoid: Japan’s unfortunate history in Asia.

During World War II, Japan occupied Korea, China, and most of Southeast Asia. In many cases, unpleasant memories of that occupation still linger, and in some cases (especially in China), they are reinforced by museums, popular literature, and TV dramas. Friends returning from Shanghai tell me that there is frequent and blatant anti-Japanese content in many of the popular TV programs. As a result of this history, Japanese firms need to tread carefully in Asia—although not all firms have heeded that advice. Many older Asians are already predisposed to distrust the Japanese, which made me all the more impressed by ORIX’s obvious success in developing strong trust relationships with local businesses in the region. I got the impression that ORIX’s stance was, “We were only born in 1964. We’re the new kid on the block, and we do things differently. Don’t tell us about the bad old days—we had nothing to do with that. We want to be a good neighbor; our only aim is to do good, sustainable business here and now, in a way that works for us and for our local partners.” Whatever the unstated ORIX identity might be in Asia, it had surely proved successful in building friendships around the region.

With this in mind, I was not too surprised when Liu told me that ORIX tries to stay out of the spotlight and has made great efforts to localize its China operations. I asked Liu if having a Chinese national hold such a senior executive position as he did was unusual for a Japanese company. “Yes. Quite so,” he replied. “On the whole, Western companies have localized much faster than Japanese companies. In general, Japanese firms are very conservative and have not aggressively promoted local workers to top management positions. Japanese managers tend to stay overseas for only a short time, and while they are in-country, they are primarily concerned about their position back at the headquarters. Not surprisingly, they also tend to associate with the Japanese community; they don’t want to assimilate into local society. However, if you wish to raise money in China or in Hong Kong, you must become friends with Hong Kong or Chinese banking officials and government officials. I think it is not easy for Japanese to do that.”

I see. Would you say that ORIX is an exception to that stereotype?

“Yes. Absolutely. We are now localizing all the top management of ORIX China. If ORIX is run by Chinese executives rather than Japanese executives, there will be a significant difference in how we manage the business, particularly in how we resolve or avoid certain problems. ORIX could easily send a Japanese manager to fill my position as chairman, but he would not be able to maintain good relations with Chinese government officials. So it is critically important for ORIX to have local top management,” Liu stated emphatically. I got the drift. When in Rome (or Beijing, for that matter), do as the locals do.

In my travels, I had heard various stories about ORIX in China, and I wanted to see how much of that information was accurate. I asked about the company’s “difficulties” in the past. Liu tactfully noted that he had only held his post since 2012 and so had little knowledge of ORIX operations decades in the past.

I turned instead to current operations. How big is ORIX’s leasing business in China, and how much growth potential is there?

“There are more than 1,000 leasing companies in China today, and ORIX is not one of the biggest. Our leasing revenue is only about 2 percent that of the top leasing firm in the sector.” I was busy scratching notes, so he continued: “That is not a bad thing. It means there is excellent potential for growth. ORIX has special expertise, leasing know-how that it has built up over 50 years. That is something that no company in China can match. By doing strategic business alliances and M&A, I think ORIX could become the number one firm in the leasing field.”

So, the business will be mostly leasing-based going forward?

“I would like to have two main pillars of our business: leasing and investment,” he said. “At present, we invest occasionally in Chinese companies through M&A and private equity. That is fine; there are many good prospects there. Personally, I would like to invest in alternative energy projects such as solar energy, which has a big future in China. I would also like to shift some of our investment business into fund management. I hope to set up a first-rate fund management team in the next 5 to 10 years and manage at least $1 billion in assets. The fee income would be an attractive supplement to our leasing business.”

Finally, edging out onto the thin ice again, I asked about the still-undeveloped legal structure in China, something foreign executives frequently complain about.

He looked uncomfortable. This is not an area where an ex-bureaucrat wants to speak his mind. On the other hand, Mr. Liu struck me as an intelligent, well-informed manager, and I knew he had cogent opinions bottled up inside. After a minute or two of reflection and off-topic responses, he finally said, “Our biggest headache is the lack of a leasing law. There is no specific law covering leasing in China. That is, there is no law covering the disposition of assets under a leasing contract. The government has been studying the creation of such a law, but we have no idea when it may appear.”

I understand the problem in general, but in concrete terms, what does that mean?

“We have about 100 to 200 corporate clients, and they’re all good companies. But suppose for some reason that one of them ran into trouble and went bankrupt. Because there is no law covering leased assets, the bank managing the bankruptcy would seize the client’s leased assets as part of its own property, and we would have no legal recourse to demand their return.”

That sounds like a very high level of risk, not to mention a unique situation that ORIX does not face in other markets. How do you mitigate that risk and make your business workable?

“That is what I meant before when I was talking about how Chinese managers can deal with certain issues that Japanese managers would not be able to do. Hypothetically speaking, if one of our clients were to go bankrupt, we could in fact repossess the leased assets. Foreigners think only of courts and legal frameworks, but we Chinese understand that there are other ways to get things done. I can talk to government officials at all levels, national, regional, or local, and use those relationships to ensure that our clients either pay the fees they owe or return the equipment they have leased. In an extreme case, we could effect a seizure and repossession, but that has never become necessary and I do not think it ever will.

“Our approach is to avoid problems so that they do not cause difficulties later on.”

I had several more questions, which he did his best to answer in a typically bureaucratic, roundabout way, but he seemed tired. I did not know when he had arrived in Japan or what his schedule had been, but his face showed the wear-and-tear of recent travel. I realized that he was starting to look at his watch regularly, and I decided we should call it a day. I thanked him for his time and very candid responses. Interesting as it was, I needed a second source and a lot more information about ORIX’s past history in China.

The Japanese Ex-Manager

After the interview with Mr. Liu, I called Tominaga-san and asked if we could have a quick coffee. He said he couldn’t get away from his desk until around 5 P.M. (most big-company employees expect to be at their desks from early morning until at least 9 P.M.; 5 P.M. is a snack-and/or-cigarette break for many of them). I said sure and waited downstairs in an outer lobby of the inauspiciously named World Trade Center, occupying a booth in a dreary coffee shop called Palatin until he called to say he was on his way. Although seated in a no-smoking section, I was just about choking on the billowing clouds of gray-white smoke that were rolling my way from the other side of the room. Some things hadn’t changed so much since I had lived here years ago. In fact, the widespread movement toward smoke-free offices has forced nicotine addicts to seek out nearby places to get their fix, hence the cloud-filled atmosphere of so many coffee shops, with or without No Smoking sections.

Finally, Tominaga arrived. He sat down and ordered a coffee, black, of course. Once a salesman, always a salesman, I thought. I told him about my meeting with Liu. A smart, well-connected guy, but not a font of information about ORIX’s history in China. I’d heard stories in my travels about ORIX facing serious problems in that market—just like dozens of other foreign firms that rushed in early—and I wanted to find out the truth.

“I don’t know any of the details,” he said, sipping his coffee. “But I do know that there were problems.” He thought a minute, tapping his forefinger absentmindedly on the cup. Then his face brightened, “I may know just the guy who could tell you what you want to know.”

Long pause.

“Interesting fellow. Worked with me in sales for a while way back, got transferred to China, spent several years there as a middle manager, then went to Korea. He knows what’s what, and he speaks English. How about that! Let me hook you guys up.”

He wrote down the name “Noguchi” on a nearby napkin and handed it to me. I asked when and where I could meet this guy.

“Not right away and not at the office,” he said. “I’ll set it up and let you know.”

And that was all there was to it.

Two days later I received an email from Tominaga telling me that Mr. Noguchi would meet me at an izakaya (a common Japanese-style bar) not far from the HQ building the following evening.

I went to the rendezvous, an ordinary-looking bar-restaurant on a side street just two blocks from the HQ. I slid open the old wooden door and stepped inside. It was just like a thousand others I’d been to: casual, friendly, and cheap. Inside, the bar was already filling up, and I could tell it would get noisy very soon. I probably wouldn’t be able to hear half of what Noguchi said, which is why izakaya are not my favorite places to do interviews. But beggars can’t be choosers, and besides, any place with lots of beer can’t be all bad.

At 7:05 he slid open the door, pushed aside the beaded curtain at the entranceway, and came inside. I was sure it was Noguchi because he arrived alone, whereas the other patrons—all men, of course—had come in groups of four, five, or six, most of them in white business shirts and ties, no suit jackets to be seen. Noguchi wore a suit, though his tie was loosened and he looked tired. We had no recognition sign, but he spotted me instantly. How many gaijin would be sitting alone at the counter in a place like this on a Friday night?

He sat down next to me and immediately ordered a large stein of draft beer. We exchanged meishi quickly and made small talk for the 50 seconds it took for the waitress to bring him a giant mug, dripping with cold beer. I wasn’t really sure if Tominaga might accompany him to this meeting, but he obviously felt that Noguchi and I would get along fine and no intermediaries were necessary. As promised, Noguchi spoke good English and it would be easy to follow his conversation. At least for the first few beers, I thought.

First, he repeated what Tominaga had already told me about his job history: experience in Tokyo, then China, then Korea. It sounded like he was in a good position to discuss the company’s history in those areas. I told him I had talked to Liu, who was very interesting but had no information about what ORIX was doing 10 or 20 years ago. I asked Noguchi if he could fill in the blanks.

“Not difficult. ORIX first set up in China in 1981 as China Orient Leasing Company Ltd. (the parent had not yet changed its name to ORIX). True to form, it was a joint venture. ORIX had 50 percent of the equity, a bureau of the Beijing city government had 30 percent, and a very important organization called CITIC had 20 percent.”

I’ve heard of CITIC. It was a giant, government-affiliated corporation, right?

“Back then it was the China International Trust and Investment Corporation, and it was founded only a couple of years before ORIX arrived in China. The founder was later the vice president of the People’s Republic of China, and his father used to be one of the richest men in the country. CITIC then was a state-owned investment company. Its mission was to invest in or tie up with foreign companies so as to acquire new technologies for China and bring increased foreign investment into the country. China Orient Leasing was one of the very first Japanese joint ventures to set up shop in China. It was a pioneer in many ways. Remember that China in the 1980s was a totally different country than what it is today. Under the influence of Deng Xiaoping, the country had just begun to open its markets to foreign firms, and it was trying hard to secure foreign capital and foreign technology in an effort to modernize and catch up with the West. The tie-up with ORIX provided both: foreign capital and a great deal of financial know-how.

“In retrospect, perhaps China was not sufficiently developed back then. It wasn’t their fault; it was ours. We went into China too early and inadequately prepared, and the results were predictable.”

I had a feeling he was getting ahead of himself now, so I asked him to slow down and walk me through the story.

The Real China Story

“As you probably know, ORIX set up in Hong Kong in 1971. It was the company’s first overseas operation, and it was a big success (it still is). Over the next decade, ORIX opened JVs all across Southeast Asia, and the success of those operations gave it a big boost in confidence. The company felt sure they could succeed in China, even though entering the Chinese market was like sailing into a huge, uncharted sea. A full decade after the Hong Kong subsidiary’s founding, ORIX decided to set sail for the unknown. Based on lots of good experiences elsewhere, it chose to start as a JV. To go into business with a partner as well connected as CITIC looked like a dream.  And it was; things went really well at first. The company imported and leased machinery. The Chinese economy was growing like a house on fire and needed all the machinery it could get, so the business looked solid. Most of the clients were state-owned or at least state-affiliated companies. It was a typical, low-risk approach to an unfamiliar market, just the way ORIX likes to work.

“Then the trouble began. One after another, clients began to fall behind on their leasing payments. They had various excuses, but the end result was always the same: suspended payments. Of course, thanks to the JV’s influential partners, the original contracts were all fully guaranteed, in most cases by the provincial or municipal government. In a rather short time, the default ratio rose rapidly and the total amount of outstanding debt reached a frightening level—well over $100 million, which in China 20 years ago was a lot of money—and the local governments said they did not have sufficient funds to cover the debts they had guaranteed. They urged ORIX to negotiate with the clients directly. Things were going from bad to worse.

“I should point out that ORIX was by no means the only company caught in this awkward situation. Over a dozen foreign leasing firms were operating in China at that time, and they all ended up in the same boat. The total amount owed to all these foreign companies was well over half a billion dollars. But what could they do about it? If the local governments could not pay the outstanding debts and would not force the clients to forfeit their equipment, what recourse was left?”

Take them to court; sue your clients, get your equipment back, and seize sufficient assets to cover your losses, I volunteered without thinking. But in the instant I said it, I remembered Mr. Liu talking about the lack of a leasing law in China and the importance of being able to deal with various “difficulties” through private negotiations.

“Ah, spoken like a real American,” he said. “There were no laws governing leasing, and no legal structures to provide for repossession of assets. In fact, we did go to court. We sued several companies, and sometimes we won in the courts, but usually the courts would give favorable rulings to the local companies. Legal victories were meaningless if the courts could not order the seizure of a company’s assets, and if the company happened to be a state-owned firm, well, end of story. In some cases, we went to negotiate repayments directly with the client firms and discovered that they had already sold the equipment they’d leased from us. It was a nightmare.”

So what happened? I was already having a little difficulty hearing him over the noise of people shouting at each other, beer steins clinking, waitresses calling out orders at the kitchen door and horrendous J-pop music blaring from cheap speakers in the background. I was so grateful that Noguchi spoke English. In Japanese, I would have missed half his conversation already.

“It took several years, and ultimately it became an international trade issue. The Japanese government got involved, and the two countries finally agreed that the Chinese central government would start by covering half of the unpaid debt. Thanks to the efforts of the government, we eventually recovered close to 70 percent of the unpaid leasing fees. Of course, that was only the principal, and didn’t include delayed interest payments and other penalties, but we were extremely grateful.”

I guessed that even a 70 percent recovery rate spelled the end of China Orient Leasing.

“Yes, that company was doomed. I’m not sure if they ever finally deregistered it in China, but the business came to an end.”

But not the ORIX story in China…

“No, not at all. ORIX had some rough years, but we learned a lot, and that led to a whole new wave of China investment, with new people running the show over there and a much more practical approach. Early in the twenty-first century, ORIX began a new round of Chinese development, setting up several new companies. Things are already going fairly well, and I have no doubt that ORIX will succeed there.”

I believed him. What I then tried to express was that after hearing about so many success stories all over the world, it was enlightening to discover that “even monkeys fall from trees,” or, in a similar but more refined proverb, “even (the master calligrapher) Kukai’s brush slips occasionally.” In other words, even a master of localization such as ORIX could stumble in its first foray into China, need to regroup, rethink, and come back again more strategically. After the string of resounding success stories I had encountered, that very fallibility somehow made the company seem more credible.

“It was a painful education, but a very good one,” Noguchi repeated. The din in the bar was getting to a point where I could see his mouth moving but not pick up all the words. Or did that have something to do with the row of empty glasses in front of me? Probably both.

“We finally realized that we had started up the leasing business too soon. The Chinese economy wasn’t sufficiently developed for our business to succeed. We also learned that the key to doing business in China is to build strong relationships with mayors and other local officials, not only with key people in Beijing. Doing nonstop government relations at all levels is really the name of the game.”

Which, I suddenly remembered, was exactly what Mr. Liu had told me. I thanked Noguchi-san for explaining the ups and downs of ORIX’s operations in China. We had one final, completely unnecessary beer for the road, shook hands, and said good-bye. The next day I called Tominaga at work and thanked him for the introduction. I also thanked him again for educating me about the company’s long, interesting history. I was starting to feel more confident about my grasp of ORIX yesterday and today.