The Aleba Water Confiscation

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  • Anatomy of a Chinese Confiscation: The Aleba Water StoryEd Morrison!Chairman, Xian Aleba Water Company edmorrison@alebawater.com Learn more at www.alebawater.com

  • The Overview: A confiscation of U.S. investor property by the Chinese government.01

    table of contents

    The Characters: We start with a list of key people involved.02The Situation: How a small group of investors sought to help China with its water crisis.03The Business: How Aleba Water grew dramatically in a tough competitive climate. 04

    The Confiscation: Chinese officials conspire with a criminal gang to seize valuable property.05The Corrupt Chinese Officials: Who they are and what they have done.06

    Appendix: A time line and key lessons

    07 Our Demands: How the Chinese Government can attack the corruption in Xian.08

  • Chinas shame!Corrupt Chinese officials are destroying a project supported by U.S. investors with a simple goal: Provide high quality mineral water to the residents of Xian.

    Overview

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    Chinese government seizure of a U.S. investor property

    A modest water factory on the outskirts of Chinas ancient capital, Xian, provides a test case on whether China can control corruption. The short answer: It probably cant.

    Since opening to the outside world in the late 1970s, Chinas economic growth has been spectacular. Yet, for much of the past thirty years, China has been running ahead of its headlights. The countrys remarkable growth has created devastating consequences.

    The contours of this devastation are only now coming into view: dangerously unbalanced real estate markets, severe pollution and worsening water shortages, widespread political corruption.

    All of these forces can be seen at work in a small water factory in one of the counties surrounding Xian, near the famed terra cotta warriors. In the later 1990s local officials in Lantian County invited a small group of entrepreneurs to help them develop their water resources responsibly.

    The investors, based in the U.S., successfully started a mineral water company to provide healthy water to the citizens of Xian. By 2003, they had built a business with over 30,000 customers.

    Then, almost overnight, everything changed. The initial group of local officials retired. A younger set of leaders, more prone to corruption, confiscated the factory for their private gain, with the muscle of a criminal gang behind them. This is the story of how that happened. It offers powerful insights into whether China will be able to control corruption.

    Section 1: Overview

    section 01: !The Overview

  • The two sides!On one side stands corrupt Chinese officials. On the other side, a dedicated staff committed to a simple water project. Thankfully, they are supported by skilled U.S. Embassy staff and two U.S. Senators.

    The Characters

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    Section 2: The Characters

    section 02: !The Characters

    Xian Aleba Water Company

    Ed Morrison Chairman of the Joint Venture

    Wang Hui China Manager; Lantian County officials tried to force him to negotiate with gangsters

    Dei Xiao Feng Factory manager; Assaulted numerous times by criminal gang

    Lantian County Government

    Zhao Jidi Corrupt former Land Bureau Director who masterminded the seizure

    Tang Anyi Land Bureau Section Chief responsible for preparing fraudulent maps

    Chen Xiwen Corrupt vice mayor responsible for protecting the criminal gang

    Wu Yongping Vice mayor put in charge of the Aleba case who refuses to take calls from Aleba

    Li Yi Community Party Secretary whose investigation naming Zhao Jidi has been ignored

    Xian Government

    Wang De An Chief of staff to Xian mayor who briefly helped Aleba, then delegated the case to Qian Huwei

    Qian Huwei Vice General Secretary who is now protecting the criminal gang and refuses to meet with Aleba

    Key Criminal Conspirators

    Sun Junhong Former Lantian deputy police chief and head of criminal gang in Lantian County

    Wang Bao Sheng Corrupt Middle Court judge who who attempted to legitimize the seizure of Aleba property

    U.S. Government Officials

    Senator David Vitter Louisiana Senator who wrote letter to Ambassador Locke expressing concern over Aleba Water

    Senator Mary Landrieu Louisiana Senator who wrote letter to Ambassador Locke expressing concern over Aleba Water

    Ambassador Gary Locke Former U.S. Ambassador who raised Aleba Water issue in a 2012 meeting with Provincial officials

  • It was predictable!Chinas current massive water crisis was foreseeable to anyone who cared to look twenty years ago. The founders of Aleba Water saw the crisis coming and did something about it.

    Chinas Water Crisis

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    Chinas Water Crisis

    Years ago, you could see it coming: a water crisis in China. Nearly twenty years ago, officials in a county outside Xian did something about what they saw.

    Two thirds of Chinas cities face water shortages, more than 40% of its rivers are severely polluted, 80% of its lakes suffer from eutrophication an overabundance of nutrients and about 300 million rural residents lack access to safe drinking water.

    China's current water crisis was entirely foreseeable. With a fifth of the world's population China has only about 7% of the world water resources.

    Lantian County is one of the six counties surrounding Xian, the ancient capital of China. In 1996, Lantian County officials, armed with geological maps, sat down with Ed Morrison and Wang Hui to discuss how they might be able to responsibly develop their water resources. Morrison and Wang had worked together on several projects in China. Wang knows Lantian County well; he grew up there.

    Morrison agreed to explore the possibility to drilling a test well to locate mineral water 200 to 300 meters below the surface. Working with U.S. investors, experienced in both oil drilling and consumer soft drink distribution, Morrison agreed to form a Joint Venture to explore the possibility.

    In 1997, they formed the Joint Venture, approved by the Central Governments Ministry of Commerce: Xian Aleba Mineral Water Company.

    Section 3: The Situation

    section 03: !The Situation

  • The tricky part!There are many complexities to launching a water business in China. Aleba mastered the process and built a business with 30,000 customers.

    Business Launch

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    Launching a Water Business in Xian

    The test well tapped into a deep source of high quality mineral water. But that was only the beginning: Setting up a retail water business in China is tricky.

    Among the challenges:

    Establishing an efficient system of retail distribution in a dense city like Xian; Some companies relied on expensive small vans. Aleba Water chose instead to use an network of retail shops with delivery by three wheeled bicycles.

    Maintaining the control of cash in a network of independent dealers poses a serious risk. Aleba devised a system of tickets to control cash. Other companies were not so smart. They quickly went out of business when retail distributors rans off with the cash.

    Using five gallon recyclable bottles is environmentally responsible, but it means that maintaining control of the bottle inventory is critical to success. Aleba designed and efficient logistics system that resulted in bottle losses of only 2%.

    Section 4: Business Launch

    section 04: !The Business

    To be successful, Aleba needed to establish an

    efficient retail distribution network that strictly controlled both

    the flow of cash and the flow of returnable

    bottles

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    Section 4: Business Launch

    The Aleba Water factory is located on the outskirts of Xian, Chinas ancient capital.

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    Section 4: Business Launch

    Lantian County is located about 30 km to the southeast of Xian. It is a county adjacent to the famed terra cotta warriors.

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    The Aleba Business DocumentsSection 4: The Business

    The original Joint Venture approval document issued in 1998 by the Ministry of Commerce under the State Council. The Xian Government also approved the JV.

    The original map filed in 1998 that shows Aleba Water occupies 7 mu of land within a larger industrial plot of 37 mu. The Land Bureau confiscated this land in 2008, and we have fought for 6 years to reverse this decision.

    The location of the factory is clearly outlined in founding documents.

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    The Aleba Business PlanSection 4: The Business

    Aleba management completed a detailed business plan in 2009 and an updated business plan in 2003. The 2003 business plan took note of the many strong recommendations customers provided for the water. Apparently, the high content of minerals and trace elements relieved the symptoms of auto0immune disorders. Consulting doctors speculated that as the Chinese diet moved toward more processed foods, these minerals and trace elements were being lost.

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    The Aleba Water FactorySection 4: The Business

    The Aleba Water factory produces high quality mineral water in five gallon returnable bottles.

    The bottling equipment was purchased in the U.S. All other equipment in the factory was manufactured in China.

    Our goal was to develop a mineral water factory with bottling equipment that was appropriate to the market.

    We chose 5 gallon bottles for environmental reasons. A factory tour video is available here.

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    Overcoming small scale corruptionSmall scale corruption is everywhere in China. Over 20 government agencies have been involved with regulating our business. That provides ample opportunities for small time corruption.