Alberto Forchielli’s story comes from an interview granted to La Repubblica not long ago. That interview was a turning point in the course of his story. It was early December 2013, the day after the blaze in a Chinese dormitory-factory in Prato, Italy, that killed seven clandestine workers. Alberto Forchielli, Mandarin Capital Partners CEO—the first foreign private equity fund to receive public capital from Beijing under management—does not spare any criticisms over the phone from Hong Kong: “In large and in small, Chinese entrepreneurs has a fundamentally criminal minds,” he accuses, “because they grow up in an environment devoid of ethics, based on relationships, and rife with evasions and infractions.” He adds: among the Chinese over the past few years, “the level of arrogance has changed. The Beijing Olympics, the Wall Street and Euro Crises have fueled Chinese arrogance to dangerous levels. They don’t follow the rules in their own country, and they believe themselves to be so powerful to ignore them overseas as well.”
For a good period of time, those would be his last days in the ex-British colony on the South China Sea. After the interview, Forchielli shut himself indoors and left home only to arrive at the airport and move to Boston, on the other side of the world.
It wasn’t what Romano Prodi’s ex-economics student imagined in 2007, when he cast his bet: becoming an entrepreneur at 50, and doing it in China. Forchielli presented himself to Pietro Modiano, at the head of Sanpaolo Imi in Turin, and in a short time he built a sort of international financial centaur: a half-Italian, half- Chinese investment fund worth 328 million euro in pain-in capital. On one side he had investors like what would become banca Intesa Sanpaolo, the Generali Group, Banco Popolare, families of Italian capitalism like the Malacalza and Merloni, the Popolare dell’Emilia Romagna, and about 20 others. On the other side, with the second half of the fund, he had two of the Chinese government’s financial branches: the China Development Bank and the Export-Import Bank of China. It was the first time that a slice of the new power’s sovereign funds ended up in the hands of a white man.
Forchielli had thought more and more about the project during the years of his very non-Italian career: MBA with honors from Harvard Business School, then Singapore, Kuala Lumpur, Hong Kong, Shanghai, and Beijing. First he represented Finmeccanica, he worked for the World Bank on the 1997 Asian Financial Crisis, and finally as a supplier for European businesses in China. He launched Mandarin with the idea of financing and guiding specialized, medium-sized European businesses wanting to expand to China, and promoting Chinese investments in Europe. It worked. Zoomlion’s acquisition of the Italian concrete machinery manufacturer, Cifa, even became a case study at Harvard Business School. Today, Mandarin Capital Partners has a cumulative return two and a half times the pain-in capital despite the global recession following Lehman’s collapse and the earthquake that struck the Euro. According to rankings, it’s among the top 1% of vintage 2007 private equity funds in the world. Then Forchielli tears into the Prato case. He decides to decamp for a while and go to Boston. But the fire in the textile factory—a sector in which
He’s never invested—was only the most recent blow. Forchielli describes the straw that broke the camel’s back: “starting from 2010, the relationships with our Chinese partners became more complex, they became cavalier and displayed controlling tendencies that were not in our agreements.” According to initial agreements, Mandarin managers should have worked completely independently from Chinese investors, who should have been attentive only to good investment opportunities, but Beijing’s attitude changed over time. The Chinese saw Europe’s weakness, Italy’s institutional fragility and its thirst for capital. As a result, they decided to use Forchielli’s fund as a lever to penetrate the Old Continent’s productive system and know-how, and in particular, it’s largest manufacturing producer after Germany. They’re trying in contempt of the rules: not to do business according to the law, but to detract from it or to do business in violation of environmental, community, or labor constraints. When Forchielli realized this, he refused to participate in the Chinese solar panel giant, Suntech’s, investment in Puglia. The deal was concluded regardless, and it ended in arrests and a criminal investigation still underway for fraud and environmental damage.
And so, Forchielli’s course resembles an indicator for the global economy and relationships between superpowers more and more. He rode the decade in China, but now his interest in the US is returning, and the US is interested in him. Forchielli is one of the world’s foremost experts on affairs between Beijing and Shanghai, and the US congress and CFIUS (the committee on foreign investments in the US) listen to him more frequently every time a Chinese organization attempts to penetrate the US. To find investors for the second Mandarin fund, which he is currently fundraising for, Forchielli adopted a double strategy: focus on a US in full recovery and bring Germany on board. Roland Berger, the most prominent European business consultant, is personally Mandarin II’s first official German partner. Then came the US institutional investors, from large pension funds to universities. The new fund if almost ready to go with capital nearing half a billion euro: there’s American and German money, the Italian portion has fallen from half to one fourth, and for now, China is only marginally present.
This financial geography and how the capital is used reveal something about global equilibriums. “I decided that the second Mandarin should have strong American participation because the Chinese fear and respect them, unlike the way they treat Europeans,” Forchielli explains. Even with new partners, the fund’s model hasn’t changed. He will continue to finance and facilitate investments in European companies directed toward China, concentrating on high tech sectors: the environment, healthcare, oil and gas, food and manufacturing safety, and fine chemicals. But, even the fact that Chinese money been allowed in Mandarin II very selectively reveals something about the world of today, as Forchielli frankly admits: “I don’t want the presence of capital from Beijing to give rise to pressures on us to carry out improper operations.” After the clashes over the past few months, the doors to Chinese investments are open only under precise conditions.
It’s futile to remind Forchielli about the risk that the new president, Xi Jin Ping, could react and hinder Mandarin’s work in China. “They need western investments and know-how,” he counters. He adds: “with my criticisms of certain business peoples’ methods, I believe I interpret the Beijing leadership’s new slant that’s trying to rid the country of corruption and shady business.” It’s even personal for him: Forchielli is drafting a project to create a European equivalent of the US’ CFIUS, a committee in Brussels to pass the pedigree and behaviors of every Chinese business trying to expand to Europe through a sieve. “It’s not a matter of raising the barricades,” Forchielli blurts, “but making them respect us.”
This is the english translation of the article by Ferico Fubini first appeared on La Repubblica, Italy #1 daily newpaper, La Repubblica on Monday, March 24.