John Jones convinced the Chinese government that for $5.2 billion he could build them a business district the size of Irvine Spectrum, a housing community and other projects across China. Now all he has to do is follow through.
By Craig Reem
The first planned community in China was the Forbidden City in Beijing. Built more that 550 years ago, it enclosed the Imperial Palace and its grounds behind a huge wall.
And now, one the very next ones is being designed by a Newport Beach firm. It will be built without a wall-a significant departure from the old and a bow to a new, bold effort by the Chinese to embrace capitalism.
American companies, some based in Orange County, are moving quickly to ride this opportunity. One player is Largo Vista, Inc.
Its CEO, John A. Jones, a no-nonsense, tough talking man, has embarked on a commercial-financial-residential project as big as the Irvine Spectrum. Never in modern times have the Chinese provided so much leeway to foreign investment. And few, presumably, have dealt with the gruff business approach used by Jones, who is attempting to put together as many as 17 projects.
The biggest challenge is the south of China just 40 miles north of Hong Kong. Jones and his associates envision turning a chunk of undeveloped, waterfront land in to Nanshan Central Business District. It is located in the city of Shenzhen, population about 2 million; in the district of Nanshan, population 18 million; in the province of Guangdong, population more than 60 million. The parcel is within a special economic zone that the Chinese created more than a dozen years ago to introduce capitalism. The $5.2 billion project is backed by the Bank of China, Jones says.
The world's most populous country-China 1.2 billion people, about a quarter of the world's total-has rapidly growing economy that is expanding 10-12 percent each year. Jones says the economic changes will quickly shift the focus of capitalism from the long-established bastion, Hong Kong, to the Chinese landscape.
"Hong Kong has backed up and absorbed Shenzhen," he says. "And what we're trying to accomplish is to re-arrange the mindset of the mainland Chinese. Nobody knows where Shenzhen is. Everybody knows where Hong Kong is. If you do Shenzhen correctly, then you can take the crown from Hong Kong and very quietly and discreetly, uneventfully, move it over to Shenzhen, and everybody will know where Shenzhen is. The Hong Kong will end up being a suburb of Shenzhen."
Such a scenario does not surprise Sherrie Baldwin, a Laguna Hills businesswoman, fluent in Mandarin, who has worked on a contractual basis for several companies since 1981 in China.
"They have gone too far to turn back," she says. "Turning back would mean unrest, and that is the last thing they want. And their economy is doing well with Kaifeng, which means `open door.'"
Last month, the world's last major communist power officially adopted a market economy during the government's 14th Party Congress. The Communist Party's general secretary, Jiang Zemin, called it "a magic weapon" that would, as the Chicago Tribune reported, keep the party strong and political dissent scarce.
The strength of the market forces appears to be foreign know-how. Competition is building. Timing is everything. So how did Jones manage a swing such a deal for a $5.2 billion, 2,500-acre project that, when built will include financial and commercial centers, a marina, resident apartment complexes, hotels, an amusement park and sport complex? Answer: By luck, ambition and bluntness, he says.
As businesswoman Baldwin points out: "The American investor or businessman has to go with some prior knowledge of the structure of government and business in China and has to have a list of questions that need to be answered to his satisfaction."
Business people are all asking, `What's in it Largo Vista?'" Jones says of his Newport Beach company. He is critical of the habit of those who seek upfront money and promise more than they can deliver. "That's been the normal approach for cons, and it didn't work. We sat in a meeting with a guy who has 10 years of experience putting deals together in China. We asked, `Well, what have you done?' `Well, nothing.'"
Jones says his observations of Chinese architectural plans-oftentimes critical-with Chinese developers and government officials have turned into challenges that say, in effect, if you can build a better project, then do it. That prompted him to embark last month on a 60-day trip through China to deal with several projects at once, including the master-planned community, another one in northern China, at least three power plants, manufactured housing, and a movie museum. He also took with him a sampling of cosmetics. He hopes to be the point person when a new line is approved for public consumption.
At every turn, the 45 year old Orange resident is putting deals together, many still in the infancy stage, others ready to move forward. In this day and age of calculated moves, he is anxious to pull in as much as he can handle.
"We've told the Chinese, `you don't owe us anything unless we perform. If we perform and we match the targets that we've set out, you owe us. Until we hit those targets, it's our nickel' And they've agreed to that," he says.
"How do we get along? We get along pretty good."
An important component of understanding will be China's grasping the need for change. In many respects, China has long been a 19th century country unwilling, or at least haltingly, to move into the 20th century.
Unto this mix, Largo Vista moves forward on a modern, planned community there is money to invest. there are special economic districts.
"The dam is burst," says Largo Vista's Robert Saunders, director of international operations, "It's just going. The old ways are becoming just that, the old ways. Things are really just starting to change."
Largo Vista officials say that there are 7,000 companies, both joint ventures and foreign businesses, within that 40 mile strip between Hong Kong and Shenzhen. In fact, the economic change that was predicted when the English gave up Hong Kong effective in 1997 will have occurred long before that date.
"1997 will be a date that will be recognized as the formal transition, the legal transition, of Hong Kong back to mainland China,' Saunders says, "Right now, the transition is just about complete. It will almost be a non-event.."
Largo Vista has spent more than $1 million of its own money, deferred executive salaries and set up target dates for this project and the others to take advantage of the opportunity.
Because of the breadth and complexity of its main development, Largo Vista, as master developer, has been lining up experts to jointly develop everything, including a monorail system.
"We believe in our own ability to do what we've said and to secure and provide the correct and the best people in a given portion of the industry," Jones says. "Civil engineers, we've got the best. Marine engineers, we've got the best. Communication engineers, we've got the best. We're not the best, but the advantage that we have is we know what our limitations are."
The connection between Largo Vista, whose two largest projects before China were a tract of 325 homes in Michigan and a $22 million sewage treatment facility in Arkansas, came as Jones flew to Shanghai in July 1991 looking to construct a time-share condominium building. Instead, after about a year of discussions, he got the building and the master-planned project surrounding it.
"We shot ourselves in the foot by telling them (what we thought of) their master plan," he says. "So they said `You've got Lot 10, but why don't you fix the master plan.' Now we had to back off on Lot 10 to get the rest of the master plan in place. We went looking to park one project; the rest has been offered.
"The Chinese don't know master planning. The know putting up structures, a building here, a building there, and trying to leave enough room to get around,' Jones says. "The whole concept of planning is totally new to them."
Daniel Mendez, executive vice president, has yet to make his first trip to China. He says he has been too busy stateside. He is dealing with the scope of the project, interviewing potential partners, and making certain that every piece fits well. "It's just so overwhelming, and we didn't realize what we were getting into until after the fact. This is real big."
Largo Vista's key players
Here are the key five people for Largo Vista Inc. of Newport Beach.
President and CEO John A. Jones, 45, of Orange, has spent 21 years in the construction business and is a licensed general engineer contractor in California and a licensed contractor in California and licensed general contractor in Michigan. His expertise includes estimating equipment production in all phases of construction, including underground utilities, engineering, planning and scheduling. He founded Largo Vista in 1984.
Executive Vice President Daniel Mendez, 40, of Rancho Santa Margarita, joined Largo Vista in summer 1991 after working 16 years in sales-related positions. The Orange County native helped coordinate the development of mobile home parks, managed and traded commodities and worked in the commercial real estate field.
Director of International Operations Robert E. Saunders joined Largo Vista in summer 1992. Most recently, he was director of land development for the Irvine Co., and supervised and coordinated planning, budgeting and scheduling of the first two residential phases of the Newport Coast Planned Community.
Corporate Architect Richard W. Poulos joined Largo Vista in February 1991. His expertise lies in the design and management of major projects ranging from small office, museum and retail facilities to large scale, multi-use office buildings and hotels. His projects have included the Richard Nixon Library in Yorba Linda.
Director of Advanced Manufacturing James N. Elliott joined Largo Vista last January. He has more than 28 years experience in mechanical engineering and had been director of advanced manufacturing technologies for Western Digital Corp.
Largo Vista's Chinese projects
Here is a partial list of projects that Largo vista, Inc., is either in the process of developing or in the negotiation phase with China:
Nanshan Central business District: $5.2 billion, 2,500 acre mast planned community in Shenzhen, southern China, that includes a marina, financial and commercial centers, residential housing, sports complex and amusement park. Shenzhen is in China's special economic zone.
Xili lake resort, 40 miles from the business district in Shenzhen, includes 250 manufactured homes in Phase 1 of a 1,000 home project.
Movie museum in Shenzhen will be a six-story movie complex and include three theaters.
Master-planned community in Fushon, in northern China, will include a trade center and riverfront winter and summer resort.
A 300-acre movie studio in Fushon.
Airport improvements in Shen Yan, northern China, that include a five-story hotel, new restaurant and renovated conference rooms.
Construction of at least three power plants.
Broadcasting and telecommunications joint ventures for radio, television, telephone, facsimile machines and satellite hookups in Shenzhen.
Largo Vista, Inc., officials also hope to introduce a line of cosmetics to compete with Avon and are examining the feasibility of a 15-passenger, Chinese-made commuter plane for sale in the U.S.
While no construction has begun since the project was first devised more than a year ago-that should come about the first of the year-Largo Vista has been aided by the autonomy that area officials have had in making their own decisions. That arrangement has speeded up the project and kept communication fluid. For the most part, Chinese officials in Shenzhen don't need approval from the central government in Beijing.
There is an unusual aspect to this arrangement. Jones is on two local planning commissions. Saunders note that it would be unheard of stateside for a developer to be approving, through his role as a commissioner, plans that he has submitted. Also unusual is the cooperation between government and Largo Vista. "It's not like anything that I'm familiar with here in this country," the former Irvine Co. official says. "We're really together-the developer and the entity that is going to control the developer pushing this thing through."
Jones expects that the project will be completed within 12 to 15 years, and there will be a conformity that is new to China. For example, he has forwarded 119 pages of CCRs, the codes, covenants and restrictions that Californians are so aware of in their planned communities. The CCRs bar everything from hanging laundry to dry to allowing a building to fall into disrepair.
During a visit by a half-dozen Chinese officials this year, "one of the things they kept commenting on going from L.A. to Orange County to San Diego where we showed them some projects was the harmony in all the counties," Mendez says.
That trip led to a proposal to place manufactured homes along Xili Lake in Shenzhen, Largo Vista accepted.
The financial benefits are huge, Jones and Mendez say that the main project, if leased completely, could bring the company $4 billion over 15 years, the length of the company's management agreement.
Mendez winces at the financial potential, "I don't even look at it," he says. "It's too mind-boggling. But that's not important. We're trying to do a service and leave something that will make us proud. And, I want to help bring capitalism there."
The manufactured homes' deal could gross several million dollars. The plan is to sell 250 homes in Phase I, and up to 1,000 altogether, on lots of 5,000 square feet. Both the lot size and the homes, up to 1,500 square feet, are mansion-like by Chinese standards.
How can the Chinese afford these homes, which could sell for as much as $250,000 apiece?
"People keep saving their money," Jones says, "They've got wads of money they want to invest."
An important component of that is the special economic zone, which is controlled by an imaginary, though rigid border within China. "To live and work in the economic zone," Mendez says, "You have to be educated, invited and young. The one guy that's in there is the guy who will be where the opportunities are. And he'll have all this money, from his family and extended family, backing him."
What seems to have little impact is the lingering effect of the Tiananmen Square massacre three years ago.
"I don't think Tiananmen Square should have any bearing on what anybody does for China," Jones says. "We're bitchin' about Chinese prison labor making things. Who makes your license plates? Prisons here. People who live in glass houses shouldn't throw rocks.
"Tiananmen Square hasn't affected us at all. Tiananmen Square won't affect anybody at all because China has, for the first time, the free market economy and had a taste of capitalism. Tiananmen Square, according to a Chinese newspaper, was their last attempt to try to stop democracy. And they can't stop it now; its gone too far"
It is that wave of opportunity that Jones focuses on, although he promises not be rushed.
"We're taking our time, waiting for everybody to come in so we can see everybody's ideas and what they perceive and how they want to be involved and if they want to be involved," he says.
"The thing that we want isn't just a flash fire. We want a relationship that's going to go on throughout the duration of our name in China. What we're looking for is whoever gets involved with us is involved forever. It's a family,"
Adds Mendez: "Their children and their children's children."
"Our goal," says Jones, "is to be a dominant force in China and the Pacific Rim areas. I think we're well into that (although) we're not there yet by any stretch of the imagination. But we've been able to hit the targets up to right now.
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