PROLOGUE: THE GREEN HAT AWARD

In 2008, I was invited to attend a celebration in Shanghai at the Crown Royal Hotel. As the CEO of Silicon Valley Bank, the California‐based bank that led the world in funding venture capital firms and start‐up companies, I was spending a lot of time in China at that point, trying to establish a branch there. We had operations in the other international innovation hotspots—London, Israel, and India—and China's explosive growth in that area was attracting our venture capital clients who wanted one‐stop banking services. The invitation came from Lao Ding, the Party Secretary and head of Shanghai's Yangpu District, who was helping us get the necessary banking licenses. Without knowing what to expect, I cleared my schedule and flew the 16 hours from California to China explicitly to attend this event honoring “innovation advisors.” Bleary and jet‐lagged, I found myself in a ballroom with 300 government officials.

In the middle of the ceremony, a high‐ranking government official called me up to the stage. To my astonishment, I learned I'd been nominated as one of the 10 honorees. I racked my brain, trying to figure out what I'd done to be qualified as an innovation advisor at such a lofty level. Finally, with the help of Lao Ding, it became apparent: my staff and I had unintentionally taught his team our business model. During the many months when we had detailed the model with great precision to Lao Ding's team so they could explain it to the government agency that might grant us a license, we'd been involved in a form of inadvertent (at least on our part) “technology transfer.”

It was only years later that I understood the whole picture. To see if our business model really worked as described, Lao Ding had transferred his CFO to the Shanghai Rural Commercial Bank where he set up a tech lending team and tested the model in the real world. In essence, I was being honored in front of hundreds of people for (from my point of view) having been snookered. Looking back, I felt like someone had just seduced my wife and then held an awards banquet to compliment me in public for having such good taste to marry her in the first place.

In China, men avoid wearing green hats. Superstition has it that wearing a green hat indicates you've been cuckolded. I firmly believe this award should be called the “Green Hat Prize.”

But in my defense, this sort of tech transfer was inevitable. It was how China did things. If we hadn't participated, it's unlikely we would have ever been able to set up an operation in China. Of course, in retrospect, one might wonder if that would have been a bad thing. But at the time, we felt we had no choice.

WHY I WROTE THIS BOOK

In this book, I tell the story of establishing a division of Silicon Valley Bank (SVB)—my bank, the bank I ran for 25% of its history—in China, and what went wrong. Because a lot of things went wrong, not least the inadvertent tech transfer that qualified me as an “innovation advisor.” Some of the missteps were due to my ineptitude and naiveté, but much came from cultural misunderstandings, even as I had four of the most amazing, informative, joyous, and challenging years of my life. I'd like to spare my readers the pain of my misunderstandings and missteps while allowing them the joy and discovery of those four years of cultural immersion.

This story primarily occurs between 2011 and 2015, predating the failure of the entire bank in 2023. In the Epilogue, I describe my perspective about the bank's collapse. I remain committed to SVB's original vision and to the work it did to support innovation. Its demise grieves me deeply. But that's not the story I'm telling here.

Countless Westerners have had experiences in China like those I describe in this book. Unsatisfying, confusing, and frustrating experiences. But they seldom admit it. They're afraid of disappointing their boards and engendering retaliation from the Chinese Communist Party (CCP). If they're critical, they worry that the CCP will find some way to punish the company they went there to build (assuming it still exists). Possibly, their egos won't let them admit that they've been taken for a ride. And perhaps, in some cases, China is still milking them for knowledge, and for that reason treats them well. Their time will come.

This reluctance to share our failures makes it difficult for Westerners to learn from others’ mistakes. As a result, everybody must reinvent the wheel. Western companies as a group could perform better, I believe, if they were more inclined to talk with others about what worked well in China—and what didn't. Collectively, we could make more progress more quickly.

As an example, I have kept careful note of the roughly 150 books I've read that would have been useful in my China journey—and as of late 2022, found only six with this type of unvarnished assessment of business experience.1 Discussions of this sort, sharing mistakes and successes and refining strategy, definitely take place in China, due to a higher level of cooperation among executives. As a result, Chinese businesses know a lot more about succeeding in America than Americans know about how to succeed in China. I'm hoping this book will help boost some of my colleagues up the learning curve.

Everyone, especially lately, has an opinion about China. Some people seem like “China‐bashers” and some people seem like “panda‐huggers.” Cynics and romantics. Of course, in my own mind, I am neither, but a realist—smack‐dab in the middle.

I believe that the West needs to move to the middle of the spectrum in terms of interacting with China. Now is the time for realism. Enough of the gratuitous China‐bashing, enough of the sentimental panda‐hugging. It's time for the West to face the facts objectively and to learn how to deal with them. “Seek truth from facts,” said Chinese leader Deng Xiaoping 40 years ago. Today, in the 2020s, we should do so as well.

Since Deng “opened up” China to Western business in the early 1980s, thousands of American companies, enticed by the prospect of gaining a putative billion customers, have sought to establish operations there. Many have failed and many others are in the long, slow process of eventually failing. Many who will eventually fail are not yet even aware of the fact that over the long haul, they cannot win. The obstacles are formidable. Chinese culture is completely foreign to Westerners, resulting in chasms that are difficult to bridge. Chinese business practices are opaque and, to the extent that we come to understand them, it is hard for us to adapt. The Chinese economy is structured differently from that of almost any other country, making it often impossible to replicate our business models there. Largely due to the CCP's incessant propaganda, many Chinese people are highly nationalistic, to the extent that they don't really want foreign companies playing a role in their economy. The current level of nationalistic fervor has been created and is being manipulated by the CCP for its own ends. The CCP only wants you to come, teach China everything you know, and then leave again, never to return.

Today, fewer Western companies go to China than was true 10 years ago, because the relationship between our respective governments has soured. Even if it improves over the next few years, Western companies that consider entering China should still be wary. The way that the Chinese government treats Western companies is not likely to change, due both to the CCP's overall gameplan and to Chinese culture as it is described here.

In this book, I relate both my experience in setting up a bank focused on lending to technology start‐ups in China and what I learned about business and life there. I was both well‐prepared, having studied Chinese diligently for the year before, and as ill‐prepared as every other Western CEO. I was, however, determined to make a systematic and, to the best of my ability, thorough study of the country and its people.

HOW I STRUCTURED THIS ACCOUNT AND GATHERED MY INFORMATION

A note on the structure of this book: The first half is a narrative account of my four years in China as I tried, in partnership with the CCP, to build a bank that would finance technology companies. The latter half is all about what I learned in that process. The emphasis is on the CCP, the Chinese government, and Chinese culture, and how all three have worked together to create the economic miracle of the past 45 years. In this section, I try to advise those who wish to take their business models to China how to deal successfully with this trio—the CCP, the Chinese government, and Chinese culture—to the extent that it is even possible.

You could, of course, skip the first half and go directly to the second. However, I would not recommend it. Understanding China requires on‐the‐ground experience and plenty of time. You cannot peel back the myriad layers of the onion in a single day. That effort can take years of trial and error. I think you will get the most out of this book by reading about my four years of trial and error. Vicariously experiencing those four years with me will make it easier to understand the conclusions and recommendations in the latter half of the book. Most books tell you what to do, if anything. I think you will...