It seemed to be such a natural deal at the time. In 1992, a senior official of the Electronics-Industry Ministry, Zhou Muchang, approached McGovern about a new joint venture. Launched a year later with IDG’s $300,000 investment, it put out China Infoworld. All went well–until Chinese investigators took Zhou into custody in 1997, just as he was preparing to celebrate his 61st birthday. “I was shocked to hear of the arrest,” says McGovern, who arrived in China the next day to learn that his partner was in jail. Late last year Zhou was sentenced to death for embezzling $90,000, misappropriating $110,000 in public funds and accepting $36,000 in bribes. The sentence came with a two-year suspension, an indication that Zhou probably will end up with life in prison.
IDG’s leaders are still not quite sure what hit them. “To my knowledge,” says McGovern, Zhou’s crimes “took place before he entered into the venture with IDG.” IDG Asia’s managing director, Hugo Shong, speculates that Zhou fell victim to the “the 59-60 syndrome”–the tendency for aging Chinese officials to try to pad their retirement funds. In any case, China Infoworld continues to publish normally.
Still, the controversy grinds on. During the corruption investigation, Zhou admitted that he had obtained publishing “approval” for his IDG deal from a low-level unit unauthorized to grant it. “To our eyes, everything was legal, but we’ve now learned Zhou handled some paperwork improperly,” says Shong. “We’re talking with the ministry to clarify this joint venture.” Interviewed by NEWSWEEK, however, China Infoworld staffers could not confirm their relationship with IDG was a joint venture at all; several called the deal a “cooperative” arrangement. “There’s no clear-cut relationship with IDG,” said Beijing bureau chief Li Ying. “My attitude is ‘I don’t know,’ and I don’t think you should write about this.”
It is a tangled tale. Investigators who searched Zhou’s residence after he was nabbed–on an informant’s tip unrelated to IDG–stumbled onto a mysterious stash of cash, including $18,000 in greenbacks. Zhou claimed that the cash was a “bribe” he had received from IDG. Then investigators brought in IDG’s Shong for questioning. He explained the money wasn’t a bribe, but instead a “management performance bonus” for Zhou and a handful of other editors, money Zhou had requested more than half a year into the venture. “When investigators asked me, ‘Did you know he pocketed all the money himself?’ I said I had no idea,” Shong said. In the end, Zhou’s joint venture was “illegally forged” and the funds he received from IDG were “a bribe,” according to court documents obtained by NEWSWEEK.
Both sides are trying to conduct business as usual–even if it is no longer completely clear what the “business” is. Last year IDG’s total China revenues surpassed $90 million, says Shong; nearly 10 percent came from China Infoworld. IDG has been so successful at navigating the Chinese bureaucracy that Hearst Publishing turned to it as an intermediary for launching a Chinese-language Cosmopolitan. McGovern relishes his success in China. He says China Computerworld staffers asked him “how to turn advertisers away” when their 200-some ad pages sold out. Raise rates 50 percent, McGovern advised. “Even that didn’t work; people kept paying.”
McGovern recently returned to Beijing, promoting a new $1 billion IDG venture-capital fund for high-tech start-ups. Shong, meanwhile, denies that IDG is seeking to recoup its $300,000 investment in the venture behind China Infoworld. “We’re optimistic about working this out with our counterparts,” he says. There’s a lesson here for deals gone sour in China: patience.
