Chinese Character

A naval hero

Meet the man who bought an aircraft carrier and gave it to China

Xu Zengping w

Xu Zengping in 2002: he’s now a symbol of China’s national mood

Not everyone can say they’ve acquired an aircraft carrier. But one rare individual that has is Xu Zengping, a man often viewed as a national hero in his native China.

A typical plaudit is to be found on China’s weibosphere: “Thank you, Mr Xu! We should never forget people like you who have contributed to the motherland’s military and navy construction.”

The daughter of Liu Huaqing (a former commander of the People’s Liberation Army Navy) was similarly effusive: “We can all learn from him to put the country before all else.” (Liu was prompted to speak up because her father, who died in 2011 aged 94, once declared “I will not close my eyes when I die if we don’t have an aircraft carrier.”)

Xu’s exploits have become a renewed subject for discussion as this week is the 120th anniversary of the First Sino-Japanese War. In the sea battle that ensued, imperial China saw its newly-purchased ships – bought from the West – sunk by the Japanese. Memories of that humiliating chapter of history coupled with recent tensions in the South China Sea seems to have made Xu a symbol of China’s patriotic mood, as well as Beijing’s plans for naval revival.

Xu’s interview with the Jinan Times two years ago, in which the Shandong native detailed how he bought the aircraft carrier Varyag from Ukraine (the ship has since been renamed the Liaoning), is making headlines once again. Fittingly, online discussion started earlier this month on (literally ‘iron blood’, a popular website for patriots to discuss military affairs and conspiracy theories) and the Jinan Times article was picked up by other discussion groups and forwarded via social media channels.

Hence Xu is again being remembered as the man who outfoxed the world and helped his country join the maritime big league.

Now 62 and a member of China’s CPPCC advisory body, Xu joined the PLA in 1971 in Jinan, and was later deployed to the Guangzhou regiment, where he was deployed in its sports division. After 12 years playing basketball for the military, he was discharged in 1983 and he set up a private business trading agricultural products and carpets in Guangdong province. The Jinan Times says he became a millionaire in the process and in 1988 he moved with his wife to Hong Kong, where his firm Chin Luck Holdings focused on real estate and hotels.

(Whether Xu got financial support from the military for his commercial activity is never made clear in the article, but many netizens suspect so.)

Erstwhile a low-key figure, Xu’s interview with the Jinan Times is something of anomaly in that he offers an extensive history of how he bought the gigantic ship from the Ukrainians. He recalls that in October 1997 he saw a report on Reuters that the government in Kiev wanted to sell the Varyag aircraft carrier. The vessel had been commissioned in 1985 when Ukraine was part of the Soviet Union. However, it remained an unfinished hulk, as the newly independent republic did not have the cash to complete it. By 1992 it had been left to rust at anchorage in the Black Sea.

Xu was excited, telling the reporter that he viewed it as “an opportunity that comes just once a century”.

He flew to Ukraine. On arrival he told the authorities that his plan was to convert the half-built vessel into a floating casino and nightclub, and berth it in the gambling enclave Macau. Xu was instructed that there were four criteria for making a bid for the boat. He needed a bank statement showing he had at least $50 million of funds; he had to offer proof the boat wouldn’t be used for military purposes; he had to provide written approvals at governmental level; and he needed to secure docking permissions in Macau.

His staff were soon devoted fulltime to pulling off this extraordinary project. Xu divided his team into four units. The first stayed in Ukraine to continue the purchase dialogue, the second sought Macau government permissions, the third was charged with raising the cash and the fourth set up an office in Beijing to liaise with government officials.

Recalling that hectic time, Xu says raising the cash was “doable”, but the trickiest part was negotiating with officials in Macau, then still a Portuguese colony. Fortunately he found a “well-connected person”, paying him a fee of HK$6 million ($771,200) to facilitate negotiations.

By December 1997 Xu had the required documents. The deadline for submitting everything to the Ukrainians was February 1, 1998, and on January 27 he arrived in Kiev with a bank statement proving he had the money too, as well as carrying $2 million in cash.

At this point he was finally able to board the carrier and inspect it.

The next four days were spent back-slapping officials and drinking vast amounts of vodka. Xu later told friends that even though the temperature was minus 20 degrees celsius, he soon felt he was sweating vodka. Similar to China’s drinking culture, this proved a necessary experience for winning the trust and goodwill of Kiev’s decisionmakers. At one boozy session, a senior bureaucrat told him privately they’d sell him Varyag for a “favourable” price of $18 million, but that Kiev would be absolved of any financial responsibility as soon as the carrier left the dock. Xu agreed, but on the proviso he was given the design and development blueprints for Varyag, which the Ukrainians initially refused, saying they were a national secret. But Xu persisted that he couldn’t convert the vessel into a casino without the blueprints and would rather pay more to secure them.

The Ukrainian government was in desperate need of hard currency, and it eventually agreed to a price of $20 million with the blueprints thrown in. Xu offered his $2 million of cash as a deposit and said the rest would be wired to the vendors via Bank of China.

However, Xu’s plans nearly came to nothing 10 days later when Kiev told him that diplomatic pressure from other countries meant that the ship would now have to be sold at auction. But in order to favour his previous bid, the event would be held in three days time, giving rival bidders little time to prepare. The plan worked: Xu won the auction with his original $20 million offer.

The next order of business was to get the blueprints. These were voluminous, weighing about 20 tonnes (it was estimated that it would take 100 translators two years to convert them into Chinese). They were loaded into eight containers and flown from Kiev to China.

By then it wasn’t hard to conclude that – rather than become a floating casino – the Varyag was going to end up in the hands of the PLA. The Ukrainians must have thought so too because Xu was soon informed that some of the most crucial pages in the carrier’s design plans were missing. Xu later learned that these had been confiscated by Ukraine’s defence ministry, which meant another vodka-fuelled visit to the shipyard bosses, who finally agreed to give him a second set they still held.

The final part of the purchase would turn out to be the trickiest of all: getting the vessel to China. The 15,200-nautical mile voyage would end up taking almost three years, although the final destination was no longer Macau as the government there had revoked its permission even before Xu took part in the final auction.

From Xu’s perspective that was immaterial. In November 1998 the official news agency Xinhua published an article claiming that Xu planned to “donate” the carrier to “serve the motherland”. However, towing the 67,500-tonne ship to its new destination of Dalian proved less straightforward than either Xu or the PLA expected. A team of tug boats was hired in July 1999, but as they pulled the carrier from its Black Sea port towards the Bosphorus, the Turkish authorities blocked its passage. Towing the carrier through the narrow strait was deemed as dangerous to Istanbul’s infrastructure, so the ship had to be tugged back into the Black Sea. It set sail once more a month later, but its attempt to pass through Istanbul was again denied.

A lengthy negotiation then began between the Chinese and Turkish governments. This period was financially difficult for Xu, who still had to pay $8,500 a day to the tow company, as well as further fees to berth the boat in Ukraine. In August 2001 a deal was agreed to let the carrier through after the purchase of $1 billion of insurance cover. The Chinese government offered a financial guarantee too.

The Turkish authorities finally closed the channel to other traffic and the carrier was towed by 11 boats through the Bosphorus. The ship reached the Aegean Sea in early November but more trouble lay ahead when a force 9 gale severed a series of the tow boats’ cables, turning the carrier into a “wild horse unleashed”, according to the Jinan Times. The Greek government now got involved, organising a rescue mission and airlifting the sailors to the nearest port. The cables were then reattached, with the boat continuing its journey across the Mediterranean (it was refused entry to the Suez Canal). Next it travelled into the Atlantic and by December had reached the Indian Ocean. In February 2002 it finally arrived in the South China Sea, docking the following month in Dalian.

(In a strange parallel, tycoon Shen Wenrong was also shipping a 250,000- tonne steel mill from Germany to China at roughly the same time, see WiC31.)

Until this point, Xu had continued to maintain that his purchase would be converted into casino, but when Macau awarded a round of new casino licences in February 2002 he was not among the successful bidders.

When the carrier arrived at its new home – at a total cost, including transportation, of about $30 million – it was reckoned to be about 70% complete, because it was missing operating systems and other key components. That explains why Xu was so insistent on getting hold of the design blueprints and why in June 2005 the ship was moved to a dry dock to undergo repairs and refitting. The process of putting it back to sea would be a lengthy and secretive one. Indeed, the Chinese navy only officially acknowledged the existence of its new carrier in 2011. After sea trials, it was commissioned in late 2012 and renamed the Liaoning.

Regular WiC readers will recall that the Liaoning carried out its first training mission in the South China Sea last November at a time when relations with Japan and the United States were strained over Beijing’s declaration of an Air Defence Identification Zone (see issue 218).

The vessel is now a centrepiece in Beijing’s ambitions to project Chinese power in its surrounding seas, and equally importantly, to develop the technology to build more carriers of its own. The Jinan Times alluded to this too, noting that “Xu’s grand act greatly accelerated China’s aircraft carrier development process”.

Subsequent to the article going viral online this month, the reaction to Xu’s artful deception in bringing the Varyag to China has broadly been one of praise. One netizen did, however, wonder whether it was right to have tricked the cash-strapped Ukraine government with the casino ruse: “Taking advantage of another country’s difficulty to grab their assets. Is that something a decent country should do?”

But more patriotic contributors in the discussion groups on gave this argument short-shrift. “Are you nuts? Our own country’s interest is supreme,” wrote one. Another considered Xu as one of China’s great modern heroes, writing: “I suggest that we change the name of the ship from Liaoning to Zengping to reward and encourage those who are devoted to the motherland.”

So in China, at least, Xu’s legacy will have little to do with the business empire that he once built. Instead it will focus on his ‘donation’ of the carrier to the navy.

Mission accomplished, Xu’s Hong Kong-registered company Chin Luck Holdings was dissolved in 2009.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.