Desmond Shum is the former husband of arrested Chinese billionaire “Whitney” Duan Weihong and the author of Red Roulette: An Insider’s Story of Wealth, Power, Corruption, and Vengeance in Today’s China.
What We Discuss with Desmond Shum:
- Why Desmond’s intellectual schoolteacher parents were treated as undesirables by the CCP, and how this led to his family’s self-exile to then-British Hong Kong when he was 10.
- What the CCP does to keep evidence of events like the 1989 Tiananmen Square Massacre out of the public eye — and what Desmond’s impression of this particular event was like.
- How the economic necessity of corruption to make business sustainable under the watchful eye of the CCP is used as a bargaining chip to keep the operators of these businesses in line.
- The path that led Desmond and his wife Whitney to the inner circle of the CCP and allowed them to make billions with the government’s blessing — and the amount of work that went into maintaining the network that allowed this to continue.
- The circumstances of Whitney’s disappearance, and the eerie phone call he received from her four years later urging him not to publish his tell-all book.
- And much more…
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Red Roulette: An Insider’s Story of Wealth, Power, Corruption, and Vengeance in Today’s China is the book Desmond Shum was warned not to publish in a surprise phone call from his ex-wife, “Whitney” Duan Weihong, who had been abducted by the Chinese government and had disappeared without a trace four years prior. It’s the book our recent guest Bill Browder — no stranger to attracting the ire of corrupt, authoritarian regimes — says is: “Powerful and disturbing…The Chinese government will not be happy with this book. Desmond Shum lifts the curtain behind the supposed Chinese economic miracle, portraying government leaders driven by corruption, conflict of interest, and greed. Rarely has anyone in modern China been brave enough to violate its oppressive code of silence and give an honest firsthand account of what really goes on in the corridors of power. Shum breaks all the rules so we can see it for ourselves and it’s not pretty.”
In this episode, Desmond joins us to share how he emerged from the shadow of his socially low-ranking parents to amass billions with the blessing of the Chinese Communist Party (CCP), and why he decided to turn on the corrupt system that had rewarded him so richly. Here, we’ll learn just how far the Chinese government goes to enforce its will, and how far it’s willing to go to punish those who transgress against it. Listen, learn, and
tremble in terror, peasants enjoy!
Please Scroll Down for Featured Resources and Transcript!
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Missed our conversation with Annie Duke — World Series poker champion and author of Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts? Catch up by listening to episode 40: Annie Duke | How to Make Decisions Like a Poker Champ here!
Thanks, Desmond Shum!
And if you want us to answer your questions on one of our upcoming weekly Feedback Friday episodes, drop us a line at email@example.com.
Resources from This Episode:
- Red Roulette: An Insider’s Story of Wealth, Power, Corruption, and Vengeance in Today’s China by Desmond Shum | Amazon
- Desmond Shum | Wikipedia
- Duan Weihong | Wikipedia
- Bill Browder | Surviving Vladimir Putin’s Wrath | Jordan Harbinger
- Five Black Categories | Wikipedia
- Reaction in Mao’s Death Restrained in Hong Kong | The New York Times
- 1989 Tiananmen Square Protests | Amnesty International UK
- Man vs. Tank in Tiananmen Square (1989) | CNN
- Chinese Economic Reform | Wikipedia
- 1984 by George Orwell | Amazon
- Brian Klaas | The Corruptible Influence of Power | Jordan Harbinger
- ‘Red Roulette’ by Desmond Shum Exposes the Hidden Fortunes of China’s Red Aristocrats | The Australian Financial Review
- Mapping China’s Red Nobility | Bloomberg
- Chinese Tycoon Desmond Shum on Risking All to Tell His Story | Time
- Game of Thrones | HBO
- Beijing Hotel | Wikipedia
- What Do Donald Trump and Vladimir Putin’s Watch Collections Say about Them? | Time + Tide
- Why Did Alibaba’s Jack Ma Disappear for Three Months? | BBC News
- The Unraveling of Bo Xilai | Harper’s Magazine
- ‘China’s Richest Woman’ Missing for Years Suddenly Reemerges in ‘Threatening’ Phone Calls to Family | Yahoo!
- Detainee Says China Has Secret Jail in Dubai, Holds Uyghurs | AP News
- Xi Jinping | Wikipedia
684: Desmond Shum | Wealth, Power, Corruption, and Vengeance in China
[00:00:00] Jordan Harbinger: Coming up next on The Jordan Harbinger Show.
[00:00:03] Desmond Shum: The reason I assumed the state had taken her is, first of all, she was banned by the state from leaving. Secondly, on the day she vanished, three staff of her vanished should the same time. Those three staff, three of them were banished for three years and then reappears three years later. And then she came out two days before my book came out and called me to cancel the book launch.
[00:00:31] Jordan Harbinger: Welcome to the show. I'm Jordan Harbinger. On The Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most fascinating people. We have in-depth conversations with scientists and entrepreneurs, spies and psychologists, even the occasional Emmy-nominated comedian, national security advisor, or economic hitman. And each episode turns our guests' wisdom into practical advice that you can use to build a deeper understanding of how the world works and become a better thinker.
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[00:01:19] Today, we're talking with Desmond Shum. The best way to explain this is he's like the Bill Browder of China. If you've heard our episode last week with Bill Browder, this episode today will really fall right into place for you. Those two have a lot in common. Some of the world's most powerful dictators want them dead. They're spilling the beans about the oligarch money. In this case, Desmond was essentially a Chinese oligarch, and now we're here spilling the beans about the inner workings of Chinese elite society and business dealings. So the gist is this — Desmond and his ex-wife built a multibillion-dollar business just as China was taking off.
[00:01:54] I mean, we're talking to airports and trade hubs and real estate, just massive, massive infrastructure projects. They were both very well-connected inside the Chinese Communist Party. And then, well, yeah, that's when things get out of control, right? Things go downhill. His wife vanishes. She's disappeared to be clear. She doesn't leave. She gets disappeared by the government. No one will help him. And well, she hasn't been seen since, except for one very bizarre interaction that we'll talk about here on the show. Of course, there is a lot more to this story. And today, we're going to start closer to the beginning.
[00:02:27] If you're interested in China, dark money, oligarchs, crooked capitalism, and getting a glimpse into doing business at the highest levels of Chinese society, then this episode is definitely for you. Now, here we go with Desmond Shum.
[00:02:42] I want to start at the beginning here. Were you born into the Chinese communist ranks so to speak?
[00:02:49] Desmond Shum: No, not by any means. You know, my parents are — actually, I mean, both my parents are in China, in the '60s, the '50s. They have just essentially a caste system. My parents are both from intellectual family backgrounds. So if you're an intellectual, you're actually bottom of the pile. So my father was caste until that black fifth category.
[00:03:12] Jordan Harbinger: The five black categories, yeah. Could you explain what that is a little bit?
[00:03:17] Desmond Shum: Essentially, it was a caste system. So the peasants and the factory workers at the top of the food chain and then intellectual gets to the bottom and business people get to the bottom of it. And then if you have the bottom of it — I mean, where you rank in this hierarchy affects everything. It affects what kind of job you can get, what kind of pay you allow, even on the same job, what kind of school your children can go to.
[00:03:43] In my parents' case, my father and my mom, despite, you know, whatever academic performance, the best school they can go to is teacher's college. So that rich is what they went. Both my parents are secondary school teachers.
[00:03:56] Jordan Harbinger: And it seems like in Chinese society, teachers would be held at high esteem, but yet at the same time you say that intellectuals and business people, the only school they could get into is the teacher's college. That almost seems backwards somehow.
[00:04:08] Desmond Shum: I guess historically, historically teachers are very well-respected. So culturally, it is very well respected, but obviously, especially in the '60s, my parents' pay, at today's exchange rate, would be of something like five dollars US a month.
[00:04:24] Jordan Harbinger: Wow.
[00:04:24] Desmond Shum: So you don't get much pay.
[00:04:26] Jordan Harbinger: Yeah. Okay. They might be respected, but they're not respected to the point where people are willing to put their money where their mouth is from the sound of it.
[00:04:33] Desmond Shum: Even today, even in today's China, the pay is very, very low. What they got is they got actually a lot of, you may call it bribery or pocket money from the parents, and then you do a lot of tutoring on your side and that's where the bulk of your income. It's not your official job. And then back, 50 years ago, there is no such thing. That's no side job.
[00:04:57] Jordan Harbinger: Right. Okay. Yeah. That makes sense. So now teachers pay still low, but they take side hustles and maybe — do call it a bribe or is it more like, "Thanks for doing a good job with my kid, here's an extra thousand dollars for the year"? I don't know what you would call that.
[00:05:11] Desmond Shum: Yeah, it's a tip, but it's a lot of tips. Naturally to the point now that you know, the parents will tip more, would have the children got extra care.
[00:05:20] Jordan Harbinger: Yeah.
[00:05:21] Desmond Shum: And then they will let you know—
[00:05:23] Jordan Harbinger: So that's a bribe.
[00:05:23] Desmond Shum: They will let you know if you're not tipping enough through your children.
[00:05:26] Jordan Harbinger: Right. Like, "Hey, your son failed the test. I don't know why, because you never pay me any money. But if you pay me money, maybe he won't fail the next test and maybe he'll understand chemistry."
[00:05:35] Desmond Shum: They wouldn't speak out to such extent, but you get a hint.
[00:05:39] Jordan Harbinger: Yeah, you can read between the lines. Yeah, exactly.
[00:05:41] Desmond Shum: Absolutely, yeah.
[00:05:42] Jordan Harbinger: We have to keep things kind of fast. So I'm blowing through some details here if you'll forgive me, but you moved from China to Hong Kong as a kid, after Mao dies.
[00:05:52] Desmond Shum: Yeah.
[00:05:52] Jordan Harbinger: It sounded like you moved because people couldn't leave China while Mao was alive. And maybe people saw some of the writing on the wall when Mao died and tried to get out. Is that kind of the story there?
[00:06:02] Desmond Shum: We got to move because of my mom's father, so my maternal grandfather was living in Hong Kong. So we used that as an excuse for application to visit relatives. And obviously, in the '70s in China, if you get out of China to visit on whatever excuse you never return, but it was a long application process. I think it took like three, four years for my parents to get the permission to visit my maternal grandfather in Hong Kong. That's how we get out.
[00:06:28] Jordan Harbinger: Wow. You mentioned kind of growing up after that in Hong Kong in — I won't sugarcoat it kind of the ghetto. Like you kind of lived in some dicey housing areas from the sound of it.
[00:06:40] Desmond Shum: Yeah, it was true. I mean, when we first got here in Hong Kong, you know, in the book, I talked about my mom crossed the border between Hong Kong and China with essentially two dollars US in her pocket.
[00:06:50] Jordan Harbinger: Wow.
[00:06:51] Desmond Shum: We went to take shelter essentially with my maternal grandfather and my father came to join us a year to after we arrived in Hong Kong. And it was eight people in a 700 square feet apartment, three generations. I was sleeping in a sofa bed in the living room. My parents has a bed on like the corner of the living room. So that's how we started.
[00:07:16] Jordan Harbinger: When you think about 700 square feet and eight people, no such thing as privacy. If you got to go to the bathroom, you might as well — I mean, it's just, you got nothing like that. You're just always packed in there. It's a wild way to live. I mean, going from where you were to where you ended up is quite a feat.
[00:07:32] Tell me about watching the Tiananmen Square massacre on TV. You write about that as a kind of a defining moment. Actually, describe briefly what that is because I think a lot of folks, they only have heard of it and aren't really sure what it is.
[00:07:43] Desmond Shum: Tiananmen Square, what happened was, '89. China has opened essentially in 1978. The reason they went on this opening and reform path wasn't because the CCP changed the mind and say, "We want to embrace the world. We want the livelihood." It was because the state was absolutely bankrupt. They have no choice, but let the president say, "You decide what you want to grow. And then you can sell whatever you grow into the market." They are less, more entrepreneurs, or, "We cannot feed you anymore. Honestly, all the companies are bankrupt. So why don't you go out and now you can open your corner shop." Today, we call it a reform and opening, but essentially in 1978, that's what happened. That was a state of China.
[00:08:25] And then, so by 1989, it was about a decade after the, quote-unquote, "reform and opening," there was rampant corruption. So the start of it, there was a protest of rampant corruption. So you have a mass protests across China in all major cities, and then you have the entire population participating. It was actually protesting against Russia, and then you have the student getting involved and once the student gets involved and then you have obviously a Berlin Wall coming down at the same time, then the student leading the charges saying, "We want democracy. We want to — look, what's happening in Eastern Europe, what's happening in Soviet Union." You know, they are all changing the form of government. Those are all ruled by the Communist Party. "We want to change. We want the same thing," and that was the beginning of it.
[00:09:15] Obviously, in the Eastern Europe and Soviet Union, the government basically said, "Well, we don't want to open fire on the population. We give up." But in China case, the Communist Party said, "Well, we want to keep the power. And we don't mind opening fire on population." So you have essentially armies surrounding Beijing and then deep in the night of June 4th, tanks rolling into under the cut of the power of the Tiananmen Square which is the biggest public square in China. And you have tens of thousands of students, essentially camping out, by a wide street protest. They're camping out in the Tiananmen Square and occupying the square with their protests. And then, essentially, you have army surrounding it and moving in, opening fire on the students and tanks rowing in. And a lot of people will see the post of the Tank Man, right?
[00:10:10] Jordan Harbinger: Right, the Tank Man.
[00:10:11] Desmond Shum: Yeah, in the deep, in the night, the tanks rolled over people.
[00:10:14] Jordan Harbinger: So most Chinese are not willing to discuss this. I know you live in the UK, so it's different. But when I asked Chinese people about this who are in China, they'll say something like, "I don't know anything about it. I haven't really heard about it." Or, "My parents told me about it, but not really any details." Or sometimes people will say, "My uncle went and we never saw him again," but nobody really seems to want to talk about it at all, or even really know any details about it at all. And when I show them the Tank Man photo, one of the most famous photos in the world, if you Google Tank Man, you'll immediately recognize it. My Chinese friends who are — I'm talking to them on Skype, they go, "I've never seen this in my life." And I don't think they're lying. They really haven't ever seen that photo because you can't find it on the Chinese Internet.
[00:10:54] Desmond Shum: Yeah, absolutely. I mean, one of the most important thing for the Communist Party is controlling the storyline.
[00:11:00] Jordan Harbinger: Mm-hmm.
[00:11:00] Desmond Shum: The book 1984, right? There's a line, "The person who controls the past controls the present. The present control the future."
[00:11:09] Jordan Harbinger: Mm-hmm.
[00:11:10] Desmond Shum: One of the most important thing for the Communist Party of China is controlling the story, like controlling the history. So essentially, more than Chinese history is whitewashed. I mean, entirely, the entirety of it. And the '89, obviously, was brushed off and never to be — you know, if you look at any books in China, publish any books, go to a bookstore, tens of thousands of books in the bookstore, there will not be a single book, a single paragraph mentioning Tiananmen Square, June 4th, 1989, not a single paragraph. And then, obviously, it's completely washed off on the Chinese Internet.
[00:11:48] I mean, it is true. I mean, majority of the people born in the last 30 years would never heard of this stuff. And then the parents don't want to get them into trouble. They don't want to talk about it. So the generation in the last, essentially, 30 years have never heard of this thing. And the people who heard of it, experienced it in China, don't want to talk about it because there will be a repercussion. You can't really talk about it.
[00:12:14] Jordan Harbinger: I think that's a good sort of preview because you're watching this live on TV while you're in Hong Kong and people in China then and now, unless you were there, haven't heard about it. Like it's completely absent from history. It's really something else. And it sort of gives you a preview into some of what we're going to talk about here in a minute, which is you started to see corruption. You get into high finance in Hong Kong. You're not very good at it. I can relate to that. I was in high finance on Wall Street, had no idea what the hell was going on. And you start to see corruption, right? And in some of the examples you give are the Communist Party's Navy smuggling beer, which is kind of pathetic and funny, but also really like what's the status of your armed forces are in the bootlegging business? I mean, that's really kind of like a low rent way to generate revenue, but it's almost like a metaphor for the whole thing.
[00:13:06] Desmond Shum: Yeah, just continue on, you know, like I talk about the state was completely bankrupt in 1978 and that's why they stopped this, quote-unquote, "reform and opening." And because the states are bankrupt, the army is allowed to go into business and essentially generate revenue to feed yourself. So the army has been for a long time for almost 20 years in all sorts of business from real estate development to any style you can think of.
[00:13:31] So I went back to Hong Kong after graduating from Madison, Wisconsin. And then very soon, I was in private equity. I was in the business side at the beginning of the industry, essentially. Today, we talk about like hundreds or thousands of private equity firms in China. But at that time, beginning of the '90s, you know, you almost can kind of on a single hand how many firms there is. So I was with US firm. One of the businesses we invested in is fast-moving consumer goods. So one of the main businesses was Heineken beer. So they were the importer and distributor of Heineken beer into China. Essentially, the firm grew Heineken from zero revenue, I think, by probably three years to 30 million in revenue.
[00:14:18] And I was assigned by the private equity firm to sit on the board, representing the investment firm on that distribution company. And then essentially, because we're American firm, we don't want to get our hands anywhere close to all this dirty money fraud.
[00:14:33] Jordan Harbinger: Mm-hmm.
[00:14:33] Desmond Shum: So what we want to do is we tell the management side, "Okay, we take the beer in Hong Kong. You guys figured out how you guys ship into China." You know, this is a black box to us. Somehow we get the beer to you, hand it off in Hong Kong, and somehow mysteriously reappear somewhere in China.
[00:14:51] Jordan Harbinger: Mm-hmm.
[00:14:51] Desmond Shum: And so what happened in between is a black box. We don't want to know anything about, right? But, you know, I sit on the board and then I talked to management all the time. And then one of the time, they come to me and say, some general from the Chinese Navy reach out to us and offer to ship the beer with their gunboats into China. Obviously, we need to pay them. You know, I was astonished.
[00:15:13] Jordan Harbinger: Yeah.
[00:15:14] Desmond Shum: I mean, I grew up in China. My first 10 years of my life was in China. You read all this comic book and telling you how to heroic the Chinese PLA, People's Liberation Army was during, quote-unquote, the "liberation of China," or fighting the Japanese in the Second World War. You just have this image of how great the military people are and how dedicated they are, how much self-sacrifice they have been doing for the country. And then, you sit on a board there and then you're like, okay, they are offering to use gunboat to ship beers into China for a pay.
[00:15:50] Jordan Harbinger: Yeah.
[00:15:50] Desmond Shum: It was quite stunning for me. I mean, it was an introduction class for me into the Chinese business world.
[00:15:56] Jordan Harbinger: Yeah. Some intro to the Chinese business world. Yeah. You say in the book, "The message from China was give us your freedom and we will make you rich." And there's all these gray areas in the laws so that people could always be targeted for corruption. So if you fall out of favor with those running the government, suddenly they slap you with corruption charges and you go to prison or you end up getting executed. And the game is dodge those penalties and dodge the actual rules that suckers play by and be 10 moves ahead." And you said when you met your wife, Whitney, she's like well-connected, has ambitious goals. She wasn't one move ahead. She was 10 and had all of the right connections to make things happen. And we kind of touched on the connections thing earlier, but anywhere where you need a ton of connections, like with the Communist Party, that breeds corruption as we mentioned, but it seems like you almost, even the non-corrupt have to become corrupted to succeed. Would you agree with that?
[00:16:51] Desmond Shum: Yeah. I mean, just some more background, maybe on the legal system, how wife, things operate, the way—
[00:16:56] Jordan Harbinger: Sure.
[00:16:57] Desmond Shum: —it operates. First of all, there's several issues here. One is the law was by design to be fussy.
[00:17:05] Jordan Harbinger: Mm-hmm.
[00:17:05] Desmond Shum: If you read any, I mean, every law in China, that's maybe like 10 crosses on that law, right? And the last one, the end of the body of the last one is like as defined by the Party or as defined by the authority. So that's in every law, there is escape clause.
[00:17:22] Jordan Harbinger: Yeah.
[00:17:22] Desmond Shum: That's intentionally there, to be there, so the authority can use the law as they see fit. So that's the first thing. So by design, the legal system is designed to be fuzzy, designed to interject the point as the authority sees fit. That's the first thing. The second thing is the law is always changing. You know, one of the most astonishing change we saw in the last few years is they changed the constitution. Now, all of a sudden, Xi Jinping can be president for life. You think of it. And then you can just say, "Okay, snap a finger. I'm a dictator. Now, I want to be president for life. Let's change the constitution." So the law is always changing.
[00:18:02] And then when they changed the law, most of the time, as they fit, they can backdate the application of it. So essentially, if you're a business person, you are any person in China, the ground under your feet is constantly shifting. You're standing on not a solid ground. The ground is shifting under your feet. By design and by application, the legal system is not something — you know, in the West, you have a law.
[00:18:28] Jordan Harbinger: Right.
[00:18:28] Desmond Shum: And we call to court — and then law is very specific on where the red line is, right? And we'd go to the court and to argue, "Did I cross the red line or did I not cross the red line?"
[00:18:38] So in China's case, it, first of all, the red line is by design fuzzy. So you never know whether you cross it or not. The second thing is they draw new lines all the time, and then they backdate to apply it. So you can get caught no matter what. So as a business person or anybody who's trying to do anything in China, you're always dancing the razor. No, because there's no black and white. And then, it's how do you dance in the gray zone, that's how essentially defined your success.
[00:19:09] Jordan Harbinger: That's not good because, of course, that breeds more corruption. And we did a whole show on corruption with Brian Klaas episode 650, for people who want to hear about how corruption breeds more corruption.
[00:19:20] One thing I thought was really interesting. This is almost like a throwaway line in the book, but you mentioned that people in the Party, the Communist Party, they go to separate schools, they shop at different stores and you even said they get their food from a separate supply chain, which I think that's really interesting. Why is that the case? Is it safer food, better food, more reliable supply, you know, what's the reason there?
[00:19:42] Desmond Shum: So in the book, that's a cross of society, I call them red aristocrats. So they are—
[00:19:49] Jordan Harbinger: Yeah, red aristocracy, right?
[00:19:51] Desmond Shum: Yes, red aristocracy, red aristocrats. They essentially are by blood line. It's by who their parents and who their grandparents are. At the beginning of formation of the Party and the formation of the country. So Xi Jinping will not be president if his father is one of the top 10 — it's the founding of the nation in the 1940s. And then it's called bloodline. So his son will be somebody else. They got fast in everything. Let's just start with — first of all, when they are born, they are born in a different section of the hospital.
[00:20:26] So in Beijing, all major hospitals, there are separate sections for senior official. You only can go into be treated in those sections if you're vice minister and above.
[00:20:38] Jordan Harbinger: Oh, wow.
[00:20:39] Desmond Shum: So, you know, the vice minister is considered high official in China. So people really fight for their status. Because once you get that status, in the medical case, you can go to be treated in. That's not — no money can buy you into that section. Okay, only connections and status can get you treated in that section.
[00:20:58] Jordan Harbinger: Wow.
[00:20:58] Desmond Shum: And that section is all-suites. I mean, you know, I've been in there. It's all-suites. It's all five-star set up. So when you are born, you born in a different session of hospital from the rest of the country. And then when you go to a kindergarten, you go to a primary school. In China, everybody know which are those schools. There are schools that only people like them are accepted. So they'll go to a different private school. Kindergarten, different primary school, different secondary school, just that's growing up.
[00:21:32] And then their family — we just talked, you just talk about it, I mentioned in the book, they got not just a separate food supply system. They have farms dedicated only grow for them.
[00:21:45] Jordan Harbinger: Wow.
[00:21:45] Desmond Shum: And then, so there will be a different quality of food supply and then even the liquor, you know in China, there's a drink, this amount high, which like a 53-percent proof liquor, very, very strong. And even on the liquor, they are liquor specific, even on a bottle, it's spelled out, it's special supply for that class of people for high officials.
[00:22:09] Jordan Harbinger: Oh, wow. It says that on the bottle, they're not even trying to hide that.
[00:22:13] Desmond Shum: Yeah. No, no, no, no. There's no hiding. I mean, it's said on a bottle. So everything is a separate system. And then the car they ride in, I talk about it in there, have a separate license plate. They can identify you, the police, who is owner of the car and who is possibly is riding that car. So, you know, we drive in the bike lane, we drive in the bus lane — probably, we just wave to them.
[00:22:36] Jordan Harbinger: Right. Because you're untouchable. You're like royalty.
[00:22:39] Desmond Shum: It is. It's not the royalty and the aristocrats of medieval times.
[00:22:44] Jordan Harbinger: Wow. In a communist country, which is like the most freaking ironic hypocritical, nonsense ever. But I mean, that's no huge surprise there, I suppose. Okay. So your wife, Whitney ends up being a confidant to somebody named Auntie Zhang who's the wife of a very powerful Chinese politician. You said you became like the birds that clean the alligator's teeth. What do you mean by that?
[00:23:07] Desmond Shum: Auntie Zhang is the wife of Wen Jiabao who was the premier of China for a decade until Xi Jinping came in 2012. So how should I put it? Essentially, people like them, being a family of the premier, they are like kings or emperors holding cults. And then they have people rushing a clamoring into that corner and say, "Take me as your advisor, take me as your partner, take me as your server." And then they will basically, look out at people who come into their court. They say, "Well, okay, I will pick this guy to do this part of job for me. I will take this guy to take care of that business for me." And then they can chop you off and send you our way or whatever. And so you always need to be very, very careful. You are on the good side of them. And then you always are competing with other people who are new to the court and want the position you have. That's what I mean when I say that.
[00:24:12] Jordan Harbinger: Game of Thrones, man, as what it sounds like.
[00:24:14] Desmond Shum: Absolutely.
[00:24:16] Jordan Harbinger: You're listening to The Jordan Harbinger Show with our guest Desmond Shum. We'll be right back.
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[00:27:06] Now back to Desmond Shum.
[00:27:09] She's giving you political cover to get projects done, real estate development, whatever it is, investments, insurance deals, things like that. And you give her 30 percent of the profit. And what she might do is say, "Hey, official, that has to stamp something, you're going to stamp this thing. And we might give you a little bit of cash or we might give you a preferred position." And she's brokering these deals and saying, "This is my guy. Desmond is my guy, Whitney is my gal. They're going to do this airport thing or this insurance deal. And you're going to let them," and these people are like, "Okay, thanks, Auntie Zhang." Because she's got the strings controlling the puppets because of who her husband is. Am I kind of on point here?
[00:27:53] Desmond Shum: It doesn't really work like that. They are the Air Force, she is the Air Force and then, we are the ground troops. So what does that mean? So she is like the Air Force flying over the sky, big powerful jet and everybody look ups, say like, "Whoa, you know, we need to move into to actually get things done and execute it." Because if you can't do everything, she wouldn't get 30 percent. She will be taking 90 percent.
[00:28:22] Jordan Harbinger: Yeah.
[00:28:22] Desmond Shum: So reality is actually we provide bulk of the capital. We do all the executions, but you need her as a halo behind you. We need to work on our official. Official knock on, bend over, and say, "Oh, because you are the partner of the Wen family, we're going to sign this thing on the dotted line." No, they want many things they want to negotiate, right? Maybe I want a promotion or maybe I want to a job in a different province or maybe, I want somebody to take care of my wife's promotion. You know, they want many — everybody wants different things. So it is not as something. And then, you cannot give everything everybody wants.
[00:29:04] Jordan Harbinger: Sure.
[00:29:04] Desmond Shum: That's just impossible. So reality is actually they provide a halo that say, "Well, we can possibly get those things for you," right? And then we need to, in return to me and my wife and the company we run, we actually need to work with them. In our last site, that airport project, we built about half a million square meters x six million square feet of property.
[00:29:28] Jordan Harbinger: Wow.
[00:29:29] Desmond Shum: We need to get all that build out. We put the money in, we need to get the chops, you know, to have approvals. But those tropics approval is not possible without the halo. You have to do all of that by sides. So we had a ground trip doing the real estheticians, but you need a halo on your back.
[00:29:49] Jordan Harbinger: That makes sense. Okay. And through the halo effect and a lot of hard work, you do this massive insurance deal — we'll sort of skip the details, but you turn, what I guess is about 12 million into a hundred million, pretty nice return, but that's just the beginning. You mentioned the airport deal, which we'll get to in a bit here, but I thought it was interesting by the way you say, when you get married, you had a small wedding outside of Beijing in order to hide your connections.
[00:30:15] Now in the United States where I am right now, you would have a big wedding where people could be seen and you can show off how important you are and you've got your connections and your boss, and you got your mother-in-law and her family and friends, and you're doing the opposite. You're like, "All right, we got to do this on the low so that nobody knows who we are connected to," and that that's an interesting juxtaposition.
[00:30:36] Desmond Shum: Yeah, I think, that is a very interesting. So there's several things I can talk about here. So, first of all, when I was writing the book, the publisher said, "Give me photons. Do you have photos of Wen Jiabao, the premier? How many photos? What other the photos you have with Auntie Zhang and her sisters or parents or whatever?" I was like, "Geez," I looked through my photo albums, "I don't have much photo, although we worked with them for a decade." It's like in China if you're that close, you don't want people to know.
[00:31:12] You know, you go to a lot of a lobby firm in DC, right? They have a photo of the guy, you know, shaking hand with the vice premier, the premier of China. And they put it in the lobby of the office.
[00:31:22] Jordan Harbinger: Right.
[00:31:23] Desmond Shum: And then you're like, "Whoa, I'm coming to the right office to buy services to open doors." People do photo ops and never the people who have real relationships. Real relationships, people like us, we don't want anybody else to know about it. And that's the people we need them to know it. That's the first thing.
[00:31:40] The other thing is very interesting. If anybody's traveling to China, you go to any high-end restaurant in China. There's a lot of private rooms, like lot more private rooms than anywhere else in the world. You know, I give a story in a book, a Beijing Hotel, one of the most high-end stay-on hotel, five-star hotel in Beijing, right on the Tiananmen Square. On the top floor, that's an entire floor, about 20 rooms of private dining rooms. And in the 20 rooms, that's one room. That room has three person. Their job is traffic control.
[00:32:18] So you have 20 rooms, dining rooms, you possibly talking about a hundred people in and out of that room. Their job is to make sure whoever is getting in when they come up to the floor, before they come into the room, when they leave the room, going downstairs, they don't run into anybody else.
[00:32:33] Jordan Harbinger: Huh. Interesting.
[00:32:34] Desmond Shum: They essentially coordinate which dish serve, when — when you're going to get your desserts when you're going to get your bills and all, just to make sure. And then, when you step out of the room, they make sure the elevator is already there waiting for you. So you don't run into anybody. Although, you know, a lot of high-officials are dining at the same time on the same floor, but none of them will run into each other because nobody wants to know who is cooking up some deals with who.
[00:32:59] Jordan Harbinger: Right. Right. So this is like all the people that you aren't supposed to necessarily be working with, you might be having a meal with them. But the last thing is you don't want to be seen with other government ministers or by other government ministers. And there's these three people who probably know a lot of stuff about a lot of people. Would you say those people are in a pretty good position to maybe sell some of that information to people who want to know? That seems like a good position to be in.
[00:33:25] Desmond Shum: I'm sure some of them are already working for a state security people.
[00:33:29] Jordan Harbinger: Yeah. Like I think whatever China's FSB or CIA or FBI—
[00:33:33] Desmond Shum: That's right.
[00:33:33] Jordan Harbinger: —those people are all probably from there. Highest-paid hosting job in the world, probably.
[00:33:40] Desmond Shum: Yeah. So onto my wedding, so what we do in Beijing is — it's very difficult. You know, if we do a big banquet, first of all, who do we invite. It's like when you invite these people, you are showing off your cards like who you have built relationships with. You don't want that to happen. And then second thing is, you know, one table, 12 or 10, the closer to wedding couple, have a closer relationship. The people who have a more distant your relationship sit further away in a banquet hall. You don't want to show your hand — and it's very difficult like who you put hierarchy ahead of whom—
[00:34:14] Jordan Harbinger: Mmm.
[00:34:14] Desmond Shum: —right? Like who's going to sit on table one and who's going to sit on table two and who is to sit on tables three. You may offend people. You don't want to get into this kind of trouble. So that's why, you know, we never actually have a banquet, just a small family thing. We've never done a big wedding in Beijing. It's impossible to do a big one in Beijing given our situation.
[00:34:33] Jordan Harbinger: Yeah. That completely makes sense. That's so interesting. And so different from the United States. The airport deal, right? You finance it with these sort of like bank state-owned loans and officials keep getting arrested for corruption. And one of the guys whose signatures, you need ends up disappearing. And it sounds insanely stressful, the way you describe it in the book. You've got all these connections, the schmoozing, the guangxi as they call it in Chinese that you have to make and manage. And on top of that, it's like, "Yeah, we just need a signature from so-and-so." "Oh yeah, he got arrested and nobody knows where he is and it's been months and we can't find them. And nobody will tell us where he is." I mean, that's almost like a very uniquely sort of Chinese problem of somebody getting arrested and vanishing.
[00:35:16] Desmond Shum: Yeah. Before we go into the airport situation and the story you just talked about, let's talk about the insurance deal we did earlier. That was my first big score. And that was essentially in 2003, we invested in an insurance company and they asked the insurance company, insurance industry of China in that time was just happening. It was just happening. You know, we've invested this company called Ping An Insurance. Today, this company is on a number one, a number two biggest insurance company in the world. They own 9.2 percent of HSBC.
[00:35:50] Jordan Harbinger: Wow.
[00:35:50] Desmond Shum: They're the biggest shareholder of HSBC. And then that was the story that essentially get Whitney into trouble and get all of us into trouble, become a front page story on New York Times, and then brought our relationship open with the Wen family. It was presented as a corruption deal. You know, it's a corrupted deal because we made something like 25, 30 times money on that deal.
[00:36:11] Jordan Harbinger: Mmm.
[00:36:12] Desmond Shum: But the reality is actually it's like rear-view mirror retrospectively say, "Oh, you make a lot of money."
[00:36:19] Jordan Harbinger: Yeah.
[00:36:19] Desmond Shum: I'll tell you what — you know, obviously you go through the book and then you look at some of the trajectory I was on. We basically come from nothing and that'd become billionaires. In that process, obviously that's how it works. Obviously, that's luck, but obviously that's being wise to the situation. A lot of it, I keep telling the young people, you know, that kind of send it to me and say, "How can I help my children?" And I say, "Well, hard work and wisdom give you a present, maybe upper middle class life and maybe a rich life, but to be extraordinary wealthy need luck."
[00:36:59] Jordan Harbinger: Luck.
[00:37:00] Desmond Shum: And I'll let me use that insurance deal as the example. When we invest in the company, why do we use? We don't know that — I mean, at 2003, nobody knows where China going to be. Nobody imagined I think at that time, 2003, 20 years later today, China will be the second-largest economy of the world. Nobody knows. Nobody in the whole damn world imagine that, not even the Chinese themselves, right?
[00:37:24] Jordan Harbinger: Mm-hmm.
[00:37:25] Desmond Shum: And then the only reason we invested in it because Goldman was in it.
[00:37:28] Jordan Harbinger: Goldman Sachs?
[00:37:30] Desmond Shum: Yeah, Goldman Sachs was in it. Morgan Stanley was in it. And then we heard HSBC going to come into it. And then we were like, "Okay. So the likelihood this thing will kind of fail through, it's not very high.
[00:37:42] Jordan Harbinger: Because of all the name brand banks that are investing, HSBC, and it's like, those people don't make bad high-risk investments very often. And they certainly don't all do it together.
[00:37:52] Desmond Shum: Right. So we feel it's like a song investment and looks economy safe. That's why we invested. It wasn't, you know, nobody know. So what happened was after we invested, I think, it was like in about three years or so it was listed in Hong Kong. If my memory serves me right, it was listed at 980 a share. We bought in about 230, 240 a share.
[00:38:16] Jordan Harbinger: Mm-hmm.
[00:38:17] Desmond Shum: It was listed at 980 a share.
[00:38:19] Jordan Harbinger: Wow.
[00:38:20] Desmond Shum: If I could have sell, I would definitely take some chips off the table just to cover my costs, right?
[00:38:25] Jordan Harbinger: Sure. Yeah.
[00:38:26] Desmond Shum: But I can't because I have my shareholder hold in China and China have capital control so you cannot get your money out, ship your money out of China. So I cannot sell. I have to sit on it. And then, two years later, and then we went up to 18, all that two years later, after that, about five years after investment, it was listed in Shanghai stock exchange, and then it was listed as 3280 a share. So rich is — what? I don't know, 15 times on my investment.
[00:38:57] But again, because we have such a block, we have a six months lock-in. We cannot sell. You know, if I could have sell, I will sell that IPO, take some of my chips off the table. So we cannot. So we've got a six months lock-in. In the six months, the stock went up to 160 a share. The high was 160 a share, but we have a lock-in. We cannot do nothing about it. By the time, I came out of the lock-in, the shares were trading at $65 to $70 a share. At that moment, I sold all my shares. So I made 25 times on the money. But the thing is, you listen to what this happened. It's not by my design.
[00:39:36] Jordan Harbinger: Right.
[00:39:36] Desmond Shum: It's not my design. I ended up to be 25, 30 times, but it's just not by design. It's complete luck. Well, okay. It's not entirely luck when I do the deal, but—
[00:39:47] Jordan Harbinger: The timing of the sale, yeah.
[00:39:49] Desmond Shum: That rise of 30 times, it's not my smart. It was the market is with me.
[00:39:54] Jordan Harbinger: Right.
[00:39:55] Desmond Shum: And I just happened to be. So when New York Times came out of this story, you know, this guy makes like — I think we make 200 or 300 million on it. And the wind family make almost close to a billion on it.
[00:40:07] Jordan Harbinger: Wow.
[00:40:08] Desmond Shum: And you know, they say, this is corruption. Damn, you know, six years ago, who the heck knows this thing is going to go up like 30 times. Nobody knows.
[00:40:16] Jordan Harbinger: Right.
[00:40:16] Desmond Shum: Anybody knows this thing is going up 30 times? Do you think you're going to sell at that price at a time? Right? I mean, it's ridiculous. So that was the insurance deal. I mean, it was just out of luck. The trend is with me—
[00:40:27] Jordan Harbinger: Yeah.
[00:40:27] Desmond Shum: —to put it that way.
[00:40:28] Jordan Harbinger: You have a similar deal with the airport deal. We don't have to go over all those details because there's a lot of really interesting things in the book that people can read about as well. But the money finally starts rolling in, especially after the airport deal. And it sounds like — I won't go into all the details on how you guys went crazy, but a couple choice things here Ferrari cars, fine, $15-million-colored diamond, but that's not the most interesting. The most interesting thing was a $500,000 watch, which is the same one that apparently there's like 10. Vladimir Putin has one. Where is that watch now? Did you keep that thing?
[00:41:01] Desmond Shum: Yeah, I have it.
[00:41:02] Jordan Harbinger: Okay.
[00:41:03] Desmond Shum: Whitney gave me as my birthday present on my 40th birthday. My name is engraved on it.
[00:41:09] Jordan Harbinger: I mean, I would be afraid to wear it, let alone own anything like that. I'm not going to ask you where it is. I'm going to Google this and see if there's an image that comes up because I won't ask you to show it to me. Because I'm sure it's not in your house, you're too smart for that. I mean, this is real wealth. Like when you're buying a $15-million-colored diamond and a $500,000 watch for someone's birthday, you're on another level, right? This is almost going to space money.
[00:41:32] Desmond Shum: Interestingly, the people who read my book — I mean that book, if you go into Amazon, I think, out of five stars, it's rating at a 4.6 or something, 4.6.
[00:41:43] Jordan Harbinger: Mm-hmm.
[00:41:43] Desmond Shum: So it's very good rating. But if you look at a critique of the book, the guys will give me one star or like this is garbage. A lot of it, they're just offended by how I describe how money was spent.
[00:41:56] Jordan Harbinger: Yeah.
[00:41:57] Desmond Shum: A lot of, a lot of it. They' re like, "This is corrupt. That could've been lifestyle. How dare he come out to speak about it," right? Giving my background, given what I've been through in the last40, 50 years of my life, I know this is going to come. You're going to write it the way you write it.
[00:42:15] Jordan Harbinger: Yeah.
[00:42:16] Desmond Shum: And then giving them my situation, I'm not writing this to show off my wealth.
[00:42:21] Jordan Harbinger: No, no.
[00:42:21] Desmond Shum: There's no need for it.
[00:42:22] Jordan Harbinger: It doesn't come across that way.
[00:42:24] Desmond Shum: The way I spend money wasn't unique to me. It was common among that class of people. And my boat is a rush call of last 20 years of rise of China. I want to show the world — first of all, I want to tell the truth. The second thing is by telling the world my lifestyle, essentially, I'm telling the world is how that class of people in that period in time in China look at wealth and how they relate to wealth and how they spend wealth. So that's what I want to do with that book with those stories.
[00:43:03] The second thing is, interestingly, if I may concur the idea of writing the book, is you know, China — I talk about how poor of background I came from, but that wasn't unique to me. Like 99 percent accept that one percent of the red aristocrats, they live in a different world. That's what China was. You know making five dollars US a month in the 1970s wasn't unique. It was actually five dollars a month was considered middle-class in China at that time.
[00:43:32] Jordan Harbinger: Wow.
[00:43:33] Desmond Shum: So everybody in China essentially came from nothing. So when they come out all of a sudden with this kind of wealth, I made this description, it's like caveman coming out of cave.
[00:43:46] Jordan Harbinger: Mm-hmm.
[00:43:47] Desmond Shum: It's like caveman coming out of a barren cave, and then look as like, "Wow, there's so much in the world I can take." And then we were just taking everything and then sort of experiencing life to the fullest and say, "Well, how does that change me? How does that, you know, what does it mean to own a Rolls-Royce and then drive it all of a sudden? What does it mean to have a jet all of a sudden?" I talk about it in a book. It's so ridiculous. We have three jets going to Paris for a trip, right? Four families. We have three jets and then two jets were just empty, just following around because everybody wanted in the same jet to play cards.
[00:44:25] Jordan Harbinger: Let me just highlight this. You brought three jets to Paris for four families, but everyone ended up flying in one, so they could play cards. But the other two followed anyway, because who cares about the 150 grand it costs to fly to Paris in a private jet, right? Like, unbelievable.
[00:44:39] Desmond Shum: But the thing is actually, I was riding that and I was so amazed. Actually, I relayed that to the people on the trip. I would say, "Think about it, 20 years ago, if we can think where we can buy a Phoenix," Phoenix is a bicycle brand out of Shanghai. It's supposedly the best bicycle of China. "If we could allow who own a Phoenix brand bicycle, we will consider really lucky, quite successful. And today that's 10 of us going to dinner in Paris in these three jets. I mean, look at that get, how much should jump it was and it has been." It was astonishing the jets, right?
[00:45:26] Jordan Harbinger: Yeah.
[00:45:26] Desmond Shum: And just reflect on it.
[00:45:28] Jordan Harbinger: It's really incredible. I mean, what you did and what you built in the book was really, really something incredible. I want to highlight again, the idea of connections in China being so strong. I knew that this was a thing, but it's so much more than I ever imagined. You discuss — it's kind of an anecdote where you say, "Officials and party leaders and entrepreneurs, they literally have three dinners per night, like one at six, one at eight, one at 10, and then a tea drinking meeting at midnight or whatever, to continually foster connections." It's like a full-time job. Was that every day? Or did you mean like once a week people are doing this? Or are these officials doing this like five nights a week?
[00:46:05] Desmond Shum: It would be five nights a week.
[00:46:06] Jordan Harbinger: Wow. They're spending like 40 to 60 hours just on connections and relationships, huh?
[00:46:13] Desmond Shum: Yeah. I mean, because you know, when we talked about earlier, you know, we're all dancing on gray zones. If you want to do any, achieve anything in life, you need to encourage your counterparty to come into the gray zone to dance with you.
[00:46:25] Jordan Harbinger: Mm-hmm.
[00:46:26] Desmond Shum: But how do you convince the other party to come into the gray zone? And then we can together build something, achieve something. You need to build trust. And how do you build personal trust in China's situation? You need to spend time. You need to be like reach into each other and say, "Well, is this guy really trustworthy? Who is his connections? Is he going to backstab me?" Even the order of the three dinner, there's order to it. So usually what happens, so in China, dinner supposedly starts at 6:30. So 6:30 slot is the slot you reserve for the most respected person. So the person who is like a hierarchical society, a rank above you.
[00:47:08] Jordan Harbinger: Mm-hmm.
[00:47:08] Desmond Shum: Like Auntie Zhang, we always will have a dinner at 6:30 with her. We were having dinner with them. And then we have another dinner starting at five. Person who you have dinner at five, it's in a hierarchy is ranked lower than you. So they don't mind to have dinner at five with you. They know they are ranking lower in the society.
[00:47:29] Jordan Harbinger: Yeah.
[00:47:30] Desmond Shum: They want something from you, but they appreciate you're willing to do the dinner, first of all, and you're willing to spend the time with them. So although, they give them the five o'clock slot, they're like, "Okay, that's fine." But for the people who rank above you or you want something from, you definitely always have to be the 6:30 slot. And then you have an eight o'clock slot right? The eight o'clock slot, it will be more people who are like level with you. And then it will be maybe your friends or people who are really close business associates. So they know you are busy like before that, but they appreciate you coming out to the eight o'clock slot, right?
[00:48:08] Jordan Harbinger: Mm-hmm.
[00:48:08] Desmond Shum: And then you have the wind-down time with your buddies, you know, after the third dinner. It goes on like that.
[00:48:15] Jordan Harbinger: It's wild. And it makes me feel like when do you sleep — you must never, you must not sleep enough when you do stuff like that. Everybody's on five hours of sleep all the time.
[00:48:23] Desmond Shum: I mean, I spent eight years in airport project and after that I sold a project to the Singaporean. One of the main, main reason I sold that project is because that project is so draining, physically. I mean, I'm literally drinking half a liter everyday—
[00:48:42] Jordan Harbinger: Of alcohol.
[00:48:42] Desmond Shum: —of 53-percent-proof alcohol.
[00:48:45] Jordan Harbinger: Oh my god.
[00:48:46] Desmond Shum: And sometimes more than half a liter every day, a week. I'm like six days a week. I'm drinking that much. I get to a point I was like, "I have enough. I need to get out of this game."
[00:49:00] Jordan Harbinger: This is The Jordan Harbinger Show with our guest Desmond Shum. We'll be right back.
[00:49:04] This episode is sponsored in part by Shopify. Hear that? It's the sound of another sale on Shopify. The all-in-one commerce platform to start, run, and grow your business. And by the way, if you've listened to episode 669 with Dallas Taylor, you'll recognize the importance of that sonic branding. They had us do right there. Shopify is a platform designed for anyone to sell anywhere, giving entrepreneurs like you or me, the resources once reserved for big businesses, with a great looking online store and tools to manage the day-to-day and drive sales. You don't need to know how to code or design to get started on Shopify. There's 24/7 support if you need help. Shopify is so popular that every 28 seconds a small business owner makes their first sale on Shopify. That's pretty impressive. I love how Shopify makes it easy for anyone to successfully run their own business. Shopify powers, millions of entrepreneurs, just like us from first sale to full scale.
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[00:51:29] Now for the rest of my conversation with Desmond Shum.
[00:51:33] Now, okay, around this time, China, I say, the Communist Party starts to sour on entrepreneurs. And the wisdom becomes, make your money and get out as fast as you can. And it kind of reminds me of this Jack Ma issue, right? Everybody was like, "Oh, Jack Ma's so great. He's so powerful." And then he sort of — I guess, not even sort of, he vanishes out of the public eye for a while and it really highlights the idea that everyone who's wealthy in China or everyone in China is ultimately a tool or instrument of the state.
[00:52:05] Now you have Elon Musk and all these folks like they're really public and they're kind of doing whatever they want in the United States, as entrepreneurs. In China, that doesn't fly. No matter how high you get and especially if you get really high, if you become the Jeff Bezos or Elon Musk of China, like Jack Ma, you become even more of a puppet or instrument of the state.
[00:52:26] And at this point, I know you have to have Chinese Communist Party officials inside your company on the board or at high levels. It's really an interesting juxtaposition because you start off by like, "All right, everybody in China loves a good wealthy entrepreneur." And then it was like, "Actually, we're kind of done with you guys. You made enough money. You've developed the country a little bit. Give us the power back." And that becomes unhealthy, right?
[00:52:51] You said in the book, the Party has an almost animal instinct towards repression and control. And any time the Party can afford to swing towards oppression or repression, it will." So it sounds like the reforms toward capitalism and the free market were relaxed, like you said, in 1979, because the country was so broke, they needed money. And then they swing back to repression and control, I guess, because like you said, the Party has an almost animal instinct towards repression and control. It seems like they would leave things open, but that's not what they did, right? They went straight back to, "All right, let's clamp down on everything again." Why do you think that is?
[00:53:29] Desmond Shum: I think first of all, I think since 1949, the Communist Party took over China, political power trumps everything. So we just talked about Jack Ma, right?
[00:53:39] Jordan Harbinger: Mm-hmm.
[00:53:39] Desmond Shum: For a very long time, I think maybe still today, he is still the richest person in China, right? The richest personin China doesn't mean anything in front of the political power.
[00:53:51] Jordan Harbinger: Mm-hmm.
[00:53:51] Desmond Shum: The way Xi Jinping — not even Xi Jinping, we don't need to go up that high up, like a minister, for people like them looking at the richest person in China. They're like, "Who the heck are you? I can chop you off. And tomorrow, I can put a Peter Lee onto it to be the richest person in China. It doesn't change a thing. So political power trumps everything. Wealth doesn't mean anything. That's why every wealth on a China stash money away, whether it's Western, the Hong Kong used to be. And now today's for a lot of money in Singapore because they know private property is not protected. The Party can come over and take over anytime.
[00:54:31] Jordan Harbinger: Yeah, you do see a lot of wealthy Chinese people moving money abroad. I would say hiding money abroad, I guess, because I know that some of that is illicit transfers of money. I'm doing a show about this as well. And after the sale of the airport share, you wanted to move your money abroad as well. You say in the book, CCP, the Chinese Communist Party allowed private property rights in 1979, but what the Party gives, the Party can take it away. So it's actually safer than to stash money in real estate investments in the west in Canada, New Zealand, United States. And you also note that former senior officials are forbidden from leaving China. I did not know that. Is that still policy? Like if you are a high-level official in China, you can just never leave the country at all again.
[00:55:16] Desmond Shum: Yeah. Asking more stringent, more enforced.
[00:55:19] Jordan Harbinger: Wow.
[00:55:20] Desmond Shum: Essentially, if you are minister and above, you will never get out. You'll never leave China. And then vice minister and under, you will be selected cases.
[00:55:32] Jordan Harbinger: So you can't even go on vacation or anything, right? Like you have an exit ban. No passport basically.
[00:55:38] Desmond Shum: A lot of times today, these days I talk about CCP, essentially, almost like a mafia.
[00:55:44] Jordan Harbinger: Yeah.
[00:55:44] Desmond Shum: Once you join, you're in for life.
[00:55:47] Jordan Harbinger: Yeah.
[00:55:47] Desmond Shum: There's no such a thing called walking away alive.
[00:55:51] Jordan Harbinger: That is definitely an analogy that I've heard used many, many times on this show. It certainly seems apt given what I'm about to get into here now. So this Western news agency, I think it was Time Magazine. They blow up a story about super wealthy CCP officials and your wife, Whitney. She kind of has to fall on the sword in order to protect people above her, like Auntie Zhang.
[00:56:12] Let's talk about this Bo Xilai story. So this blew up in the West as well. There was a movie about it, but I can't remember what it was. I saw it. Do you know what I'm talking about? The show, they sort of dramatize how this businessman was murdered.
[00:56:26] Desmond Shum: So Bo Xilai is again, a second generation. His father is the head of economy, you know, economic minister in the 1950s, one of the most senior official in the '50s and the '40s. Bo Xilai, you know, is same as Xi Jinping, he's a second generation. And he was essentially openly challenging for the top job. Rich is unusual because usually in China, this kind of situation is always dealt in the bedroom. He was using a populist movement in the province, in Zheijang. It's a city of 30 million people. He was the head off that. He was running a populist movement over there, essentially to check out his profile.
[00:57:12] And they essentially openly challenge for the top job. And he was actually designated to get into the party bureau, which is the seven, nine-person, top executive body of the Communist Party. He was about to get into it. And then the police chief of his municipality ran into the American embassy.
[00:57:31] Jordan Harbinger: Oh wow.
[00:57:32] Desmond Shum: That caused his downfall. And obviously, subsequently, they charged him with corruption and then his wife also was charged with corruption and also killing an American business person.
[00:57:43] Jordan Harbinger: He was British, yes.
[00:57:44] Desmond Shum: Yeah, British business person.
[00:57:47] Jordan Harbinger: Right. So she poisons this British businessmen and then, they burn his body and say, "Oh yeah, he drank himself to death or something like that." So Bo Xilai goes to prison for life. His allies then are digging up dirt on Auntie Zhang. Your wife, Whitney gets caught in the middle of that net. And Auntie Zhang—
[00:58:05] Desmond Shum: Yeah.
[00:58:05] Jordan Harbinger: Suddenly, she wants to donate all of her family's assets to the state to avoid prosecution, which is also very Game of Thrones. And this kind of thing just seems to be the norm in China. And you mentioned this in the book as well. If you look at the list of the richest people in China, it's always changing. You know, so every few years, 80 percent of the people or whatever are gone from the list. And the reason is because the chess pieces have moved and they're no longer in favor and a lot of them are dead or in jail at that point.
[00:58:39] Desmond Shum: I mean, China has, essentially, the richest person list about 20 years now. And then, if you look at over that 20 years, they have already about six, seven people who are the richest person, right?
[00:58:53] Jordan Harbinger: Mm-hmm.
[00:58:53] Desmond Shum: Let's just to talk about those seven, eight people. I would say probably two of them went to jail and one of them just came out like two years ago. Like a couple of them disappear essentially, sort of fell off and fell off so far you won't to see their name anywhere. And now you have Jack Ma. So the top 100 list, if you look back, I would say probably 20 percent of them somehow happened to be in jail subsequently. And then, another, probably 20, 30 percent of people just fell off and you never heard of them. It's just how much does the environment changes and how fast does it change.
[00:59:31] Jordan Harbinger: Yeah, that to me, again, as an American, it's pretty wild. The other thing that's crazy is your wife, she gets an exit band from China, again, forbidden from leaving. And it's so crazy that the government can prohibit you from leaving the country without being convicted of a crime. Like if you're convicted of a crime, okay. You know, it might be a parole condition or something like that, but they can just say, "Hey, you're not allowed to leave suddenly." No due process. And then she disappears.
[00:59:57] And this is the part that is just Twilight Zone bizarre. So she vanishes, you start making calls, nobody knows anything. And your sources tell you, "She was probably drugged and beaten up. And then they'll probably inject something in her spine and she will come out a zombie." What is the point of that? What does that mean? Are they literally going to inject her with something and then she comes out as zombie, or is that like a euphemism that I don't understand?
[01:00:23] Desmond Shum: So what happened in her situation was — beginning of 2017, she was banned from leaving China. This is very common banning people from leaving in China.
[01:00:33] Jordan Harbinger: Yeah.
[01:00:33] Desmond Shum: What happened was, they don't even notify you. What happened is you take your passport, you'll go to the airport, and all of a sudden, you find out at the gate of immigration officer, you're banned for leaving.
[01:00:45] Jordan Harbinger: Ugh.
[01:00:46] Desmond Shum: That's how you find out actually. So she was banned from leaving beginning of 2017. And then in September 5th, she just vanished. The reason I assumed the state have taken her is first of all, she was banned by the state from leaving. Secondly is on the day she vanished was three out of staff of her were vanished at the same time. So four of them vanished on that day. And then, the three staff disappeared for three years. Then, all four of them have never been charged until today, never been charged. Three of them were vanished for three years and then reappears three years later. So a year ago, they reappear, in the process, never been changed. And then, she came out two days before my book came out. And she called me to cancel the book launch.
[01:01:33] Jordan Harbinger: Right. So to clarify, like her phone, you've been calling her for four years. Her mom's been calling her every day for four years.
[01:01:40] Desmond Shum: Yeah.
[01:01:40] Jordan Harbinger: And then you write this book — she could be dead for all, you know? And then suddenly she calls you on the phone from the number that had been dead for four years. That's the part that's crazy. Like I want to highlight that. I don't mean to interrupt you.
[01:01:55] Desmond Shum: Yeah.
[01:01:55] Jordan Harbinger: But the idea that you've been calling this person for years and her mother has been trying to reach them, no dice. Suddenly your book is going to come out. There's a press release and she calls you like, "Oh, hey, long time no see. By the way, don't publish your book." I mean, what? "Your phone line is dead for four years. The news of my book comes out, suddenly your phone works and you can call anybody in the whole world. Like what the hell is going on?"
[01:02:20] Desmond Shum: That was a crazy thing. I mean, the reason I publish a book, it was — you talk about taking a shot down the spine. It was about a year and a half after her disappearance, I was in London talking to this friend of our. He's one of the most respected economist in China. He looked at me — and we were having coffee together. He looked at me in the eye and said, "You know, most likely, they will never let her out, right?"
[01:02:46] Jordan Harbinger: Mm-hmm.
[01:02:46] Desmond Shum: And I was like, "All right." And then, he said, like a matter of family, "If they let her out, they're going to give her a shot down her spine, she will come out as a zombie." That's the part I'm really shocked because he looked at me. We know each other, we know him for a decade and he's an economist. And he talked it as such a matter of family. It sounds like it's like a known practice and that's the part that really shocked me. It was just like, "Really? You can do something like that. I mean, the state can do something like that and they will do something like that." Because we know the reason she was taken was most likely to be political.
[01:03:24] Jordan Harbinger: Mm-hmm.
[01:03:24] Desmond Shum: That's why they took her for years and years, and they never charged her because obviously, she has some inconvenience factor for the state. They don't want that to ever come up. That's what happened.
[01:03:37] Jordan Harbinger: Yeah, of course. It's so insane. Obviously, you can't go back to China and you never would. You probably don't even want to fly over China at this point.
[01:03:46] Desmond Shum: It's more than China. I mean, today, I can never go back to Hong Kong. Hong Kong is such a part of China. I'm pretty sure if I land to Hong Kong, I will never come up. And given that they have kidnapped people in different countries, so in countries that have very close relationship with China, I wouldn't go, country like Thailand.
[01:04:06] Thailand, there's a bookshop — your audience may have heard of it— the bookshop publisher basically accepted tie on Xi Jinping. The CCP went ahead and kidnapped and arrested everybody from the bookshop, and the owner who is a Swedish national from Thailand.
[01:04:24] Jordan Harbinger: Wow.
[01:04:25] Desmond Shum: And that's six, seven years ago. And that guy is still in China. He went on TV and said, "I don't want me my Swedish passport. I don't want to be a Swedish citizen. I want to be a Chinese citizen so I can sit in jail, essentially."
[01:04:36] Jordan Harbinger: Yeah.
[01:04:36] Desmond Shum: To put him on TV to do that. And then there is major newspaper. They have stories like in Dubai. China runs a dark cell in Dubai. They were kidnapped—
[01:04:46] Jordan Harbinger: A dark cell?
[01:04:47] Desmond Shum: Yeah. They were arresting Xinjiang, you know, the—
[01:04:48] Jordan Harbinger: Uyghurs, yeah.
[01:04:50] Desmond Shum: —the Uyghurs and then arresting them in Dubai and shipping them back into China. So I mean, if the country is like that, then obviously you can never touch them.
[01:05:00] Jordan Harbinger: Wow, that's terrifying. The reality is you're one guy and you're going against a state like China. I'm trying to think of a diplomatic way to say this, but the truth is if they really want to do something, the resistance you can put up is pretty minimal, right?
[01:05:14] Desmond Shum: Yeah. I mean, that's a lot of struggle before the book came out. I consult people with this kind of situation like Bill Browder.
[01:05:22] Jordan Harbinger: Bill Browder.
[01:05:23] Desmond Shum: Yeah. Browder wrote a book Red Notice, right? Actually, he's a friend. I consult him. I consult him like, how should I arrange my security, right?
[01:05:30] Jordan Harbinger: Yeah.
[01:05:31] Desmond Shum: Yeah. But reality is, you know, me versus a state, the Party with 90 million members, second largest country, the second largest economy, there's absolutely nothing I can do. If they want me dead or if they want anything, right? There's very little that I can do. But in that regard, I have to say, America is the safest country in the world. I have been in dialogue with the FBI in the US. They are very good.
[01:05:57] Jordan Harbinger: Really?
[01:05:57] Desmond Shum: It's another class about—
[01:05:59] Jordan Harbinger: Really?
[01:05:59] Desmond Shum: They are very protective, a lot better intelligence, and they're willing to do things about it.
[01:06:04] Jordan Harbinger: That's interesting. I have — I'm trying to think of what I can say here. I have had some experience with Chinese intelligence operations and the FBI in the United States. They take things seriously where you would think, "Oh, they're not going to believe me. They're not going to care." And they do, not only believe you, but they're on it. And it was surprising to me too, because you don't usually expect efficient police response from the US government about something that sounds kind of insane, right?
[01:06:34] Desmond Shum: Yeah. Yeah. I mean, given my experience, I really have to say, I mean, I tell them about myself. I mean, I tell the Brits. I tell the Europeans. American FBI is just another class about you guys.
[01:06:44] Jordan Harbinger: That's interesting, but you're still UK based. So yeah, come on, Scotland yard, get on it, right?
[01:06:50] Desmond Shum: Yeah.
[01:06:50] Jordan Harbinger: I mean, I know there's a lot of CCP agents in the US especially in the United Kingdom. Did they harass you at all?
[01:06:58] Desmond Shum: So far nothing has happened. So we're like cross our finger. I'd like to keep it that way.
[01:07:02] Jordan Harbinger: Yeah, no kidding. No kidding. You were friendly with many people in Xi Jinping's inner circle. How do you assess his character? Do you think he's a socialist zealot, like many people seem to think, or is he more on the other end of the spectrum?
[01:07:16] Desmond Shum: First of all, I think, he's a second generation. He sees himself as an emperor to rejuvenate the dynasty.
[01:07:24] Jordan Harbinger: Mm-hmm.
[01:07:25] Desmond Shum: He wants to rejuvenate and re-engineer the entire country to the ideals of the Communist Party. And then to give Communist Party such vitality, they can rule forever overtime. They actually change the constitution again and put it into there, the Communist Party going to rule over China forever, essentially. That's what he want to do. That is, I think, for everybody, including Chinese in China, that's the most dangerous thing, because he is re-engineering the entire country in every dimension. And then, every one of us don't know what's the end state he has in mind. I'm not sure even he knows what's the end state he has in mind. You know, whether you look at the tech industry, the education, the state of the private economy, the relationship with the West, you know, with the America, and then he is engineering the country, restructuring the country in every dimension. In his view, that's for the longevity of the Party, it's control over China. And that's where it's going to end. That's the most dangerous thing.
[01:08:32] Jordan Harbinger: Yeah. Especially looking at what's happening with Russia and Putin. It's like a lot of times dictator's end game is, "Well, I'm going to die. And I don't really know what's going to happen after that." And it's like, eh, instability in fighting, possibly war, hard to say, but these guys aren't necessarily thinking about how it's going to end for everyone else. That's not really in their nature, is it?
[01:08:51] Desmond Shum: China, in Xi Jinping's mind that the relationship with Russia and Putin is the enemy of my enemy is my friend.
[01:08:57] Jordan Harbinger: Yeah.
[01:08:58] Desmond Shum: So in his mind, the CCP's mind, the biggest threat to them, existence is America. So the enemy of my enemy is my friend. So who are their friends? North Korea is their friend. Iran is their friend. I mean, they sign a contract for 500 billion to buy oil only from Iran, right? And that Russia is their friend, right? So they're going to manage the relationship with the rest of the world, but they're not going to ditch Russia despite everything's happening now with Ukraine, right?
[01:09:25] Jordan Harbinger: Yeah, for sure. No, that totally makes sense. I'll end with this. You mentioned this interesting anecdote where you marched in a counter protest in Hong Kong. So like a pro-Chinese Communist Party protest in Hong Kong. This is before you had escaped obviously, and left China. And you mentioned that everybody had been bused in or flown there. And that it sort of was almost like a big performance, right? Everyone's trying to get brownie points from the Party. It seems like the answer might be obvious, but I'm curious, what do you think of this now? People fighting for their right to freedom in Hong Kong and other people, including yourself, you know, are over there so they can avoid prison, gain favor for a business deal.
[01:10:05] The idea was capitalism and freedom are these bad things. And the very people asserting this in a protest are doing this because they want to make money in China, right? So they're saying, "No, you don't get freedom. You don't get capitalism. That's bad. But also when I go back, I want to contract to build roadways in Xinjiang." And because they had absolutely no freedom unless they did the Party's bidding, right? So doing CCP bidding, purely out of fear and self-interest. It's got to sting a little bit, right? what happened in Hong Kong since the CCP took over. What do you think? I mean, there's got to be at least a little bit of guilt for playing a tiny role in that, even though you were just a pawn.
[01:10:44] Desmond Shum: That's a long story, but I just talked about it this morning with somebody. That happened 10 years ago. I think, you know, reality is I've been 10 years ago, how I looked at China and how awake I am to the CCP is very different to what I'm today and how the world looked at China 10 years ago. And it's very, very different from what it is today.
[01:11:07] Jordan Harbinger: Definitely.
[01:11:08] Desmond Shum: That's part of my explanation, why I did what I did 10 years ago.
[01:11:12] Jordan Harbinger: I understand that I just figured I'll hindsight always being 20/20. This is not a judgment of your character.
[01:11:18] Desmond Shum: But today, given what's happened to Hong Kong, given what happened to Xinjiang and the Uyghurs, and given how they're backing up the Russians, what's happening in Ukraine, if you're still speaking up on China's behalf, on CCP's behalf, it's hard to explain them.
[01:11:34] Jordan Harbinger: Agree. And hey, thank you very much. You've been very open and generous with your time. The book is really interesting, a lot of cool insights, and I appreciate your perspective. I mean, you were really in the high elite — you're rubbing elbows with the red aristocracy and now you are spilling the beans. And I think me and my audience certainly appreciate that. So thank you very, very much.
[01:11:55] Desmond Shum: Well, thanks for your time.
[01:12:01] Jordan Harbinger: We've got a preview trailer of our interview with poker star, Annie Duke on how we can learn to make better decisions by thinking in bets, instead of trying so hard to be certain all the time, so stay tuned for that after the close of the show.
[01:12:13] Annie Duke: The quality of your life is determined by the sum of two things, the quality of your decisions and luck.
[01:12:18] When something bad happens to us, we act as if a skill wasn't involved at all. We just sort of pawn it off to the luck element, but when good things happen, we sort of ignore the luck element. And we say that it was because of our great skill.
[01:12:33] A self-driving Uber just hit and killed a pedestrian. But when I thought it was really interesting was that the reaction was to suspend the testing and just to take the cars off the road, not just the Uber cars, but other self-driving vehicles. And what I didn't see were any comparison to how self-driving vehicle did per thousand miles traveled versus the technology that we already have on the road, which has cars that are driven by humans. We know that 6,000 pedestrians died per year by regular driven card.
[01:13:08] Let's say that you're on the side of the side of the road, and you've got a flat tire. And of course, what everybody's thinking in that moment is, "I have the worst life ever. Like why do these things always happen to me? I'm so unlucky. I'm so miserable." What's really interesting to me about it is like you could have gotten a promotion, like the biggest promotion of your life three days before, and you're not standing on the side of the road going, "My life's great because I just got the biggest promotion I could ever imagine."
[01:13:35] So imagine that you had this flat tire a year ago, and now I'm asking you today a year later, how much do you think that that flat tire would have affected your overall happiness over the year?
[01:13:49] Jordan Harbinger: For more with Annie Duke, including some common mistakes we make when evaluating decisions, check out episode 40 here on The Jordan Harbinger Show.
[01:13:58] So you may be wondering more about the phone call from his wife after her being gone for four years. I certainly was. All she did on the call was warn him not to publish the book and then hinted that him and his son might not be safe if the book was published. And that is a creepy sort of — imagine your wife, the mother of your son, has to call you and basically threaten you. That's the kind of leverage they have. She also said, "Oh, the authorities haven't treated me so badly." Meanwhile, she missed the funeral from her mother who was dying. She hasn't seen her son ever since then and has been disappeared for four years. So I guess it's got to be pretty bad if you are now in under the thumb of somebody who doesn't let you see your family.
[01:14:39] So China during these days just sounds a lot like the wild west, there were a lot of anecdotes in the book about, let's say rivaled telephone companies ripping out one another's phone lines, bus companies that would have to get permission to go to certain places for a municipal or provincial bus service. Like imagine buses won't let other buses into their territory. People are ripping out wires that is supposed to be for an obvious monopolistic infrastructure.
[01:15:02] People would send thugs over provincial borders to kidnap rivals. This is like the governor of New York sending thugs over to kidnap the governor of New Jersey. Absolute insanity, right? Because they have a difference in policy or one guy wants to push something through.
[01:15:16] So even though everything was technically owned by the state, it was still sort of like gangs or mafia. Maybe not even sort of like gangs or mafia, obviously gangs or mafia. And Xi Jinping has changed a lot of that. Not necessarily for the better, it's kind of been like one mafia takeover. I'll get to that in a second. But for corruption punishments, remember Desmond talked about the red aristocracy. So people who are really well connected, they get a prison sentence. Commoners usually get a bullet in the head for the same thing. So there's no real rule of law or application of law in a fair way.
[01:15:46] A lot of the development deals in the book that Desmond talks about required him to scare off other competitors or use inside connections and information in order to close the deal. So a lot of the book is like, "Yeah, we bought land from one holding company. And then we sold it to another holding company at an inflated price," by the way, all owned by him and his companies, right? Then they had to buy it back for another price. So tons of officials and other people are just dipping their beaks in everything. The inefficiency is staggering.
[01:16:12] Someone actually told him if you're a Chinese businessmen and you haven't done time in prison, you haven't accomplished anything. What that means essentially is it's so impossible to avoid corruption and it's always one gang versus another and falling into favor and out of favor based on connections. That if you aren't going to jail for this kind of stuff, you're just not thinking big enough. And it really doesn't bode well for ambitious people in the Chinese business space at all. I can't even imagine operating an environment like that.
[01:16:40] By the way, so when Xi Jinping came to the CCP, the Chinese Communist Party, they investigated 2.7 million officials for corruption and prosecuted 1.5 million of them. Imagine that. Xi Jinping actually says freedom of speech and other quote-unquote, "Western values" need to be rooted out. And he cracks down on lawyers and other people who want a more free and open China. I mean, to just think about that statement, it is unbelievable. Xi Jinping's personal power drive really is securing the longevity of a Chinese Communist Party led by red aristocracy. Xi is driven first by the need for the CCP to hold onto power. And he is the best person to make that happen in his mind, right? All the other stuff, taking down the tech Titans, restructuring the system, getting rid of so-called corruption. And of course, replacing those people with people, loyal to him that is also the CCP's power can last for generations.
[01:17:37] And then, of course, they're deeply, deeply paranoid. That's why they have a surveillance state. That's why they try to rewrite Chinese history. They close China behind the great firewall. So they have a closed internet, not to mention the propaganda with the population. Look, every country has propaganda. The Chinese stuff is next level. They really know what they're doing over there, including what's happening in Xinjiang. They just cannot afford any dissent to challenge CCP power. They can't afford any dissent at all.
[01:18:03] Scary stuff. I know some of you think I am just alarmist. I lose my mind when it comes to China. But look, there's a reason, I am not alone in these types of opinions. And I hope you enjoyed this episode. I enjoy producing stuff like this. Yes, it's a little terrifying. I kind of get that. I appreciate that you stick with me on these.
[01:18:20] Links to all things Desmond Shum will be in the website in the show notes at jordanharbinger.com. Please do use our website links if you buy the books from the guests or anything from any of our sponsors. It does help support the show. Transcripts in the show notes, videos on YouTube. Advertisers, deals, and discount codes, all at jordanharbinger.com/deals. Please consider supporting those who support this show. I'm at @JordanHarbinger on both Twitter and Instagram, or you can hit me on LinkedIn.
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[01:19:08] This show is created in association with PodcastOne. My team is Jen Harbinger, Jase Sanderson, Robert Fogarty, Millie Ocampo, Ian Baird, Josh Ballard, and Gabriel Mizrahi. Remember, we rise by lifting others. The fee for the show is that you share it with friends when you find something useful or interesting. If you know somebody who's really interested in China, doing business with China or in China, definitely share this episode with them. The greatest compliment you can give us is to share the show with those you care about. In the meantime, do your best to apply what you hear on the show, so you can live what you listen, and we'll see you next time.
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