Mission impossible: How one man bought China its first aircraft carrier 今天中國的第一航母遼寧艦 & The inside story of the Liaoning: how Xu Zengping sealed deal for China's first aircraft carrier
Johnson Choi-1008 01/18 102925.0/1
Mission impossible: How one man bought China its first aircraft carrier 今天中國的第一航母遼寧艦 & The inside story of the Liaoning: how Xu Zengping sealed deal for China's first aircraft carrier
(SCMP Exclusive) Xu Zengping reveals for the first time the negotiations behind buying the Liaoning for the PLA Navy - and the secret behind its engines (Minnie Chan minnie.chan@scmp.com)
It was a mission like no other. In the aftermath of the Soviet Union's collapse, one businessman armed with cash and a casino cover story scooped the world to buy the unfinished hulk of a Ukrainian aircraft carrier that would become the centrepiece of the PLA Navy.
Speaking to the media for the first time, the Hong Kong-based businessman at the heart of the undertaking reveals in a two-part series the details of the little-known, behind-the-scenes odyssey to realise China's long-held dream of owning such a warship.
Xu Zengping disclosed that the militarily sensitive original engines of the carrier were intact when Ukraine sold the vessel in 1998. This is contrary to what Beijing told the world at the time.
The "four intact engines had been perfectly grease-sealed" after work stopped on the vessel in 1992, presenting an enticing engineering package for a country seeking a leg up for its military.
It is the first time anyone linked to the deal has confirmed publicly the engines were in place at the time of purchase. Earlier reports said the vessel's power generation system was removed at Ukraine's Nikolayev South Shipyard on the Black Sea along with its electronics and weaponry before Xu bought it in 1998 for US$20 million.
"When I was taken to the carrier's engine room by the shipyard's chief engineer, I found all four engines were brand new and carefully grease-sealed, each of them originally costing US$20 million," Xu said. He said a refit finished in 2011 restored the four engines to operating condition.
What is now called the Liaoning was built on the hull of the partially completed Soviet Kuznetsov-class carrier, the Varyag. The Black Sea shipyard was about two-thirds of the way through the vessel's construction when work stopped as the Soviet Union crumbled. The hull languished until Xu made the deal, acting as a middleman for interests within the PLA Navy.
Xu said the shipyard agreed to sell the vessel because of the political turmoil that had left it in dire financial straits.
"The Chinese side deliberately released false information about the removal of the engines to make it easier for Xu and the shipyard to negotiate," a source familiar with the deal told the South China Morning Post.
Western media also reported that the United States pressured Ukraine to remove everything on board the carrier, selling only the hull to the Chinese buyer, the source added.
A retired PLA Navy colonel said it was "very likely" that the Liaoning was still using the original Ukrainian engines. "The Ukrainian engine technology is better than China's," the retired officer said. "It's my understanding that our navy later sought help from Ukraine to get the carrier engines, which had been sealed up for years, up and running."
Buying the carrier was just the start. It took another four years to tow it from Ukraine to Dalian in Liaoning province, and more than a decade to fit it out.
Macau-based military observer Antony Wong Dong said that after years of negotiations, the Black Sea shipyard also transferred their engine technology to China's Harbin Turbine Company, a manufacturing plant specialising in military boilers, turbines and steam equipment.
There were signs that the engines had been improved.
"The original propulsion system designed for the Liaoning was the same as that of the Russian Kuznetsov-class aircraft carrier with a top speed of 32 knots. But the Liaoning is 6,000 tonnes heavier, so logically it would be slower," Wong said. "But recent sea trials showed the Liaoning's top speed was as fast as 32 knots, indicating its propulsion system has been upgraded."
The carrier was renamed Liaoning when it was formally delivered to the PLA in September 2012 and so far has been used only for training.
Its pennant number - a type of naval identification - is 16. "Do you know why the Liaoning has been numbered 16?" Xu asked. "It was because we spent 16 years getting the job done, from making the deal to rebuilding it."
The inside story of the Liaoning: how Xu Zengping sealed deal for China's first aircraft carrier
In the mid-1990s, the former PLA basketball star was contacted by officers within the PLA Navy with a secretive mission: go to Ukraine and buy the Soviet-built carrier
Xu Zengping knew the moment that he saw the hulk of a half-built Soviet aircraft carrier anchored in a cash-strapped Black Sea shipyard that he had to buy it for China.
Standing on the deck of the vessel in the snow and chill of a wintry day in Mykolaiv, Ukraine, on January 28, 1998, Xu, a PLA basketball player-turned-businessman, said he was awed by the strength of the steel leviathan. "It was the first time I had ever been on a carrier and I was overwhelmed [by its size] … I told myself that I should buy it at all costs and make sure it became part of our navy," he said.
The Kuznetsov-class carrier was intended to be the pearl of the Soviet naval fleet when construction began in 1985, but in the aftermath of the USSR's collapse, the Ukrainian government needed to sell it to help dig it out of dire financial straits.
Xu, best known in Hong Kong for his Palace-of-Versailles-style home on The Peak, was on a mission to buy it for the Chinese military. But he had no idea of the costs and the political waters that lay ahead as the vessel made its way from the Black Sea to China, where it would be transformed into the Liaoning, the country's first aircraft carrier.
Speaking exclusively to the South China Morning Post at the South Lake Hotel in Guangzhou, a neglected former guesthouse for the central leadership, he revealed for the first time the price he paid - and says he continues to pay - over two decades for his central role in the mission of a lifetime. "One Hong Kong business friend lent me HK$230 million in 1997 without any guarantee - just based on our friendship and my integrity," Xu said.
THE MISSION
The for-sale sign went up on the carrier in 1992. The Soviet Union had collapsed, the cold war was over and Ukraine's state-owned Nikolayev South Shipyard in the Black Sea was broke. Its one big asset was the carrier - two-thirds completed - and it had to be sold.
One of the potential buyers it reached out to was China. Its navy's armaments department had been looking into adding an aircraft carrier to its fleet since 1970, when chairman Mao Zedong told the country to be prepared for a major conflict with the USSR or the United States. Back then, Beijing had severed ties with Moscow and the US was sending drones over the South China Sea. An aircraft carrier, the navy thought, could be a deciding factor in a war.
The navy formed a team led by General Liu Huaqing in late April 1970 to investigate possibilities, according to the Southern Weekly. Liu proposed that China build its own carrier, but Beijing was wary of the idea - such a project would raise the international community's suspicions over China's territorial ambitions and in any case the country could not afford to research and develop the vessel from scratch.
Buying a ready-made carrier sounded like a better idea. So when Ukraine called in early 1992, the Chinese navy answered by sending a delegation.
Major General Zheng Ming, the former armaments department head of the PLA Navy, was part of the delegation and told Shenzhen Television the carrier looked like a worthwhile buy. "During the trip [in 1992], we found it was a brand-new ship. Everything was completely new, from the armour plating to other parts, so we suggested [the central government] buy it and bring it home," Zheng said. "But the central government didn't do it because of the [political] situation at the time."
With the Soviet Union's downfall and the Tiananmen Square crackdown fresh in foreign minds, then-president Jiang Zemin was pursuing a US-friendly diplomatic line. China passed on the offer that time but some sections of the navy continued to harbour hopes. Four years after the delegation's trip, the carrier was still anchored in the Black Sea shipyard and for sale. It was around that time that 45-year-old Xu, a former captain of the Guangzhou Military Command's basketball team, got the call. Xu was head of Chinluck Holdings, a Hong Kong-based company with interests in trading, catering, culture, entertainment, and property, among others.
Xu made a name for himself organising cross-border cultural events, including a stunt in which late Taiwanese entertainer Blackie Ko drove a car over the Hukou Waterfall on the Yellow River in 1997. He also arranged for military troupes from the PLA, Russia and Australia to put on shows in Hong Kong in the 1990s.
Xu said that when naval officials approached him to buy the carrier on China's behalf, they also warned him of two major impediments: the navy was severely underfunded and there was no support in Beijing for the carrier project. If Xu took on the job, he would be taking a gamble on government policy.
"I was chosen to do the deal. I realised it was a mission impossible because buying something like a carrier should be a national commitment, not one by a company or an individual," Xu said. "But my passion pushed me to take on the mission because it was a now-or-never chance for China to buy a new carrier from a nearly insolvent state-owned Ukrainian shipbuilder."
THE DEAL
Xu got busy. He hired maritime engineers and other experts and installed them in an office in the Ukrainian capital Kiev to lay the groundwork for the purchase. They soon realised the shipbuilder did not want the hulk to be used for military purposes, so Xu's team told the Ukrainians that they would turn the vessel into the world's largest floating hotel and casino.
To that end, in August 1997, Xu set up a Macau shell company, Agencia Turistica e Diversoes Chong Lot, and spent HK$6 million getting the necessary documents for a casino. Four months later, in January 1998, he put his other businesses on the backburner and flew to Ukraine to negotiate with the shipbuilder and government officials.
The deal-making was not for the faint-hearted. Apart from the stacks of US dollars he handed over to the shipyard's management, Xu plied the Ukrainian sellers with fiery, 62-per-cent-proof Chinese liquor called erguotou.
"I felt that I was soaking in liquor back then when I was negotiating with the management of the carrier builder," Xu said. "At every meal I needed to drink two to three litres of erguotou. In the critical four days, I brought them more than 50 bottles. But I still felt I had the energy to do it and was always able to keep a sober mind because my drinking was goal-directed; the Ukrainians were drinking to get drunk."
It all paid off. After several alcohol-drenched days, the shipbuilder and government agreed to sell Xu the carrier - and the ship's all-important blueprints - for the bargain-basement price of US$20 million. They shook hands and arrangements were made to transfer the money.
But what had seemed like a done deal wasn't. In mid-February, Ukrainian officials told him the carrier would be sold through an open auction. Other countries were interested in the ship and he had just three days to put in his bid. The sudden change in the negotiations worked to Xu's advantage - with the help of his Ukrainian friends, he was the only bidder to get his documents ready on time and meet all the key requirements. On March 19, 1998, Xu outbid opponents from the US, Australia, South Korea and Japan and won the ship.
That night an unmarked helicopter landed on the deck of the carrier. Xu did not know who it was but he had his suspicions. Spooked, he arranged the next day to have the 40 tonnes of blueprints for the carrier packed into eight trucks and moved overland to China. The Asian financial crisis meant it took Xu another year to get the money together, but the final payment - including a US$10 million late charge - was made to the shipbuilder on April 30, 1999.
Now, Xu owned the vessel. But he also owned one very big problem - getting it to China.
