The Flip Side of China's Economic Miracle

SHANGHAI, China, June 2, 2010— -- Expo 2010 is underway in Shanghai, and the luxury bars along the Huangpu River are filled with the delegations of Western companies drinking toasts to the new partnerships they have just formed with Chinese companies. In March, this was also where the Chinese adventure of M.C.M., a construction machinery dealer from the southwestern German city of Mannheim, got its start. But now, despite initial high hopes for the deal, the company is struggling to stay afloat.

The head of M.C.M. has spread out a number of photos on a table in his hotel. They are among the few certainties that Mohammad-Reza Mouazzen, 62, can still cling to. One photo depicts a beaming Mouazzen, an Iranian-born German citizen, at a banquet with Chinese businessmen. It was the day after Mouazzen's Chinese business partners, as he believed at the time, had shipped a used mobile crane, for which he had paid €100,000 ($122,000), to Iran, as their contract had stipulated.

Mouazzen has gray hair, is wearing a dark suit and, as he points out, is not a "baby." For the past 30 years, he has been buying used heavy equipment in countries like Poland and Russia, and then selling it at a profit, often in Iran. It is a tricky business, which is why Mouazzen was careful to cover his bases during his first deal in China. He and his son Omid, 23, documented every step of the process with both photos and videos. One cannot say he behaved naively or negligently in Shanghai.

Nevertheless, the two businessmen were "shanghaied," so to speak, unscrupulously duped in a way Mouazzen has never experienced anywhere else. In early May, after Mouazzen had returned to Mannheim, he received a furious phone call from his client in Iran. Instead of delivering what was expected, a well-maintained crane, made by the Japanese company Kato and freshly overhauled at Mouazzen's behest, the Chinese had shipped a rusty Mitsubishi -- a wreck without an engine or a loading arm, weighing 12,590 kilograms (27,700 lbs.) less than the original crane.

Mouazzen places the photos of both cranes next to each other. He is still in disbelief. The two machines were photographed standing on the same container, which was marked YMLU 700754 6. Mouazzen photographed this number and the crane when it was being loaded in Shanghai. At the time, he and his son remained with the truck carrying the container in the Shanghai customs port until 1 a.m. Only after the truck had taken its place in the long line of other trucks waiting at the harbor did they return to their hotel, satisfied that everything was legitimate.

The container number is listed in the bill of lading. "No one questions what's in the bill of lading," says Mouazzen. "That's how I've worked my entire life." But his Chinese partners, he assumes, must have replaced the heavy container cargo on that same night: a daring logistical feat that they could only have been performed with the help of two large hoisting cranes -- and hardly without accomplices in the Shanghai customs office.

But the dealer from Mannheim noticed nothing that night. In fact, he was overjoyed as he raised a glass to his new business relationship with the Chinese. An enormous market seemed to be opening up for M.C.M., because the majority of used building machines are offered for sale in China, primarily through the Internet. "We Chinese wish to learn from you," the head of the company, which calls itself China Heavy Equipment, vowed solemnly. Mouazzen, who felt flattered at the time, says: "They treated me like a father."