Kro’s Nest, End of Days

This past Saturday, with the arrest and public humiliation of its foreign owner by Beijing authorities, the Kro’s Nest unofficially ended its five year run.  The official end will come at the end of the legal battle that Saturday’s incident has kicked off.  It’s a shame because things didn’t need to turn out this way.  I once believed that if God had it written in stone that every foreign restaurant owner in Beijing was guaranteed to lose every penny of investment put in, no matter the circumstances, Kro would still come out ahead, because  he was above the circumstances.

Indeed, Kro, for longer than a short while, was above a lot of things.  Above the ordinary, above expectation, and above the law, or below it if you happen to understand that  legal protections in China extend up the social hierarchy, not down.  He graced the cover of multiple international magazines, starred in CCTV cooking shows, and appeared in a FHM celebrity photo shoot, all before his twenty-fourth birthday.  He was  proclaimed a restaurant prodigy by Beijing’s English language press, and treated like a celebrity by Chinese gossip magazines.  Hated and loved, respected more often than reviled.

Whether The Truth be destiny, free will, or chaos, I believed he could defy the holy sublime just like he had defied the expectations of young Southern gentry by refusing to be anything but blue collar while a student at Atlanta’s Westminster academy; just like he had defied his pious, lawyer father, first by going to college in Hawaii, instead of Ivy, and then getting a full body, seven dragon tattoo.

Today Kro finds himself in a position where he may never see a dime of the many millions of renmenbi  his restaurants have accrued over a five year period.  Kro is closer to broke than kept, thinking about moving back in with his Chinese parents – his second mother and father –  and his lawyers are working this case pro-bono, unless any money is actually recovered.

By contrast, today Kro’s former partner, Yuan Jie  (袁捷), who always insisted that Kro had, in fact, at least three fathers, because to him, too, Kro was like a son, has ten million RMB  sitting in a bank account.  It’s a joint bank account YuanJie keeps with his wife, a China Revlon executive.  It’s ten million RMB he’s not supposed to have, because the accounting books his wife’s former employee turned Kro’s Nest accountant, Zhang Yan (张妍), kept and then showed to Kro say that this money does not exist.  Those accounting books, indeed, say that the Kro’s Nest is losing money, and has been for more than a year now, even though this past November the rent on the biggest of the three Kro’s Nest restaurants fell by more than a half, an arrangement that Kro negotiated without Yuan Jie’s help.

Maybe this happened because Yuan Jie’s wife gave birth to a baby boy two years ago, and Yuan Jie decided that there is nothing like a son except for a son.  Maybe it happened because Yuan Jie’s wife no longer liked Kro. Maybe Yuan Jie no longer likes Kro.  In any case, Yuan Jie stopped talking to Kro a month  ago, four weeks before this past, humiliating Saturday.

Irritated, that’s how I feel.  I was one of Kro’s first foreign employees, and managed a large part of the business for a period stretching from 2007 to the tail end of 2008, when I was the restaurants’ “Da Jing Li” or General Manager.  Kro and I spent so much time trying to preparing so that a day like this past Saturday would never come that it’s plain irritating that the day came anyway.  We saw it coming, for Christ’s sake!  Two years ago we saw it coming. We spent too many drunk hours building relationships with local police officers and government officials. Sang too many Karaoke songs.  Made too many personal compromises, traded in too many healthy days with the grand-kids. We both read Jim Boyce. Kro knew Sammy.  The whole city, it seemed, knew about Luga’s and the Saddle.  Even Dan Harris’s articles made their rounds on the Kro’s Nest mailing list.   But, the day we foresaw and swore would never come, came anyway because talking and worrying about preparation is not a substitute for execution.  Execution is where the story begins and where it may end, though I hope it doesn’t.

In my mailbox today sit over two hundred emails that either directly support Kro’s claims of being the owner and operator of the Kro’s Nest, or that show evidence of an early and earnest effort to turn the Kro’s Nest into a truly legal entity.  I have the names of our Grandall Legal Group lawyers, and I even have the July 2008 ticket confirmations for Hong Kong, when one Kro’s Nest manager went down to Hong Kong and signed off on the company founding papers.  Best of all, I have the organizational chart approved by Kro AND Yuan Jie, that spells out exactly how all of their holdings would be incorporated under one entity (they only owned four Tubestation restaurants , there were eight on this chart for theoretical reasons, not because there were actually eight of them).

I’m really hopeful that everything I have is enough.  But I fear that what I don’t have may prove hard to overcome.

I don’t have an email from the Grandall Legal Group lawyers saying that the task has been completed.  In their stead I have a couple of of emails from Grandall asking whether Kro and Yuan Jie have collected all of the necessary documents, and whether or not they’ve signed all of the necessary paper work.  My single reply to both emails I have, and it says that the papers are on their way, soon.  I don’t have the email where I triumphantly tell the lawyers that the paperwork is all collected and signed, because I never got to write it.  I don’t have it in part because Yuan Jie pushed to shut me out of the process, and in part because Kro agreed.  Kro said that Yuan Jie had complained how this was their business, not 小巴’s (Damjan’s) responsibility.  To preserve their friendship and “for the good of the company” Kro said it was probably best that I backed off.  But I shouldn’t worry, he insisted, I would be way too busy with other things in the business to worry about this.

Over the next three months following that incident, Yuan Jie hired his wife’s good friend and secretary to be the Kro’s Nest accountant.  No one in the company, not even Kro or Yuan Jie, could make any decisions before she approved them, which meant before Yuan Jie approved them.  Yuan Jie had outsourced my Da Jing Li duties.  I was impotent, and Yuan Jie only stopped short of asking me to go back to serving tables. First I left, then the head chef left, then the the rest of the foreigners, an A-list cast of fluent Chinese speakers, left.  Before long Kro’s longest tenured employee, best friend, and most capable Chinese manager left, so that by December of 2008, four months after Kro and Yuan Jie had agreed on a company structure and the Hong Kong entity had been paid for and signed off on,  Kro had no allies left in the restaurant.  Grandall Legal Group was told that their services would no longer be needed, and then Yuan Jie proceeded to go about business like the issue of ownership was no longer an issue. As far as the Kro’s Nest is concerned, that was the start of 2009 marked the last year of the Mayan calendar.

Did Kro let it happen because he didn’t realize that he was being put into a corner?  Or, did he just figure that this was nothing more than the seasonal turbulence of a partnership that dated back to 2001, when Kro helped Yuan Jie open up the first Tubestation and a hip hop club in West Beijing called Blue Jays? Was it something more self-destructive?  If not that, than something more naive?

I can only speculate, but at one point, in an email exchange Kro and I had six months ago, when I was already in the US, he wrote of the legal situation, “yuanjie is well yuanjie, so there is not much to say about that.”  Reading it helped me remember – at least I think I remember, and I certainly hope that I’m not creating a memory here for the sake of this article – that more than being stand-offish about his relationship with Yuan Jie and the company, Kro often took a  Zen-like, go with the flow attitude because he felt he had to.    For better or for worse, Kro felt that his and Yuan Jie’s destinies were intertwined until the end.  “You’re lucky.  If I wanted to get out of the company,” he told me on the day I told him that my days with the Kro’s Nest were ending, “it would take me a year just to sort everything out with Yuan Jie.”   Kro believed he and Yuan Jie were stuck to one another, and for a while there Yuan Jie might have felt that way, too.  But, it seems certain now that Yuan Jie was never quite as Zen about the partnership as Kro, and he started making his exit strategy early.  As soon as Kro found out about the strategy, Yuan Jie balked and cut off communication.  So, here we are.

I’ve talked to Kro twice in the past thirty-six hours. The first time, at approximately 10:30 pm Sunday, Beijing time, he was on his way to the police station for the fifth time that day.  On his fourth trip he thought that he had managed to secure Yuan Jie’s arrest for assault.  But then, “Yuan Jie pulled some fucking guanxi and got out of it, so I have to go back again.”

That was all he had time to tell me.  “It’s David fighting Goliath,” he added. “But I’m gonna fight this tooth n’ nail. He’s not gonna win.”

I was left to wonder why he would want Yuan Jie arrested for assault and if he would succeed, but I didn’t have to wonder for long.  The Global Time’s story by Hao Ying that went up this morning  provides the assault details, fully reproduced here just in case the link goes dead;

Police have detained the Chinese partner of the popular Kro’s Nest chain of pizzerias for fighting, after staff were told that his American partner Olaf Kristoffer “The Kro” Bauer no longer worked for the company.

Sanlitun police told the Global Times that Yuan Jie, the Chinese partner, had been detained for fighting at the north Worker’s Stadium area, but gave no further information.

Bauer told the Global Times that Yuan brought several police officers to the flagship Worker’s Stadium branch of the chain, insisting that Bauer was only a cook and should be removed.

Bauer said Yuan “lost his cool” and threw a roll of packing tape at him, then shoved him hard three times, pushing him up against the oven, then the ice machine, then against the bar. Police say they have laid no charges against Bauer. Bauer told the Global Times, “The hardest thing I ever did was not lose my temper. It was Gandhi-esqe.”

Bauer said he spent the night in the hospital under observation on an intravenous drip, and suffered minor internal injuries. He also said he spent much of Sunday talking to police, who urged him and Yuan to reach a quick resolution. Bauer later added he would let his lawyer deal with the negotiations, saying he considered this to be the “first of a seven part series.”

A Kro’s Nest manager said staff were told Bauer is no longer part of the company, and that the police were called because he was collecting money from customers. “Nobody wanted to see this happen,” she added. She said it was unclear who owned the restaurant chain, calling it a “business secret.” Another manager said the owner “saw no need” to talk to the media. Attempts to reach Yuan on his mobile phone failed.

Yuan’s detention by police caps a four-year success story that saw a heavily tattooed young American and an aspiring Chinese restaurateur 15 years his senior build Kro’s Nest from a Haidian student hangout into a popular three-restaurant chain.

Bauer befriend Yuan when the young American was studying abroad. Bauer later returned to China and opened the first Kro’s Nest with Yuan in 2006 near the Old Summer Palace. The Kro’s Nest Web site boasts, “We’re not business guys.” Bauer says he lost $100,000 early on because he ignored accounting books and made mistakes like letting kitchen costs overrun.

Bauer and Yuan had a major fallout in 2006 over a pizza sauce recipe. A few months later Bauer and Yuan reconciled, deciding to evenly split their equity in both restaurants. The dispute was the subject of a half-hour CCTV television show and, according to Bauer, documents their oral business agreement.

Bauer claimed their current dispute resulted from Yuan refused to show him their accounting books, later offering him 1 million yuan and the rights to the Kro’s Nest name to leave the business.

“I was the one that pushed to have a formal agreement. He said no need,” Bauer said. “I’m glad I’m making this mistake at 26 and not at 62.”

Li Shuang and Xuyang Jingjing contributed to this story

Though it’s unclear whether Yuan Jie’s detainment is the one he managed to sneak out of, or whether Kro’s fifth trip to the police office was successful, it really doesn’t matter.  After reading this in the early hours of my Ann Arbor Monday morning, thanks to a bevy of messages sent throughout the night by concerned Kro’s Nest patrons in Beijing, I realized that Kro had gone on the offensive.  I spent the next part of the afternoon on my Twitter account talking to Stan and Boyce about the situation, and then, at 12:54 am, Beijing time, I got hold of Kro.

While an official statement will be made by Kro today, what I can tell you is that he is not speaking with Yuan Jie and a reconciliation is not possible.  For now all of their communication will be conducted through Kro’s lawyers.  Kro is also  fully aware that he faces an uphill battle.  He said,  “Where [Yuan Jie] messed up is that he didn’t realize that you can’t try to cheat a man who’s got nothing but his shoes.”

Knowing Kro, this story is not over, so be sure to stay tuned.  In the mean time, please, if you can, take some time to rally for the Kro’s Nest anyway you know how.  Pass along this article, get involved on theBeijinger forum, or on CityWeekend’s website.  If you want you can even send me a message to pass on to Kro.  Twitter hashtag is #supportKrosNest.

UPDATE:



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  1. dragan

    If Yuan Jie wins and get full share on Kro’s Nest, can you predict future for restaurant chain? Will anyone (foreigners or Chinese) conduct business with Yuan Jie?
    People are greedy, but did Yuan Jie thought that whole thing would just pass?

    It is not the first time that Chinese partner tries similar thing, which hurting China’s image to foreign investors.

    • Fransisco

      exactly. I agree.

    • Well, right now Yuan Jie is winning and, on paper, he has full control of Kro’s Nest. The one legal protection that Kro has is a pending trademark. If Kro is able to put enough pressure on Yuan Jie he might be able to recoup some money. I hope this happens. But, will it happen? I don’t know. The US Embassy juts advised Kro that he might have to swallow the bitterest pill and start over. http://www.beijingboyce.com/2010/05/08/as-the-kro-flies-partner-troubles-at-kros-nest-pizza/

      Enforcing trademarks is actually quite doable in China, so what we might end up seeing is the current Kro’s Nest restaurants become something else…and maybe one day again see a Kro’s Nest that’s run by Kro.

      Will Yuan Jie find another partner? If he wants to he probably can. There are plenty of foreigners wanting to open restaurants and bars in Beijing. Within that group some are bound to be uninformed or cocky. But, with all the money he’s earned on Kro’s Nest, Yuan Jie doesn’t need a new partner. Kro, honestly, was the best foreign partner someone could ask for because he added so much value.

  2. B-real

    That was the big warning when my company decided to open up shop in China. They all said the same thing “Partnership in china can lead to many things great, but the moment things start to look really good you make no money because the Chinese took it from underneath your feet.”

    My 1st 3 years were good but limited because of the old law of having a Chinese partner with 51% share. At first I was like that. My product, my work, my effort and they get the Lion’s share what a fucking rip off. But last year I gave it a test try with the option to buy back. The problem with that is that I lose ground made from the partnership. It has proven to be fruitful and now I can renegotiate buying more of my shares back. Im still a bit distrustful and the American partners and my lawyers always suggested to pay my self less and put more money into accounts that are not shared for the even these guys decide they have made enough of my money. For a rainy day I’ll have enough to start over.

    • Damjan

      I like this. It reminds me of what Mark Cuban advocates in entrepreneurship. He has maintained that a successful entrepreneur’s strategy is to build something until it makes money and then to sell it when a willing buyer comes along. In the context of what he was doing, it meant selling a website for a guaranteed 25 million rather than bringing in VCs in the hopes of creating something that could possibly sell for 100 million or something equally outlandish.

      In a foreign business climate I could see the benefits of building projects to a point where the foreign partner is willing to buy, but where you may not necessarily be getting what you see as the maximum potential value. Of course, this is a tough pill for anyone, including myself, to swallow. I think your approach strikes a nice balance between the maximum reward and the cautionary pull back. I’ll keep this idea in the metaphorical back pocket.

  3. This is too bad for Kro. I feel that, unlike his pizza, his ambitions were a bit too large and his restaurants suffered from it. As a result I hadn’t been in years, but this is neither here nor there. I’m not shedding a tear but I wish him all the luck in the world taking on ‘the man’. This is the same story I’ve been hearing since I got here in 2005, but I hope this one has a different ending. Too long have our Chinese ‘partners’ cheated us with impunity.

    • Damjan

      Like I said, he was loved or hated, but most often respected, and that reflected the fact that he didn’t hide his humanity. He like all of us, is flawed. Who we stay in contact with and what business owners we choose to patron depends in part on which flaws we can stand. Few preferences are more justified than others. So, everything you said is legitimate and perfectly understandable. And thank you for expressing your support for Kro in your own way.

      It’s hard to take someone with dreams as big as Kro’s, seriously, but yet we still look for the ambitious dreamer who we can trust. At some point every person makes a gamble that someone they know is that chosen one. I took the gamble with Kro then, and am taking it now by taking his side, (or maybe I’m just being a good friend, either way I’m at peace with it). But, I might very well be wrong. I don’t believe I am, but maybe.

  4. David D.

    let’s say it together one more time : WFOE !

  5. Fransisco

    horrible! Used to love the pizzas t Kro’s nest, but part of the fun was knowing that it was an expat hangout. I will never go there again. If this could happen to Kro’s nest, this could happen to any expat business!

    • I’m glad I had a chance to get there this past winter before all of this guano hit the fan. I’ve got to thank James F. and DD for turning me onto it in the first place. End of an era…

    • Damjan

      Let’s see what happens with the Kro’s Nest now that this story has made its way to every major China expat site….might not even be a Chinese hang out by the time it’s all done.

  6. Bin Wang

    That’s the risk v. reward proposition of doing business in China. It’s a market with HUGE potential, but MANY pitfalls. That said, there is a certain “quid pro quo” involved … you (foreign businessman) cut me (Chinese partner) a larger share than I should objectively receive, and I help you navigate the pitfalls. Thereby, you reduce your risk, maintain your ability to tap into the large Chinese market, and I get compensated. Perhaps that arrangement, in of itself, is to be expected, until when/if the day comes that wining/dining local officials/police is no longer necessary in China. But, “guanxi” has been around a LONG time!

    None of the above should blind-side the foreign businessman willing to assume these risks in order to gain a foothold in China. That said, what seemed to have transpired here, a complete takeover of Kro’s share by brute force and fraud, is completely unacceptable I would think, even in Chinese eyes. It’s one thing to collect a royalty, it’s another to rob a partner of everything.

    The current situation is now not unlike those petitioning directly to Beijing for relief. The more publicity to be had, the more even Chinese people feel that Kro was wronged, not to mention foreign investor uproar, the more the Chinese government will realize this is unncessary publicity which would only chill foreign investment in China. Someone will be made an example of, the punishment to the offender publicized as an example of: “see, we protect foreign investors,” and daily life within the grey areas, guanxi building, small royalties, etc. will go on in China. It it what it is.

    So, all support to Kro in this uphill battle, and I hope this stays in the public eye for a while. Small advantages are taken, but within the bounds of some reason. Kro’s partner may have bitten off more than he can chew here. We’ll see!

    • Damjan

      I agree completely with your assessment of the quid pro quo relationship, and of what transpired at Kro’s Nest going above and beyond that. I would explicitly add (and should have done so in the article) that this type of situation is not China specific, and has an internationally recognizable story line, “No contract was signed, and the dominant partner – in this case, Yuan Jie is dominant because China is his home turf – took advantage.”

      (But, I am more adding this for the sake of people reading the comments than I am for you, Bin Wang, because your comments of this site indicate that you have a layered and nuanced understanding of most issues being discussed.)

      And, yes, let us support Kro and hope that this issue crosses over into the China language media sphere.

      • Bin Wang

        To all the attorneys reading the blog, any promissory estoppel-esque possibilities in Chinese law? :-)

        • pug_ster

          I’m not a lawyer, but in my opinion is that the confirmation for flight to Hong Kong and the Org chart is hardly evidence because they are not official documents. If Kro has proof that his ex ‘partner’ signed off on the com­pany found­ing papers in HK or some kind of proof that the Org chart was authorized by the government, that would be a different story.

    • Bin, like most of your replies, that was pure poetry. Gawd, that was lovely…D, be proud!

      • Bin Wang

        Aw, shucks fellas, yer makin’ me blush …

        I have to echo Susan’s comments below. China lacks reliable, consistent and even-handed application of the rule of law. Much like a child who knows that the threats of the parent are hollow, non-enforcement and favoritism breeds belief that one can be above the law. Even in the U.S. where law is generally respected by the populace, some movie stars and athletes behave as if they are above the law. It’s because they’ve never been called to task. In China, for too long, minor officials, local big-shots, those rich enough to afford massive bribes, lots of ciggies, gallons of maotai, etc., those in positions of authority seeking to leverage that authority for personal gain, have behaved as if they were above the law. Under these circumstances, it’s not difficult to imagine these things happening, sadly.

  7. Damjan, have you considered, as one of the underlining “whys” of the Kro debacle, “unresolved feelings toward the father”. Three of the four characteristics of unresolved-feelings are: 1) to be very charismatic; 2) to be a better starter of things than a finisher, almost a compulsion not to finish critical chores; and 3) to be self-destructive at the point of their greatest success. Notwithstanding their near inbred self-destructive qualities, the good news is that such personalities are at their strongest when they are at their respective nadir.

    • Susan

      Chinese ripoff other Chinese too, I’ve heard it many times, even amongst friends. But maybe foreigners are better targets.

      The underlying problem is that solid rule-of-law is lacking here in comparison to places such as the U.S., and without the institutional underpinnings, the urge for people to do things like this (cheat, fraud) gets carried out more often because more people think they can get away with it. I sure hope Mr. Bauer succeeds, and I’m happy that he’s got youth on his side!

    • Damjan

      Strong point here. What rings particularly true with Kro is that he works best when his back is up against the wall.

      He is a very strong finisher when it comes to the tangible things: the concrete, mud, and dough of the operation. Obviously, the more conceptual things need work.

      I would then add one more thing. Kro has always been a very good student, a sponge for culture, language, and business. Do unresolved feelings have any sort of discernible impact on one’s ability to bounce back stronger and wiser?

  8. pug_ster

    Some people here sounds paranoid when doing business in China when in fact Americans doing business in China is pretty good according to this survey.

    http://www.amcham-shanghai.org/NR/rdonlyres/C1DFBCBD-4A8A-4EFA-8860-EFB574CF473B/12275/viewpoint_0410.pdf

    In any case, I got a feeling that you only told half a story from the perspective from Kro’s side. It sounds to me that Kro going around the world showboating while the Chinese partners are doing the grunt work running the business. At some point there is going be some friction and someone is going to get hurt. I don’t think this is a Chinese thing, rather the problem when a partnership went sour.

    • B-real

      So then who came up with the original idea Kro’s Nest? Whose name is in the name of the Venue? Whose money was originally invested? That is at owners discretion to push his product how ever means necessary. If it take some going all over the world and show boating well fuck yeah do it. Any publicity is good publicity.

      Judging by your link and skimming thru it, all I really get out of it is a useless pamphlet or measuring the pros and cons of running a foreign establishment in China. Just because some American group did some statistical analysis in conjunction with China. Hmmmmmmm smells a bit fishy. Stats may say 1 thing but operations is another. As China grows so will the constant policy changes that make it even more difficult to make money sort of like in the US.

      • bai ren

        B-real
        Got to agree with you here. While I am sure there is more to the story than shared here (and it could go either way), the details of investment etc are crucial to the issue.
        Kro is a damned well born guy, or marviliously talented cook if he can loose 100 000 in his first year through acocunting oversights.
        But the question is alough he needed a to make his business a joint venture, why choose an individual to partner up with, why this one, why not make it all formal and above board from the beginning?
        It may well be that finacially, relationshiply (ie to get permits property etc) Yuen was the man for him at the time and this is what connected them in his mind.
        This story shouldnt be seen as unqiue to China, although it is very prominate for current chinese business. rather it is a story of business relationships.
        The main questions are, what laws are relevent, how might the laws be understood to imply if this case is ruled according to Chinese law (does Yuen have communist party membership????) and how will media attention mediate other possible fo9rces in determining the amount of ruloe by law in this case.
        While upon reading the article I see and appreciate Damjan’s emotional etc connection to the story, thats mostly what this account is, an emotional reaction. I hope to see a follow up article, and if there is one, I REALLY APPRECIATE the fast heads up on this developing situation.

        • Yeah, and to @pug_ster in reply additionally, a propos to this point in the thread…@bai ren is spot on: this is the only issue I’d take with DeNoble’s coverage…it might contain more than a healthy dollop of emotionality to it, ergo one can indeed make the case that DeNoble isn’t being altogether legally objective in the post. Still, perhaps it’s the Westerner in me that finds the fact that Bauer can come in with a bold idea, working up that biz into the powerhouse it is today, only to be left without a miao in his pocket short of the sweat off a baboon ball’s sac all because of…well, that’s what the followup article’s going to tell us, isn’t it?

      • pug_ster

        Kro’s nest is just a name of a restaurant, and I don’t considered as a recognized ‘brand’ like KFC, McDonald’s Gap, etc… So if Kro’s next would close tomorrow and re-opens as another restaurant, I doubt that there would be any impact. Damjan said that many of the key people quit so it is possible that they could’ve opened a business on their own taking the business from Kro’s. As I said, I believe we only got 1/2 of the story from Kro and we don’t have the perspective from the Chinese partner. Also, doing business is hard in China and business failures like this is not uncommon.

    • pug_ster, you’re neglecting the obvious that DeNoble used to work there for a year and change, having gotten to know all concerned parties pretty intimately, drank with them, and likely carried a few of them home over his shoulder to make sure they got home okay. I’ve been there, and seen the setup, like most of the cats here.

      I’d say that your suggestion that DeNoble is merely spinning the story seems rather oblivious of the facts. Cui bono? DeNoble from shedding light on them? Hardly…

      • Adam Daniel Mezei: “you’re neglect­ing the obvi­ous that DeNo­ble used to work there for a year … I’d say that your sug­ges­tion that DeNo­ble is merely spin­ning the story seems rather obliv­i­ous of the facts.”

        Fair point but let’s not forget that the author was pushed out of the business by Yuan Jie and states as much in the original post, so it’s not unreasonable for him to be a bit biased towards Kro’s side of the story.

      • Damjan

        I was intentionally emotional in the piece. Trying to keep the objective tone of a 1960s network anchor would have been disingenuous to anybody reading. I took a side, Kros, so lets let that point rest.

        Whether it’s only half the story is a different matter. Adam has it right. And I did, actually, carry both owners home on multiple occasions. We were all close at one time. Contracts people, contracts and WFOEs.

        • Damjan

          *Contracts people, contracts and WFOEs…they’ll make the friednship last longer, not the other way around.

      • pug_ster

        If you guys try to win in court, it is not whether you believe or not you are right, but whether what you can prove. In the end if Kro has enough paperwork and other documentation and how the lawyers can present the case. Spending all that time drinking with them is not exactly something you can present to court in your favor.

        As I said I am not a lawyer. But I have to take someone who owes me money to court twice this month. This chronic liar (he is Polish btw) makes these ridiculous false allegations that he ‘tried’ to pay me or did not make the proper demand that he owe me money, and I promptly show proof that he is not telling the truth. After I took him to court today he shook my hand and we have to move on.

        I really wish both you and Kro well, but in the end both of Kro has to take the emotional thought out of the equation and think about what he can salvage out from the unhappy partnership of his.

  9. Another reason why the government needs to reform its laws dealing with foreign entrepreneurs. The current laws are just harming ambitions and creating chaos. If it was easier for foreigners to own / run businesses here, this would translate into many more jobs for locals.

    • Damjan

      Agreed, and I think the same can be said for much of the world. Freedom to do business is why the US is such a magnet for the world’s drive migrants, other drawbacks notwithstanding.

    • friendo

      Yes, like mowing your lawns and cleaning your houses while foreigners hollow China out like a bunch of termites.

    • B-real

      Totally agree. You can run and own a business here but its not to full potential. Like some one said earlier you have to partner up with some one or some people who can get you that freedom to make some real cash. I was once coming close to throwing in the towel because of the legal difficulties. There shouldn’t be any different laws. It should be the same across board. Money is money and the GOV should be happy with the stimulus coming from these foreign lands. Start ups should get way more freedom than Satellite companies outsourcing. Just because the owners are not Chinese doesn’t mean they shouldn’t get the same opportunities as the Chinese. Give me my business license, and TAX ID and let me run my business alone.

  10. Damjan,

    I am guessing we will see more such cases of partner meltdowns given that job opportunities are drying up for many expatriates here and it seems — at least in my circles — an increasing number see opening a bar or restaurant as an alternative.

    I am hoping more of them will look at how to protect themselves should the pizza pie hit the fan, as it did in this case. At the moment, far too many jump into the project and invest a lot of effort, figuring that all that registration and contract stuff can be handled later. Sometimes it can, but waiting until after all of the cash starts rolling in obvously places one into a weakened position.

    Cheers, Boyce

  11. Damjan

    There’s a lot of good points in the comments, especially those hinting how this is not exclusively a Chinese partner/Foreign partner problem, but more broadly a no contract problem. Dan Harris of China Law Blog chimes in his two cents here – http://www.chinalawblog.com/2010/05/steal_a_little_and_they.html

    Moreover, I certainly have an emotional stake in the issue. I hope that was made clear when I detailed my involvement with the restaurant. But, if I was not objective in some aspects of my coverage, then so what? I’m telling a story here, as I see it, and adding context to news coverage that is otherwise unremarkable for its content (again, many have rightly pointed out that this story is not unique). Is it one half the story? It certainly isn’t the whole story. But just because Yuan Jie doesn’t have a voice here doesn’t mean it’s just half a story.

    By the same token, my involvement with the conflicts two central participants can’t hide the short comings of a Chinese legal system that does very little to encourage business. So for those claiming that all is fine in China business, it’s not. Especially on the grass roots level. Conceding this much is the first step to making progress towards a safer environment for local entrepreneurs. For (as someone mentioned) more jobs in China.

    #supportKrosNest

    • pug_ster

      I strongly disagree with you with the Chinese legal system does little to encourage business. As Dan said in his blog, if you are going to make a partnership like this, you should get a lawyer involved. Perhaps you and Kro have a personal stake in this and making this hard to let go. Yes it sounds like Kro has the shorter end of the stick but if Kro intend to go legal on him, Kro and his partner will lose alot of money in court fees and such. Unless Kro has the money to buy off his ‘partner,’ perhaps Kro with his entrepreneurial spirit, he should settle with his ‘partner’ and use the money to start another venture.

    • MaLiang

      What is happening to Kro is unfortunate, both because he is a great guy who worked extremely hard to make his business a success and because this situation will probably make many smart entrepreneurs think twice before setting up shop in China.

      It is easy to say that Kro should have taken care of the ownership issue early on, but it seems that current regulations are limited when it comes to recognizing business entities that are either fully or partly owned by foreigners. Obviously, there is always a way to take care of stuff like this by investing a lot of money in all kinds of business licences, but those are expensive…at least they are for twenty something year olds with good ideas and not much money in their pockets.

      Therefore, even though this might sound strange Kro’s strategy to make himself indispensable to the business was probably the best shot he had at monetizing his efforts. As of now it does not look like he is doing too well at this, but I am sure he will come out on top because of the person he is and because it will be very difficult for the local partner to make a credible argument that Kro is “just a cook.”

      GOOD LUCK KRO!!!!!!

  12. jj

    Amcham isn’t American its Chinese

  13. At work

    Oh well, no point in my being a Monday morning quarterback. I just would like to say that after having heard this same story years ago with Windows in Shanghai (and about 1/2 dozen other places) I wonder when will appear some enterprising lawyer/accountant who starts cold-calling on all new businesses. Some enterprisers with a satchel full of horror stories and a nice price to get people to stop making the same mistake.

  14. You’re all neglecting the oh-so-obvious here: Bauer is “farmer” in German.

    Perhaps that’s what Kro was meant to do after all?

  15. Sure

    I don’t know anything about Kro or the Chinese guy, but clearly the foreigner was not smart in how he went about his business. You must do everything aboveboard in China, not registering the company name in your name, not getting proper visas, not paying taxes is just stupid. 4 years of running a company and not bothering to complete these things is just asking for pain. If you can’t afford a WOFE and doing everything legally then you should just not be doing business in China.

    This damjan denoble sounds like he has no clue how to do business and does not show the chinese partners side at all. who invested the money? what is the chinese partners view? You really think the police are going to build great guanxi with a bunch of 22 year old foreigners and trust them over a 40 year old local?

    This is an instance of a stupid businessman not protecting himself. That is why there are lawyers and a legal system. Sorry that is happened to him but he was just asking for it. Being able to make a great pizza or whatever is not enough to be able to build a great company.

    • @ Sure

      Thanks for that permeating analysis. Now everything is perfectly clear: it was laowai’s fault.

    • Damjan

      Clearly, you are the outstanding mind that can show us all the way forward.

    • pug_ster

      @Sure,

      I’m sure that there’s alot of China bashers out there and just want to give Kro a pat in the back saying everything is alright and ignore reality.

    • MaLiang

      I don’t think Kro defines himself as a businessman. Nevertheless, if you had seen him work, especially in the early days you would have known that his restaurant would have been successful. I am not saying that what he did was ideal under a legal standpoint, but to call Kro’s actions stupid underscores the fact that Kro used the resources at his disposal to put together the right system of incentives in order to run the business…namely being the face of the Kro’s nest. By trying to force Kro out, the other partner is simply being greedy, and clearly demonstrates a lack of business acumen as the restaurant market in Beijing is extremely competitive and Kro’s ideas and energy are the things that put Kro’s nest on the map in the first place and that would allow it to remain competitive in the future. Also, the fact that Kro is a foreigner does not mean that the legal system will treat him unfairly. We will just have to wait and see what happens.

    • Ghede

      @sure

      Yeah, I’m pretty sure all businesses in China are run just the way you suggest. Nothing in China is ever done on the low down or pseudo-legally at all…

      *facepalm*

      • pug_ster

        Ghede,

        The problem is that Kro and Damjan didn’t bother to go thru the legal means to get a work visa. So that means if something ‘happens’ to them while they are at ‘work,’ they are not protected. It is like illegal Mexican workers suing their workplace when they trip and fell while they are at work.

        • Damjan

          We bothered, unfortunately for us your country’s wonderful public servants preferred stretching out the licensing process, and receiving the benefits of patronage without the actual patronage. Kro and I fall into a category of very stubborn people, so despite the odds and the haphazard, rule of men legal protections we tried. Too bad for China that there are very few willing to do the same. Even fewer are willing to try again after they fail the first time.

          Did you read about the part of the story where the Chinese citizen stashed away 10 million RMB and dodged paying taxes? You know those taxes are responsible for paying your official Ministry of Truth Troll salary, right?

          • pug_ster

            Damjan,

            For one thing, it is not ‘my country’ as I am not born in mainland China. I live in the US longer than you are born. And your colorful excuses doesn’t elude the fact that you didn’t work there legally, and working in a business that is not legal until 2008.

            Second, I never said that Mr. Yuan was Mr. innocent. Maybe he ‘stashed’ 10 mil RMB away, according to the ex-accountant and evaded taxes. I hope that he pays in order to make his business kosher. But, from what I understand so far, most of the businesses are opened are under Mr. Yuan’s name and not Kro’s. And all the allegations of having Kro’s name and him being an entrepreneur can’t take away that fact. That’s what you failed to mention this in your post.

          • Damjan

            Goodness, pug_ster, I am glad you are here to serve as an example. Your conversations with writers and regular commentators on this site are illustrative of what it’s like for China’s citizens when they try to engage government officials on issues that necessarily require the government and it’s many institutions to take a look at its own practices.

            “Everything in China is as it should be. Everything in China is fine. You stupid, mean, thankless little children are the ones who are to blame. Don’t dare speak, but be ashamed. Look at how you break the rules of our perfect society.”

          • Damjan

            “For one thing, it is not ‘my coun­try’ as I am not born in main­land China. I live in the US longer than you are born,” growled the voice of Pugster, the grizzly troll of Pacific Bridge.

            His shadow jutted out from underneath the bridge’s central divide, out into the sparkling water of the river bed below. Little Sam thought he could make out the outline of a horned head, and two claws holding on to a hammer and sickle, like the monster was ready to cut down a wheat field and steady a horse.

            Then the ghastly troll stepped into the light, and the shadow disappeared. The troll was no monster, but a man, decrepit and dirty, wearing nothing but a pair of badly stained underpants. The yellow of his teeth stood sharply out against the bright green of the opposing riverbank. The horn that Little Sam thought he saw turned out to be nothing more than the shriveled penis of an illegally poached tiger that Pugster, the famed troll turned decrepit little man, had strapped to his head.

            “I am better than you and you should be ashamed,” screamed the filthy, wretched little troll-man.

            With that, Sam shrugged and crossed the bridge.

          • pug_ster

            Good­ness, pug_ster, I am glad you are here to serve as an exam­ple. Your con­ver­sa­tions with writ­ers and reg­u­lar com­men­ta­tors on this site are illus­tra­tive of what it’s like for China’s cit­i­zens when they try to engage gov­ern­ment offi­cials on issues that nec­es­sar­ily require the gov­ern­ment and it’s many insti­tu­tions to take a look at its own practices.

            Your attitude seems to be that China’s laws are illegitimate, people like you and Kro chose to ignore them. That’s why Kro is in bind. Here in the US I think some of the laws and court system is stupid and outdated. But I chose to abide them despite by opinions. That’s the difference between you and me.

            His shadow jut­ted out from under­neath the bridge’s cen­tral divide, out into the sparkling water of the river bed below. Lit­tle Sam thought he could make out the out­line of a horned head, and two claws hold­ing on to a ham­mer and sickle, like the mon­ster was ready to cut down a wheat field and steady a horse.

            Then the ghastly troll stepped into the light, and the shadow dis­ap­peared. The troll was no mon­ster, but a man, decrepit and dirty, wear­ing noth­ing but a pair of badly stained under­pants. The yel­low of his teeth stood sharply out against the bright green of the oppos­ing river­bank. The horn that Lit­tle Sam thought he saw turned out to be noth­ing more than the shriv­eled penis of an ille­gally poached tiger that Pug­ster, the famed troll turned decrepit lit­tle man, had strapped to his head.

            “I am bet­ter than you and you should be ashamed,” screamed the filthy, wretched lit­tle troll-man.

            I supposed this has anything to do with this topic. Maybe you should call yourself a troll.

          • Damjan

            pug_ster

            Tell me, how does one abide by the law in China?

          • pug_ster

            Tell me, how does one abide by the law in China?

            If you are seriously asking this question, why are you there?

          • Damjan

            I’m seriously asking you. I want you to lay it out for me. Tell it to me from the perspective of Average China Citizen Zhang. How does Zhang ensure that he is abiding by the written law? What can Zhang do if he is unjustly punished according to the written law?

          • Jones

            Pug_ster, just answer the freaking question and stop dodging.

          • pug_ster

            You’re asking a ridiculously rhetorical question that’s why I won’t answer it.

          • Damjan

            The PRC’s Ministry of Truth School clearly doesn’t have a strong creative writing department.

        • Ghede

          Don’t get me wrong, I’m not trying to support what they did in this situation (I can barely claim to know the full story). It’s just that Sure’s attitude that everything must be done above board in China is rather ignorant – there are countless businesses here which aren’t run above board (hell, many businesses that attempt to run entirely above board can run into trouble if they don’t pay the right people the right money – and that is certainly not above board).

          Should Kro have done some things differently? I doubt you’ll find many people that would argue that point. But to say that you must do everything above board in China is not close to the whole truth.

          • pug_ster

            Ghede,

            It reminds of a quote “If a tree falls in the forest and no one hears it does it make a sound?” You’re right, there are many people in China run business above board, but they would be small businesses where the owners can scuttle the business and build another one a business who can cover their tracks. These businesses probably have no issues until some legal problems happen to the company or some disgruntled worker squealed, as this is what exactly happened in Kro’s Nest. I don’t think this happens just in China, as this happens all over.

        • pug_ster

          You seriously need to talk to a lawyer.

          • Yun

            Bah, I’m also an American of Chinese descent, but last time I checked rules and regulations in China, they HEAVILY favor Chinese (registering a company is 30,000 RMB for a Chinese, but 100,000 for a foreigner).

            I tried starting a blog site as a bulletin board to get parties going on the weekend. It’s been 8 months since I registered with the on-line monitoring ministry for the ICP permit. Not once have I heard from them, and they continue to block my site. Meanwhile my Chinese classmates have had their sites up and running within 4 weeks. It’s VERY biased.

            Working within China is a very long and annoying process, as China’s law and execution is still in a very developmental/selective stage. It’s incidents such as these that poke and promote growth. Unfortunately, it’s great people like Kro that have to learn to “suck it up”. Since you’ve been out of country for so long, I urge you to come back and check it out sometime.

            Simply put – too many people, too little time for proper management. There will always be inequalities.

  16. A lot of interesting things have been said here about the lack of equal application of the law (or no appilcation) among different people in China or the abuses of law by people in power.

    However, it has also been mentioned here by some that people in countries with a strong tradition of rule of law also have discrepencies in application.

    So the question yet to be hashed out here (or in Damjan’s next post!) is: how to work toward rectifying this in a centralized one-party state? More support for liberal lawyers? More support for social movements? Electoral pressure is hardly an option.

    • King Tubby

      Kevin. Focussing on your last paragraph. Liberal lawyers and advocates for NGO’s have taken a hammering in the last few weeks as you would be aware. Loss of annual registration and similar.

      Overt face-to-face protest is pure lunacy given the efficiency of the state’s repressive apparatus, while net protest is going to be further contained, when real name id is introduced in the near future.

      Meanwhile, CS type trash celebrity culture expands in China at a massive rate, just like elsewhere.

      Thats the Chinese social contract I guess.

      I like the idea of an annual property tax as I would give transparency between citizen and govt an important opening. How are you spending my money. KTVs or good social infrastructure. Of course it would not touch the filthy rich, but would definitely exercise the minds of the middle class.

      Your response????

      • Tubby (ha! Being able to legitimately address you this way is too much fun), I think the crux of what you said was “That’s the Chinese social contract I guess.” I agree.

        Ultimately, a force for changing the underlying social system (that has made and continues to make uneven application law possible) will need to come from some critical mass of popular sentiment turning against the state of affairs.

        And I don’t mean this is the dire “overthrow the gov’t in a revolution” sort of way. Certainly it’s a possibility, but based on research in the area, barring a major economic collapse, such a major revolutionary movement seems quite unlikely.

        Rather, the critical mass could manifest in a number of reform-minded movements at several levels of intensity. Perhaps citywide mobilization in after a chain of badly-contained or badly-penalized corruption cases. Perhaps it would be a large group of aggrieved businesspeople that use their accumulated leverage to get laws enforced. Or perhaps, like many sources of social change, this could come by way generational change as a more educated and global-minded population reassesses cultural norms collectively.

        The point here being: based on the type/frequency of protests as well as general public sentiment, it seems that Chinese have collectively accepted the social trade-offs of the system for now.

        Also, as for this: “Overt face-to-face protest is pure lunacy given the effi­ciency of the state’s repres sive appa ra tus, while net protest is going to be fur ther con tained, when real name id is intro duced in the near future.”

        I would say a few things. 1) Protest cannot simply be seen as marching or violence in the streets. There are many forms of protest, and they happen *all the time* in China. For example, homeowners associations (业位会) have been known to directly confront local officials by badgering them at their offices to affect change or (in a more disruptive manner) boycotting payments. To see protest as “Tiananmen-esque” alone is to miss all sorts of important civil society action.

        2) Protest is on the upswing, not the downswing. There’s a professor at Chinese Cultural University in Taipei working on more detailed numbers, but in the meantime, a generally good overview of the increasing prevalence can be read by Hong, Lai, and Xia (2006). For example, protests increased almost six-fold from 1997 to 2005. Most are not massive, but thousands of protests are over 500 people.

        3) Despite (2), organization is the lagging factor here. And this is where repression comes in. Indeed, CCP repression of protests is not as severe as some may claim. IT is the soft repression of restricting freedom of association that prevents the requisite networks for a more organized mobilization — which, of course, is the point.

        Or so this is my take. Whatda think?

        • King Tubby

          Kevin. I go back to a my much repeated contention that China will experience disordered and pretty well non-rational social *change*. Millenarian, inchoate protests without real organisation or policy objectives in rural areas, based on superstitious beliefs and pre-modern prophecies. China has a long history of such movements.

          However, not so sure about what form urban change will take. Could even be around environmental issues.

          Excluding, your second sentence in para 3:Indeed, CCP repres­sion of protests is not as severe as some may claim.

          That was my implied point about NGOs and similar in the first place, both here and in past posts. NGOs are real community based institutions first and foremost, before they go on to get a net identity. They require leadership, rank and file and premises, plus the ability to advocate their causes

          And yes, I am fully aware of the readily available stats on *mass incidents*. I think the base figure for a mass incident is 10 people.

          I get the feeling from you that just because I enjoy a few/many cartoon posts, it renders me incapable of dealing with serious matters in an analytical and historical manner.

          Never wise to underestimate your readers, since it only debases the arguments you wish to advance.

          • King Tubby

            Sorry, not para 3. Your point 3. Also note, I made no mention of violence in an urban setting. Thats the last thing any urban NGO would want to win over hearts and minds. Totally counterproductive, given the present power equation in China.

            I was talking about *the right* of NGOs to exist, and to be able to peacefully advocate their mission statement. If anything, the CP will not brook the existence of any alternative institutional modalities of enpowerment, and therein lies its strength at present.

            Additionally, couldn’t agree more about your comments about community associations. Pretty well links with my suggestion re property tax, which you missed.

  17. Jones

    If I were Kro, regardless of how it turned out, I’d move to Taiwan and start over.

    • Haha. That’s one solution: Taiwan! Though the market is decidedly smaller.

      If Kro so decides, then I’d suggest Kaohsiung. It’s a gigantic urban area with relatively minimal foreign population — especially in light of the degree to which Taipei is saturated. There are a lot of neighborhoods here where a well-run and advertised pizza joint could sweep up all the latent desire for the ultimate “American food” — pizza.

    • Jay

      No, try Tokyo. It’s not easy but you won’t be ripped off like in China.

  18. King Tubby

    Most all-round aspects are well covered by the risk assessor’s post mortum of a (cautionary) tale which reads like Jamie Oliver’s less-than-excellent Beijing adventure. Read the piece very carefully:

    1. The perrenial intravenous drip must be the biggest hospital earner in China.

    2. Sounds like the accountant is the major snake in the grass here, and the power behind Yuan.

    3. Most importantly, read the pizza reviews and the fare sounds rotten. Even the pizza chains turn out a better product in my neck of the woods, if the pizza descriptions are anything to go by. All this expat menory lane stuff above is just that if the grub is not up to scratch.

    Gotta admire Kro, but it sounds like the burearcatic fix was well and truly in before the fisticuffs. Thats business in China. It could be worse. In some parts of the world, business partners hire a Mr Rentakill to sort out differences.

    Kro would be best advised to churn out a best selller a la Gordon Belford and then hit the lecture circuit. Seriously, and he would make a ton more immediate money in the bank.

    Probably hurt the feelings of expat supporters….

    • We now have two running option for Kro: move business to Taiwan and start a speaking circuit (after the requisite book).

      I think these are easily combined.

      • Damjan

        I ran both ideas by Kro. He likes Taiwan. If he does eventually move there, we’ll know where to trace the idea back to.

        • Jones

          My Taiwan suggestion timestamp is a few minutes earlier ; )

          • Kaohsiung (specifically) business move **copyright Kevin S.** May 12, 2010 at 7:02 am

            My contracting fee begins at one daily 卤味包 and a bag of tea eggs.

          • Damjan

            @Jones – the copyright is yours. Consider this email signature to be legally binding. You and Kro will split everything 50/50. I’ll hold on to the money and disburse it as necessary.

            @Kevin – if I could set something up, could I substitute a daily XiabuXiabu meal for the 卤味包?

          • Jones

            I just want free pizza any time I’m in Taiwan.

        • King Tubby

          Damjan. I know I alerted you to the structured existence of folktales. Your pug_ster grizzly troll post must be the eight form, but don’t go overboard here.

          You are over-investing in every way on this one…..turning it into a mission from god. But very understandable, also.

          Chill. Its all over, or was all over when the accountant acquired the books.

          The Chinese partner will take over the business, but it will go down the toilet tres fast. Kro will come out of it all with a greatly enhanced reputation because he has youth and looks, and go onto to invent another successful business.

          And since this piece is a quantum leap compared to your first op piece on data, you have a pretty neat and hopefully profitable future in the net writers department.

          • Damjan

            More chill, less ill will. Resist the temptation to engage when there is no conflict to be won.

            King Tubby, it all vibes with me and I will continue my best to be as decent as possible. As far as this Kro’s Nest saga goes, I’ve said everything I want to say and whatever I felt I had to do is now done.

            You are the great sage of the comments section. I promise that my temper is now subdued. I will now turn my attention to more worthy pursuits, like clearing out my inbox, and joining in on the worthwhile conversation that you and Mr. Slaten already started.

        • hong ma

          I spent hours reading here because I ate at Kro’sNest near Peking University 3 years ago!To be constructive both sides should go to an arbitration judge like in US.

      • Yun

        Nice idea, I grew up in Kaohsiung, I’ve known Kro since early ’07 starting an undergraduate degree in Peking University. I’d agree with you about the population and foreign demand in Kaohsiung, but I feel obligated to tell you that my hometown of Kaohsiung is kinda…. old.

        Well, more precisely, it feels more like a retirement city than an up-tempo, rapid paced city. Of course I’d love to see him start up a place in Kaohsiung, and I could probably get him a starting attendance. In fact, I might just text him later about it (of course props to you). But the downside is that there isn’t that much traffic flow. Check out the 夢工廠 department store. One of the biggest in Asia. Last time I checked with my parents, it was a ghost town.
        Kaohsiung would be sweet. Oh yes it would. But it just wouldn’t be Beijing.

        • @Yun

          A retirement city?! haha. Come on, give the Steamroom — my loving nickname for Kaohsiung — more credit than that! A half-driven foreigner with a little cash for start-up costs could set up shop in Sanmin District (三民区), anywhere on Sanduo 3rd or 4th Rd (三多路), or around the Cultural Center (高雄文化中心). Not only do tons of foreigners hang out in these two places, but the young and “hip” Kaohsiungers will congest these areas, too.

          In short, there is money to be made. But not as much as Beijing — agreed.

    • Damjan

      All good points. Should mention that the grub was very highly rated from 2005 right until a couple of months after the Olympics.

      Above all, menu was the driver of the restaurant’s success and expansion.

  19. Heath

    Hey bud, tis Heath. Great post. I’m in OZ now, but have heard a bit about this, and good to see someone like you clearing it all up. I’ll be sure to follow to see what happens…

    • Damjan

      If its the same Heath that dominated the Rickshaw pool table once upon a time, then I ask you,

      what happened to that small city town we used to know?

  20. Jay

    Is it really wise to be giving all this information to Yuan and the police?

    • Damjan DeNoble

      If you have any doubts about the information the police may or may not have about Kro’s Nest, see paragraph three of my essay here –> http://www.chinalawblog.com/2010/02/getting_all_personal_about_doi.html

      • pug_ster

        You know, I noticed you wrote in the article:

        Considering that 1) our business was unlicensed through June of 2008 and 2) neither Kro nor I ever had work visas, this whole situation is rather remarkable. The way Yuenjie, the principal Chinese owner of Kro’s Nest partnership, explained it, “This isn’t corruption. It’s cooperation.”

        Sounds like Kro is going to need a Hail Mary to win his case. Perhaps he have an ‘A’ for entrepreneurship, but an ‘F’ for actually running a business.

  21. Jay

    Has such a rip off ever NOT happened to a foreign partner in China? It always happens – especially with restaurants. As soon as it becomes successful the foreigner is always pushed out.

    • Damjan DeNoble

      My LSAT students would point out that you were guilty of using extreme language. Then they would calmly cross you out as a possible answer choice.

      • Damjan DeNoble

        That’s my attempt at humor. But, like I told you on HHR, Jay, “At its core, this is not a foreigner versus local Chinese story, but a story where to partners failed to sign a contract and the better positioned partner won out. It happens to many foreign restaurant owners, in China, but there’s no single factor that explains why. By the same token, there are certainly many successful partnerships to speak of.”

  22. Chris Edward

    The best bit if advice I was ever given is if you would not do the deal in NY, London, or Sydney, dont do it in China.

    Kro wanted to formalize things but Yang resisted and Kro backed off. I am sure the conversation went something like this: Kro “Hey Yang, dont you think it would be best that we sit down and hammer out this agreement and get it signed? This would be best for both of us and if ever, god forbid, there was ever a dispute, we would both be safe becuase the agreement will clearly spell out who is responsible for what and who gets what”. Yang replies ” Come on Kro, how long have we known each others. We are friends….you know in China, relationships are very important. You westerners are always going on about contracts. We have to trust each other….and that does not come from contracts. In China, you have to do business different……..I feel like you dont trust me by asking me to sign the agreement, it does not make me feel good…..it sours the relationship”

    No go back to the advise……..in New York, would you back off and agree with your partner not to sign an agreement? No! So dont do in China, what you would not do in New York, London, Sydney, etc.

  23. Terry

    A wonderfully written piece Damjam about a story that I have heard so many times over my past 15 years here in China. Thanks for the link to your wonderful essay for law school that I read on CLB when it first appeared. Nice to re-read good stuff.

    I am surprised that no-one here has mentioned Sam Goodman’s experience and book “Where East Eats West: The Street-Smarts Guide to Business in China”

    http://www.amazon.com/Where-East-Eats-West-Street-Smarts/dp/1439228302/ref=sr_1_1?ie=UTF8&s=books&qid=1273657478&sr=1-1

    Read the reviews!!

    Sam of the relatively early Beijing Sammies Deli and Sandwich delivery fame wrote a great book and hit the lecture circuit last year. The book is truly a superb read on entrepreneurship and business in China. While not intending to be so, it is actually a great guide to setting up a foreign eatery in China and the trials and tribulations thereof. If I remember correctly, Sam was prescient enough to sell before being totally screwed over.

  24. Adam Morley

    The accuracy of this article needs to be checked, both Tube Station and Blue Jays existed as early as 1999, before Kro ever came to China, I have a lot of love for Kro but that is a blatant lie and I know at least 50 people that were students with me and can verify that those establishments did indeed exist pre-Kro.

    • Damjan

      Fact check. Kro’s first year in China was 2000-2001. Tubestation was not around until 2001. If Blue Jays was around 1999, then the facts I put forth wouldn’t be challenged since I said that Kro helped YuanJie with Blue Jays.

      • Adam Morley

        Fact Check, You are blatantly lying. It’s a shame because they’re is absolutely no reason to embellish details to get your point across. Just because you insisted on doing this I’m sending out e-mails to get others to verify it for me. This is pure yellow journalism no pun intended.

          • Adam Morley

            Where does that mention Kro founding Blue Jays? Did you even read that article you posted?

          • 小马

            Damjan, I must agree that Olav did play a role with Yuan Jie, and reporting on such a piece I am sure you are taking in all of the material from sources that were around during that timeframe – even pre your involvement. While I am sure you have done a thorough investigation I was a die hard patriot of the first Blue Jays, which was destroyed due to the construction of fifth ring road. It was past wudaokou but in the same general direction. It was a tragic destruction that would only be celebrated with tons of vodka that Yuan Jie provided – after the 50 Yuan entrance fee. In mid 2000 I returned to the states for a brief year, and upon my return in mid 2001 Blue Jays was no more. With exception to the recreation on the west side of worker’s stadium – note that Blue Jays was located in the basement and there was a Tube Station on top… Open late for those that may get a craving after serious drinking.

            As for the Tube Station, the very first was created down the street from No 2 Middle school attached to Beijing Normal University, and across the street from Beijing Normal west gate. It was started in spring of 2000 two friends: Seajin and Terrance, and I assisted with the original layout. We were trying to help with the décor and then just decided to write our names on the wall. In 2001 it expanded with a larger eating area, and all of the walls were covered with sayings from people. Usually the scribbles were “I was here” or the random Chinese saying, chinglish too

            One thing that is certain, Yuan Jie knew many foreigners, and over the years many of them assisted in the development and progression of his investments. The difference is Olav invested financially, from your article and media. To attribute too much to Olav for Yuan Jie’s past accomplishments would attribute no honor upon Olav. Quite the opposite has happened in the responses that I have seen. I hope that you do will take note of some feedback that people have posted in these comments and revise you article tos tick to the facts, and not necessarily opinions.

            I hope that when I return there will still be a Tube Station next to Beijing Normal University where I can partake in a pizza sub and a giant can of Fosters. I will not go there because I crave western food, rather from the nostalgia of visiting a spot with many fond memories. Also, most of the time that I was there was not to eat but to drink – great prices on Fosters!

        • C

          I think Adam’s right on this one. There was a place called Blue Jay’s that was definitely open in the Fall of 1999. Perhaps it was still owned by Yuan Jie at this point. Also, Tubestation on Xinjiekouwai was around in 2000–maybe even 1999. Again, maybe they were started by Yuan Jie or someone else and/or bought by Kro.

        • Adam Morley

          Tube Station across from Beijing Normal University and Blue Jays in I believe Wudaokou were in existence in 1999, possibly early 2000 but either way they were around pre Kro, we know this because we were in the same school group as Kro but the year before, he had nothing to do with founding those two venues, I’m not saying he didn’t help out but as I don’t know the details but he certainly didn’t found them as a 15 or 16 year old kid living in the US that never met Yuan Jie. I’m rooting for Kro but you have your facts wrong.

          • Damjan

            So let’s work together here.

            First, let’s get my wording straight. I said that Kro “helped Yuan Jie open up” the Tubestation. I didn’t say he co-owned it, but that he assisted in its opening. If I have to get more specific then I will add that this work, as far as I know, included designing a menu and the feel of a restaurant that would appeal to a foreign crowd. This much you can find documented in news articles elsewhere. So, on this point, there is no disagreement between what I said and what you saw.

            Second, Blue Jays I am admittedly hazy on. He definitely worked as a bar tender, though with the facts you’ve presented it appears that my understanding of it might be a stretch. So, since this article is being cited by a lot of sources, this point is worth an update.

            Third, and this is for anyone reading, let’s stick to a baseline level of decency in the comments section. It will make anything said more valuable than something posted on a tween manga forum. “F-you, you’re a liar,” is not the most effective way to get a point across or to build a valuable dialog.

          • Henry

            I find it hilarious this guy didn’t bother to check what he published here, told the guy who respectfully pointed out the errors that it was in fact the reader who was wrong and backed it up with an article that doesn’t even cover the topic in question then tells him not to use f-you attitude (which he didn’t). Frankly, if Damjam is ok with stating things he’s hazy with as fact and then still defend them without actually putting the slightest bit of research into it then I think it’s safe to agree that this is pure shameless yellow journalism and nothing written here can be trusted.

          • W

            I can also second Adam’s recollection…I was living in Beijing in 1999 and went to both the Tubestation and Bluejays. So maybe Kro helped with the redesign? At any rate, Adam’s definitely telling the truth.

  25. A sad and sordid but not surprising tale. I don’t have much else to add to what others have said, except that I agree with Damjan’s early point:

    “I once believed that if God had it writ­ten in stone that every for­eign restau­rant owner in Bei­jing was guar­an­teed to lose every penny of invest­ment put in, no mat­ter the cir­cum­stances, Kro would still come out ahead, because he was above the circumstances.”

    On a practical level, my kids are devastated they can’t go to Kros Nest when we have nice return visit to Beijing this summer.

  26. lolz

    I have not lived in Beijing before so I have no idea who this Kro guy is or his pizza joint. However it does sound like his partner forced him out for whatever the reasons.

    I think people should keep in mind that China only started to allow privatization not so long ago so its laws can hardly address challenges faced by locals, not to mention foreign people. To say that there aren’t enough lawyers in China is an understatement, but at the same time people should have realistic expectations about China’s evolving laws.

    In the wild-wild west where there are barely any laws you can make a fortune quickly, but at the same time you can easily lose your shirt as well. Even if he were a good cook I don’t think people like Kro will not become nearly as successful in the US as he did in China; the same could be said of many if not most expat owned resturants and bars. Yet in the case where you have a dispute between domestic and foreign partner I think it’s pretty simple who will win; the one who knows the local landscape better. Risk, rewards.

    • Mark

      “Beijing Blue Jay Food and Beverages Co. Ltd.” (JVC) was established in 1996, sold in 2003.
      If you have more questions regarding the company please contact one of the formal owners , bluejaybar@yahoo.com

  27. Chris

    Pugster said “Your atti­tude seems to be that China’s laws are ille­git­i­mate”. They are illegitimate because the government is not democratically elected nor are the accoutable to the people.

    Pugster said – “Here in the US I think some of the laws and court sys­tem is stu­pid and out­dated. But I chose to abide them despite by opin­ions. ” Thats becuase you live in a democracy and if you dont like the laws, you can protest against them, vote in politicians who will help you change them (or even run yourself), you can organize campaigns to change the laws and you have the right to hold accountable those who enforce the laws….THAT IS THE DIFFERENCE BETWEEN THE US AND CHINA (AND YOU AND ME)

  28. Fascinating story showing the darker side of business in China. Hope Kro gets some kind of justice, unfortunately it will be tough.

  29. SJ

    Won’t go to the Kro’s Nest again… But I will go wherever Kro lands… And I’m sure he will land…

  30. I used to play softball with Kro and Yuanjie. I don’t know much about this case, but I will say that Kro is a great guy, and Yuanjie is a shitty softball player.

    That Kro’s being so mellow despite this BS is just a testament to how cool he is. I only hope the law comes down on his side.

  31. Rossen

    As one of the foreign owners of Blue Jay and former partner of Yuan Jie, I can categorically state that Kro had no connection with the business in any way. He did not even work there as a bar tender. I do not appreciate the fact that it has been insinuated he was connected with my business, even as an employee, when this is totally not true. he certainly played no part in our pub/club.

  32. Let this be a lesson to anyone doing business here using other people’s names; pay the legal fees, have the registered capital, and form a proper WFOE (Wholly Foreign Owned Enterprise) or JV (Joint Venture) with a legally backed contract in the PRC. You cannot expect Chinese law to protect you without having gone through the proper formalities of forming a business in China. I am forming a WFOE right now and although the process is tiring, not cheap (~30,000 rmb in legal fees and incorporation fees) and requires a 3 Mil rmb registered with capital 20% upfront, in the end we will have the legal protection to survive in China’s business world.

  33. at work

    Colorful, lad mag story with lots of anecdotes and name/status dropping and association – A-List Foreigners fluent in Chinese (oooooh, the cool kids!), FHM celebrity photo shoot, this and that blogger, etc. But the OP was poor on specifics and, given some of the later comments, namely those disputing dates and ownership/working relationships of restaurants named, the OP played fast and loose with at least a few “facts” as well.

    “Bauer says he lost $100,000 early on because he ignored account­ing books and made mis­takes like let­ting kitchen costs overrun.”

    So, does this mean that Bauer initially invested $100,000 (or more) or that revenue in this amount (and potential profit/income) was frittered away? There is a big difference.

    There is entirely too much default China bashing here. This isn’t an indictment of business in China AT ALL. It’s an indictment of long-term, willful naievety, of business plans that stayed in the incubation stage long after the actual business had matured, and of those so willing to listen to yet another tale of the Chinese sirens luring wholesome and salt-of-the-earth foreigners to their rocky demise.

    The OP kind of lost me when he brought Yuanjie’s kid into it, as if having a kid or a pregnant wife might have made him suddenly less than noble? Leave the kid out of it, that’s way too personal without a direct link stated in the article.

    Were the roles reveresed, would many be eager to subscribe to stereotypes about older, crafty, $$$ stealing foreigners praying on gullible, hardworking and charismatic young Chinese?

    Hopefully there weren’t too many grammar errors in my post, or tell-tale signs of Chinglish. It seems that some posters, like Pugster, were attacked not just for their message but also, subtly, for seeming to take side with their “countrymen”.

    So, hope the OP appears to clear some of the mystery up. Numbers, gentlemen! WHo put in how much cash, as opposed to charm and foreigner guanxi? Charm equity and Guanxi capital don’t stand up in a court suit.

    • Henry

      this author and website should be ashamed of themselves

      • I wonder why Damjan stopped responding in the comments… Good luck at law school, bra. When you get out you can defend justly accused criminals, get them off the hook and go hide in your mansion.

    • pug_ster

      Reminds me of an Globaltimes opinion article about “Online viciousness mirrors moral breakdown in real world”

      http://opinion.globaltimes.cn/commentary/2010-05/532614.html

      If you are going to post stuff online, you are probably going to get a diverse range of opinions. Personally, I think it is childish of some people here who personally attack me for my opinions on this matter. I get used to all this ‘China Bashing’ and I am used to how some people play mind games (I learn that from my wife.) It might come as a surprise, I respect other’s opinions even if I don’t agree. Too bad that some Chinese expats here don’t respect mine.

  34. I personally know very well Yuan Jie for a long time and give all of my support to him. I hope that everything will end in his favor.

    I am very sorry for most of the people here in the forum who want to make it very noisy event and even politicize it. Another important issue is that they also want to drive back the foreigner investors by sounding loud such events.

    And not at last for the writer of the article -his passion and adherence are very obvious, especially the way the article is written. I am very sorry for him – loser!

    • Jeff

      You support a guy who’s saying that Kro is “just a cook” and has no ownership of the restaurant–even though the restaurant is called “Kro’s”?

      Must be some clever Russian logic. I don’t get it.

    • Eric

      Yeah, well Russian buisness people can be trusted just as much as Chinese ones.. so I am not surprised at all that you support the scammer.. fucking ruskies.

      • Well Eric, you can go and fuck yourself in the ass. Go play COD4-2 and kill all of the “fucking ruskies” which you hate so much.

  35. Reply to Jeff:

    Yes, you are a wise guy Jeff,and it is a Russian logic which is much more clever than your American stupidity.

    I don’t know Kro but there is a probability that his nickname comes from the name of the restaurant.

    Have you heard it with your ears that Yuan has called him that way?

    • Jeff

      Yes. I know them both. Yuanjie himself isn’t actually that greedy, it’s his wife that’s the problem. She’s been pouring honey in his ear for years to get rid of Kro because she doesn’t like his tats and brash attitude. She also resents that Kro doesn’t seem to respect Yuanjie–actually, Kro DID respect the guy a lot, he just treated him like any American would treat a close bro. He teased and taunted him, even used bad language and criticized him. That’s how we treat our friends.

      Sorry if my Russian comment offended you, I can see how it would.

  36. K

    A word of advice to anyone looking to set up a business in China — control the books. In my 15 years opening restaurants in China, I’ve heard countless stories of Chinese partners running off with the bank. In all cases, regardless of the legality, it was the foreign side’s total ignorance of how the books were kept that made it possible. There are many foreign accountant firms (with English speaking staff) who can take over daily managing of the books, doing quarterly audits or whatever. As long as the foreign side control the books, there is little the Chinese side can do.

  37. Renata

    i love Kro and i hate Yuan Jie from the very beginning, i hope everything will be good again for Kro, ASAP!!!

  38. Businessman?

    Cover of a business magazine?

    Really?

    Pathetic. Business 101 – no matter where you are in the world. Get a contract signed and get the lawyers to do it.

    Pathetic. Good life lesson. He may yet use this experience to become a “businessman”. Especially when the business has no IP or inherent “expertise” that could keep partners honest. Substitutable, replaceable and generic…….. all signs that should cause introspection and… a CONTRACT.

    :-s

Continuing the Discussion