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in China. The visitors would obtain vouchers from China Travel Service before they arrived. They would then redeem the vouchers for the duty-free product in China and deliver it to their relatives. Lai organized and cornered a secondary market in these vouchers. Travel agents and tour guides would buy them from visitors on his behalf. Then Lai redeemed the vouchers for color televisions and household appliances by the truckload. He expanded his business by organizing cut-rate China tours for overseas Chinese who would deliver their vouchers to his travel guides. This business was centered in Shishi, a coastal city known as a smuggling center. The authorities considered smuggling a way to jump-start economic development and provide pocket money for poorly paid police and government bureaucrats. Motorcycles routinely sped through Shishi’s streets carrying towering stacks of VCRs and stereos. Some police officers drove Taiwanese automobiles, whose importation was forbidden. Lai thrived in Shishi, setting up an electronics retail store in a hotel owned by the police. As police officials and their mistresses came and went from the hotel, Lai befriended them all. He quickly figured out that directly smuggling goods into China would be much more profitable than fiddling with vouchers. With the tacit approval of his police friends, he set up a small smuggling operation that brought in televisions and motorcycles.

His success brought a steady stream of officials knocking on Lai’s door, their hands outstretched. Local governments gave him impressive-sounding awards and patriotic titles, then told him he should fund their pet projects. Like all Chinese businesspeople, he had no choice but to accommodate the requests. And because private enterprises were unacceptable in the early days of reform, Lai housed his businesses under local government agencies, whose officials demanded a percentage of the profits. In return, it was understood they would protect him from tax authorities. But one day, after drinking at a nearby restaurant, two tax officials armed with screwdrivers marched up to the home of one of Lai’s brothers, who was a business partner. They demanded entry, intent on prying open cabinets and drawers in a search for accounting books. Lai rushed to his brother’s house and threw the taxmen out, but they continued to pursue him, eventually sealing off his businesses and factories. Fed up with the legal battle, Lai left the business to his brother to sort out and headed for the big city, Xiamen, about two hours south. He took with him some $4 million in assets.

Lai didn’t stay in Xiamen long. He was tired of the hassles of making small money compared to the vast wealth he saw coming from Hong Kong. He knew that if he became a Hong Kong resident he could come back to China as a foreign investor and get tax breaks and other advantages. While he may have neglected tax officials, Lai had been assiduously courting the police; now he struck a deal with them. They would help him emigrate if Lai would help them, covering accommodations, food, and entertainment expenses for Chinese police officials and intelligence operatives who visited Hong Kong. He agreed and in 1991 he moved to Hong Kong.

The Middle Man

Lai arrived just as Hong Kong’s property market was beginning a spectacular rise. People stood in line all night to snap up apartments that weren’t even under construction yet. For an entrepreneur like Lai, the situation was ripe for huge profits. By 1993 he had turned the $4 million he brought from China into about $40 million.

In Hong Kong, Lai hosted many groups from the Fujian and Xiamen intelligence branches of the police and the military. Before long, his intelligence contacts asked him to provide them with information about the activities of Taiwan authorities in Hong Kong. At the same time, Taiwan’s network in the colony asked him to assist their intelligence gathering in the Mainland. He was even invited to join Taiwan’s ruling KMT party. It was natural for a businessman from Xiamen to be sucked into the cross-straits