Avery won the first of the contracts, for about 13,000 cars in Shandong province in eastern China. It was a bonanza for the Pasadena firm and the institute. According to interviews and internal Avery sales reports viewed by The Times, the arrangement worked this way:
Avery received vinyl sheets from its factory in Chicago at about $10 per square meter (1.2 square yards).
The materials were sold for about $27 to a contractor who cut and prepared the reflective sheets. Avery bought back the prepared products from the same contractor for $50 a meter, then offered them for $62 to a company owned and operated by the Public Security Ministry.
However, Avery returned $10 per square meter in the form of a "commission," allowing government officials to pocket that money, said a former manager familiar with the deal. Avery made at least $300,000 on the deal, according to company sales reports.
Representatives of the institute and the company associated with the Public Security Ministry would not comment on the deal.
Slippery slope
In China, it isn't unusual for a government agency to own profit-generating companies to raise money for research and other efforts. But their legal structures, finances and relationship with government officials are murky.
"They are in a gray area and very likely breed corruption," said Hu Xingdou, an economics professor at the Beijing Institute of Technology.
During 2003 and 2004, it became common for Avery managers to retain Chinese "consultants" to secure contracts in exchange for a share of the proceeds. One was a midlevel Public Security Ministry official who said he could connect Avery with a state-owned truck manufacturer in northeastern China that needed red-and-white reflective stickers for the backs of trucks.
Avery's expense accounts also showed lavish spending on entertaining clients, according to people who recorded the reports.
By summer 2004, things were changing. On a Friday morning in September, Ding said, he was called to the 11th-floor conference room of Avery's offices in southwest Shanghai. Sales were running at triple the pace of two years earlier, and Ding thought his superiors might want to renew his contract. Instead, Avery sent him packing.
Shortly afterward, lawyers from Latham & Watkins in Los Angeles became regular visitors at the company's offices in Shanghai. With others, they interviewed employees and combed through expense reports, contracts and e-mails.
