Lai was born the seventh of eight children to a loyal government functionary in Shaocuo village, a couple of hours' drive from Xiamen. Reared on rice porridge, he and his four brothers were strikingly plump, known as much for their girth as their mischief making. Even during the chaos of the Cultural Revolution, the Lai boys still found time to goof around, while other village boys morphed into fervent Red Guards. "They were always up to no good," says Lai Xinli, a 70-year-old distant cousin. "But it was just kids being kids. We knew they'd grow up into something special." Lai finished only three years of elementary school, and he still comes across as a slightly slow-witted but amiable guy. He stumbles over big words, speaks heavily accented Mandarin and has trouble writing complicated characters. When he reaches the end of his long, tortured sentences, you often have no idea what he meant to say.

But Lai had a genius for making allies and money. After a few years digging wells, he pooled together $150 with a couple of friends and started an automotive-parts factory. It was 1979, and China had just opened up to the idea of private enterprise. Fujian province was one of the first to embrace Deng Xiaoping's economic reforms. With barely any private enterprises around yet, Lai's only real competition was the lumbering state-owned sector. Lai found that paying his employees slightly more than the state could pay made them work harder—which in turn helped make him rich. Over the next few years, he reinvested the profits from his little car-parts plant into a series of new ventures—soon the automotive factory spawned a textile plant, a print shop, an electronics store, an umbrella factory, a shipping enterprise, an investment company, a cigarette plant, a paper-products factory and at least half-a-dozen other enterprises. Lai says even he isn't sure how many companies he owned: "You could start a business in the morning and make money by the evening. Everything was so free and open back then that everyone had lots of businesses. You would be stupid not to."

In 1991, Lai emigrated to Hong Kong, helped, he says, by a family friend and Hong Kong resident who adopted him, even though Lai was already 35. Lai claims he changed his name to his adoptive family's surname, Cai, when he moved to Hong Kong, then switched back to Lai a couple of years later. "It was very kind of him to adopt me," says Lai. Hong Kong and Chinese police allege, however, that Lai's Hong Kong ID card was a fake, and they have convicted several Chinese officials for emigration fraud for their role in his relocation.

Whatever the case, Hong Kong residency opened up a whole new world of opportunity. Lai bought up acres of Hong Kong real estate, although he can't recall exactly how much—"it was so much, it's very hard to remember everything." He launched an import-export firm with goods from Hong Kong delivered to Xiamen's Haixin container yard, in which Yuanhua owned a 75% stake. And he bought a mansion on the Peak because he was told that's where the rich live. Still, he didn't much like it: "The people in Hong Kong are very snobby. I prefer real people."

Meanwhile, Yuanhua was growing to a point where it employed hundreds of workers, although many admitted that they didn't do much in the way of actual work. "Every year I got another raise," says a middle manager surnamed Bai, who was hired by a Yuanhua subsidiary. "But I barely did anything at all." She would come in at 9 a.m., make tea, read the newspapers, have lunch from noon till 2 p.m., then read romance novels at her desk. Occasionally, an employee from Yuanhua's main office would arrive from the port and ask her to stamp some import papers, which she would do with barely a glance. "Looking back," says Bai, "there's no way the company could have been legal, but I figured that the department next door was making money to cover for our losses." Most likely, each department at Yuanhua thought the very same thing.

In fact, Chinese authorities allege that Yuanhua was nothing but a front for Lai's massive smuggling operations, which involved goods shipped in from as near as Hong Kong and as far as Cyprus. The alleged booty included petrochemicals, VCRs, construction materials, porno tapes, designer watches and luxury cars. According to 4-20 investigators, containers filled with smuggled goods like Mercedes-Benz sedans were falsely declared to contain low-taxed items like wood pulp when they arrived at Haixin container yard. One sample container that was truly filled with wood pulp could be shown to customs officials, who would obligingly wave the other containers through.

It's a sublimely lucrative way of doing business. Chinese police allege, for example, that one of Lai's ships imported more than 10 million packs of cigarettes to Haixin in March 1999, and saved $18 million in duties by declaring them as wood pulp. Investigators claim Lai would then sell his imports in Xiamen, or would use a network of truck drivers to haul the smuggled goods to other parts of Fujian. Other smuggling methods were more sophisticated. Sometimes, according to the ex-foreman at Haixin, containers full of illicit goods were switched with legal ones that had already been approved by customs. Each month, he says, more than 100 containers were secretly switched, often at night. Still other shipments were declared to be entrepot goods, meaning China was merely a transit port, so the containers were exempt from import duties. In reality, claim Chinese prosecutors, these goods were off-loaded in China.

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