The Heritage Foundation

Lecture #411 on Asia

October 2, 1992

October 2, 1992 | Lecture on Asia

The Emergence of Greater China: The Diaspora Ascendant

(Archived document, may contain errors)

The Emergence of Greater China: The Diaspora Ascendant,

By Andrew B. Brick Coleridge said that in politics what begins in fear usually ends in folly. In communist China, it was faith-or more nearly, a kind of ideological zealotry-as well as fear that produced the madness. Not a Lewis Carroll, nor even a Thomas DeQuincey, could capture the sheer lunacy of a system that insisted, under the incantation of a "great lettp forward," that meals could be made without food, and pigs fattened without feed, and so- engineered a famine'that killed some 25 mil- Ron people. Y et, the roller coaster that carried the People's Republic through one communist party "cam- paign" after another, ruining lives and, for a time, the prospects of an entire nation, has given way to a desire for political calm, for stability. What emerges i n today@s China is the picture of a frightened and increasingly unrooted people stumbling down the road to an uncertain future, but one with perhaps the hint of promise. Emerging as well is a sense that, despite all the horrors, the spirit of, individualis m has some- how remained alive. Trying to make good the losses they have suffered through four decades of communist rule, the orphans of China's failed revolution may still be canny enough to be good capitalists. A fledgling marketplace, itself the manifes t ation of a reawakening individuality, flour- ishes in significant parts of the country. On sidewalks throughout Beijing, or Shanghai, or any of seveW dozen Chinese cities, garish badges of Mao Zedong, for decades the quintessence of ccxn- munist chic, are traded like baseball cards. Scarcely a generation removed ftom his worse excesses, even the founder of the People's Republic apparently has gone to market. So, too, have many of the some 55 million overseas Chinese who are returning to the mainland to tra d e for those Mao pins-and a lot more. However unpalatable China's politics may be, the overseas Chinese have always felt the cultural, linguistic, and often the familial pull of the place day cone from. "We are the best a nation could hope for in so-called f traditional family values'," cheerily observed Winston Wang, the general manager of Taiwan's Nan Yt Plastics, in a recent conversation, "and our primary value is that we return with lots of money." Certainly Deng Xiaoping, China's paramount leader, real i zes this. A decade and a half into his massive liberalization, which has seen not only a radical fiwing of the economy but a dramatic opening to the West through travel, tourism, and modem communications, it is clear that cultivat- ing the Chinese diaspor a is integral to Deng's modernization program. Today, at least 75 percent

Andrew B. Brick is Senior Policy Analyst with The Heritage Foundation's Asian Studies Center. This lecture was commissioned for a forthcoming symposium under the auspices of the Helen Dwight Reid Educational Foundation and was presented, in part, to The Heritage Foundation's China Trade Woddng Group on September 9,1992. ISSN 0272-1155. 01992 by The Heritage Foundation.

I Conversation in Taipei, Taiwan, January 1992. Dr. Wang's attribut ed quote, it should be notrA proves more the exception than the case in this essay. This is purposely so: To protect sources and sources' business interests, many quotations in the text@ all of which are avthentic, frequently must go without attribution.

of the mainland's roughly 28,000 enterprises with significant foreign equity are financed by eth- nic Chinese who live outside China. Hong Kong and Taiwan together account for two-thirds of the direct investment. The Chinese of Southeast Asia add another 10 to 15 percent." Dismissed as crooks and capitalists by Mao just day-before-yesterday, the overseas Chinese have accepted Deng Xiaoping's invitation and retumed-or let their wallets do the walking-to their mother country. Induding Know-how and Technolo g y. "I call it the 'Open Wallet, Open Heart' syndrome," a former Chinese ambassador remarked in a 1991 interview. "There are no tied loans like the ones the West or Japanese offer. Instead, it is direct foreign investment that includes know-how and technol o gy. And it is indiscriminate as well.-Those 6f-modest- means return M the homeland with cash and gifts for relatives, while the wealthy come ready to undetwrite schools, roads, or Hbrar- ies in their ancestral villages. This is especially important in a c o untry! as historically troubled by the onus of modernization as is ours." He then ad td, revealingly: "Today, the barbarians who come to change China are China's own children." Their impact is proving significant. The Chinese economy grew three times fast e r over the last decade than the wealthiest twenty countries in the world and will easily be number one, uncon- tested, in the 1990s. By the year 2000, southern China-the most immediate beneficiary of the Chinese diaspora's commercial in-migration-wiII be a s wealthy as southern Europe. Indeed, if the southern Chinese provinces of Guangdong and Fujian were cut loose from the People's Re- public and linked to Hong Kong and Taiwan in a mythical Republic of South China, that nation would have a population of 12 0 million, a combined gross domestic product of $320 billion, and would be an economic force roughly comparable to Brazil-only with much brighter prospects. This lecture examines the emergence of the overseas Chinese businessman as an impelling fac- tor be h ind the development of a commercially borderless (and increasingly influential) Greater China-an amalgam of economies, both formal and informal, that stretches from southern and coastal China, Taiwan, and Hong Kong, to diverse focal points of the Chinese d iaspora around the Pacific rim. It examines the well-heeled and tightly-knit global network of family-owned Chi- nese firms through which flow money, goods, ideas, and occasionally -people. Although the lecture explores the economic, political, and social future of the Chinese communist mainland, this is set in the context of the transnational Chinese economy. And deliberately so: it seeks to bring to the fore the evolving, but still elusive, presence of capitalism as a factor for change in the relationshi p between the communist mainland and its Chinese periphery; and to ascertain, however theoretically, what constraints this presence may impose on the futurd of Greater China's international economic role-and on the political institutions of the mainland, a nd the re- lations of each to the other.

Consequences of an Intermittent Diaspora The Chinese dispersal across 109 of the world's countries is one of the great migratory sagas of all time. The ubiquitousness of Chinese overseas is an index of how much they have been part of universal population flows. There are said to be an approximate 55 million Chinese scattered

2 Many of the statistics on overseas Chinese economic activity in the mainland that are provided in this paper come from the General Statistic al Department of the National Economy of the State Statistical Bureau, People's Republic of China. The author interviewed the director of this department, Zhang Zhongji, in Jtme IM. Also helpful: The Overseas Chinese Economy Yearbook (Hong Kong. Hong Kong University Press, annual). 3 The specific source has asked to be left unidentified.


around the world, the consequences of an intermittent diaspora, that has been going on, by choice or compulsion, for the last five centuries.4Most of the exodus has be en precipitated by the ex- cesses of the Middle Kingdom within the last century. And while it is doubtless true that the Chinese have clustered in cities far from the compass of their native land, it is around the Pacific that they are most obvious, eager participants in the new social and economic order of the con- temporary world. This is not to say that they have little stake in their "immigrant" communities. In the dozen Asian lands through which they are sprinkled, the Chinese command resources far be y ond their numbers. It is a diaspora, stoked with masses of dollars. Even the most conservative estimates. put the present gross national-product-of all --Chinese -liVing-outWe the mainland at $500 billion, a third laver than the PRC's $375 billion and, pe r capita, at about 80 percent the level of Italy or France. A disproportionate share of the commercial life of every Southeast Asian country is controlled by Chinese businessmen. Of Asia's so-called tigers-the "south's" fastest developers over the last thi r ty years-only Korea is not Chinese. Almost all the citizens of Hong Kong and Taiwan are Chinese. So are three-quarters of the Singaporeans. Indonesia, Malaysia, the Philippines, and Thailand all have Chinese minorities that account for shares of their eco n omies out of all propor- tion to their numbers. Precise shares can often only be estimated. But all the numbers point the same way. X In Indonesia, a Chinese minority makes up only 4 percent of the population but controls an estimated 75 percent of the co u ntry's corporate assets and 17 of the top 25 business groups. X In Malaysia, three decades of politics have been dominated by a debate over the division of wealth between the Chinese minority and the Malay majority. And the nation's biggest group of forei g n investors is from Taiwan, cumulatively topping $2.3 billion in 1993. X In Thailand, half the country's gross national product is produced in Bangkok, a Chinese city in Thai disguise. Ethnic Chinese, it is estimated, make up 10 percent of the population b ut own 90 percent of the nation's commercial and manufacturing assets, and half the capital of the banks. X In the Philippines, fewer than one percent of the people are pure Chinese but nevertheless control some 58 percent of the nation's commerce. Chines e -owned firms, moreover, account for two-thirds of the sales of the Philippines' 67 biggest commercial enterprises and dominate the smaller ones to an even greater extent. X In Singapore, some 3,000 multinationals have set up shop in order to take advantag e of a planned "growth triangle" with the Malaysian state of Jahore and a handful of Indonesian islands off the coast of Sumatra. The island-state's 2.7 million people, 77 percent of whom are ethnic Chinese, enjoy the second largest hoard of foreign curren cy reserves per person

4 Actually, quick calculation makes this number about 562 million. Including 21 million in Taiwan and 6 million in Hong Kong. there are 7.2 million ethnic Chinese in Indonesia, 5.8 million in Thailand, 5.2 million in Malaysia, 2 milli on in Singapore., 1.5 million in Burma, 800,000 in Vietnam, 800,000 in the Philippines, another 1.8 million spread throughout the rest of Asia, 1.8 million in the United States, 600= in Canada, I million in Latin America, 600,000 in Europe, and 100,000 in Africa. 5 The Economist conservatively estimates the "GNP" of overseas Chinese to be $450 billion but apparently excludes the Chinese living outside Asia. See "A Driving Force," in The Economist. July 18, 1992, p. 21.


in the world: $12,834.13. Only Br unei's $38,000 per person is greater (and this is a'Yake" statistic, reflecting the fabulous personal wealth of the Sultan). X In Taiwan, some twenty million Chinese on an island the size of New Hampshire have realized staggering levels of economic growth . In 1950, the year Chiang Kai-shek's Nationalists fled mainland China for "temporary" exile on Taiwan, the incomes of Taiwanese and mainland Chinese were about the same. Four decades later, Taiwan's per capita gross national product dwarfs that of the mai n land; per capita annual income, in a society with few extremes of wealth and poverty, is today $8,813 (and on the mainland, $350). The island has not recorded a decline in gross domestic product in 40 years. Taipei's foreign exchange reserves are over$86 b illion, the largest anywhere'in theworld. They rose by $ 10. billion in the last year, are expected to -rise by another $ 10 billion this year, and could reach $100 billion by the end of 1993. X In war-torn Indochina, most operating Cambodian factories, f r om distilleries to cement mills, have been sold or leased to Sino-Khmer businessmen and their overseas Chinese cousins from Hong Kong, Singapore, and Thailand. The largest foreign investment in Vietnam, moreover, is by far that of Chinese businessmen from Taiwan. X And In the Hong Kong complex, economies boom beyond all expectation. Serving as the management and financial hub of a region where economic growth tops 13 percent a year, Hong Kong hovers over southern China just as New York City does over the n o rtheastern United States-it is the mother of all development. Twenty percent of Hong Kong's bank notes circulate in China's Guangdong province, where some 16,000 Hong Kong-owned facTries employ three million workers and export almost $11 billion worth of g oods a year.6 Guangdong's estimated gross domestic product is $78 billion (or $1,230 per capita), roughly the equivalent of Thailand's and almost double that of Malaysia.7 Numerous academics, learned papers, and Ph.D. dissertations have advanced theories t o ac- count for the Chinese diaspora's remarkable commercial performance. Some have sought explanations in Chinese business style and practice, others in Chinese,culture.8 Undoubtedly, both explanations are to some extent correct. The overseas Chinese ind e ed com- prise one of the world's great economic engines and their performance rests on sturdy and time-tested foundations. The Chinese always have had a predilection for low-margin, high-turn- over business. As far back as the sixteenth century, European t ravelers in Asia admired the efficiency of Chinese firms and their ability to persevere on the strength of a steady accumula- tion of small returns. Moreover, the Chinese are prodigious savers and investors. "Chinese just hate debt," one American banker i n Hong Kong recently remarked in conversation, "so they save and save, not merely for a rainy day, but for a rainy year.999

6 In November 199 1, the Research Departme nt of the Hong Kong Trade Development Council estimated that some 28,000 fictories in the mainland are actually owned by Hong Kong interests. See its "Survey on Hong Kong Domestic Exports, Re-exports and TriangularTrade." 7 This is a World Bank estimate. S ee Transition, Volume 3, Number 2 (February 1992), from the Socialist Economies Reform Unit. 8 The best work on the Chinese, businessman is by S. Gordon Redding, The Spirit of Chinese Capitalism (Now York: Walter de Gruyter Press, 1990). See, too, a featu re article on the overseas Chinese, "A Driving Force," in The Economist, July 18,1992, pp. 21-24. 9 Conversations at The Heritage Foundation, August 1992.


He exaggerated only slightly. Bank deposits alone on Taiwan exceed $300 billion; add to that gold holdings and deposits in an underground financial system, and the figure for ready capital easily doubles. This, by the way, excludes the island's $4,128 worth per capita of foreign ex- change holdings. The Ecowmist guesses that in Chinese parts of Asia, savings rates run at 25 to 45 percent of gross national product. Worldwide, meanwhile, overseas Chinese hold about $2 tril- lion of liquid assets, excluding securities. Japan boasts IF me $3 trillion in bank deposits, but there are twice as many Japanese a s overseas Chinese. Capital accumulation is further encouraged by Asia's penchant for high, market-determined real interest rates and low taxes. Most of Asia that is. "Chinese would never have accepted the Korean path to prosperity"' one -of Taiwan's econ o mic' poricymakers observed in a 1991 inter- view. "Government allocation of low-interest credit fundamentally runs counter to the Chinese business spirit which favors relatively tiny, equity-based family firms." He then added, with a devilish look: "And C h inese businessmen know exactly how to get what they want from govern- ments."ll Buying Protection. That the Chinese businessman is no stranger to the world of bribes and back-room deal-making should come as no surprise. In Asia, corruption has often oiled the wheels of bureaucracies. And history is replete with examples of rich but politically vulnerable minorities, wherever in the world they find themselves, buying protection by making mutually beneficial and sometimes corrupt bargains with those in power . Today, joint ventures between Chinese businesses and government enterprises, ruling parties, military interests, and presidents' families are not uncommon in Asia. Observed Nan Ya Plastic's Winston Wang: "For Chinese mi- grants, it hasn't always been eno u gh to be shrewd, adaptable, daring, credit-worthy, and all the rest of it; the aspora deposited us Chinese in climates where it was also necessary to be politi- cally canny. .P2 Canny is one way to describe the typical Chinese business. Based on a commerc i al structure that is highly decentralized and secretive, Chinese firms are almost invariably family-owned and run autocratically, yet cooperate smoothly and informally with each other, firquently across na- tional borders that are becoming ever more porou s . "A company for carrying on an undertaking of great advantage, but no one 4o know what it is," is how the Chinese South Sea Trading Com- pany described itself in 1711.1 The description fits most Chinese firms today. The Family Always Rules. No doubt the t ypical overseas Chinese enterprise would confound management pundits in American business schools. Business is bound by kinship and directed by one man, the family patriarch, who alone knows how the cash circulates among the myriad companies he has single - handedly created. If it seems a certain synergy among the parts of his operation is missing, that is illusion. The family always rules. The diaspora's distinctive form of social and business organization, observes the Hong Kong billionaire entrepreneur Go rdon Wu, is like a tray of sand. Each grain on the tray is not an individual but a family, and the family is held pether not by law, or government, or national solidarity, but by blood, trust, and obliga- tion.1

10 See The Economist, July 18, 1992. These nu mbers were also confirmed in October 1991 interviews with K.C. Lee, director of research, at the Council for Economic Planning and Developinent.Taipei.Taiwan. I I Conversations in Taipei, October 199 1. 12 Conversations in Taipei, January 1992. 13 This li ne is taken from an excellent article on "Asia's Emerging Economies" by Andrew Cowley in The Economist, November 16,1991, p. 6. 14 Quotation is from an October 1991 Hong Kong Radio Interview with GordonWu.


In such light, it is easy to see how the globa l network through which money, goods, ideas, and sometimes people move from one firm to another is made possible by the special nature of the Chinese diaspora. Many of today's overseas Chinese originated in Shanghai, notably the textile- makers who fled f r om communism to Hong Kong in the late 1940s and sparked the British colony's first industrial boom. Southern China is at the heart of an ethnic Chinese network that stretches across East and Southeast Asia and has made the overseas Chinese a business forc e in the region. Guangdong's emigrants have gone not only to Hong Kong but to Thailand as well. The Fujianese diaspora has outposts in Indonesia, Malaysia, the Philippines, Singapore, and Tai- wan. @4 gney, factories, managers, and trade flow through chann e ls opened by language and blood.1 A Single, Informal Market. However widely separated they may be in the diaspora, Hakka will work with Hakka, Cantonese with Cantonese, and Chiu Chownese with Chiu Chownese. The certainties this provides and the informalit i es it allows shape the grandest transactions as well as the most humble. Indeed, throughout the Chinese diaspora there exists a single, informal market for capital and commerce that helps shape the unique structure of the overseas Chinese economy. Today, i t is a relatively simple matter for a Chinese family in Taipei to move money through Asia simply by transferring large sums of cash between affiliated Chinese gold shops throughout the diaspora. In Greater China, the ties that bind are also the ties that bank, even if that "bank" masquerades as a jewelry store or a restaurant.

Citizen Chen Deciphering the worldwide overseas Chinese commercial network is straightforward enough, as long as the ritual is not confused with the real. This especially is so when one encounters the modem-day Chinese businessman. Consider, for example, Tony Chen of Taiwan. 16 It is ritual for a businessman like Tony Chen to describe him- self as a Confucian. In the company of foreigners he will be clever, appear well-educated, disc e rning, and imbued with an unerring sense of taste and style. He will admit to an abiding love for the better things of life-good music and painting, fine food and wine, an evening of rare tobacco in a long churchwarden. He will insist, however, that he is no snob: his position has been pined by hard work and ferocious competition, with no social or economic advantage to give him a head start. He simply is a man who enjoys the common touch, easy in the company of kings, yet comfortable with those who are hi s intellectual and social inferiors. He respects his country and the system under which it is ruled. He displays reverence -for his elderly parents, be- stows much of his income to their benefit, and provides them space in his home no matter how cmmped it m ight be. Likewise, he honors the memories of his ancestors and takes care to visit their graves, keeping them tidy and blessed. He expects obedience and respect from his children, and brooks no argument or dissent. They will labor hard at their studies, h e insists, just as he did before them. He treats his friends generously. He is courteous to strangers. He is, in the eyes of Westerners, almost the caricature of a pillar of rectitude from the pages of Norman Vincent Peale. Economic Miracle Maker. In reali t y, though, Tony Chen is a long way divorced from the Confucian idea of a cultivated man. He is 54, married with two children, and a hard-faced disci- ple of the Asian economic miracle. Tony Chen is as ambitious as Gordon Gekko and, at times, just about as unscrupulous. He runs several factories throughout Asia that hire low-wage work-

15 See Redding, op. cit. 16 The author first introduced Tony Chen, a fictional construct from real sources, in his Heritage Foundation studies. See his Heritage Lecture No. 363, "Chinese Water Torture: Subversion Through Development."


ers to sew hideous clothes-stone-washed denim mini-skirts trimmed with sequins-that are the fancy of Eastern European schlockmeisters. His life is the stuff of which economic miracles are m ade. Consider Tony Chen's daily routine. He arrives at the office every morning at eight o'clock sharp and assembles his staff for a meeting at 8: 10. He is never late, and will accept no excuse from anyone who is: those who straggle in after the deadline are fined-$50 for the first offense, $100 for the next, $200 for the third, and so on. Mercifully, his system recycles itself to zero each month. Tony Chen -runs his office-along stdctly. hierarchical lines. Everyonehas a rank, from tea-boy to clerk to se c tion supervisor. Everyone in the office must display deference to those of senior rank -and studied indifference to those below. Only employees of a certain rank may write inter- nal memos. Tony Chen presides over the single open-plan, cockroach-infested, smoky office. Under a sign that demands, "Why aren't you a millionaire yet?" he distrusts all of his employees. He insists on seeing all inbound correspondence, signing and countersigning all outgoing papers, approving all decisions, affirming all minutes , and initialing all orders. Everyone must call Tony Chen 44sir.99 Particularly his two sons, the only people in the business whom Tony Chen really does trust. "They are my eyes and ears," he always says. Number One Son oversees factory production and spen d s much of his time traveling from Taipei to the family's industrial estate outside Wenzhou in mainland China's Zhejiang province. His primary mission is to keep corrupt local officials happy with generous gifts and bribes. It is they, after all, who have r ented the land to the Chen family and help smooth over any bureaucratic potholes. Number Two Son recently graduated from UCLA and now works for Levi-Strauss in San Francisco as a kind of benign industrial spy. Tony Chen instructs his children on the ethic s of their craft, ethics that would have turned even Willie Loman's hair white. The end justifies any means, he tells them., They may lie, cheat, and harass without let or hindrance in order to make a sale. Their high-pressure activities may result in mist a kes, and furious customers, but Tony Chen tells his children never to apologize for any- thing: blame the customer for failing to understand, blame others in the organization, blame paperwork or translation problems, blame the gods if need be-but never ta k e the blame them- selves. "Making money is the only reason we are here ... everything you do must ahn to keep the family business on top." Binding Blood. And blood literally binds Tony Chen's business. Attending to the family fi- nances and exploiting per s onal relationships-in Chinese called guanxi-are his most important business objectives. "The company's interests and reach are as global as our network of connec- tions," Tony Chen tells his sons. "The family is gold." SoTony Chen spends most of the day o n the phone, cajoling and "networking" with kinsmen from the same province, village, or clan in mainland China that long ago moved abroad. There are Chens inTaipei, New York City, Lima, Bangkok, Wenzhou, China, and Hong Kong. The family's hegira identifies business opportunities around the world and, jokes Tony Chen, is self- perpetuating, "As long as there exists a Chen, anywhere, there almost certainly will be a tycoon on the make." After meeting with senior employees over Chinese food and Napoleon brandi e s, Tony Chen re- turns home around ten in the evening. His -wife says little to him as he enters the small apartment. He asks in Mandarin if his mother has gone to bed and sits'down on one of two nylon- covered sofas in the family's small living room. In the comer, there is a large cage of noisy,


ever-squawking birds. The television, a big new Sony Trinitron, is always on, and loud. There are no books, other than his grandchildren's textbooks that lie all over the floor. A couple of dog- eared copies of the Hong Kong fashion magazine Joyce lie on top of the TV. Tony Chen might see his devotion to his aged mother, his strict regard for punctuality, order, and rank, and his pride in his own achievements as firm evidence of his Confucian commitment. But it is difficult to square the ideal with his undoubted avarice, admitted lack of scruples, and el- evation of money above all other considerations. After all, in a society ordered by Confucian values, the ability to profit from trading theoretically is no t to be admired. Chen, how..ever,.would dismiss suchtalk. "We Chinese- arr..economic..animals, you know," he says, "and I peddle futures on the frontlines of Greater China's new world order." From anybody else, such a comment might be dismissed either as h u bris or, perhaps, as racist cant. But Chen says it so matter-of-factly that it can only be construed as a point of faith. (And, in all likelihood, an odds-on prediction.) Once ritual and reality are set straight, what appears to drive Tony Chen is actuall y a perversion of all that Confucius stood for, as well as a shabby masquerade of the consequence of his teachings.

China's Economic Frontier Mountainous Fujian province, perched on the edge of continental Chin a's east coast, is on the frontlines of Greater China's new world order. It is ironic that this should be so. No more than five years ago, Fujian province was on the frontlines of China's ongoing civil war. When mainland Chinese wanted to see their capita l ist brethren in Taiwan, they had to climb a steep hill in Xiamen, a city along the coast of Fujian province, and, for about twenty cents a minute, peer through a powerful telescope trained on the enemy-held territory across the 60-mile-wide Taiwan Strait. Today, it is easier. Indeed, in Xiamen, and all across Fujian province, the Chinese from Tai- wan have landed. Making the most of relaxed attitudes at home and the mainland's desperate need for investment and foreign exchange, over one million people a ye a r cross the Taiwan Strait to tour, visit relatives, and most important, to invest. Consider, for instance, the story of Chen Han-fu. This 42-year-old president of the New Asia Jewelry Company shut his factory in Taiwan and moved his family and factory to X iamen in 1987 to make seashell and jade trinkets. Today, Chen speculates in land in Xiamen. "Ifigh labor costs initially drove me here," he told an interviewer in October 199L "But now I hire some 150 workers at about $40 a month-just one-thirtieth my Tai w an costs. With re savings, I buy land here in Xiamen, watch its value rise daily, then deal it for a nice profit."'I That such activity takes place in the People's Republic of China-openly, pridefully-is re- vealing: some parts of the mainland are today m o re capitalist than communist. "Socialist China doesn't sell its land," clarified Zhang Zongxu, a vice-mayor of Xiamen in a November 1991 in- terview, "but Xiamen does sell so-called 'land-use rights' and purchasers can resell thole rights." He then adds: " The process attracts foreigners and accounts for much of our growth."I So it does. In 1985, Xiamen was a dead city, with one foreign-owned factory and no street lights. Today, units in a high-rise office block still going up in the middle of town have bee n sold

17 Chen Han-fu was featured in "Going Home," by Adi Ignatius, in The Wall Street Journal, August 2,1990, p. Al. The author also interviewed Chen Han-fu in November 1991. 18 Interviews in Fujian Province, November 1991. Translation by the author.


so quickly that the Taiwan developer never had to draw down the loan he had arranged with a Hong Kong bank to finance it. 19 Launching a Peaceful Invasion. In one of the post-Cold War's great ironies, businessmen from the tiny, breakaway island of Taiwa n, whose anti-communist Chinese rulers once devised plans for militarily retaking the mainland, are now launching a peaceful invasion that is helping prop up-and gradually transform-China's ailing socialist economy. Even when tourist reve- nue and foreign investment plummeted in the wake of Beijing's 1989political upheaval following the Tiananmen Square massacre, the flood from Taiwan continued to surge. As a for- eign diplomat in Be- g observed, "Taiwan no longer tries to forcefully recover the mainland. I t tries to buy it back.'!U The low-tech, labor-intensive Taiwan businesses that for years produced the clothes, shoes, and toys that carried the famous "Made in Taiwan" label are cases in point. Four decades of spec- tacular economic growth helped push th e average income of Taiwan's 21 million people to more than $8,000, one of the highest levels in Asia. But the runaway development and new-found wealth also led to steep land prices on Taiwan, rising labor costs, and a strong local currency. The result: so m e of the industrial prosperity radiated outward, particularly toward low-cost China. Today, under the tutelage of entrepreneurs from Taiwan, goods once produced on the is- land increasingly are turned out by mainland Chinese. That the some 28 million main l and Chinese of neighboring Fujian province would become the focus of Taiwan's commercial invasion should come as no surprise. Almost everyone on both sides of the Strait speaks the regionally predominant Minnanhua Chinese dialect. And local fam- ily conne c tions, some dating to 1949 when the Nationalist Chinese Red the mainland to set up a government in Taipei, remain strong. But where common language and culture make doing business on mainland China easy, mar- ket forces make doing business there irresisti b le. The example of Chen Han-fu is illustrative: for most Taiwan entrepreneurs, the mainland's twin lures of land and labor are too promising to pass UP. Land is cheap. A Taipei businessman revealed in a recent interview that a square meter of land in some parts of Fujian can be rented for 35 cents a year on a 70-year lease. In Taiwan, the square meter can run a thousand times higher. Then, too, the average factory wage in Fujian is less than $800 a year. top-of-the-line on the mainland, but about one-tenth the rate in Taipei. "And it's quality labor, too," observes Kayser Sung, the publisher of Textile Asia. "Friends with factories all over Asia say that Thailand and Malaysia just cannot coT you go to the mainland."Aare with China. If you want high-grade pr o ducts and quick delivery, Almost $6 billion of (unofficial) Taiwan investment in the mainland, some by Taiwan's most prestigious businesses, confirms Sung's observation. The Hualon Group, one of Taiwan's lead- ing textile manufacturers, operates one of Sh a nghai's leading garment factories. Shililin Electric and Engineering Corporation, a large Taipei-based producer of heavy electrical equipment and auto parts, sells transformers to Beijing factories. President Enterprises Incorporated, the island's largest food manufacturer, grows tomatoes for ketchup in China's far western Xinjiang province, along the border with Kazakhstan. Some 70 percent of the Nan Ya Plastic Corporation's output

19 See "The South China Miracle," The Economist, October 5,1991, p. 19. 20 Discussions in Beijing, May 1990. 21 See "Asia's Emerging Economies," The Economist, November 16,1991, p. 12.


of polyvinyl chloride sheeting and almost 90 percent of its polyurethane production is sold to Hong Kong companies that ship it to China. Me anwhile, Nan Ya's parent corporation, the For- mosa Plastics Group, conducts environmental studies for future projects in Fujian. Some 8 percent of the petrochemical giant's output already ends up on the mainland. And its founder and Taiwan's most success f ul entrepreneur, Wang Yung-ching, has intermittently toyed with the idea of setting up a $7 billion petrochemical complex in Xiamen. The understandable consequence of such enterprise is that business booms across the Taiwan Strait. Cloth, machinery, elect r onics, chemical fiber, and raw materials for chemical industries constitute the principal Chinese mainland imports from Taiwan. The mainland exports large amounts of coal, -petroleum-, cotton; -and mifierils like mercury, -tin, and -tungsten to Taiwan. Tr a di- tional Chinese medicinal herbs, and animal and plant products used in Chinese art splies, many of which can be found only on the mainland, also do brisk business in Taipei. Obviously, the formal ban on direct dealings scarcely impedes indirect trade b e tween the main- land and Taiwan. Expanding at an average of 40 percent a year each of the last four years, trade through Hong Kong between the mainland and Taiwan officially reached $5.8 billion last year. Taipei predicts at least $7 billion worth this ye a r, equal to some five percent of Taiwan's $138 billion in total trade. 23 But these numbers are surely understatements. Consider, for instance, some statistics from Hong Kong, the entrepot through which the overwhelming bulk of the two enemies' indirect t r ade passes. If one were to assume, generously, that a quarter of the British colony's $13.6 bil- Bon in trade with Taiwan was unconnected with China, the numbers would still indicate that some $10.2 billion worth of China-Taiwan trade was conducted last y e ar, almost 80 percent more than Taipei's official figure. Indeed, using the same method of calculation, China-Taiwan ftwie in the first five months of 1992 was 17 percent higher than in the same period last year, with Taiwan's indirect exports to China gr o wing by some 20 percent. By the end of 1992, the real value of Taiwan's wade with China could well reach $14 billion.24 If the political hostility between Taiwan and the mainland makes the volume of such trade seem surprising, recall that the diaspora dev e loped its particular manner of doing business not least to ensure that politics do not get in the way. This is fundamentally important. "Politics used to impose borders on business," observed Xiamen vice-mayor Zhang Zongxu, "but today, over- seas Chinese from Taiwan, Hong Kong, and Southeast Asia are responsible for 90 percent of all foreign-invested enterprises in my city alone. What this is about is bigger than just politics, I think. What this is about is 2 1 st century China."

China's Borderiess Econom y Marxist and Leninist theories of imperialism assumed that the quest for ever-expanding mar- kets would in time compel nation-based capitalist economies to push across national boundaries in search of an international economic imperium. Whatever else has happened to the scientistic predictions of Marxism, in this domain they may have proved farsighted. Today, almost all na- tional economies are vulnerable to the inroads of larger, transnational markets-and of the

22 See Mitchell A. Silk, "Special Report: China-Taiwan Commercial Links," The China Business ReWew, September-October 1990, p. 32. 23 Statistics provided by the ROC and PRC governments. See as well "China's Snare," The Economist, January 4, 1992, p. 30. 24 Calculations made by author, derived fr om figures provided by die Industry and Research Division, Federation of Hong Kong Industries.


supranational enterprises that both create and require these markets-within which trade is rela- tively free, currencies are usually convertible, and contra cts are generally respected. Communist China is no exception. As the links to an entrepreneurially vigorous overseas Chi- nese economy increase, the People's Republic becomes ever more commercially borderless. Chinese corpomtions, both within the mainland and outside, are now astonishingly free of the constraints of time and space, and thus of the control of political authorities. With the punch of a key, huge amounts of capital move around Greater China. Factories in Guangdong province oper- ate through t h e night to manufacture goods that will go on sale in Hong Kong the following day. Cellular phones in Fujian keep businessmen connected with partners in Singapore. Satellites beam images of new fashions across the 7gl6be fastefthan a spebdiiig bullet and, j ust as quickly, Tony Chen's factory in Zhejiang is pirating sewing patterns for prospective customers. It is as though the market ignores sovereign borders as much as and wherever it can. Beyond Government Control. This marketplace makes its own rules. Li k e its global kinfolk, Greater China's economy has swollen to a volatile "presence" that no go vernment can fully regu- late. To be sure, each government throughout the region can avail itself of various macroeconomic tools to control financial movements, i mpose quotas or tariffs to impede interna- tional trade, or pressure business leaders to pursue a particular commercial tack. But there is little. illusion in capitals from Beijing to Bangkok that many decisions are today beyond their control, and maybe f o r the better. "Sovereignty is not like virginity anymore," Singapore's strongman Ue Kuan Yew once commented. Indeed, if Greater China is any example, there are emerging in international economic relations degrees of sovereignty; triumphant capitalism is e r oding the no- tion of absolute and exclusive nation states. Capital is the key. The movements of capital around Greater China, deposited one day in Hong Kong and withdrawn the next in Shanghai, have rendered borders ever more transparent. Throughout the a r c of countries that sweeps down from Taiwan and mainland China into South- east Asia, vast pools of capital are controlled by and distributed among "stateless" Chinese enterprises that have the ability to communicate with and control operations across the globe; the wherewithal to transport materials across oceanic distances at extremely low cost; and the means to combine relatively untrained labor forces with high technology for private gain. All these fac- tors bring into being a capacity for trade and i n vestment that can ignore or override a nation's protective barriers, not to mention its borders, that is unprecedented in Chinese history-or any- one else's, for that matter. Greater China's emerging structure of economic relations is phenomenal enough; i t s dynamics may prove even more seminal. For one thing, the market is now recognized throughout the re- gion as the arbiter of economic advancement.' Even China's communists officially sing its praises. Just this past February 23, a front page People's Dai l y encomium on the once-dreaded "C" word not only lauded capitalists but also called for "adequately developing the capitalist economy inside the People's Republic.",25 That Beijing's doddering leadership should make such a concession scarcely should have c ome as a surprise. A decade ago, over 80 percent of China's means of production was directly owned by the state. Today, about half is state-owned, and it is the less efficient half by far, individual entrepreneurs, joint-venture partnerships, and market-o riented cooperatives control the rest. This year, the burgeoning private sector will ac- count for almost 70 percent of China's some $375 billion national income, a level of private-to-public enterprise as high as that of France or Italy. 26

25 See RenndnRibao (Overseas Edition), February 24,1992, p. 1. 26 See Nicholas R. Lardy, "Redefining U.S-China Relations," in NBR Analysis, No. 5 (Seattle: National Bureau


For another thing, the ascendance of Greater China's own ethnically driven marketplace engen- ders the establishment of bases of capitalism throughout the region that are altering the nature of Asia's international economic relations in ways that can be o n ly dimly discerned. Where, in the past, the extension of capitalist links with the underdeveloped world led to little more than colo- nial outposts of capitalism-such as sundry collection or shipping points, local enclaves of plantation or mining, or over s eas offices whose place was at the bottom of the commodity chain -the effect of a Greater China transnational economy has been to create "outposts" that are in fact the pre-eminent counting houses and board rooms. The Hong Kongs, Taiwans, and Singa- pores of Greater China are today genuine centers of full-fledged capitalism, not merely provincial dependencies of -some.distant-Rome. Theirimportance-lies -inthe.umnistakable proof that high-value commodity production can be located in low-wage areas; their si g nificance lies in the prospect that this phenomenon might be applied to other low-wage areas around Greater China. In mainland China, for example. The nature of capitalist international growth makes possible a reversal of the ancient relationship between C hina's hinterland and its periphery. Today, it is not so much the Middle Kingdom that dictates terms of commercial engagement with its periphery- compelled, as in the 19th century, to establish treaty ports to regulate foreign encroachment. In- stead, it i s the diaspora that reaches inward from the periphery to snap up the safest and best commercial opportunities on the mainland. The dynamic impetus of the marketplace has moved across the invisible-and once inviolable -borders of China, as a capitalist Chi n ese periphery combines high technology and capital to extract surplus from a low-wage and increasingly ac- commodating quasi-capitalist People's Republic. What this means for the future of development on mainland China is still unclear. The wealth that ha s accrued to those parts of China lucky enough to attract the Chinese diaspora's business has added to the polarization between richer and poorer regions of the mainland. This is espe- cially true in the on-going competition for investment between the weal t hy areas of China's southeastern coastline and the poorer, less enticing interior. "Guangzhou-Guangdong's capital -gets the gold and we get the crumbs," recently observed Zhang Donghui from the Chongqing Municipal government in Sichuan province @7 Adding t o the tension is the fact that Guangzhou, and wealthy localities like it, are attracting not only the Chinese diaspora's investment but also Chinese workers from the interior. Growing millions of jobless peasants swarm through Chipa looking for work; thre e million such peasants make up the so-called "Sichuan Army" alone.' Safeguarding Their Markets. The consequence of all this has been to exacerbate regional protectionism. In recent years, rich local governments and provinces have moved to safeguard their m arkets for manufactured goods and raw materials despite Beijing's vigorous protestations. Indeed, the emergence of the provinces as increasingly autonomous and self-willed entities has become a crucial theme in the mainland's national development. As one g overnment official in Guangdong observed, "China's leaders still maintain influence over any sizable business in the country, foreign or domestic. But real commercial decisions-the stuff of development-are madeL4t local and provincial levels. It's here wh ere the power to direct the economy really lies.'29

o f Asian and Soviet Research, June 199 1). 27 Interviews in Washington, D.C., September 1992. 28 See James McGregor, "Growing Millions of Jobless," The Asian Wall Street Journal, May 6,1991. 29 Conversations in Guangdong province, November 1991.


This is seen most clearly when Beijing tries to raise revenue. With one-third of this year's cen- tral government's $62 billion budget going toward price subsidies for urban consumers and to prop up money-losi ng state industries, Beijing is trying to increase its tax take. But in China the central government does not assess taxes. It begs for them. Provinces and local governments col- lect all taxes, then essentially bargain with Beijing over remittances. Need l ess to say, local authorities have balked at the central government's profligate ways-Beijing currently runs a $14 billion budget deficit. "The old men are fiscally pressured by the provinces to maintain eco- nomic reform programs," recently commented a C h inese businessman in discussions in Washington. "Local government and party leaders listen to Beijing for the latest gossip but they watch th coast to.make -policies.-That' 8--one of themost crucial-themes Aefining China's politics today."38 Knowing, or s e nsing, how far to stretch the envelope of defacto autonomy is the key to maintaining a kind of "stable tension." Crucial as well is the changing temperament of the provincial work force. Significant areas of China are infected with the ambitions and expec t ations of their private economies. In Guangzhou, restaurants and nightspots are packed with customers until late in the evening, a rar- ity in dour, buttoned-up Beijing. Shanghai businessmen not only dress like their Singaporean counterparts, they carry a r ound the same portable telephones; one city official estimates that there are 15,000 portables in Shanghai alone. Televisions in Fujian pick up Taipei stations. And businessmen across southern China set their watches to Hong Kong standard time rather than the special summer time decreed by Beijing. Whether the growing links between the Chinese mainland and its Chinese periphery will grad- ually pull some of the more economically dynamic provinces out of Beijing's orbit altogether is impossible to say. Chin a has a.long history of territorial fragmentation. Many in southern China argue that the process may almady be underway as Fujian's economy! becomes ever more closely intertwined with Taiwan's, and the Hong Kong-Macao-Pearl River Delta region increasingly o p- erates as a single economic unit, essentially autonomous. But the prospects for such division in China proper are unlikely in the foreseeable future. In- deed, regions like Fujian or Guangdong do not need to secede in order to enjoy a high degree of ec o nomic independence. They already have it. Moreover, political cohesion within the regions is remarkably weak. Urban residents throughout the country view themselves primarily as mem- bers of a national urban class while rural residents' sense of political identity is likely to be invested in a smaller town or village where some sub-dialect is spoken. In the final analysis, the wide differences of status between urban residents and rural peasants:undermine any sense of common regional identity. Thriving in C haotic Marketplace. More likely, China will develop in much the same man- ner as its Asian periphery: under the guidance of city-states, emerging on the mainland like the city-states that surround it-Taipei, Hong Kong, Singapore, or even Bangkok, are case s in point. And for the overseas Chinese businessman, this is all for the better. "Scholars lament the eco- nomic and social partitioning of China as some terrible tragedy, and politically it may eventually be so," one Hong Kong businessman admits. "But th e fact that it is impossible to speak of a sin- gle homogeneous China today, with divisions between the city and the countryside, is not a bad thing for my business. We Chinese are used to these things. We thrive in chaotic marketplaces. It allows precisel y for the kind of manipulation of circumstances that the Chinese business style en- courages and for which it is designed."31

30 Conversations in Washington. D.C., September 1992. The source asked not to be cited. 31 Conversations in Washington, D.C., August 1992. The businessman asked not to be identified.

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Using his contacts, paying off bribes, and nurturing his relatives, this entrepreneur and others like him will conduct business on the mainland just as he always has: in and around the seams of Gr eater China's many economies. Whether he strikes a bargain with the central authorities to achieve a necessary freedom of action-in return, presumably, for the maintenance of at least the outward forms of public order-may very well determine the shape of t he regirne's political institutions for a long time to come. The jury is still out on the potential permutations of capital- ist, free-market economics and democratic politics. The Asian development model, as well as the Chinese experience so far, gives o ff ambivalent signals.

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