The Chinese Diaspora

Peter Kwong. Worldbusiness. Volume  2, Issue 3. May/June 1996.

Hundreds of years before there was any talk of an “Asian miracle,” vast numbers of Chinese left their homeland in search of fortune abroad. Most, from southern China, traveled first to the area that is now Laos, Myanmar, and Vietnam, then farther afield, into what is now Thailand, Indonesia, and Malaysia. The California gold rush lured some, while economic growth in Latin America beckoned others. Often they left China out of desperation—because of land shortages, wars, famines, or intrusive governments. Many left home with little except their dreams of returning as wealthy men.

Now the wealth created by the ethnic Chinese consists of a great deal more than the Chinatowns of major cities. The Chinese businessmen who live across Southeast Asia have been the driving force behind the region’s economic explosion. In Thailand ethnic Chinese make up 10 percent of the population but control 81 percent of the market value of listed companies. In Indonesia they compose 3.5 percent of the population but control 73 percent of such capital. Most of Asia’s estimated one hundred billionaires are ethnic Chinese.

Some of these tycoons have also transformed parts of North America. For example, the moneyed elite from Hong Kong own sizable portions of San Francisco’s downtown area and reside in large Mediterranean-style mansions in the hills surrounding the city. In the mid-1980s, they began investing in Canada, where the government has promised permanent residence to people who have a net worth of at least a half-million Canadian dollars and who are willing to invest significant sums in the Canadian economy. From 1985 to 1994, a little over 9.7 percent of all immigrants to Canada were businesspeople, and by 1994 more than half of those usually affluent immigrants came from either Taiwan or Hong Kong. By the end of 1994, according to one estimate, ethnic Chinese had added a net worth of $15 billion to Canada’s economy. Toronto and Montreal both benefited from this movement of overseas Chinese capital, and Vancouver, partly because of its location and climate, has been particularly blessed by some of East Asia’s wealthiest investors, who now control 25 percent of its most expensive and prestigious neighborhood, the West End.

When the totals are added up, overseas Chinese are said to control more than $2.5 trillion of wealth. For perspective, compare that with the 1995 gross domestic product in Japan of $5.1 trillion, or the figure for the United States of $7.2 trillion.

In a sense, many of these Chinese have fulfilled their ancestors’ dreams of coming home rich. The entrepreneurs who fared so well in Asia and North America have been fueling mainland China’s double-digit growth since free-market reforms opened its economy in 1979. By 1993, 69 percent of direct foreign investment in China, totaling $47.5 billion, came from ethnic Chinese in Hong Kong. Taiwan, according to China, had by 1993 put up $6.4 billion, or 9.3 percent of total foreign investment in the mainland economy. (The true figure is likely to be much higher.)

The recent success of Chinese expatriates has been so stunning that businesspeople everywhere are searching for explanations, much like when pundits speculated on the successes of Japan in the 1970s and 1980s. Was the secret ingredient teamwork? Company loyalty? A stronger work ethic? Now economic theorists are studying Chinese culture and history, and Confucius has become the patron saint of entrepreneurs and developing economies worldwide. The overseas Chinese, long the outcasts of Asia, are now the international business community’s model citizens.

Ask Casey K. C. Foung why the majority of investors who fueled and have capitalized on the Asian boom are of Chinese descent, and he has a simple answer. “When Asian countries sought foreign investment to develop, Western capital was not there,” says Foung, a New York resident who is the founder of Arch Associates, a medium-size quilt-making firm with extensive operations in China. “When China decided to open, the only capital came from the overseas Chinese. China would have preferred infusion from high-tech American and European corporations, but the West was reluctant to venture in without legal guarantees: property rights, tax laws, price deregulation, international arbitration. Overseas Chinese capital took the risk.”

Members of the Chinese “diaspora” come from a 600-year tradition of enterprising fortune seekers who escaped China’s strict government controls in order to ply their trades. Most of them came from two southeastern provinces, Guangdong and Fujian, on the cultural periphery of the Chinese empire. Operating in their new homelands without the protection of China’s government, they readily adapted to different trading systems and governing styles and established import-export businesses through commercial networks, often made up of Chinese who spoke the same dialect.

For more than 300 years, ethnic Chinese around Asia controlled rice mills, light manufacturing, and money lending. They owned plantations, oil mills, timber industries, manufacturing concerns, and the bulk of small retail shops selling staples. They thereby made themselves indispensable to the various indigenous populations and later to the imperialists who ruled them. “The Chinese,” wrote T. M. Ward, a British physician stationed in Malacca in 1827, “are the most enterprising, the most opulent, the most industrious and the most determined in pursuit of wealth.”

British, Dutch, and French colonial rulers recognized this indispensability and capitalized on it, giving the ethnic Chinese throughout Asia special status as go-betweens, especially during the nineteenth century, colonialism’s peak. Their businesses also provided the most reliable and readily available tax revenue for colonial governments, and because of that these governments barred the Chinese from all but their traditional trading occupations.

Understandably, the non-Chinese who lagged behind economically were often resentful, accusing their Chinese residents of dominating their economies by dubious means and unfair practices. After World War II, postcolonial nationalist governments in the region generally became hostile to Chinese residents, and after the fall of the nationalists in 1949, suspected them of having ties to the communists. Almost without exception, the ethnic Chinese experienced severe persecution and restrictions. In Thailand and Indonesia, they were forced to assimilate by adopting local names. In Malaysia, the government set up impediments through occupational, educational, and other quotas favoring ethnic bumiputras, or “sons of the soil.” There have been periods of intense racial violence, such as in Malaysia in the 1960s and 1970s, and in Indonesia in 196s.

Because of the centuries of persecution, overseas Chinese have developed a deep-rooted sense of insecurity and impermanence. “We’ll be here as long as there’s money to be made,” is a frequent refrain of theirs throughout Asia. This outlook, not unlike that of an illegal street vendor ready to roll up his merchandise and disappear before the police arrive, is reflected in the way in which many smaller overseas Chinese businesses operate. They favor gutsy investments in industries such as garment manufacturing, shoes, toys, textiles, plastics, and electronics, while spreading their investments around the world in order to minimize risks from political or economic collapse in their own fields. Deals are often marked by access to reliable, timely information and quick action, both of which are made possible by far-flung business networks forged along the lines of kinship and common dialects—as well as by the family structure of the businesses themselves.

“When it’s all in the family, things are more flexible; there is more trust,” says the director of a publicly traded real estate company in Hong Kong. (Like many overseas Chinese business executives, the executive shuns publicity, asking to remain anonymous.) “There isn’t so much of a corporate hierarchy. People genuinely work for the family’s interests, not to prove themselves and climb the corporate ladder. Traditionally, decisions are made more quickly. There’s no need to jump through the hoops of board meetings and shareholders’ meetings.”

Of course, there is nothing peculiarly Chinese about these networks or patriarchal family businesses. “Just look at the Rockefeller family,” says a Chinese American with a master’s degree in business from Columbia University who once worked for a major United States corporation. He is now helping to restructure his family’s manufacturing business, which has operations in Asia, North America, and Latin America. “There is nothing ethnic about it. American businesses start out small, too, and they have the same family-oriented structure. But as the business grows, accountability and reporting become more and more important. Westerners don’t know much about the Chinese, so they like to romanticize them. And they are wrong]”

Says Peter Li, a Hong Kong-born sociology professor at the University of Saskatchewan: “The West has not been paying attention to ethnic Chinese business development, and when it finally did, it was surprised and felt locked out. When you don’t know what’s going on, you look for all sorts of cultural explanations. This happened to the Jews as well.”

The crudest, most commonly expressed cultural explanation is that Chinese people succeed because of their work ethic: Chinese entrepreneurs are the very embodiment of diligence and thrift. Herman Kahn, the founder of a United States think tank, the Hudson Institute, observed as early as 1979 that so-called neo-Confucian societies create dedicated, motivated, responsible, and educated individuals with an enhanced sense of commitment, organizational identity, and loyalty to various institutions. These societies, Kahn argued, are superior to those of the West in the pursuit of industrialization, affluence, and modernization.

There are overseas Chinese who promote this characterization as well. Wang Gungwu, a prominent Indonesian-born historian and a retired vice chancellor of the University of Hong Kong, has observed many ethnic Chinese striving to embrace their historic culture. For example, dozens of conferences on the overseas Chinese have been held in Hong Kong, Taiwan, Singapore, the United States, France, and the Netherlands, with numerous panels discussing such matters as the role of Chinese culture in business.

Mainland China too invites overseas experts to seminars and conferences, on such topics as “Socialism with Chinese Characteristics,” or on the capitalist reforms instituted by Deng Xiaoping. Overseas Chinese parents previously uninterested in Chinese culture are now pushing their children to learn the Chinese language and study their heritage in order to be in a better position to exploit the new opportunities proliferating through ethnic ties. For example, during a 1989 conference on Confucianism held in China, China’s president, Jiang Zemin, appealed to overseas Chinese to show support for China’s precious cultural heritage. The overseas Chinese have, at times, answered such calls, such as when they donated $700,000 for the reconstruction of a shrine to the Yellow Emperor (the mythical ancestor of all Chinese people) in central China.

One of neo-Confucianism’s top promoters is Singapore’s senior minister, Lee Kuan Yew. Lee is a former Anglophile, who is proud of his Cambridge University education. His is a well-ordered society, buttressed by Lee’s interpretation of neo-Confucianism. He has been outspoken among those attributing Asian successes to “Asian values,” often a euphemism for strong rulers, obedient citizens, and hard work. Lee argues that democracy as understood and practiced in the West, is not conducive to rapid economic growth and that Asians strongly desire that kind of growth.

This new love of Confucianism—by people in business, no less—is strange. In the Confucian world, merchants were always frowned upon because their main motivation was profit instead of learning. And although China’s ruling bureaucracies historically colluded with merchants to control the peasant population, and merchants were sometimes allowed to elevate their status by paying off officials, merchants were generally kept at the very bottom of the Confucian social ladder. Starting in the late nineteenth century, every Chinese leader who attempted to pull China out of the backwardness and misery of the feudal age saw Confucianism as a curse. Getting rid of its pervasive, stultifying influence was critical, they thought, if China was to emerge as a modern nation in the twentieth century.

Coastal traders from southern China in the 1700s and 1800s sailed across the South China Sea to escape the restrictions placed on them by the Confucian state. They went as far as they could from the seat of Confucian authority—Beijing—in pursuit of the freedom to trade and make a profit. All the Asian economic miracles have so far occurred on the periphery of China’s Confucian civilization: Japan, South Korea, Taiwan, Hong Kong, Singapore, and now the special economic zones in coastal China. These booming areas are very much heirs to the old colonial treaty ports,

I’m successful not because I’m Chinese,” says Casey Foung, the New York-based executive. “I’m not Chinese. I grew up an American in the United States, and had to learn Chinese late in life. I am successful precisely because I am American, bringing American know-how to the Chinese. Americans can be helpful in Chinese economic development, and they can take advantage of their knowledge of marketing, advertising, international finance. The Chinese are so new to this that they can use any help they can get. That’s precisely what I did.”

Foung’s vision contrasts dramatically with other theories about why members of the Chinese diaspora have been so successful and in turn what it takes to be successful in China and the rest of Asia. If success is implicitly attributed to membership in an exclusive group, doesn’t that mean that competition is unfairly stacked against people who aren’t of that group? Overseas Chinese businesses do help one another, pool their resources, and feed one another information within their business networks. But too frequently, all that is distilled into a simple cultural explanation: To do business with the Chinese, you have to be Chinese. At the very least, Westerners feel they need guanxi, connections to break into the networks of this alien culture, or a Chinese mediator who can provide such connections.

“Old-boy” networks based on college affiliation, club memberships, or ethnicity are common in the United States and elsewhere, but knowing the right people can be even more important in an environment where the legal system is weak, as in China. In this sense, men such as Singapore’s Lee cannot claim to share in China’s socialist values, so Confucian culture becomes a form of guanxi. For example, at the Second World Chinese Entrepreneurs Convention in Hong Kong in 1993, Lee enthusiastically hobnobbed with some of the top overseas Chinese businesspeople, such as Hong Kong’s Li Ka-shing, the head of Hutchison Whampoa, and Malaysia’s Robert Kuok, who controls Shangri-La Hotels and Resorts, stressing that guanxi is an important advantage of the overseas Chinese that they should put to use as they compete against Western rivals for business opportunities in China. Guanxi, Lee said, will be useful for about twenty years, until China develops a legal system that will assuage foreign investors.

One businessman, who as a college student in the United States in the 1960s was a Maoist but is now an investor in chemical factories in China, doesn’t underestimate the importance of having an understanding of language and culture that overseas Chinese might bring to the negotiating table. But their expertise often boils down to something far more vulgar than a deep knowledge of China’s history, language, or literature. “When you operate in Asia, you are talking about doing business in areas where there are no written laws,” he says. “Doing business means dealing with officials and bureaucrats at all levels and bribing them to leave you alone. The real advantage for Chinese expatriates is that the officials expect you to understand that. They find it easier to open their mouth to ask for bribes openly.”

The overheated economy of the mainland is still hobbled by a myriad of bureaucratic restraints. All new ventures there require commercial permits; licenses to buy, own, sell, or lease property; land-use permits; construction permits; licenses to import raw materials; permission to exchange currency—the list goes on and on. “Doing business in China is a constant problem,” says a manufacturer from Taiwan who recently set up a factory in the city of Changchun, in the northern province of Jilin. “First you spend a lot of money to obtain licenses. Then you entertain local officials. You pay high rents, you bribe your way around housing regulations—it cost us a mint just to wine and dine the officials in charge. It took six months to get the operating license, then another three months to get the land permit to build the factory. Doing business in China is not just about the business operation: You are really dealing with people. Without a legal system, you have to satisfy all the people in charge. And although they won’t let you do business unless their palms are greased, the officials in charge find it difficult to tell you exactly what they want with people they don’t know.”

Overseas Chinese entrepreneurs in Asia are accustomed to this kind of bribery, which is prevalent throughout the region. Executives from United States companies, on the other hand, are not. In fact, the Foreign Corrupt Practices Act makes bribery illegal. One Chinese American consultant was hired by a major United States telecommunications company to make a bid for a cable television channel license in China’s Sichuan province. Unable to offer any sweet deals, he didn’t get the contract. Most of the mainland contracts go to overseas Chinese companies from Hong Kong and Taiwan, although the Japanese and the Germans have been quick to catch on to the realities of doing business in China. The only reason the Japanese don’t get more business deals in China is that many Chinese still hate them on account of the Japanese occupation of China more than fifty years ago.

There may be advantages for ethnic Chinese, but businesspeople don’t have to be Chinese to be successful in China. Westerners can succeed if they understand the bribery system there and are willing to cultivate personal trust with officials. “It’s really no big deal for most businesses,” the ex-Maoist chemical executive says. “You are only asked to do double accounting. If the cost of a product is $1,000, your invoice should say $1,100. Once the bill is paid, you and the official split the $100. It’s no skin off your back. The poor Chinese people are paying for it anyway.” After a pause, he adds, “I wish that capitalism would eliminate this corrupt feudal Chinese system—though I feel funny saying this.”

Western observers have noted, with a dose of derision, Hong Kong’s obsession with the cellular telephone. But the standard phone greeting in Hong Kong these days shows that there is more going on than just idle chatter. Instead of the traditional Chinese “Have you eaten?” comes the rather more modern “What’s your game these days?” That constant, obsessive search for the latest business opportunity fits perfectly with the ever-shifting nature of global business. Globalization has meant that, more often than not, goods are not produced in single factories but in several places around the world. For example, a computer’s parts may be constructed in various cities around Asia, assembled in Shenzhen, tested and packaged near Boston, and sold in Paris.

The traditional, family-based system is remarkably well suited for fast movement within these subcontracting setups, constantly taking advantage of shifting labor costs, while in a typical Western corporation the hierarchical chain of command makes major changes difficult. “For the Americans, every contract is scrutinized by hundreds of lawyers and bickered over by various departments,” says the Hong Kong real estate executive. By the time the cumbersome decision-making machinery reacts, the opportunities in the flexible new markets have already been detected by smaller, more agile firms, and are long gone.

In the 1970s and 1980s, for example, while the West focused its attention on competition from Japan, other parts of Asia presented a host of new business opportunities. Though many Southeast Asian national economies were enjoying an even faster rate of growth than Japan’s, Western firms were reluctant to venture into what they considered to be risky markets. Overseas Chinese businesses were already there, however: They detected the new opportunities and took full advantage of them.

The global marketplace has also seen these ethnic Chinese family businesses begin to modify the age-old structures based on family, clan, and home village, in favor of the same rational business organizations that businesspeople of any other ethnic group would establish. Deals such as the one in which Li Ka-shing bought Canada-based Husky Oil in 1987 and the one in which Thailand’s Chinese-owned Charoen Pokphand teamed up for a time with the United States giant WalMart to open discount stores throughout China are examples of how business for the diaspora has evolved.

As China has tried to become a modern, industrialized country, the various reformers and revolutionaries have lobbied the overseas Chinese communities for material support. Attributing their mistreatment in foreign lands at least partly to China’s backwardness and degraded international status, the overseas Chinese wanted to help transform China, and a few of them became very nationalistic and patriotic. The father of Chinese nationalism and the founder of the Republic of China, Sun Yat-sen, was himself a scion of an overseas Chinese family. In the 1940s the overseas Chinese became heavily embroiled in the civil war, as both the communists and the nationalists competed for their loyalty. Their involvement culminated in 1949 when many returned to China to help the revolutionary government’s cause; among them were hundreds of Chinese Americans and some 250,000 Chinese Indonesians. Unfortunately, many encountered a miserable fate because of their bourgeois Western backgrounds. Branded traitors and capitalists because of their relatives still abroad, their family property was confiscated during the Cultural Revolution, and they were imprisoned. Some tried to escape, and many died. Those who survived joked bitterly about their predicament by calling themselves the “dead huaqiao” the dead overseas Chinese in contrast to the “living huaqiao,” their compatriots who had remained abroad and prospered.

Ever since the mainland Chinese government began to allow capitalism to flower in the 1980s in an effort to modernize, it has tried to enlist the help of the overseas Chinese. In doing so it has even been willing to admit that some excesses were made during the Cultural Revolution, and as a gesture of goodwill it has returned confiscated property to expatriate families and praised them copiously for their patriotism and their contributions to the betterment of China.

Although they may be enjoying some of the benefits, the overseas Chinese have learned to keep their distance from the mainland. Their loyalties do not lie with the Chinese nation-state but rather with the profits that can be made there, through special economic zones where their investments are protected and they are free to move their capital. At the same time, ethnic Chinese around the world are watching how China deals with Taiwan and Hong Kong. For many of them who might have been sold on the “re are all Chinese” pitch, the saber rattling of recent months has been sobering. Many Hong Kong and Taiwan residents hold foreign passports, obtained either through investment in Canada, the United States, or Australia or through their children’s foreign citizenship abroad. Although overseas Chinese claim that all they need is freedom to make money, they like to send their children to Western universities and establish a foothold in an English-speaking country. They regard their assets in countries such as the United States as an insurance policy against potential instability in Southeast Asia or on mainland China.

“In the United States there really is a respect for law,” says Andrew Kwan, a United States citizen who owns an insecticide factory near Beijing. “That’s very attractive for us. My family is here; we have a house. A lot of us would not be willing to give up our foreign passport to go back to China.”

Overseas Chinese businesspeople whose professional and private interests are truly global are called astronauts by their less fortunate compatriots because, for example, they live in California and do business in Asia. They will invest in China if that is where the money is to be made, but if the labor costs there increase and productivity levels off, they are just as likely to turn to Vietnam to set up fertilizer plants, to India to set up joint ventures in electronics, or to Bangladesh, Fiji, Mauritius, or Guatemala to set up garment factories. Increasingly, they are joining the transnational world of capitalism developed under European domination, where national borders lose meaning and national identity is neither a hindrance nor an asset. It is increasingly a world in which “Chineseness” also means very little. As Ien Ang, a Chinese scholar born in Indonesia to Chinese parents and raised in Holland, says: “I am inescapably Chinese by descent. I am only sometimes Chinese by consent. When and how is a matter of politics. It is ultimately political questions such as whether China attacks Taiwan or crushes the spirit and laws of Hong Kong that will determine if overseas Chinese continue to invest in China and profit from its seemingly boundless opportunities. Even Singapore’s Lee Kuan Yew, a great champion of the cultural pull of Confucianism, admits that ethnicity will take a backseat to the pressures of realpolitik. “We are ethnic Chinese,” Lee has said, “but we must be honest with ourselves and recognize that at the end of the day, our fundamental loyalties are to our home, not to our ancestral country. To think otherwise is not realistic. It will only lead to grief when our interests fail to coincide.”