The Chinese diaspora is a tiny minority in southeast Asia, but it controls much of the region's wealth and is investing heavily on the mainland. Hard times lie ahead for the ethnic Chinese whose business methods are blamed for the current Asian crisisby Simon Long / April 20, 1998 / Leave a comment
When the ho family fled Burma in 1964, their only asset was a wrist-watch. The second and third generations of a family of immigrants from southern China, their entire wealth had been confiscated at the start of Burma’s prolonged and disastrous experiment with socialist autarky. They moved to neighbouring Thailand, where they now preside over a business empire based in the towering skyscraper of Bangkok’s Jewellery Trade Centre. Yet one Ho son, Halpin, is now back in Burma, running the upmarket Kandawgi Hotel in Rangoon and trying to raise money for a grandiose World Trade Centre.
This is the classic overseas Chinese success story: the flight from penury, the fortune built from scratch through thrift, hard work and entrepreneurial flair. But the Ho story diverges from the textbook in one respect: this was their second escape; not from poverty and tyranny in China itself, but from a new form of oppression in their adopted home. As southeast Asia’s economic boom has turned abruptly to bust in recent months, Chinese in other countries have been wondering whether they might also have to move. Popular resentment of the Chinese community’s success, tinged with racist animosity, is particularly widespread in Indonesia. But in other countries too, such resentment is making life uncomfortable.
During the past few years the overseas Chinese have emerged, tentatively, on to the world stage: their huge investments in mainland China account for about 80 per cent of all foreign investment. These investments are drawn from Hong Kong (not, strictly speaking, overseas) and Taiwan, and also from the dominant Chinese interests in the business life of Malaysia, Thailand, Indonesia and the Philippines. In all those countries the Chinese are a minority-in most, a small minority. In Singapore-also a big investor in China-they are in the majority, but live in a city surrounded by ethnic Malays.
Singaporean leaders are aghast at the prospect of ethnic strife in Indonesia and what it might mean for the rest of the region. To understand these fears it is necessary to describe how frightening Indonesia’s predicament has become and to describe some of the history of violence against ethnic Chinese in the region. The history of southeast Asia’s overseas Chinese, and of how they rose to commercial dominance-despite political marginalisation-may also shed light on why the region’s economic miracle has stuttered to a halt. “Crony capitalism,” which is blamed by many in the west for the Asian crisis, is a trademark of the overseas Chinese. How this form of capitalism evolves through its meeting with mainland China is one of the most pressing economic questions of the next two decades.
The Indonesian nightmare
The display of Chinese characters is officially discouraged in Jakarta’s Chinatown, which makes it seem like a city in disguise. And the Chinese New Year holiday at the end of January was even more subdued than usual. The government wanted to avoid ostentatious partying and, in effect, banned public celebrations. The holiday coincided, for the second year running, with the Muslim festival which marks the end of Ramadan, when many Indonesians leave Jakarta for their home villages, laden with gifts. This year, few could afford presents for their poorer relatives. Many knew they would not have a job to come back to at the end of the break.
The Chinese themselves were not in festive mood. The Year of the Tiger is not a favoured astrological event-in Singapore, for example, the birth rate is expected to fall, because Tiger babies have a reputation for fractiousness. (For some young professionals this poses a difficult choice between traditional belief and self-interest-places at the best schools will be easier for Tigers to get.) Regardless of astrology, the omens in Indonesia are bad. The country is prone to mob violence: the usual targets are shops or banks owned by ethnic Chinese, or churches where they are believed to worship.
By the end of February, Jakarta had still been spared. A strong military presence and stern warnings of reprisals had kept order. But elsewhere in Indonesia-a country of 200m people and more than 13,000 islands-more than 40 towns and cities had seen riots, and at least five people had died. Most of the violence was on the main island of Java, but there were also incidents in Sumatra, Sulawesi, Sumbawa, Flores and Lombok.
Often the trouble started with allegations of profiteering or hoarding by ethnic Chinese shop-keepers. With prices rising sharply, many Indonesians found themselves in desperate straits. Even essentials such as rice and cooking oil were becoming unaffordable.
The Chinese make up only 3 per cent of Indonesia’s population. But they control much of the wealth-about three quarters of the dominant conglomerates are Chinese-controlled. The first Chinese traders came to Indonesia of their own accord in the 13th century. Many more arrived as kidnapped labourers during Dutch colonial rule; they subsequently bought their freedom or escaped. They prospered as merchants and farmers, collecting taxes for the Dutch, at times suffering persecution. Some argue that the colonisers found it politically and economically useful to stir up anti-Chinese feeling, and that Indonesia’s present government-President Suharto’s shaky 32-year-old dictatorship-has made the same discovery.
The American group Human Rights Watch has accused the Indonesian government of not doing enough to protect the Chinese, who are frequently portrayed as “selfish rich,” “disloyal,” and “anti-Muslim.” The government has not condoned the violence; but neither has it forcefully condemned it. Some ministers have exacerbated the problem with oblique attacks on the Chinese for keeping their money off-shore.
During 1965-66, more than 500,000 Indonesians died as Suharto’s new army-led regime moved to wipe out the Indonesian communist party (PKI)-at the time, the third largest communist party after China and the Soviet Union. The PKI was accused of being behind an abortive coup attempt; ethnic Chinese fell under suspicion of being a fifth column for Chairman Mao. Memories of those days are still fresh, and explain the sense of foreboding in Indonesia now. One woman, who had to flee her home in eastern Java in 1965 with her baby, says that she is more frightened now than she was then. The baby, now a journalist who speaks no Chinese and is married to a Muslim wife, compares Suharto’s strategy to that of the Dutch: “The purpose is to divert public anger from Suharto to the affluent minority.” Others believe that the rioting serves another purpose too: alarming the outside world and the International Monetary Fund; and thus, perhaps, making them more generous.
Even rich and well-connected Chinese were alarmed when Sofyan Wanandi, a prominent ethnic Chinese tycoon, was interrogated about improbable contacts with an outlawed group of young leftists who had allegedly been making a bomb. Sofyan and his brother Jusuf are directors of the Centre for Strategic and International Studies, a respected Jakarta think-tank. For years, it played an important part in trying to justify Indonesian government policy to the outside world. As students in the 1960s the Wanandi brothers had been prominent in the anti-communist youth movements which had helped oust Suharto’s predecessor, Sukarno. The Wanandis are not merely Chinese, but catholics; and some recent events have echoed past paranoia about a “catholic-Chinese conspiracy.” There is a terrible irony in this: a number of well-known Chinese tycoons are catholics; but they converted in the 1960s to clear themselves of suspicions of PKI sympathies. Still, less than half of Indonesia’s Chinese are Christians, making them a minority in both the protestant and catholic churches. Yet the association of Christianity with wealth and Chineseness has made churches another favourite mob target-40 were destroyed in the first two months of this year.
In the 1960s, many Chinese took Indonesian names; some converted to Islam. Yet casual, open racism is still common. I have witnessed a cosmopolitan businesswoman who works for a multi-national company sigh “I hate Chinese,” as a noisy party left a table in a restaurant.
Rich Chinese are quietly moving their assets off-shore. The less fortunate look to bolt holes close to home. In Surabaya, in eastern Java, one young man talks of sitting out the crisis on the neighbouring Indonesian island of Bali: it is largely Hindu, overrun with tourists, and less likely than other islands to lose its reputation for tolerance.
Chinese tycoons have played a prominent part in government campaigns to donate goods to the poor. Those who can afford to do so are trying to buy a little safety locally. Some may not need to-in some places local Chinese have been protected and helped by their neighbours when looters turn up.
The Business of Ethnicity: Malaysia
In February, as Indonesia’s corporate sector looked as if it might have to declare mass bankruptcy, Aburizal Bakrie, chairman of the chamber of commerce, made the curious suggestion that it was time to do something about the imbalance in corporate wealth between the ethnic Chinese and indigenous (Pribumi) Indonesians. After all, Malaysia-which had been pursuing an ownership policy skewed in favour of its Malay majority (the Bumiputeras) for nearly 30 years-seemed to be facing a much smaller risk of ethnic strife. It is curious, though, that the idea should be picked up in Indonesia just when commercial reality might force Malaysia to abandon it.
Numerically the races are far more evenly balanced in Malaysia than in Indonesia. Some 58 per cent of the country’s 21m population is Malay and about 31 per cent Chinese. But in the 1960s, the concentration of wealth in Chinese hands was almost as acute; Malaysia saw serious race riots in 1969. This inspired the New Economic Policy (NEP) which aimed to restructure corporate ownership from its then bias in favour of ethnic Chinese and foreign interests to a 40: 30: 30 distribution by the year 1990. Hence, for example, any company listing shares on the Kuala Lumpur stock exchange has to reserve at least 30 per cent of the issue for Bumiputeras (often through a huge mutual fund open only to Malay shareholders).
The government also discriminates positively in favour of Malays in areas such as education, employment, housing and even business loans. But unlike Indonesia, Malaysia has Chinese (as well as Indian) cabinet ministers; and the government likes to boast about presiding over a multi-cultural society. In Indonesia, there are no Chinese in the government or army. Legislation introduced in the 1960s (after China’s alleged complicity in the supposed communist coup attempt) robbed many Chinese of full citizenship. Even those born in Indonesia of parents who had been born there did not automatically become Indonesians by birth. They had to apply for citizenship (and often pay a big bribe) when they turned 18. The law was dropped in 1996; but its impression-that Chinese are not full Indonesians-lingers.
In Malaysia, the economy has been growing rapidly for most of the period since the NEP was introduced. So the favouritism shown to Bumiputeras has not caused the grudges it might have produced among Chinese tycoons, some of whom have grown very rich. Rather it has given rise to the so-called “Ali Baba” business, where a distinguished but ineffectual Malay acts as chairman and greets visitors in the front room, while the Chinese run the shop and turn the profits in the back.
The NEP has probably succeeded in easing, although not eradicating, anti-Chinese sentiment among poor Malays. The Malaysian government, however, continues to worry. Last year, Anwar Ibrahim, the deputy prime minister, argued that the country would have to maintain economic growth at more than 4-5 per cent annually to ensure racial harmony. Although Malaysia has not been as badly hit by the economic crisis as Thailand or Indonesia, many forecasters believe that this sort of growth is now unachievable.
Ethnic tension is also expressed culturally. In 1995, for example, many Malaysian Chinese were alarmed when the ministry of information banned a Taiwan-made television series, Judge Pao. The programme is a huge hit with Chinese communities across Asia, but the ministry had uncovered an old law banning “Chinese costumed dramas” from television. The authorities backed down only after protests from Chinese political parties.
More recently there was scandal when a Malay Muslim woman married an ethnic Chinese Christian and converted to Christianity. Although interracial marriages are common, conversions from Islam are not. The incident highlighted the nervousness felt by many Malaysian Chinese (and Malays) that Islam will become a more assertive, fundamentalist force in the country, especially after the present prime minister, Mahathir Muhammad, stands down. Although a fierce Malay nationalist, Mahathir has also been (rather like Suharto until recently) a guardian of secular government.
Thailand: almost a model
Of all the countries in southeast Asia, Thailand seems most successfully to have absorbed, assimilated and accepted its Chinese population. But even here, there are signs of friction. Although Bangkok has its own Chinatown, Chinese influence is much more pervasive and subtle throughout the city. The Chinese control more than 80 per cent of companies listed on the stock market. They make up about 10 per cent of the population, although intermarriage has made such estimates a matter of guesswork. Even Kukrit Pramoj, the aristocratic former prime minister and distant relative of the royal family, once said that most Thais had a Chinese “hanging somewhere on their family tree.”
Chinese business dynasties long ago took Thai names and cultivated links with the indigenous elite. For example, the Lamsam family, who founded the Thai Farmers Bank and Loxley group (named after the original Scottish partner), which has interests ranging from the internet to construction materials and mobile telephones, is now in its sixth Thai generation. The family fortune was made from timber, saw-milling and rice-milling. Banthoon Lamsam, the bank’s president, does not speak Chinese and denies that his bank is a typically Chinese family concern.
But recent developments have made the Thai Chinese seem less well integrated. One factor has been the rise of China itself, and new business opportunities there. Charoen Pokphand, an ethnic Chinese-run concern and the largest Thai conglomerate, became one of China’s biggest overseas investors. No other foreign group has such a wide range of interests there. Accompanying this commercial interest, some Thai-Chinese began to assert their ethnic roots more openly. It had become quite chic to be Chinese.
But in 1995, Thailand elected a new government under an ethnic Chinese, Banharn Silpa-archa, which was widely seen as one of the most corrupt and incompetent that Thailand has known. Among the many charges laid against Banharn was that he had tinkered with his birth certificate to show that he was born in Thailand (and therefore eligible to stand for parliament and be prime minister), when in fact his father had moved there when he was a small boy. Ethnic Chinese had been in government before, but some Thais grumbled about their dominance in Banharn’s cabinet. There was as much snobbery as racism in this: some Thais felt that Banharn was the wrong sort of Chinese-not a sophisticated urbanite with links to the Thai upper classes, but a provincial hick who should have been running a general goods store. The economic disaster of 1997 also triggered widespread complaint against unpatriotic businesses speculating against the baht, the Thai currency. It is true that many of the big Chinese-run businesses did hedge their foreign currency exposure by selling baht for dollars, which did increase speculative pressure. But this was merely prudent business practice.
In Thailand-or in the Philippines-it is possible for an ethnic Chinese to reach the highest political office. This would be inconceivable in Indonesia or in Malaysia, although there have always been close links between the Chinese business community and the political leadership. It is now fashionable to blame many of Asia’s present problems on the corrupt links between business and politics-on crony capitalism. Inevitably, given their commercial clout, the Chinese have been deeply involved in this. Indeed, it may be said to be an overseas Chinese phenomenon, derived from the need for influence in political systems which exclude them. That overseas Chinese, like the Riadys of Indonesia, should be accused of campaign finance improprieties in the US (which they deny) would not surprise many in southeast Asia. That is how business is done.
In Thailand, “money politics” has been blatant and endemic. A new constitution adopted last year is supposed to begin the process of eradicating it at the next election. Certainly there will be less money around than during the boom of the 1980s and early 1990s. Then, elections were marked by vote-buying on a massive scale. Many of the candidates were businessmen themselves. Others needed financing. Once in office, they or their financiers would try to recoup their investments through kickbacks on government projects, which would in turn finance their next election campaign.
In Malaysia and Indonesia, money politics take a more subtle form. The Indonesian electoral system is designed in such a way that it is almost impossible for the ruling party, Golkar, to lose. But ethnic Chinese companies have still played an important part as the interface between government and business. In particular, they have helped establish President Suharto’s family as the dominant force in the economy. Until the early 1980s, this family business operated along lines familiar in many developing countries. A foreign contractor bidding for a large project-a petrochemicals plant, say,-would form an agency arrangement with a local company-usually one connected with one of a handful of ethnic Chinese tycoons such as Liem Sioe Liong or Mohamad (“Bob”) Hasan. They would enlist the services of a presidential relative who would, in effect, be bartering access to Suharto’s ear. When the contract was awarded, a chunk of the price would be siphoned back to the agents in payment for these services.
Later the Suhartos moved from being agents to principals, from middlemen to investors. Again, they did so largely in partnership with the Chinese tycoons. Two of Suharto’s children (to take just one out of hundreds of examples) own 30 per cent of Liem Sioe Long’s Bank Central Asia. In return for their help, and in recognition of their acumen, the tycoons have enjoyed some extremely lucrative monopolies and concessions. Bob Hasan, for example, runs the plywood cartel. Liem Sioe Long had a monopoly on the milling of wheat flour. All this is supposed to change under the IMF’s plans to put Indonesia back on its feet. But these deals are more than quirks on the edges of the Indonesian economy. They are central to its organisation.
In Malaysia, too, the main party, the United Malay National Organisation, seems set to dominate politics for a long time and thus to sustain a system of patronage in which financial favours are rewarded with contracts. The practice of awarding big government projects by “negotiated tender,” rather than open bidding, lends itself to accusations that favoured tycoons and companies receive preferential treatment. Through such negotiations, for example, the Ekran group, controlled by the ethnic Chinese Tan Sri Ting Pek Khiing, won the contract for a $5 billion dam and hydropower project at Bakun in Sarawak on Malaysian Borneo. The project was contested by environmentalists and is now stalled for economic reasons. But Ting was said to have earned Prime Minister Mahathir’s gratitude by building a hotel for a high-level meeting in less than two months.
Until recently, this style of doing business-relying on “connections” rather than open competition-was credited with a big part in the commercial success of the overseas Chinese. If you ask a westerner with an MBA to solve a business problem, his or her first response is likely to be a technical one: “What do I know that can solve this problem?” For many Chinese, the question would be: “Whom do I know who can help me?” Interest in overseas Chinese networking has been focused not on their domestic connections but on the links between different groups around the region. The Chinese network, it was argued, created “an empire without borders”-Sterling Seagrave’s phrase from his 1995 book on the overseas Chinese, Lords of the Rim. At the time, Seagrave estimated their combined GNP at $450 billion-one quarter larger than that of China itself. (He was including Hong Kong -now part of China-and Taiwan-still part of China according to Beijing-as both these economies are run by the descendants of exiles from the Chinese mainland.)
But, as Seagrave points out, if this is an empire, it is not a homogeneous one. China is a continent-sized country; its emigr?s have been bound by ties not just to China itself but to their own particular regions, dialect groups and, in many cases, villages. Gordon Wu, a Hong Kong infrastructure builder, said he was inspired to build his superhighway, from Guangzhou (Canton) in southern China to the Hong Kong border, by seeing the New Jersey turnpike-he felt that his home-town should have something similar.
In 1980, when Deng Xiaoping began the process of opening China by setting up Special Economic Zones, free market enclaves on the southern border, he chose the ancestral homes of three of the most important groups of the Chinese diaspora: the Cantonese from Guangdong province, who predominate in Hong Kong; the Hokkienese from Fujian province, who make up 85 per cent of Taiwan’s population and much of Singapore’s; and, less well known, the Teochews from around Shantou, on the border between Guangdong and Fujian.
The Teochews are a phenomenon. They include Li Ka-shing, Hong Kong’s most respected billionaire; the Ma family, which controls the Oriental Press Group there (and which fell out with the British Conservative party, accusing it of failing to deliver on promises made in return for campaign funding); and most of the Chinese in Thailand, including the Sophonpanich family who built up the Bangkok Bank. (The Lamsams of Thailand are Hakkas, a group of unknown geographic origin, which has produced the three most influential Chinese of the late 20th century-Deng Xiaoping, Lee Kuan Yew and Lee Teng-hui, the president of Taiwan).
An earlier Chinese exile, Sun Yat-sen, the first president of the Chinese republic, once famously compared the Chinese people to “a heap of loose sand,” lacking “national spirit,” and having “only family and clan solidarity.” As the overseas Chinese flocked back to invest in their home-towns, help out their distant relatives, and look for a burial site near their ancestral homes, these ties came to be a powerful beneficial force for promoting transnational business. As Lee Kuan Yew put it, praising the virtues of guanxi (Mandarin for connections): “The Anglo-Saxons do it, the Jews do it, so do the Hindus and the Muslims… Networking is the natural thing to do.” The Chinese, he seemed to suggest, were better at it than most.
the view from the mainland
In China itself, these networks transformed the official perception of the overseas Chinese. Traditionally they had been viewed with some contempt. In imperial China, trade was among the least respectable of professional activities. Those who had left to make their fortune elsewhere were seen as unpatriotic money-grubbers. But most of those who left in the big exodus of the late 19th and early 20th century did so in desperation or under duress. They went as coolie labourers, sometimes press-ganged by colonisers such as the Dutch. Their very existence overseas was a rebuke to the failings and weakness of China at home.
Under communism, especially during the Cultural Revolution in the late 1960s, overseas Chinese in some southeast Asian countries played important roles in left-wing insurgencies, supported by China. Gradually, these movements petered out. Indonesia’s PKI was destroyed in the massacres of 1965-66. In Malaysia, Thailand and Burma, the withdrawal of Chinese support led to the collapse of the communist rebellions in the 1980s. Now, only the Cambodian Khmer Rouge and the Philippines New People’s Army survive, apparently without Chinese backing.
As China withdrew support for rebel movements and cemented friendships with the governments of southeast Asia, it also began to take a more tolerant and eventually welcoming attitude to overseas Chinese business people. If Hong Kong and Taiwan are included, about 80 per cent of all foreign investment-some $200 billion in total-which has poured into China since 1980 has come from overseas Chinese. Apart from the attractions of linguistic and cultural familiarity, there are also the obvious advantages of a cheap labour force and a friendly regime. Some overseas Chinese have even built homes and moved to the mainland-or at least become frequent visitors laden with gifts for their less well-off relatives.
The Chinese authorities have been careful not to allow the overseas Chinese any political influence. There is, however, no reason to imagine that they would be a force for reform; most come from (at best) semi-authoritarian countries and do not have a noticeable record of liberal or democratic opposition. But the moot point is: will the overseas Chinese, through their business influence, become the agents of a different kind of capitalism-a more open, transparent, rule-bound, market system? In the short term, the answer appears to be no; after all, it is the overseas Chinese who have been the carriers of crony capitalism. But in the longer run, this could change. The younger generation of elite overseas Chinese are often educated abroad (like other elite children in their adopted countries, and indeed in China itself) and tend to have a more westernised view of the importance of the rule of law in the conduct of business.
“The Jews of Asia”
The historic re-connection between the overseas Chinese and the mainland has brought benefits both to China and to the economies of southeast Asia. But at times of stress, as in Indonesia at present, the overseas Chinese business links appear clannish and threatening. The allegiance to ties of blood and kinship which transcend national borders becomes a sin for which the Chinese are attacked. For example, Liem Sioe Long created a stir in Indonesia by referring to a visit to China as a “trip home.” Suspicions are exacerbated by the overseas Chinese tradition of salting money away in safe havens. Private bankers in Indonesia, for example, believe that a staggering $120 billion is held offshore by Indonesians, most, presumably, Chinese. When Jardines moved its domicile from Hong Kong to Bermuda in 1983, there was a Chinese outcry at such lack of faith in the transition to Chinese sovereignty. But when Li Ka-shing shifted his assets to the Cayman Islands in 1995 there was hardly a murmur. This was how the Chinese had always behaved in what Seagrave calls “the ancient feud between money and power.”
The overseas Chinese have often been compared to the Jewish diaspora. A Thai king once denounced the Chinese as the “Jews of the East.” Lynn Pann, in her book Sons of the Yellow Emperor, traces the analogy back to 1621 and the British traveller, Sir Thomas Herbert, who observed how Chinese who had lost their money gambling soon won it back “Jew-like, by gleaning here and there.” Certainly the social acceptability of anti-Chinese racial prejudice in some countries is reminiscent of the plight of pre-Holocaust Jewry in Europe.
But the similarities go only so far. Chinese commercial dominance of many of these economies far exceeds any success the Jewish minorities enjoyed in Europe-and the Chinese have had a “homeland” for thousands of years. China does not recognise dual nationality-so those living overseas have had to accept that they are Malaysians, Indonesians and so on first, Chinese second. But there is a very strong sense of ethnic solidarity, and the Chinese word for “overseas Chinese”-huaqiao-implies an eventual return home. So far, China has been very silent about attacks on Chinese shopkeepers in Indonesia. But it issued stern rebukes when ethnic Chinese in the Sumatran city of Medan were the victims of rioting in 1994. It would not, in the Chinese phrase, “stand idly by” if an anti-Chinese pogrom takes place anywhere. The treatment of ethnic Chinese in Vietnam after the war, when hundreds of thousands took to the seas in the first wave of boat people, was one (of several) motivations for China’s punitive invasion of Vietnam in early 1979.
It is hard to imagine circumstances in which China would send gunboats to Indonesia. But there are justifiable anxieties about a wave of Indonesian boat people. The region has, through the Association of South East Asian Nations, achieved a degree of solidarity. In part, this is a response to fears about the future might of China, with which it nevertheless strives to maintain friendly ties. If China broke off relations with one Asean member (its relations with Indonesia were only restored in 1990, after being frozen by Indonesia in the wake of the 1965 “coup”), the other Asean countries would be forced to choose between regional solidarity and the neighbourhood bully. That would throw into question the whole delicate equation which underpins security in the region.