The Chinese Asia Success: Family Ties

When Westerners look for the driving force behind Asia’s remarkable economic ascendancy, they usually point to the highly centralized, state-led economies of Japan and South Korea. Largely obscured, however, has been the economic emergence of powers of a very different kind, the more than 46 million-strong Chinese diaspora.

Wherever they have settled, from the suburbs of Los Angeles to balmy Singapore, overseas Chinese have created vibrant, fast-growing entrepreneurial economies. Over the last decade, the economies most closely associated with the Chinese diaspora--Hong Kong, Singapore, Taiwan--have experienced annual growth-rates of up to 10%, among the highest in the world.

In Hong Kong they have constructed one of the world’s pre-eminent business centers, complete with the Pacific’s largest container port and second leading financial center. In Taiwan, the largest center of Chinese business activity, they have created arguably the most successful newly industrializing nation of Asia, with a per capita gross national product 50% higher than South Korea. And where South Korea’s giant-dominated economy remains burdened with close to $50 billion in foreign debt, Taiwan sits on rising foreign-exchange reserves of more than $70 billion, among the largest such caches in the world.

The power of these economies is particularly in their trade relations with the United States. By 1985, the overseas Chinese-dominated economies of Asia--reaching from Taiwan to Indonesia and Thailand--accounted for bilateral trade nearly equal to U.S.-Japan trade just five years earlier. And since 1983, Taiwan and Hong Kong have ranked first and sixth as the fastest growing markets for U.S. exports.

This powerful international presence grew largely from the dispersion of millions of Chinese throughout the Pacific Basin over the course of 150 years. Escaping from famine, revolutions and economic chaos, these Chinese, most from the southern provinces of Guandong and Fujian, often started out as manual laborers, working the gold mines and railroads in California as well as the plantations of Southeast Asia. Soon some also opened small businesses such as restaurants, laundries, trading firms and factories.

As these businesses began to flourish early in this century, the overseas Chinese began to become known for their prowess at business ventures and their alleged clannishness. The transplanted Chinese retained much of their national culture and language, even while emerging as a key component in the economic fabric of their host countries. Similarly, their successes also sparked several violent pogroms, including some in the Western United States. For many countries, particularly in Southeast Asia, the Chinese play the role of middlemen or small shopkeepers and landlords, who often feel the brunt of an indigenous population’s resentment. Strong patterns of anti-Chinese discrimination still persist in places like Indonesia and Malaysia.

In isolation, the overseas Chinese developed a highly self-sufficient, family-centered economic outlook--a stark contrast to the centralized perspective of the South Koreans and Japanese. “The Japanese state had an enormous stability that allowed them to identify with larger entities while all that was left to the Chinese was the family concept,” notes Wellington P.K. Chan, professor of Chinese history at Occidental College in Los Angeles and a leading expert on Chinese business history. “The Japanese deeply care about the corporate house or the country, not so only the blood relationships. But the Chinese could trust only the family.”

Although a few of these family operations--such as Y.C. Wang’s Formosa Plastics Group and the Y.K. Pao shipping empire--have grown into large multibillion-dollar concerns, the Chinese diaspora economy remains dominated by small, family-oriented operations. Taiwan, for instance, has less than half the population of South Korea but boasts nearly three times as many registered companies.

This individualism is even more pronounced in Hong Kong, a free-trade haven where Chinese businessmen operate under economic conditions even Adam Smith might have seen as a “natural system of perfect liberty.” By 1980 there was one business establishment for every 20 people, a rate of entrepreneurship twice that of the United States. More than 95% of those firms had under 100 employees and received all their financing from family and friends.

Yet despite their small size, many Chinese diaspora companies have proven highly adept at international trade. For instance, one mid-sized firm, the Chung Cheong group, with only $100 million in sales, controls business ventures that sprawl from Beijing and Hong Kong to Los Angeles.

Crucial to the success of the Chungs and other similar organizations has been the presence of family members within numerous key countries. Chung family members, for instance, hold citizenship in eight nations, including China, Great Britain, Hong Kong, Switzerland, the United States, Canada, Singapore and Thailand. Using far-flung relatives as an informal intelligence network, the family trades in a staggering array of products ranging from Thai tobacco and Chinese tea to U.S.-made software packages. Its factories produce everything from sports shirts and cigarettes to multi-user computer systems.

Yet with all this complexity, the group continues to run in the traditional family oriented manner--with no formal board of directors or chain of command--under the leadership of octogenarian founder K.S. Chung. “Nothing we do really makes sense unless you see it in the context of the family,” explained Los Angeles-based Wing, No. 3 son and probable heir to paterfamilias K.S. Chung. “Like any family, things here get done on an ad hoc kind of basis. Everyone sort of does a little bit of everything. You can’t chart it out on a piece of paper.”

Wing’s Los Angeles presence--where the family retains growing computer and garment operations--reflects the increased number of diaspora entrepreneurs in the United States, particularly in California. This comes largely from deep-seated political fears, particularly in Hong Kong and Taiwan, about the potential threat posed by the regime on the Chinese mainland.

To discover reality, follow the money. Over the past year Hong Kong entrepreneurs, who are funneling an estimated $1 billion annually into the United States, have emerged as leading purchasers of properties and businesses in San Francisco. Taiwanese capital may be pouring in at even greater rates, transforming neighborhoods from the San Gabriel Valley to Silicon Valley. Diaspora Chinese, mostly from Taiwan, now control nearly two dozen banks in California. Often backed by capital from back home, Chinese immigrant entrepreneurs have established more than 230 high-technology enterprises in the state, including such prominent firms as AST Research, Everex Corp. and Solectron.

Yet even as more and more overseas Chinese cluster in California, their influence is also growing within China itself--as much as three-quarters of the direct investment in China’s booming Guandong Province. Indirect two-way trade between China and Taiwan, once unthinkable, is expected to top $2 billion this year, up from $1.5 billion the year earlier.

Secure at bases in the United States, Canada and other stable democracies, overseas Chinese businessmen are also serving an important role as middlemen in dealings between the People’s Republic and overseas commercial interests. With China itself developing into one of the world’s leading economic powers, the entrepreneurs of the diaspora are likely to emerge as ever more central players in future developments on both sides of the Pacific Basin.