THE CHINESE CONNECTION : Who are these ‘spacemen?’ They regularly shuttle between Taiwan and California, bringing money.

<i> Joel Kotkin, a senior fellow at the Center for the New West and an international fellow at Pepperdine University School of Business and Management, is a contributing editor to Opinion</i>

Californians have grown accustomed to the Japanese. They have built high-rises in downtown Los Angeles, bought Hollywood film studios and started hi-tech businesses in Silicon Valley. But if the 1980s was the decade of the Japanese in California, the 1990s may well belong to the overseas Chinese, who are quietly emerging as the rising Pacific power.

Last month, California received the strongest signal to date on just how potent the overseas Chinese are. A virtually unknown Taipei-based firm, Taiwan Aerospace, offered $2 billion to buy 40% of McDonnell-Douglas’ commercial-aircraft operations. With Douglas, a longstanding linchpin of the state’s aerospace industry on the financial ropes, Taiwan’s bid could prove the only option to its breakup, even its bankruptcy.

Yet long before the Douglas deal announced their arrival, Chinese entrepreneurs had established themselves in industries across the state. But unlike the Japanese giants, whose logos are emblazoned on skylines from Irvine to San Francisco, the Chinese presence represents more than an expression of a foreign power. Rather, it is an extension of an elaborate transnational ethnic network from the jungles of Southeast Asia and the coastal provinces of China to San Diego.

Centered in the three great metropolitan areas of Hong Kong, Taipei and Singapore, the roughly 50 million overseas Chinese already dominate the economies of most Southeast Asian countries, the world’s fastest-growing region. In Thailand, where they make up less than one-fifth of the population, the Chinese control the majority of corporate assets. In Indonesia, where they constitute a mere 5%, they hold sway over 75%, with one Chinese conglomerate, the Salim group, accounting for 5% of that country’s gross domestic product. Of the two countries’ five billionaires, all are Chinese.


Even in Malaysia, where they face officially sanctioned discrimination, the Chinese, just slightly more than one-third of the population, dominate the economy. Collectively, the leading Chinese economies--Taiwan, Singapore and Hong Kong--are passing the Japanese as the region’s largest foreign investors. In the coastal provinces of China, their dominance is even more marked.

In this network, California and its million-strong Chinese community, the largest outside Asia, increasingly serve as the center for technology, marketing and design. “California is the starter for the barbecue,” says Denny Ko, president of Taiwan Aerospace, who moved to California in the early 1960s. “You come up with ideas and heat the coals and when it’s already heated, then you move it to another spot. And then you light the starter again with another idea.”

To Ko, the Taiwan Aerospace deal represents just another example of how California--with its unsurpassed concentration of avionic and aircraft manufacturing firms--is ideally suited as a “starter” for new Chinese-run businesses. Since Taiwan lacks a developed aerospace industry, Ko points out, local California engineers, many of them Chinese, and subcontracting firms would play a key role in developing his firm’s industrial capability.

This is not the first time Ko has used this approach. Another of his ventures involves the development of new facsimile and electronic camera technology. Ko employed a work force of largely U.S.-educated Chinese engineers to develop the product in Silicon Valley, with final production in Taiwan.


Unlike the Japanese, who try to keep all higher-value production at home, Ko suggests the Chinese will be more eager to work in concert with U.S. firms. For one thing, Ko and many of the key players in the Chinese-based economies currently reside in California or have done so in the past. Although much has been made of local Chinese-born engineers and businessmen moving back to Taiwan, few knowledgeable observers expect the number to come close to the thousands of new Taiwanese immigrants coming to California every year.

Indeed, Ko suggests most returnees are only temporarily interested in a shift back to Taiwan, pointing out that the vast majority retain their main residence and families in California. But even defining the nationality of these Chinese--American, Taiwanese, Hong Kong--is virtually impossible. While hundreds of thousands of overseas Chinese have emigrated to the United States, Canada or Australia, many maintain close business ties in Taiwan or elsewhere in East Asia.

These transpacific nomads, known in Taiwan as tai kun fai jen or “spacemen,” represent a new breed--Chinese entrepreneurs shuttling between Taipei or Hong Kong and such California cities as Torrance, Monterey Park and Mountain View.

However unconventional this approach may seem to those used to thinking in strict nation-state terms, the impact of these “spacemen,” as well as other Chinese, is likely to grow dramatically in the years ahead. For starters, they have money. Taiwan, the source of Ko’s financing, has foreign reserves larger than those of any country, save Japan. Overseas Chinese in Southeast Asia have an estimated wealth of more than $250 billion; their average savings rate goes as high as 30% to 35% of income, better than twice that of thrifty Japanese.


With U.S. banks in turmoil, Germany straining over the cost of reunification and Japan’s financial behemoths under pressure, the overseas Chinese are in an enviable position. They may represent, notes Peck Lim, research director at Morgan Grenfell Securities in Singapore, “the last readily available horde of capital in the world.”

For California, whose financial institutions have been taking their hits lately, Chinese investment capital could prove critical. Already, there are more than 30 Chinese-owned banks in Southern California. Unlike their Japanese counterparts, these firms--led by banks such as American International and General Bank--are among the most profitable in the state and lend heavily to smaller companies.

Similarly, San Francisco’s financial district, devastated by the last wave of bank mergers, has taken on a decidedly Asiatic cast, with scores of new and growing Chinese banks increasingly visible along Montgomery Street. Once feared as a potential ghost town, the district seems less a gracious, scaled-down Wall Street than a Hong Kong on Valium.

Equally important are the skills and entrepreneurial willpower brought here by the Chinese. Chinese entrepreneurs have helped push California’s garment industry ahead of New York’s in total employment. Some of the best-known Southern California brands--Bugle Boy and PCH, for example--are Chinese owned. In San Francisco, mostly Hong Kong Chinese have transformed the city from an apparel backwater into what some estimate to be the nation’s third-leading garment-making district.


But perhaps the greatest long-term impact will be felt in the technology field, the most critical of California industries. In Silicon Valley, where more than 10,000 Chinese engineers and better than 170 Chinese-owned companies are located, the Chinese are one of the few expanding presences in the hard-hit technology field. Along with Vietnamese and Koreans, they make up much of the work force and engineering staff at leading Southern California technology firms.

Nor can we expect their importance to diminish in the years ahead. Chinese from Taiwan and China represent the two largest groups of foreign graduate students in engineering and science. Among 5,000 foreign graduate students at the University of California, the “two Chinas” represent by far the largest delegations, more than twice the size of Japan’s or Korea’s.

Rather than view this growing presence as yet another expression of the “yellow peril,” Californians, including our somnolent business and political elite, should look for ways to take advantage of our growing interrelationship with the ascendant Chinese-based economy.

“California is the place where East meets West,” says Ko. “It will be the neutral ground. For the Chinese, California is a natural place to settle and invest. There are no shock waves for us here. There’s a merger going on.”