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Cosmopolitan Capitalists: Hong Kong and the Chinese Diaspora at the End of the 20th Century, by Gary G. Hamilton (ed.)
1: Hong Kong and the Rise of Capitalism in Asia
Gary Hamilton
In the early 1980s, British and Chinese diplomats began secret negotiations that would lead to the signing of the Sino-British Joint Declaration in 1984. This agreement set the route by which the two governments and the people of Hong Kong would travel in the 13-year journey to 1997. The backdrop to these negotiations, as well as this unprecedented change of sovereignty, has been Hong Kong's status as one of the world's premier cities in the global economy. Any understanding of Hong Kong today has to begin with the capitalist transformation that has made it the global city that it has now become. Most writers treat Hong Kong's rise to prominence as strictly a post-World War II phenomenon and explain its success as a triumph of free-market capitalism. In this initial chapter, however, I want to argue that Hong Kong's role in the global economy needs to be situated in history and understood as integral to Asia's capitalist trajectories, which developed in the nineteenth century.
This topic is large and complex enough that I will be able to develop only a broad outline of a single theme in this chapter. Before I summarize this theme, however, please consider the two key terms that underlie this chapter, and indeed the book: capitalism and Hong Kong. For capitalism, keep in mind three dimensions. First, don't think of capitalism in terms of countries, but rather think of capitalism in terms of people, firms, money, products, industries, and the interrelationships among these. Second, think of capitalism as ever-changing movements of these things in time and space, as having historical and geographical characteristics. Third, think of capitalism, this movement in time and space, as complex economic activities that people try to control in some fashion. Entrepreneurs try to organize these activities, often in competition with one another; workers want to limit them so they don't dominate their lives too much; government of ficials try to regulate them, usually in opposition to somebody; bankers try to channel them, always to their own advantage. The idea, of course, is that capitalism represents contested economic movements in time and space that are always organized to some degree.
Now consider Hong Kong. Do not think of Hong Kong as a NIC, a NIE, an Asian tiger, a little dragon, or one of the flying geese. All these acronyms and metaphors that are used to characterize Hong Kong are so biological, so functional in the sense of a closed system, that they make Hong Kong seem like a type of economic species that was born or hatched and may g~row to maturity someday. Instead, think about Hong Kong as a place where there is an ever changing mix and an ever contested but still organized movement of people, firms, money, products, and industries.
Having conceptualized capitalism and Hong Kong in these ways, I now want to put before you the following thesis, which summarizes my understanding of Asia's capitalist transformation and of Hong Kong's roles in this transformation: There are two indigenous "great traditions" of organized capitalist development in East and Southeast Asia that began in the nineteenth century with the opening of East Asia to a Western-dominated world economy. These two great traditions are the Japanese and Chinese modes of organizing and controlling the economic opportunities in the region. As I will explain, the Japanese mode is one of corporatized political economy, and the Chinese is one of entrepreneurial deal making. These two modes of economic organization have led to two broad, pathdependent trajectories of development. Path dependence, a currently fashionable term, means that history makes a difference. Where you end up depends very much on where you start. This thesis is especially accurate in collective endeavors. Past patterns of collective action always shape but do not necessarily determine the present, as well as future patterns of action. Chinese and Japanese modes of seizing economic opportunities in the nineteenth century launched two distinct, more or less organized capitalist trajectories of economic development. Greatly altered by World War II and its aftermath, these trajectories, I maintain, nevertheless reemerged in the second half of the twentieth century.
I will argue that Hong Kong, as a place, was and continues to be at the organizing center of Chinese-led capitalism. Hong Kong assumed this role shortly after its founding in the nineteenth century and continued it until World War II. Then after the war and the Chinese revolution, Hong Kong was the first location where Chinese capitalism reemerged, although in a somewhat changed form.
In the bulk of this chapter, I will give some supporting evidence for this thesis. In arguing that history makes a difference, I will concentrate mainly on the preWorld War II period. Then in the last section of the chapter, I will discuss in what ways Asia's post-war industrial boom represents a continuation of pre-war trajectories. Edgar Wickberg's discussion in Chapter 2 amplifies my discussion of pre World War II migration, and Barry Naughton's analysis in Chapter 4 greatly extends my brief survey of Hong Kong's post-war economy.
Two Trajectories Of Asian Capitalism 1
Most people date the development of Asian capitalism in areas outside of Japan to the period after World War II. Certainly, this is the era in which we see Hong Kong, Singapore, and Taiwan begin their rapid industrial ascent. But let me argue that such a dating ignores the fact that the groundwork for this ascent was prepared well in advance of the war. Chinese entrepreneurs throughout the region were already "capitalistic," if by this we mean that they were already aggressively profit-oriented in their private pursuits and were eager to seize opportunities to make more money. This capitalistic acquisitiveness was in place before the skylines of Hong Kong, Singapore, and Taipei filled with skyscrapers; these cities– the cities that we see today–are the consequences, not the causes, of capitalist development throughout the entire region.
The post-war dating also ignores another fact. The economic changes in these locations were not isolated events, but rather occurred in a rapidly developing capitalist world economy that was producing economic changes in many locations. In fact, the success of capitalism in Chines and ethnic Chinese-dominated economies outside the People's Republic of China–the economies of Taiwan, Hong Kong, Singapore, and many Southeast Asian countries–cannot be understood apart from the dynamics of this global economy. Because Chinese modes of capitalist acquisition are based on bottom-up individual and family-based strategies of seizing opportunities wherever they exist, rather than on top-down corporatist strategies of linking state administrative capabilities with elite economic opportunities, Chinese capitalism is integral to world capitalism itself.
It is the absence of a politically framed domestic economy that makes Chinese forms of capitalism so elusive. Most interpreters of Asia's recent past see no genuine capitalistic development in late-nineteenth and early-twentieth-century China. In fact, it is conventional to argue that whereas Japan industrialized in the late nineteenth and early twentieth centuries, China remained economically backward. To substantiate this thesis, most scholars simply point to the obvious early industrial capacity of the Japanese–particularly in heavy industries such as iron and steel, and in the related products such as ships, trains, trucks, and automobiles– and the lack of these industries in China. With these industries, so the interpretation goes, the Japanese developed modern armies and navies that won wars against the Chinese in 1895 and against the Russians in 1905. By contrast, the Chinese attempt to industrialize did not fare so well. While it is true that the Chinese developed some state-owned, merchant-run heavy industries in the nineteenth century, these industries were not particularly successful (Liu 1962; Feuerwerker 1958), and besides the Chinese lost every war they fought with an outside power from the time of the Opium Wars in the 1 840s until World War II, when it was outside circumstances that defeated the Japanese. 2 Based upon these obvious comparisons, the Japanese industrialized and the Chinese did not.
But if we take another look at these "obvious" comparisons, I want to show you that they are not very persuasive because the time frame is too narrow and the definition of capitalism too rigid. If we made exactly the same comparisons today, that of industrial capacity based upon heavy industry, we would reach nearly the same conclusions: Japan is an industrial power, whereas Taiwan, Hong Kong, and Singapore are relatively undeveloped. The three Chinese-dominated economies do not have much in the way of heavy industries. But does that mean that today they are not industrialized or capitalistic? This is, of course, nonsense. Even so, it is still true that none of these locations has made a car for export. 3
Chinese-dominated areas in the world economy are not characterized by heavy industries; by comparison, the Chinese manufacturers specialize in small and medium-sized firms. These modest-sized factories normally make consumer nondurables–products such clothes, shoes, TV sets, calculators, computers–manufactured items that fill houses throughout the United States and Europe, in addition to Asia. Economists know that one cannot compute a country's rate of economic growth and its GNP based only on the output of one or two industrial sectors. Why then should historians and sociologists, with their comparisons between Japanese and Chinese economies, implicitly do that for the nineteenth and early twentieth centuries?
Even if we take all the sectors into account, the historical comparison between Japan and China would still be clouded by the political dimension. China neither won its wars nor developed a successful political economy, and therefore, so the judgment goes, failed as an industrializing society.
This point brings us to a key question: Is political power, in the form of a strong state in war and peace, necessary for or even synonymous with capitalism, with the economic movement of people, firms, capital, products? Many analysts of economic development confidently conclude that centralized political power and capitalistic success are causally interrelated. 4 Indeed one can list numerous examples in which the two are interrelated, such as the capitalist development of South Korea, but can one not also envision successful forms of capitalism without a state structure and without an integrated political economy? Let me submit to you that the Chinese forms of acquisitiveness represent such a case.
Consider again the two Asian cases–Japan and China in the late nineteenth and early twentieth centuries. What we see in this contrast is not the presence of capitalism in the one and the absence of capitalism in the other. Rather, I would argue that we see two different versions of capitalism emerging more or less simultaneously with the opening of these economies to global economic and political influences. These two versions of capitalism have intensified and have taken their places among the dominant forms of global capitalism in the late twentieth century.
Japan's Corporatized Political Economy
Let me compare the institutional beginnings of these two forms of capitalism, so that their differences are clear. Japanese capitalism is largely an indigenous transformation. It is a product of political economy. The record is absolutely clear on this score. For instance, during the Meiji era (1868-1912), the political elites of Japan formulated a comprehensive development plan,30 volumes covering every aspect of the Japanese economy (Tu et al. 1991: pp. 79-80). Published in 1884, the plan was based on a thorough investigation of European economic and corporate institutions undertaken by elite Japanese who went to Europe, lived there for a while, observed, asked questions, and returned to Japan to develop an economic plan to catch up to the West, the first plan of its kind in the world. Even more amazing than the plan itself is the fact that most of the plan's 10-year targets "were in fact accomplished" (Tu et al. 1991: 79).
Another and even more impressive example of changes in the Meiji period comes from Eleanor Westney (1987), in her book Imitation and Innovation, The Transfer of Western Organizational Patterns to Meiji Japan. Westney shows that in the first 15 years of the Meiji period (roughly from 1868 to 1883), the Japanese political and economic elites organizationally transformed the Japanese state and society. They created among other things, Western-style armies and navies, postal and telegraph systems, an educational system ranging from primary schools to universities, a unified banking system, and a national police force organized bureaucratically. With each of these organizational innovations, Japanese government of ficials and private elites imitated Western practices, borrowing freely, sometimes exactly, sometimes loosely. As Westney (1987: 6) insightfully points out, "the distinction between copying and inventing, between imitation and innovation, are false dichotomies: the successful imitation of foreign organization patterns requires innovation." By the end of the Meiji period, Japan was on its way toward becoming an explicitly, self-consciously organized society, literally a society of organizations, and 100 percent Japanese.
In this context, it is important to see that Japanese industrialization was part of an evolving but always coordinated political policy. A part of this policy was the creation of an industrial structure made up of competing enterprise groups, each composed of large quasi-independent firms organized collectively, known as the zaihatsu. Mitsui, Mitsubishi and Sumitomo, among others, had all developed diversified holdings, systematic interlinkages among firms, and administrative management techniques before the end of the nineteenth century (Morikawa 1992).
In every arena–in politics, in business, in education–Japanese elites had sufficient authority within Japanese society to implement their policies successfully. This ability rested on a system of internal controls that permeated the social order. This system of social control relied on intricate intersecting relationships that created, beyond kinship, intense structurally embedded duties and obligations, which, from the participants' points of view, were demanding, even oppressive, but not necessarily centralized and authoritarian. This system of control gave the Japanese elites the ability to mobilize and manipulate vast human and material resources. At this point in time, in those early years of global change, this ability to mobilize also gave the Japanese an opening, a passageway by which to propel themselves collectively into the global scene, economically as well as politically.
Why did the Japanese elites pursue this route? Professor Hamashita (1988) of Tokyo University presents the convincing thesis that Japanese officials selected this course of action because they recognized their own limitations vis-a-vis their chief opponents in Asia, the Chinese. In the middle of the nineteenth century, with the Qing Dynasty still holding firm, Japanese of ficials felt that commercial expansion in Asia was not a viable strategy. Largely due to the Sinocentric tribute system that existed throughout Asia until the middle of the nineteenth century, Chinese merchants controlled commercial exchanges in almost every Asian port, including those in Japan. The Japanese determined that they could not beat the Chinese at their own game of being Asia's chief merchants, so they began instead to develop internally, using their human resources and organizational capabilities to implant a form of Western capitalism in Asia.
Therefore, in Japan, during the nineteenth and early twentieth centuries, the primary carriers of capitalist development were coalitions of political and economic elites. 5 Japanese capitalism was not a creation of a merchant class, although a few merchants participated in the elite coalition. Nor was Japanese capitalism a creation of the peasants, although peasants certainly changed their productive and labor outputs drastically. By comparison with the Chinese case, as we will see, Japanese capitalism is a creation of political economy, of a mutually reinforcing system of governmental controls and elite economic privileges. In a very short period, the Japanese were able to shift from small-scale production of handicraft goods to large-scale production of industrial products, from small factories to hierarchies of bureaucratically controlled corporations organized into conglomerate networks.
Chinese Entrepreneurial Capitalism
The nineteenth-century institutional foundations of the Chinese forms of capitalism–politically, economically, and socially–were nothing like those of Japan. In the period between 1850 and 1890, it is impossible to imagine the Qing court sending large groups of scholars to Europe and the United States to learn about Western ways. The small efforts that were made largely failed (Kuo and Liu 1987). It is impossible to imagine the court creating and then implementing detailed plans for economic development. Even the much vaunted "self-strengtheningmovement" in the 1 860s and 1 870s was confined largely to military reforms, and those were crushed in military defeats inflicted by France and Japan. It is even more difficult to imagine the court successfully enforcing a policy of borrowing organizational patterns from the West and implementing them successfully in local society. Listen to the words of Li Hung-chang, China's dominant modernizer in the nineteenth century.
"Although I have never been in Europe, I have been inquiring and investigating Western political and cultural conditions for nearly 20 years, and I have formed some general ideas. I have stated in detail the necessity of opening coal and iron mines, of building telegraph lines and railways, and of opening schools for pursuing Western knowledge and sciences in order to train men of ability... Prince Kung agreed with my suggestion, but said that nobody dared to promote such actions [at court.]....[ln any event] the gentry class forbids the local people to use Western methods and machines, so that eventually the people will not be able to do anything. All these undertakings have been promoted by me alone; but it is as difficult to achieve a result as it is to catch the wind. Scholars and men of letters always criticize me for honoring strange knowledge and for being queer and unusual. It is really difficult to understand the minds of some Chinese." (Quoted in Li 1967: 108-109)
The Qing rulers could not establish a national capitalist-oriented political economy as the Meiji reformers were able to do. Although the Manchus ruled a great empire, their domination did not extend into their own local society. Below the administrative veneer of the imperial regime were politically elusive villages and marketing towns organized through kinship and status. Even had they so desired, the political elites could not mobilize China's vast human and material resources. To Chinese in local society, "Heaven is high and the emperor is far away." Although China did not develop a state-based capitalism in the nineteenth century, there was a capitalist transformation among the Chinese nonetheless. The carriers of Chinese capitalism were not political elites, but rather the heads of households who wanted to achieve some wealth and local renown. These heads of household were peasants, merchants, artisans, and occasionally scholars; they were not organized as distinct classes of people, but rather they were family heads who moved into and out of ambiguously defined social and economic roles. The organizational medium for this Chinese economy rested largely on individual entrepreneurs and family firms embedded in extensive regional commercial networks, networks of fellow regionals. 6 This was an economy organized through institutions controlled by people embedded in local society. From the time of the Ming Dynasty (1368-1644), the Chinese economy has always been a triumph of local society, never of the state.
Family, kinship, and regionally based institutions shaped economic activity and nurtured distinctive forms of enterprise structure. Because the household, the jia, was the critical unit in both community and kinship organization, Chinese did not make a rigid separation between the household and the firm. 7 Accordingly, firms were like households, and like households, Chinese enterprises were usually small in size. If the family businesses were really successful, however, the firms, like the households of prominent scholars, grew larger as more relatives and friends were included in the expanding circles of household members. Huge businesses, however, were very rare, because most wealthy businessmen did not try to create larger and larger horizontally or vertically integrated firms, as occurred in Japan or the United States. If they remained economically active at all and did not retire to the countryside, as so many wealthy businessmen did, they invested in extensive networks of family members and friends running small and middle-sizedfffms, often covering several areas of business and in diverse locations.
The reasons for this strategy were several. The first reason is the effects of inheritance upon shaping business practices (Wong 1985). Japanese inheritance practices rest on the centrality of the stem family (ie) and upon the practice of primogeniture. A large firm could be passed on intact to one son, usually the eldest. By contrast, Chinese inheritance practices rest on the importance of maintaining the patrilineage and hence on partible inheritance, with each son receiving an equal share of his father's estate so that each son can establish an independent household. If the father worked to create a single large business, it would almost certainly be broken up and the assets divided (fenjia) after his death. A more reasonable strategy would be to start multiple small businesses that could be passed on intact to the sons after the father's death. This inheritance pattern is reinforced by an institutionalized system that creates economies of scope and scale, not from individual firms, but rather from networks of interconnected firms. Businesspeople use these networks, based on reciprocal relationships (guanxi networks), to raise investment capital, secure the necessary labor, manufacture products, and distribute commodities. 8 Building and rebuilding these networks creates an economy based on deal-making entrepreneurship.
This type of entrepreneurial economy, composed largely of small and mediumsized family firms linked together through various types of competitive as well as cooperative social relationships, is not conducive to developing heavy industries, certainly not in the nineteenth century. Instead, this household-based economy produced a type of petty commercial capitalism. 9
You might ask what is capitalistic about the petty commercial practices of the Chinese in the nineteenth century. This would be a good question, because there is nothing essentially capitalistic, in the Western sense of the term, about these practices at all, except for the fact that the Chinese used them very successfully to make a lot of money. In fact, we can trace many of these commercial practices back to economic expansion that occurred during the Ming dynasty. But the fact is that these economic practices were very flexible, did not rely on state patronage, built communities of trust among close colleagues, and were readily adapted to seizing economic opportunities. Founded squarely on institutions of family and locale, these flexible economic practices offered the Chinese their opening, their passageway into a world economy that was just then in the process of becoming globally integrated.
On this score, the record is also absolutely clear. Less than 10 years after the opening of China and the founding of Hong Kong, Chinese peasants, merchants, and artisans began to migrate around the world in search of their fortunes. In absolute terms, this migration was extremely large in its day, probably the largest free migration in the world in the nineteenth century. The migration was widely dispersed throughout the world, although the majority of the migrants went to Southeast Asia. The migration was also, from a comparative perspective, quite extraordinary. It was a temporary migration and, like the economic activity itself, was well organized through fellow-regional relationships. The majority of the emigrants planned to and eventually did return to their hometowns. 10
By contrast, in this same period, the Japanese hardly migrated at all. The only other country in Asia besides China that produced many migrants in these years was the British colony of India, whose people migrated to other spots in the British empire. The Chinese, however, migrated all over the world wherever money was to be made.
The Chinese searched for gold in California and in Australia in the 1 850s and 1860s, and were very successful, but when the mines dried up, they turned to other pursuits, such as digging canals and building railways; they also founded and operated small businesses. However, the Chinese migrated mainly to Southeast Asia. Some Chinese had lived in Siam, Java, and the Philippines for a long time, serving the rulers of those countries as privileged merchants and tax farm ers. In the last half of the nineteenth century, these Chinese were now joined by hundreds of thousands of newly emigrating Chinese, who poured into every corner of Southeast Asia. Most were wage laborers, but a sizable minority became very successful businessmen. These Chinese businessmen organized networks of interconnected small firms to collect and process primary products such as timber and rice and to distribute sundry goods throughout the countryside. By the second decade of the twentieth century, the Chinese dominated the service and manufacturing sectors of the local economies throughout the entire region and were major figures in trade between Asian countries and the West. 11
By the turn of the century, Chinese merchants and small-scale manufacturers largely dominated the most modernized parts of the Chinese economy as well (MacPherson and Yearley 1987). In every sector, except in heavy industry, local Chinese were able to outdo Westerners in the production and sale of consumer products for the Chinese. The Chinese bought very few cars, tractors, or trains, but they did buy a lot of textiles, cigarettes, matches, and small household items. Moreover, with a few notable exceptions, the Chinese controlled banking, retailing, and wholesaling, and by the 1920s, when department stores became important, the Chinese controlled the department stores, too (Chan 1982).
Hong Kong was the center of this capitalist expansion. One observer (Remer 1933: x, cited by Hicks 1993: xxxiii) in the 1930s unambiguously said that Hong Kong was "the economic capital of the overseas Chinese." A small research team at the University of Washington, of which I am a part, is examining the business structure of Hong Kong in the period before and during World War II, in an effort to establish a baseline for Hong Kong's industrialization. We have found that most firms in the 1930s and 1940s were owned by people coming from or still living in districts in the Canton delta, such as Taishan, Nanhai, Zhongshan, and Xinhui. These people jointly owned sets of firms that often included hotels, restaurants, insurance companies, import/export companies, banks, and investment and loan companies–all designed to aid the flow of human and material resources from Guangdong, through Hong Kong, into the rest of the world and then back again.
In the years before World War II, Hong Kong served as a capitalist funnel. Hundreds of thousands of Chinese emigrants from the Guangdong and Fukien hinterlands left from and returned to Hong Kong every year (Hicks 1993: 18-20). Billions of Chinese dollars flowed through Hong Kong banks and remittance centers. Some money left China for investments in distant places, but the larger portion flowed into China in the form of remittances–wages and profits from work performed elsewhere. The money flowing into China fueled the commercialization of South China in the period before World War II.
What is frequently forgotten is the fact that Hong Kong played the same role in the economy of China as it did in the economies of Southeast Asia. In the earlytwentieth century, organizingtheir commercial activity largely through Hong Kong, the Cantonese were the largest group of businessmen in Shanghai, and they largely controlled the distribution of imported sundry items throughout China.
While Japan's more or less closed economy was gearing up for the war in Asia, the economies in which the Chinese predominated opened up to global trade. These economic advances occurred in China and in Southeast Asia without the support and coordination of a strong state. In Japan, the state legitimized capitalism, coordinated elite interests, and resolved conflicts among the elites. In the same period in China, the state collapsed. That, however, did not hinder as much as it freed Chinese entrepreneurs to create networks that spanned political boundaries and worked despite, not because of, politics. The weakening and ultimate defeat of the Chinese state opened commerce and industry on the China coast and connected the Chinese with capitalist developments elsewhere. Chinese migration resulted from these conditions. Moreover, with the decline, collapse, and disintegration of the Chinese political order, the real forces of Chinese capitalism, the household entrepreneurs, moved to where money could be made–to such safe havens on the coast as Shanghai, Canton, and other treaty ports, and overseas to Southeast Asia, Hawaii, and the American West Coast.
To summarize, then, in the century before World War II, Chinese had integrated themselves into the expanding global economy; they rode the waves of capitalism around the world–in Shanghai, California, Australia, England, the Caribbean, and Southeast Asia. Based upon their flexible networks and hard work, they monopolized selected economic niches in many countries throughout the world. In contemporary terminology, we would say that they monopolized segments of the service sector in the world economy in the late nineteenth and early twentieth centuries. They were retailers, wholesalers, and financiers; they were the world's most prominent capitalist merchant group. Though integrated in and dependent on the global economy, this household-based form of capitalism was independent from any one political order.
On the other hand, after a short period of embracing all things Western, the Japanese elite successfully resisted becoming dependent on international trade. Instead, they created their own internal markets and built their own version of a strong corporate-oriented political economy. They started as industrialists producing for local and regional markets and from there expanded into the service sectors by organizing their own banks and trading companies, and only then did they gradually begin to integrate themselves into the world economy. The Japanese and Chinese responses were separate reactions to the spread of Western imperial ism; both were equally capitalistic and both have led historically to distinct trajectories of economic development.
Economic Development in the Second Half of the Twentieth Century
In a rather schematic way, I have described the patterns of capitalist development in Asia before World War II. Now I want to ask, did World War II end these trajectories? Or despite the interruption caused by the war, have these trajectories resumed in the last half of the twentieth century? I want to offer here an answer to these questions by listing five observations concerning post-war development that point to the resumption of the two trajectories of development.
First, if we think historically, it is clear that the Japanese pre-war capitalist trajectory quickly reasserted itself after the war. Japan was able to restore its form of capitalism because it was able to restore its political economy. The Japanese economy was rebuilt in the 1950s. The Cold War forced the United States to see Japan as its primary ally in East Asia and support its economic reconstruction. Shortly after the American occupation ended, the new Japanese government, centered on administrative agencies, began to refurbish Japanese-style capitalism by rebuilding a system of political economy in tune with the world as it existed in the post-war era.
One of the first steps of this administrative government was to create a new industrial structure. The American occupation forces had outlawed and disbanded the family-centered enterprise groups, the pre-war zaibatsu, by making each firm in the group independently owned and eliminating the family-owned holding company at the center of each group. But shortly after occupation ended, with the blessings of the Japanese bureaucracy, the firms in the former zaibatsu renewed their economic alliances and created a new system of business groups without family ownership. Capitalizing on opportunities presented by the Korean War and the Cold War, these enterprise groups, often referred to as the keiretsu, worked hand-in-hand with the government and quickly resumed their economic domination over the domestic economy. 12 The huge production networks that resulted from these alliances manufactured products that would sell both domestically and internationally. By the mid- 1980s, the sales of the largest firms in these enterprise groups alone represented 81 percent of Japan's gross domestic product (Hamilton, Zeile, and Kim 1989). In the 1980s, sheltered by an umbrella provided by the state, the manufacturing keiretsu led the Japanese form of capitalism to a world prominence that it had never enjoyed before the war.
My second observation is that whereas the Japanese state easily rebuilt Japan's corporate capitalism, the entrepreneurial base of Chinese capitalism was much more difficult to restore quickly for very obvious reasons. The first 35-year period, from 1945 to 1980, was one of intense political change in Asia. With the exceptions of Hong Kong, Thailand, and a few Himalayan kingdoms, every location in Asia in the decade after World War II not only had new governments but also new forms of government. For most locations, direct colonial rule ended and independencewas declared. China, of course, receiveditsnew governmentthrough revolution, and Japan through defeat and occupation. Whatever their forms, however, new governments never have an easy time. Civil wars occurred in Korea and Vietnam, and rebellions, coups d'etat, repressions, and insurgencies were the rule elsewhere.
This political turmoil caused two major changes in the way Chinese entrepreneurs were able to do business. First, the greatest change in the immediate postwar period came as a consequence of the Chinese revolution. In pre-war days, the Chinese mainland, even more than Japan, had been the core of Asia's integration into the global economy. Hong Kong and Shanghai were at the center of this core. Suddenly, the Communist Revolution cut offthe mainland, economically and politically, from the rest of the world.
A second and equally important change came with the dismantling of colonial rule in East and Southeast Asia. Throughout pre-war Asia, colonial connections had driven many lines of trade and manufacturing in which the Chinese were directly or indirectly involved. The war and its political aftermath destroyed these trade patterns. The leaders of new nations wanted new economies that were separated from colonial dependencies. Following the economic thinking of the time that recommended import substitution, most of these new leaders tried to create their own largely independent domestic economies. These leaders nationalized many industries and started numerous other state-owned or state-controlled enterprises. They also tried to create classes of domestic industrialists. They tried to regulate and organize the flow of economic activities within their own borders. Therefore, by the end of the 1950s, pre-war commercial connections had mostly been severed, and new ones had not yet formed.
The Japanese war, decolonializationin Southeast Asia, and the communist revolution on the mainland had essentially destroyed the commercial capitalism of the pre-war period. Therefore, with only one exception, the Chinese living outside the PRC in Asia between 1945 to the early 1960s came under intense pressure to nationalize their economic and political interests. Governments throughout the region watched the activities and questioned the loyalties of first-, second-, and sometimes third-and fourth-generation Chinese businessmen. In the first 30 years after the war, throughout almost the entire region, Chinese entrepreneurialism was directly challenged and channeled by changing political fortunes in the post-war period.
My third observation is that Hong Kong was the only exception to this rule during the immediate post-war period, and it is in Hong Kong that Chinese entrepreneurialism first reemerged as an independent force in world capitalism. The normal explanation for Hong Kong's post-war industrialization is its extraordinary post-war circumstances. Immediately after the war, the British colonial government tried to resume business as usual in a very unusual time. By 1950, virtually all economic exchanges with the mainland came to an end, and Hong Kong ceased to be an entrepot. But, as if to compensate for this sudden end to trade, Hong Kong found itself awash in money, laborers, and entrepreneurs. In the 1 950s, investment money, some fleeing from China before the revolution and some remittances from Southeast Asia that were cut off from entering China, arrived and stayed in Hong Kong. Refugees escaping communist domination built squatter settlements all over the colony, thus supplying a low-wage labor force. And some prominent entrepreneurs from Shanghai moved their factories there. Most people argue that this combination of factors allowed Hong Kong to quickly shift its economy from that of trading entrepot to industrial enclave.
Although these resources certainly contributed to rapid growth, let me argue that the underlying reason for Hong Kong's industrialization was Chinese commercial entrepreneurialism, a resumption of Chinese involvement in the world economy. Chinese businessmen in Hong Kong had to find markets for products that were or could be produced in a small enclave cut off from normal trade patterns and with no natural resources other than its people. Unlike Japan, Hong Kong, even in the earliest stages of post-war growth, did not have sufficient local markets to consume the goods produced in its factories. As Wong Siu-lun (1988: 74) notes in his seminal study on the Shanghai industrialists in Hong Kong, marketing was always the biggest problem faced by textile manufacturers, so important in fact that factory owners themselves or their closest representatives "usually traveled in person to look for potential markets and to negotiate face-to-face with their clients."
The markets that Hong Kong entrepreneurs found were part of and integral to a rapidly changing global economy. Fueled by post-war consumerism in the United States and Europe, department stores and "dime stores" were springing up all over both regions and were offering "ready-to-wear" clothes, toys, simple electrical appliances, and other fairly inexpensive household items. Using their commercial know-how and a lot of hard work, Hong Kong entrepreneurs began to link up with what Gary Gereffi (1993) calls the "big buyers," purchase agents who represented large retail and wholesale firms in the West, such as Sears, Montgomery Ward, J.C. Penney, Marks and Spencer, and the Bon Marche.
This pattern of doing business began with rattan furniture, plastic flowers, and textiles, but was soon repeated with a broad range of household non-durable consumergoods–garments, watches, toys, transistorradios, youname it (Turner 1993, 1996). The firms manufacturing these items were modest in size, tiny compared to production networks in Japan, and they were not organized in huge industrial configurations. Rather, grouped often in small, loosely organized subcontracting networks that were reminiscent of pre-war commercial networks, Hong Kong firms became the manufacturing links in long commodity chains that began in the West with designs, orders, and specifications, and ended back in the West with marketing, retail, and consumption.
These buyer-driven commodity chains overwhelmingly originated in the United States, Great Britain, and Germany. The trade statistics show this pattern very clearly. Throughout the decade of the 1950s, export trade with the United States and Europe was at a very low level and was steady or declining slightly. The upward trajectory of export trade started in 1961 and has grown rapidly since that time. But until the early 1980s, the export trade of Hong Kong was overwhelmingly accounted for by trade with just three countries: the United States, Great Britain, and Germany. In 1975, for instance, the United States, Great Britain, and Germany alone accounted for nearly 60 percent of Hong Kong's total exports. In the same year, Hong Kong's exports to Japan accounted for only 4.2 percent, Singapore for 2.7 percent, and Taiwan for less than I percent (Cheng 1985: 177).
The old Southeast Asian-centered trading patterns had vanished, and a new set of trading patterns had appeared. But despite these changes, continuity in organization and control remained. Hong Kong entrepreneurs let the markets pull products. Networks of small firms hunted for and then responded to that market demand (Turner 1996). Such a system of commercial capitalism is very different than the Japanese form of capitalism in which large manufacturing corporations create products and push those products into markets. The Japanese system is demand-creating, and Chinese system is demand-responsive.
My fourth observation is that while Chinese entrepreneurs in Hong Kong began to reconnect with the global economy, Chinese entrepreneurs in Singapore and Taiwan were still embedded in nationalist regimes. In other words, Hong Kong was exceptional, but Singapore and Taiwan were not, at least not until about a decade later. It was not until Singapore declared independence in 1965 that there was any long-term security for Chinese economic interests anywhere in Southeast Asia. Remember that between 1959 and 1968, the anti-Chinese pogroms occurred in Indonesia, and as late as 1969, race riots occurred in Malaysia. The Chinese in Southeast Asia everywhere lived under the shadow of nationalist politics at least until the 1970s, and some still do today.
Perhaps for this reason, when political officials in Singapore initially formed their industrial policy, they elected not to encourage Singapore's own Chinese entrepreneurs. Instead, they decided to develop many state-owned enterprises and to encourage a broad range of multinational firms from the United States, Europe, and Japan to build manufacturing and service operations in Singapore.
On Taiwan, the great majority of the Chinese–the Taiwanese Chinese–also came under intense pressure to nationalize their interests, but since Taiwan was ruled by the Chinese, the ethnic dynamic in Taiwan was to be Chinese rather than something else. In the 1950s, however, Taiwan's import substitution policies blocked most attempts by local businesspeople to trade beyond state boundaries. 13 It was not until the early 1 960s that this pattern began to change, and when it did, the initial entrepreneurial linkages were with Japanese trading groups and Japanese manufacturers. 14 For a time, Taiwanese manufacturing firms served as the subcontracting ends of the production networks of Japanese business groups, which is a very different position in the global economy from the one assumed by Hong Kong firms.
My fifth and final observation is that it was not until the early to mid-1980s that the entrepreneurial foundations of Chinese capitalism were fully reestablished outside the People's Republic of China. In the late 1970s, political stability came to the core countries of Southeast Asia–Thailand, Malaysia, Indonesia, and Singapore. All of them began to relax their economic nationalism. At the same time, mainland China started its economic reforms and opened its economy to outsiders. Soon thereafter, China and Southeast Asia began to attract huge amounts of direct foreign investment. Much of this investment came from firms in Japan, Taiwan, and Hong Kong, all of whom were looking for cheaper sources of labor and other economic advantages.
These crisscrossing investments were fueled by a new retail revolution that was occurring worldwide, fueled by the development of mall shopping, super discount stores, and brand name merchandisers such as the Gap, the Limited, Nike, Reebok, Dell Computers, and Mattel Toys, all of whom were manufacturers without factories. Computerized inventory systems, rapid sea and air transportation, and saturation advertising accompanied these trends in mass merchandising.
Chinese entrepreneurs quickly took advantage of these new opportunities. They manufactured the newest products, bought the choicest real estate, and made the best deals of anyone doing business in Asia. The new Chinese entrepreneurs from Taiwan, Hong Kong, and Southeast Asia were no longer petty capitalists and no longer bound by considerations of region and lineage.
Their success in Hong Kong, Taiwan, and Southeast Asia came quickly in part because they were economically the most agile and the most mobilized segments of the population. Often Western-educated, they recognized the opportunities presented by changing political and economic environments. Their, success allowed them to assume positions of great economic power in their home economies. In Hong Kong, the deal-making Chinese entrepreneurs bought out most of the British hongs. In Taiwan, the private firms owned by ethnic Taiwanese eclipsed the state- and party-ownedfirms. ThroughoutSoutheastAsia, the ethnic Chinesegained control of the most dynamic sectors of the economy. Chinese entrepreneurs became the super capitalists of Asia.
Hong Kong is again at the center of this capitalist development. Hong Kong's manufacturing base is now in Guangdong, and Hong Kong is again the capitalist funnel through which human and material resources move into and out of China. The largest investors in China are from the Chinese-dominated economies outside of China: Hong Kong, Taiwan, and Singapore. Until the Asian business crisis, the largest multinational firm in Thailand, the Chaeron Pokphand Group, an enterprise group owned and controlled by ethnic Chinese, was also the largest single investor in China and they may still be today, although the investment picture in China is less distinct than it was before the crisis began.
Unlike the pre-World War II period, the Chinese state is resurgent, but the Communist regime, for all its bravado, is quickly and surely losing control of the economic activities of Chinese local society. The tension, even the contradiction, exists between the regime at the center and the authority vested in local institutions (Wank 1998). If the accounts of Chinese development are correct, then it seems, once again, that the state continues to contribute much less, and local society much more, to capitalist expansion. Moreover, the commercialization and industrialization of China is being aided by money flowing in from Chinese living outside of China. In shape, if not in substance, the capitalist trajectories of Asia have returned to their pre-World War II forms.
Hong Kong is now a part of China and has begun the 50-year experiment of "one country, two systems." 1, of course, do not know what is going to happen as a result of this protracted political experiment. But I will confidently predict that the change in Hong Kong's sovereignty will not bring an end to the trajectory of Chinese-led capitalism that I have described in this paper. Nor do I think it will mark a new beginning. The past is too much with us for that.
Endnotes
An earlier version of this paper was presented in the "Hong Kong Lectures on Business and Culture" at the University of Hong Kong, 7 October 1995.
Note 1: In this section, I draw freely from my earlier essay "Overseas Chinese Capitalism" (Hamilton 1996).Back.
Note 2: I should perhaps qualify this statement by noting that while China lost all its wars with outside powers, it continued to have some success in battles in inner Asia.Back.
Note 3: Taiwan's government has tried to create automobile exports but has had no success to date, even though there are a number of automobile-producing firms in Taiwan. On Taiwan's automobile industry, see Noble (1987).Back.
Note 4: One of the first statements of this point was made by Alexander Gerschenkron (1962) and one of the most recent by Alice Amsden (1989).Back.
Note 5: For additional background on the formation of capitalism in Japan, see Garon (1987), Samuels (1987), Smith (1959), and Westney (1987).Back.
Note 6: A classic statement of the relationship between enterprise and family is found in Fei (1992: chap. 12); also see references in Gary G. Hamilton and Wang Zheng's, introduction to Fei's book (Fei 1992: 1-34).Back.
Note 7: This point needs further research. For useful beginnings in this direction, see Worlg Siu-lun (1985) and Redding (1990).Back.
Note 8: For more on the importanceofpersonal relationship in business, see relevant chapters in Hamilton (1991).Back.
Note 9: Yen-p'ing Hao (1986) characterizes the late imperial economy as "commercial capitalism." The term is adequate for the nineteenth century because a great deal of the economic expansion that occurred then in China was indeed commercial and not industrial. But the term "commercial capitalism" is inadequate now because although similar family principles and types of networks are still being used, employed in putting together small firms to manufacture industrial products, for instance garments in the hinterland of Hong Kong and bicycles and computer components in Taiwan.Back.
Note 10: For an excellent discussion of Chinese migration in the pre-war period, see Hicks (1993).Back.
Note 11: The literature on the Chinese in Southeast Asia is substantial. A basic text, though quite old, is still Purcell (1965). Also see Skinner (1957), Wickberg (1965); Lim and Gosling (1983), and most recently, Wang (1991).Back.
Note 12: For a discussion of the dissolution of the zail~atsu during the American occupation, see Hadley (1970). For a discussion of the state's role in restoring Japan's political economy, see Johnson (1982).Back.
Note 13: In the 1950s the Taiwanese state pursued a policy of import substitution, first by nationalizing Japanese-owned firms in agriculture and manufacturing and later by creating new firms for steel and petroleum production. The state also promoted private sector production, largely for local markets, in critical importsubstitution industries, such as textile and chemical production. The state also controlled exports.Back.
Note 14: Before the war, Japan relied on agricultural products from Taiwan. In the 1950s, Japanese trading groups reestablishedthese ties with Taiwanese-ownedfirms. Serving buyers of Taiwan's products for the Japanese market, these groups soon expanded the range of goods that they traded. In the same period, a group of Taiwanese manufacturers began subcontract production for firms in Japanese enterprise groups, firms including Toshiba, Sony, Sharp, and Matsushita. Such Taiwanese firms as Tatung and Sampo began by assembling, or manufacturing parts for, household electronics products, primarily radios and TVs. Today one of Taiwan's largest producers of consumer electronics, Tatung, is under license from Toshiba. Sampo, another of Taiwan's largest makers of consumer electronics, produced parts for Sony and Sharp. Matsushita, Japan's largest maker of household electronic products, started an independent firm and sponsored subcontracting and product assembly networks in Taiwan in the early 1960s. A look at Taiwan's export and import trade statistics demonstrates this link to Japan. In 1955, Japan received 59 percent and North American 4 percent of Taiwan's total exports. Ten years later, in 1965, Taiwan producers still sent 30 percent of all their total exports to Japan and only 21 percent to North America. It was not until 1967 that United States passed Japan as the leading buyer of Taiwan's products. The import statistics are equally revealing. Taiwan has run a very large trade deficit with Japan every year since 1960. In fact, since record keeping began in 1952, Japanese imports have always ranged between 20 and 40 percent of Taiwan's total imports. For a discussion of the Japanese role in Taiwan's early industrialization, see Gold (1986). Back.
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