Chinese Big Business and the Wealth of Asian Nations

Chinese Big Business and the Wealth of Asian Nations. By Rajeswary Ampalavanar Brown. Palgrave, 2000. xii + 328. Figures, tables, maps, index, notes, bibliography. Cloth, $79.95. ISBN 0-3433-75344-5.

The 1997 Asian economic crisis rekindled interest in the role of overseas Chinese businesses in various local economies of Southeast Asia. Scholars are faced with the task of examining their potential structural weaknesses while simultaneously having to explain their remarkable success in previous decades. However, many of these analyses, in disciplines ranging from economics to business history and anthropology, seek their answers in the context of larger questions, such as the search for the nature of "Asian capitalism" or culture-dependent Chinese business structures and practices. Without being able to offer detailed information on their concrete business operations, internal financial and managerial structures, or relations with the state and with local and international markets, we still do not know very much about Chinese business in Southeast Asia. The superb study under review here fills this lacuna by combining a detailed institutional analysis of Chinese business groups and their impact on the rapid growth in Southeast Asian economies with a sensitive eye for the specific cultural environment and problematic structural developments that unfolded during the economic crisis of the 1990s.

Published in the series "Studies in the Economies of East and Southeast Asia," Rajeswary Ampalavanar Brown's volume represents a tour de force that addresses the diverse development of Chinese overseas enterprises in countries such as Thailand, Malaysia, Indonesia, and Singapore and their business operations in various industrial sectors, ranging from textiles, service, and telecommunications to finance and real estate. Brown has based her analysis on impressive archival research. One cannot but marvel at the sheer scope of material used in her analysis, including shareholder and accounting reports and minutes of meetings and business correspondence, and at the tremendous effort that was required to obtain these materials from companies and archives located all over Asia.

These efforts have resulted in a comprehensive study of overseas Chinese business enterprises that explains in detail their operation and growth, as well as their institutional structure and role in the economic and political context of the respective countries, and offers useful insights for comparison with other, western models of the firm. While identifying herself as a historian, Brown puts her conclusions in the context of the Asian financial crisis: that is, how Chinese business groups responded to the crisis and how their structural weaknesses indirectly contributed to it. Thus she manages to address issues that interest economists and business historians alike.

The first three chapters present an overview of Chinese family business and its transformation through incorporation and expansion in the postwar period. Although business structures became more complicated over time, ownership and control in overseas Chinese businesses still remained with the family, while the ubiquitous use of holding companies allowed them to expand and diversify their operations. While relations between Chinese enterprises were highly dependent on family politics, relations with outsiders, especially local financiers, were vital to business expansion and interregional trade. Brown argues that the relation between Chinese companies and the state took on various forms, with the state acting in roles developing from "patron to partner, from investor to executor" (p. 42).

Chapters 4 to 10 each introduce specific aspects of overseas Chinese enterprises through particular case studies, displaying Brown's skill in institutional analysis. For example, in regard to the growth structure of Chinese businesses, she discusses the P T. Astra enterprise, a Chinese conglomerate in Indonesia, which experienced rapid growth in a protected environment under the Soeharto regime. Brown argues convincingly that industrial clusters and easily accessible capital led to Astra's success, rather than its hierarchical structure and strategy. Similarly to other Chinese enterprises, Astra's problems became apparent during the financial crisis of 1997, when staggering indebtedness, together with financial overextension and fraudulent speculation, led to the loss of family ownership.

Case studies from the food and drink industry in Malaysia and Singapore illustrate the challenges of foreign markets to, and the global aspirations of, Chinese enterprises. As Brown points out, although the absence of marketing networks and different legal structures caused some enterprises to fail to capture markets abroad, others succeeded due to their strong links with the state, which brought oligopolistic advantages in commodity production and trade advantages. Case studies from the textile industry show how large Chinese business firms integrated labor-intensive with capital-intensive sectors. Brown demonstrates that large textile companies in Thailand did not follow the "flying geese" pattern by imitating Japan's approach to industrial restructuring through reliance on the advantage of cheap labor. Instead, the organizational structure, financial and technological links with foreign multinationals, and international trade restrictions benefited the Chinese operations and gave them an edge in the competitive textile market.

Regarding the response of Chinese enterprises to technological innovation, Brown points out that even a highly technology- and capitalintensive sector such as telecommunications illustrates the importance of state patronage and the continuation of family ownership. However, despite their focus on technology, Chinese businesses still continue to neglect innovation and the necessary long-term investments. Attitudes of Chinese businessmen toward risk and speculation feature in a chapter on land and property acquisition. Brown shows how the close link between the property and the financial market in Singapore through bank loans and investment from capital markets led to serious consequences in the property, financial, and industrial sectors of the economy in the 1997 crisis. Regarding the function of Chinese businesses in Asia's growth after 1978, the case study of Charoen Pokphand, the largest overseas Chinese investor in mainland China in the 1990s, shows an amazing diversity in the manufacturing portfolio, together with interests in research and development industries. Brown suggests that next to profit seeking, this diversity indicates "coalescence of crucial political lineaments" (p. 207). However, she also mentions that many of the projects were too speculative and never saw implementation. Not surprisingly, family ownership continued to exist in the Chinese companies, in China as well as abroad.

The last chapter focuses on Chinese finance and the vulnerability of the banking sector in Southeast Asia, which was exposed during the economic crisis. Brown's analysis of banking institutions in Indonesia and Singapore demonstrates that banks with close relations to conglomerates faltered because of the recklessness of the Chinese business groups. Their control over financial resources also led to a monopoly situation, which, in combination with high-risk speculation and lack of regulative control, led to the faltering of banking institutions in Southeast Asia in 1997.

In her conclusion, Brown uses the results of her institutional analysis to characterize the historical emergence of overseas Chinese business and its predicament after the economic crisis. Chinese enterprises in Southeast Asia created rapid economic growth without being able to construct an institutional framework to sustain stable rapid growth. Brown argues that "family domination and the absence of managerial hierarchies made the Chinese corporation inherently unstable, which in turn destabilized economic growth as a whole" (pp. 279-80). The "highly predatory and uncooperative" (p. 280) nature of Chinese conglomerates and their approach to diversification led to instability: although diversification was meant to reduce risk, risk was included in the financial liabilities of the enterprise. The study also confirms the negligence of technology and marketing management as a recurrent flaw of Chinese business in Southeast Asia. One has to agree with Brown that it remains to be seen whether changes in government, stricter financial regulation in banking and accounting, as well as managerial restructuring for debt-control and directed growth with specialization will be able to put Chinese business back on track, restoring the "Pacific Grim" to the Pacific Rim (p. 289).

[Author Affiliation]

Reviewed by Elisabeth Koll

[Author Affiliation]

Elisabeth Koll is assistant professor of modern Chinese history at Case Western Reserve University. She is author of several articles on Chinese business in the late nineteenth and early twentieth centuries. Her book, From Cotton Mill to Business Empire: The Emergence of Regional Enterprise in Modern China, will be published in the Harvard East Asian monograph series. Her next book-length project is a study of the social history of the railway in China.