INTRODUCTION

The ethnic Chinese have been active players in Philippine business for centuries. Until a few decades ago, however, other than the multinational corporations, large business establishments in the country mostly belonged to the elite families composed primarily of Spanish Filipinos and Chinese mestizos (Palanca 1977). Due to their economic and political power, for centuries this group of elites has had strong influence on public policy. In the Southeast Asian region where in most countries the ethnic Chinese have been the most dominant group in business, in the Philippines, the presence of a powerful non-Chinese group in business is a unique feature. Towards the end of the nineteenth century, there were a few successful businessmen, 2 but none of them could compare with the wealth of the propertied elite families. Nevertheless, even then, the Chinese had an established commercial network, although most were engaged in petty trading or small-scale manufacturing.

It was only since the liberalization of the naturalization process in the seventies when ethnicity distinction started to blur that we saw a significant expansion of the ethnic Chinese business. The rise in economic status of many ethnic Chinese, as well as their integration into the mainstream of Philippine society, has placed them in the same social and economic class as the traditional oligarchs, a class that has been able to influence policy- and decision-making of the government.

The rise of East Asian economies in the last few decades has again brought attention on Chinese culture as an explanation for entrepreneurial success. With Hong Kong, Korea, Singapore and Taiwan having gained the “newly industrialized” status, “Chineseness” as an explanation of business success regained focus. Hong Kong and Taiwan are part of what is called Greater China. Singapore is 80 per cent ethnic Chinese while Korea is very Confucian in its cultural orientation. The countries that followed suit in the pursuance of such export-driven growth are Malaysia, Thailand, the Philippines and Indonesia wherein the major business players are the ethnic Chinese.

INTRODUCTION

Globalization is not a new phenomenon. As far back as the Tang Dynasty in the seventh century, trade routes of the Silk Road had brought together Eastern and Western civilizations through trade. Since the visit of Marco Polo to China in the thirteenth century, global economic integration had accelerated, amidst interruptions during World Wars I and II in the early part of the twentieth century. However, globalization continues to be a rising trend, with occasional outbursts of protectionism and anti- globalization rhetoric. From the historical perspective, World Bank (2002) identifies three major waves of globalization. The first wave of globalization occurred in the period 1870–1914, resulting from decreases in tariff barriers and transportation costs with the advent of steamships and railways. The progress of globalization ended abruptly with the outbreak of World War I, starting from 1914. International trade was severely disrupted. After the war in 1918, the Great Depression of the 1930s gave rise to protectionism among major trading countries. Again, globalization was in disarray when World War II broke out in 1942. After the war in 1945, the second wave of globalization which took place between 1945 and 1980 ignited a hope for acceleration in economic integration at a global scale. With falling transportation costs and a reduction in trade barriers among developed countries, there was a sharp increase in international trade in manufactured goods, apart from the usual primary commodity trade. Of significance was the spread of agglomeration economies arising from clustering of related industries in specific locations, thus facilitating vertical and horizontal integration within an industry. The other important occurrence during this period was the emergence of multinational corporations (MNCs) in facilitating international trade and capital flows. Globalization process went into a new peak after 1980 when information and communication technologies breakthroughs cut communication costs dramatically. Together with digitalization, information-based activities are “weightless” so that inputs and outputs can be traveled vast distances at virtually not cost.

INTRODUCTION

People often see globalization as the formation of a global village. The advent of information and communication technology (ICT) has shortened the distance between different parts of the world. We have closer contact and speedier flows of information, enabling the creation of a global civilization, with freer trade, freer flows of people, of capital and of technology. IMF defines globalization as “the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, freer international capital flows, and more rapid and widespread diffusion of technology”.

The recognition of comparative advantages conferred to each country leads to increasing specialization of nations in exports, and pressure to trade liberalization, such as ending protective tariff and other barriers to trade.

In the nineteenth century, trade liberalization was facilitated by adoption of the gold standard along with the growth of industrialization. Globalization has been disrupted since World War I. In the era since World War II, globalization has been driven by trade negotiation rounds, which led to a series of agreements to liberalize trade. The Uruguay Round led to a treaty to create the World Trade Organization (WTO) to mediate trade disputes. Other bilateral trade agreements and regional trade treaty such as the ASEAN Free Trade Area has also been signed in pursuit of the goal of reducing tariffs and barriers in trade.

Since World War II, globalization has manifested itself through the reduction of trade barriers, increase in international trade and foreign direct investments besides increase in international cultural exchanges, international travel and tourism and immigration.

In this era of information and communication technology, globalization is here to stay. The advent of information and communication technology such as Internet enables vast amount of information to be processed and transmitted speedily through an e-commerce portal. Producers can access to global sources of inputs and screen for the most cost-effective producers of such inputs.

THE ROLE OF ECONOMIC NATIONALISM

To a much greater degree than has been the case in the other newly- independent countries in Southeast Asia, economic nationalism in Indonesia has remained a potent force until the present. Although its contemporary manifestations has in general become less aggressive and less strident than in the 1950s, it remains a driving force that to a large extent still influences economic policies today. Whereas economic nationalism during the early years of independence in the 1950s was mainly directed at the economic dominance of the Dutch and ethnic Chinese business interests, in the years following the Asian economic crisis in the late 1990s, it was mainly aimed at the perceived interference of international organizations, particularly the IMF, in the formulation of Indonesia's economic policies.

Despite the strong economic nationalism, pragmatic considerations have often overruled ill-considered economic nationalism. In this way, pragmatic policies have often been able to mitigate the adverse economic and political effects of emotional economic nationalism. This was already evident when the Indonesian Government in the second half of the 1950s terminated the unsuccessful “Benteng” (Fortress) Programme, which was the Indonesian Government's first affirmative policy to promote indigenous Indonesian businessmen (pengusaha asli Indonesia).

THE ‘CHINESE PROBLEM’

Unlike the Malaysian Government, which since 1970 has pursued an explicit affirmative policy, the New Economic Policy (NEP), to advance the economic position and intensify the political hegemony of the Malay bumiputera population (Jesudason 1997, p. 124), the Indonesian Government since the early years of independence up to the present has never formulated a comprehensive economic policy relating to the Chinese minority. Although laws and decrees were issued which regulated the life and activities of the Chinese minority, such as its economic activities, these laws and regulations had an ad hoc character, which were not part of a comprehensive policy towards the Chinese (Coppel 1983, p. 29).

This absence of a comprehensive policy was not caused because the Chinese were not seen as a “problem”, but because the Indonesian Government in the early 1950s tended to be fragmented, which made coordinated policy-making, including policy formulation towards the Chinese difficult (Coppel 1983, p. 29).

INTRODUCTION

Given the transitional nature of development in which both China and Indonesia are currently faced, any conclusion on how the rise of China is going to affect Indonesians is provisional by necessity. While miraculous growth performance gives China a more attractive look to a world which is obsessed with wealth accumulation, the litmus test of sustainability still lies ahead for China when the time comes to address political rights of more than one-fifth of world population. One should not overlook the fact that back in the fifteenth century, China was on the threshold of being industrialized, but it is in faraway England that mechanization became for the first time commercialized, harnessing together technological ingenuities from around the globe. The post- crisis economic performance of Indonesia undoubtedly pales against that of China. However, Indonesia has at least dared to step into the long road to political democratization, though it, too, is yet to pass the litmus test of effective delivery of goods and services that people expect from a democratic government.

The impact of the rapid rise of China on Southeast Asia in general and Chinese Indonesians in particular as explored in this chapter are highly complex. While China can be seen as the masterpiece of globalization of the last quarter of the twentieth century, it is faced with a number of downside risks emanating from domestic, regional and global developments. How Indonesians look at a rapidly progressing China depends, among other things, on how they perform economically in comparison with the Chinese. A rapidly progressing economy is much more likely to result in a positive perception of China than one that stagnates. Chinese Indonesians would be less inhibited in exploiting the opportunities that emerge in the wake of China's rise under a strong performance of the Indonesian economy. Even at the cost of being repetitive, discussion in this chapter covers first of all, the sustainability of the rise of China; secondly, the global and regional environment; thirdly, outlook for a strong growth in Indonesia; and lastly, the impact of China's remarkable transformation on Chinese Indonesians who for a long time have served as the backbone of Indonesia's commercial sector.

INTRODUCTION

The impact of a rising China on Malaysia has been in evidence over the last ten years or so. On the positive side the opening of China offers opportunities to Malaysian investors, in particular, Malaysian Chinese investors. There are those who see possible high returns from investments in a country where many fields of business have yet to fully develop. Furthermore there is expectation that Malaysia would benefit from a growing market as China further opens up her economy. Indeed China has long been one of the largest buyers of Malaysian commodities such as rubber and palm oil.

On the negative side, China is, firstly, attracting a huge proportion of foreign direct investment (FDI). Since 1997–98 there has been a decline of FDI to the ASEAN region including Malaysia. There are those who argue that the FDI that went to China might have gone to the ASEAN states. However, the FDI decline in ASEAN was due also to reasons exposed by the Asian financial crisis — weak accountability, non-transparency and cronyism — and the region has not entirely recovered from that.

Secondly, the rise of China has led to competition for export markets, with Malaysian producers losing out to cheaper goods from China. In addition, cheaper costs of production in China have also encouraged a relocation of factories from Malaysia and this has led to job loss and the multiplier consequence to the general economy in a particular region when factories close down. There is also the loss of technology transfer when a foreign-owned factory leaves.

This chapter looks at the impact of the rise of China on the Malaysian Chinese economy. At the outset, it has to be stated that the economy of the Malaysian Chinese, being part of and integrated into the general Malaysian economy, cannot easily be separated and analyzed in isolation. However, there is an economy which is recognizably Chinese in ownership and management, both in the general perception as well is in governmental policy. The chapter will focus on this economy though it needs to be pointed out that the impact of the rise of China on the Malaysian Chinese economy must be understood within the impact on the broader Malaysian framework.

GLOBALIZATION, CHINA AND THE ETHNIC CHINESE IN SOUTHEAST ASIA

In the last decades of the twentieth century, there have been two significant international developments: the rise of globalization and the emergence of China as an economic power. Globalization has reduced the physical distance of regions and countries all over the world and resulted in intensive interaction. These interactions occurred not only between regions but also between countries. The impact is of course tremendous and multi-dimensional. It is also obvious that smaller and developing countries are likely to receive more impacts than the larger and more developed ones. We in Southeast Asia, a collection of small and medium countries and still developing, have really felt this impact, initially from the West but lately from China.

Our northern neighbour, China, has rapidly become a major economic power. It has become the “dynamo” of Asia and some even see it as the “world factory” for mass production, flooding the Southeast Asian markets. Both globalization and the rise of China have resulted in a profound socio-political and economic change in the region of Southeast Asia and offer an opportunity for scholars to study. The Institute of Southeast Asian Studies (ISEAS) in Singapore decided to hold a workshop focusing on the rise of China and its economic rather than political and socio-cultural impacts on Southeast Asia, with special reference to the economic position of the ethnic Chinese in general, and ethnic Chinese businesses in particular. The study is put in the context of an era of globalization where changes have taken place. The book that you are reading is the result of the workshop which was held in late April 2005.

About 75 per cent of the ethnic Chinese outside China live in Southeast Asia. They have made significant contributions to the development of the region, particularly in the areas of economy and business. With the rise of China as an economic power, it would be interesting to study what role the ethnic Chinese in the region would play.

INTRODUCTION

In the last decade, much has been written about globalization, the rise of China as an economic power, the impact of China's entry into World Trade Organization (WTO), the Asian Century, Southeast Asia's ethnic Chinese economy, and related topics. Conferences, workshops, and seminars on the topic have been convened in all parts of the globe. This highlights the growing interest and concern over China and its entry into the big league of global powers. This volume examines these three issues that impact on one another — globalization, the rise of China as an economic power, and the ethnic Chinese economy in Southeast Asia.

As a caveat, just like many academics, especially from China and Hong Kong who have explored and written about this topic, the chapter contributors are neither economists nor business practitioners. At best, the authors are participant-observers who have closely monitored and have been deeply involved in concerns and issues affecting China and the Chinese-Filipino community in mainstream Philippine society. It is on these grounds that this chapter is presented. Past research and studies on the topic tend to draw general conclusions based on meagre data, which have led to greater misconceptions and muddling of the issues and have been a drawback towards a better understanding of the issue. Edmund Terence Gomez and Michael Hsiao Hsin-Huang organized a seminar workshop in 1997 at the Academia Sinica in Taipei and published Chinese Business in South-East Asia (Gomez and Hsiao 2001, Preface, pp. 1–4) also as an attempt to understand the Southeast Asian situation better. Gomez pointed out that the presumption that ethnic Chinese businessmen in Southeast Asia will use their racial and cultural ties and influence with China to pour in huge “overseas Chinese capital” that will have tremendous impact on the global economy in the twenty-first century is not supported by empirical data (Gomez and Hsiao 2001). Henry Yeung and Kris Olds' book, Globalization of Chinese Business Firms, likewise contains articles that provoke critical thinking on “Chinese capitalism”, “Chinese business”, and “internationalization of ethnic Chinese-owned enterprises”, (Yeung and Olds 2000) as well as some theoretical perspectives on the topic.

INTRODUCTION

Since Malaysia's independence in 1957, the nation's economy has been doing reasonably well with economic growth averaging 8.7 per cent annually. This trend continued until 1997, when the Asian financial crisis hit almost all the countries in the Asia-Pacific region. It is widely recognized that Malaysia's strong economic performance in the 1980s and most of the 1990s had been built on effective economic planning and a relatively efficent civil service (Ho 2002). The country had also enjoyed strong inflows of foreign direct investment in the decade before the Asian financial crisis. In retrospect after the crisis, Malaysian state policies have undergone a number of phases of adjustment — from state expansion to divestment to privatization, from the New Economic Policy to the National Development Policy to the New Vision Policy, from manufacturing to industrialization to the K-economy. These changes were by no means trivial or insignificant, and they have transformed the country's economy to what it is today.

The economic fate of the Malaysian Chinese is invariably linked to external environments (such as the forces of globalization, emergence of China, Taiwan's “Look South Policy” etc.), as well as internal factors, such as pro-Bumiputera (pro-Malay) policies and regulations, aimed at wealth redistribution in the country. With various restrictions and constraints imposed by the United Malays National Organization (UMNO)-led Barisan Nasional [National Front] government, Malaysian Chinese businesses have gone through various periods of adaptation and adjustment, submitting memoranda through business associations and political parties, building alliances with Malay bureaucrats and businesses, and lately, responding to the emergence of China as a destination for business expansion.

This chapter will examine the patterns of government economic policies and their impact on Malaysian Chinese business development over the past thirty years. While the government's pro-Bumiputera policies were restrictive toward Chinese economic development, the ethnic Chinese business community responded to these governmental discriminatory actions by making itself more competitive through organizational restructuring, political alliance and patronage, and discerning outsourcing.

INTRODUCTION

Chinese Indonesians (also known as Tionghoa) have been acknowledged as one of the major engines in Indonesia's economic development. Although they are the minority, it is estimated that their share of total private domestic capital far exceeds that of any other ethnic group in the country. There are controversies regarding the share of Chinese capital in the Indonesian economy (for example, see Kwik 1978; Amir 1978; Hadiz 1997; and Ning 1987). Until now it has been difficult to get data about the precise composition of capital ownership. However, it has been widely accepted that the state has the largest share of domestic capital in Indonesia followed by Chinese capital.

In the year 2000, some of the major ethnic groups in Indonesia are the Javanese (41.71 per cent), the Sundanese (15.41 per cent), and the much smaller groups such as the Melayu (3.45 per cent), the Madura (3.37 per cent), and the Batak (3.02 per cent) (Suryadinata et al. 2003). The Chinese are estimated to make up 1.40 per cent to 1.99 per cent. Other ethnic groups of foreign origin also exist albeit in very small numbers (for example, Arab, Indian, Indo-European). It is estimated that there are more than 400 ethnic groups in Indonesia (Brown 1994). However, until recently there is a dichotomy between the Chinese and other ethnic groups (the so-called pribumi). In the New Order era (1966–98), the classification of non-pribumi was often applied solely to the ethnic Chinese. They were distinguished exclusively from other ethnic groups and regarded as the only alien one in Indonesia being discriminated against politically, socially, and economically during the New Order Era (see Heryanto 1997, 1998).

The ethnic group's economic roles and significance has grown significantly during the New Order era. Interestingly, in this era, they were discriminated against most extensively in the social, cultural, and political spheres. The rise of the New Order regime (1966–98) marked the peak of extensive and gross practices of racism against the Chinese involving both state discriminations, and frequent and violent mass attacks on Chinese property and life (Heryanto 1997, 1998; Ning 1987; Coppel 1983).