Overseas Chinese Aid Mainland

In its much-heralded opening to international business, the People's Republic of China is relying heavily upon investment capital, technical expertise and philanthropy provided by ethnic Chinese who have emigrated from the mainland in recent generations to other points in East Asia, North America and Europe. This population represents a unique asset in the country's new-found enthusiasm for rapid modernization, serving as a logical meeting ground for Chinese and foreign ideas and perspectives. But, as China watchers are suggesting with increasing frequency. Beijing's courtship of ethnic Chinese abroad represents a double-edged sword. While bolstering the �short-term success of .China's economic program, these ethnic Chinese bring in their wake a wide range of social and political pressures that could upset the very social system the Communists have built up in the past three decades.

The concept of the "overseas Chinese" (hua c h'iao) has always been an elastic one for the Communist leadership, stretched or narrowed to suit the government's goals. China's policy towards the group---here defined broadly as all people of Chinese descent living outside of China, irrespective of their nationality-ha s always constituted a major, if at times unspoken component of the country's economic and political development plans. The current policy of enthusiastically courting the overseas Chinese actually represents a resurrection and extension of policies in force from liberation until the late 1950s. At times during that period, remittances from overseas Chinese were the leading source of foreign exchange for Beijing, and the Chinese government granted mainland relatives of overseas Chinese privileged social positions to encourage the foreign exchange flow. From the Anti-Rightist campaign of the late fifties until the end of the Cultural Revolution, China's attitude toward the overseas Chinese steadily stiffened to the point where by 19681970, many overseas Chinese dared not send remittances to their relatives. Overseas Chinese residing in China as well as mainland relatives faced persecution for their "bourgeois" leanings and were often-times stripped of their jobs and possessions.

During the current "Great Leap Outward," doubts about the political and social impact of extensive contact with overseas Chinese have been submerged, and since early 1978 Beijing has been calling upon ethnic Chinese to "aid the motherland" through trade and investment, direct remittances and the provision of technical training to Chinese students. "There's no question but that Beijing is counting very heavily on the overseas Chinese,'' says Richard Lieberthal, a China specialist at Swarthmore College. "They're going after them with a vengeance."

The means used to recruit overseas Chinese have been both official and unofficial, general and specific. Chinese provincial and county governments are producing special booklets designed to appeal to overseas Chinese from their particular region. The literature can be found in Chinatown bookstores around the world. Special overseas Chinese universities have been reopened to cater to hua ch'iao families wishing to have their children educated in China. Chinese delegations, when travelling abroad, make informal contacts with overseas Chinese relatives and friends urging them to participate in China's modernization effort, and a number of special investment corporations have been established specifically to serve as conduits for overseas Chinese investment in mainland enterprises.

It is an irony of history that ethnic Chinese have come to dominate the commercial life of the capitalist societies of East;-;Asia that border on the Communist giant. The two regions where ethnic Chinese form the vast *majority of the population-the British-administered territory of Hong Kong and the independent city-state of Singapore-are the entrepots of trade for all of East Asia, and in the other countries where they form ethnic minorities-Thailand, Malaysia, Indonesia and the Philippines-they dominate many commercial and industrial fields. The ironic twist is no inexplicable accident, but a clear product of historical circumstance. Most Chinese migration has come from several maritime regions, traditionally the centers of international trade and commerce in China. Faced with discriminatory prohibitions on land ownership and other non-commercial livelihoods, Chinese migrants were propelled toward entrepreneurial careers. Finally, French and British colonial authorities nurtured the ethnic Chinese commercial role; since they were persecuted by the local populations, the resident Chinese were considered a weak political force who could be safely granted a "Comprador" business position.

Now, commonality of language, preexisting personal contacts and a shared view of business relations emphasizing mutual trust and informal understandings over highly legalistic Western agreements have made overseas Chinese the early leaders in China's opening to foreign investment. While no overall estimates exist on their participation in trade and investment, overseas Chinese -particularly from Hong Kong-are clearly setting the pace in the smaller compensation trade and joint venture projects now beginningto dot the provinces of South China.. In the compensation trade projects, the foreign partner supplies the capital, equipment and perhaps some imported inputs for a plant; the Chinese supply the labor, and the foreign partner is compensated with output from the project. Several joint ventures involving equity investment by overseas Chinese are already underway on the basis of informal understandings, since none have received the necessary approval from Beijing.

Hundreds of these projects; most valued at under $U.S. 1 million, have been established in light industries such as textiles and electronics, industries designed to generate quick foreign exchange as well as to meet domestic consumer demand. The vast majority have been set up in Fujian and Guangdong provinces, the coastal areas to which most overseas Chinese trace their roots. Beijing has granted these two regions greater economic autonomy as a means of attracting overseas Chinese investment. Each has been allowed to set up duty-free, low-tax rate "new industrial zones" along the lines of the free trade zones of other East Asian nations. Fujian and Guangdong-one-third of whose populations are either returned overseas Chinese or close relatives of overseas Chinese-may negotiate foreign loans independent of Beijing; and have established special overseas Chinese investment corporations in which wealthy hua ch iao are recruited to buy stock.

In this initial period of opening to foreign business, overseas Chinese are also playing key roles as intermediaries between Beijing and major Western multinationals. Harvard University Sinologist Dwight Perkins says the communist leadership "sees the overseas Chinese as facilitators of penetration by Western capital."

Personal contacts can be an important aid in this process. Several of the officials now leading China's foreign investment drive are former industrial capitalists who were in disgrace during the Cultural Revolution and who have wide family ties to overseas business. For instance, Rong Yiren, the former textile magnate who now heads the recently-formed China International Trust and Investment Corporation (CITIC), has siblings and cousins involved in commerce and industry in Southeast Asia, North America and Europe. Among his relatives is C.B. Sung; the former vice-president of Bendix Corporation who has emerged as the most prominent Chinese-American involved in U.S. business with the People's Republic. Sung has joined with Cyrus Eaton family interests in forming E-S Pacific, which recently became the first Western corporation to receive Beijing's final approval for a joint venture.

While observers believe most of the small projects established in cooperation with overseas Chinese in Guangdong and Fujian are "strictly business," with the overseas partner motivated by potential profits, some ethnic Chinese are taking a more altruistic view of their relationship with the mainland. Since 1978 a number of overseas Chinese (particularly elderly ones) have negotiated their return to China. Once resettled, they promptly funnel all their assets into government bonds.

An even more widespread outgrowth of sentimental attachment to the mainland is the increased level of gift-giving and cash remittances by overseas Chinese to family, friends, and native towns and villages. Although their direct financial significance will no doubt diminish as China's export plans and crude oil sales move forward, these transfers now play a critical role in improving the country's hard currency reserves.

Remittances are up fivefold in some regions since 1976, and some families are receiving money at the rate of $2000 a, year-a huge sum by Chinese standard:. Prosperity has come particularly quickly to environs of Toisan county in Guandong, the region to which close to haft, of all Chinese-Americans trace their roots. Officials at the U.S. offices of the Hong Kong and Shanghai Bank, which handle foreign exchange remittances to China from many parts of the world. report that their remittance business is up 20 percent in the last six months over the same period last year. Aid comes in the form of goods, as well. Officials of communities, hospitals and schools now unabashedly curry favor with overseas Chinese, approaching them through relatives to donate buildings and equipment, and are quick to name institutions for those who do. And visiting overseas Chinese friends and relatives, particularly those entering the mainland overland from Hong Kong, have carried with them a flood of consumer goods bringing a new edge of affluence to many of their relatives.

Finally, overseas Chinese are playing a critical role in helping the People's Republic to rapidly develop a pool of highly-trained technicians in the scientific and economic fields. From the start of the Cultural Revolution until the fall of the Gang of Four in 1976, the Chinese educational system was in turmoil, as ultra-leftists denigrated technical training and "experts." As a result, China is now embarking on a modernization drive committed to the utilization of advanced technologies and management techniques lacking an entire generation of technically-trained personnel.

Now, overseas Chinese are being invited to give short seminars and lecture series. Benjamin Chu, a ChineseAmerican professor at the State Univer-, sit} of New York at Stony Brook who left China in 1952, returned to the mainland last summer at the invitation of a Beijing technical institute to teach a course on physical chemistry. Others have played instrumental roles in cementing arrangements between China and foreign educational institutions for the training of Chinese students. Chinese-American businessman Sung, for instance, says he takes special pleasure in one of the "friendship" aspects of his relationship with China: introducing the business management practices current in the U.S. to the

Chinese. Sung, trained in engineering at the Massachusetts Institute of Technology, has led scientific seminars in Beijing, and more recently has played a central role in developing an exchange program between China and Sung's other American alma mater, Harvard Business School.

Without doubt, Hong Kong has emerged as the major center for overseas Chinese participation in the mainland's four modernizations; most observers suggest that economic and political relations between the British-administered city-state-home to 5.5 million ethnic Chinese-and its Communist hinterland can be viewed as a barometer for the general tenor of China-overseas Chinese relations.

Although political relations have at times been strained, China's attitude toward the capitalist enclave has always been molded by economic pragmatism. The colony remains virtually defenseless, ready game for mainland leaders bent upon asserting sovereignty over the area. But the economic and social benefits of maintaining the status quo in Hong Kong has always prevailed over nationalist concerns. Since liberation, Hong Kong has served as a major entrepot for Chinese exports; until recently much of the trade has been billions of dollars worth of goods that would have faced legal restrictions if identified as of Chinese origin, which were relabelled and reexported from the colony with the "Made in Hong Kong" imprimature prominently displayed. Much of Hong Kong's electricity, food and water have been imported from the mainland, providing a major source of foreign exchange for China. Finally, Hong Kong has served as an important safety valve for social discontents on the mainland.

Since late 1978, the sometimes uneasy Hong Kong-China accommodation has been transformed into an enthusiastic alliance, both economic and political. On the political level, after three decades of only minimal official contacts, exchange visits of high-ranking Hong Kong and Chinese authorities have become commonplace. Beijing continues to view Hong Kong as an integral part of the People's Republic "temporarily under foreign administration" that will revert to Beijing "when the time is ripe."

The stronger partnership represents very different things for each side. In addition to yielding Overseas Chinese participation in small business deals throughout South China, the territory and commercial infrastructure of Hong Kong itself serves, in the words of one Asian financial journal, as a. for China's experiments with international business, while its traditional role as Chinese window on Western business continues to expand.

"There's no question but that the Chinese have Hong Kong. They are learning through the Hong Kong connection," observes Norman Gettinger of the National Council on U.S.-China Trade.

Hong Kong, in the past year, has served as the breeding ground for China's joint-venture arrangements with major western corporations. And the Hong Kong branch of the Bank of China initiated Beijing's first effort to participate in Beijing's major international commercial loan syndicate.

Beijing has established a number of major corporations in Hong Kong to reach out to foreign investors, both ethnic Chinese and others. Rong Yiren's China International' Trust and Investment Corporation, for instance, maintains a Hong Kong branch, and three Hong Kong Chinese directors sit on CITIC's board. Earlier this year, Beijing founded the China Merchant Steamship Company, a China-owned and controlled firm based in Hong Kong and run by Hong Kong Chinese, to oversee the development of Shekou, the new industrial zone just across the border in Guandong. And China has established other ventures promoting mainland development in partnership with Hong Kong financial. interests, such as construction firms building luxury flats in the coastal cities of Canton, Fuzhow and Shanghai to house overseas Chinese. -

The city-state has far more to gain financially from China's opening than some choice jobs and investment opportunities for some of Hong Kong's brightest entrepreneurs. Higher volumes of China trade with the West have increased Hong Kong's role as a transshipment point. Chinese goods reexported through the colony were up 75 percent over 1978, while transshipped imports to China rose by more than 300 percent.

Chinese leaders are trying to allay fears expressed by some Hong Kong government and commercial officials that the mainland's new industrial zones will mean devastating competition for Hong Kong's exports. Both sides are looking to develop a complementary relationship, with the Chinese border zones producing cheap inputs for Hong Kong's assembly and manufacturing plants. Finally, Hong Kong should benefit as a major service area in transport and communications for China business. One promising area of Hong Kong support may be offshore oil development.

Overall, all signs point to ever-growing economic interdependence between Hong Kong and the adjacent mainland region. One State Department specialist on Hong Kong-China relations said he expects to see a fairly rapid "economic amalgamation." "The Chinese will attempt to fuzzify the border," he added. A variety of plans for joint-venture infrastructure projects in transportation, communication and utility services are now underway, and the past year has seen the rapid expansion of new road networks from Hong Kong to Canton, capital of Guandong, as well as the start of hydrofoil and through-train rail service. Negotiations are also in progress to ease border crossing regulations for those from Hong Kong working in the Chinese export processing zones across the border. "Within just a few years," predicts one leading U.S.-China business consultant, "we'll witness Hong Kong Chinese who work and live in China, but drive to Hong Kong in the evening for the night life."

But while optimism runs high for the Hong Kong-China relationship in the ,Hong period, many observers note an undercurrent of uneasiness among Hong Kong Chinese and the territorial administration about the colony's long-term future. As China continues to open up, and develop stronger ties with Western corporations, the Hong Kong connection will no doubt become less important to Beijing. Skyrocketing real estate prices in the tiny colony are expected to erode the competitive position of its export industries.

Hong Kong's major preoccupation in the coming years will be "finding new ways to make itself useful to China," says one U.S. government official.

Inextricably intertwined with othe economic uncertainty is anxiety over' China's political intentions. Beijing has repeatedly assured Hong Kong it will make no unilateral move for political control of the territory; the date now most often mentioned by Hong Kong residents for possible political unification is 1997. when Britain's 99-year lease from Imperial China for the New Territories that comprise more than four-fifths of Hong Kong's land expires.

The forward movement of economic integration is expected to increase pressures within China for direct political control. Hong Kong residents are uncertain which economic system will change more in the gradual process of economic amalgamation, and to what degree China might impose its social and economic structures upon the territory in the event of the establishment of a formal political relationship. Beijing has stressed its willingness to allow different social and economic systems to coexist within a politically-sovereign People's Republic, mainly as a way of relieving Taiwan's concerns about China's intentions for that region. But, given past swings of the political pendulum in. Beijing, the leadership's pronouncements on the subject are not enough to reassure Hong Kong Chinese about their future, and the uncertainties threaten to dampen foreign investor confidence in Hong Kong.

Hong Kong Chinese are not the only people with reservations about the new relationship. Although it is never openly expressed, most observers believe China's leaders are divided over whether the tensions created by the increased activity of overseas Chinese will be worth the benefits., At a time when authorities are moving to legitimize income differentials based upon the quality of labor, the royal treatment accorded returned overseas Chinese and their resident relatives is forcing the leadership to offer new legitimacy to the concept of unearned income. Overseas Chinese who take up permanent residence are being restored properties confiscated decades ago. Special supply stores have been established to suit their greater purchasing power, and their special apartment complexes are on par with luxury flats throughout capitalist East Asia. Many of these same privileges are granted to the resident relatives of overseas Chinese-many hua ch'iao are purchasing luxury apartments for their local relatives, and special provisions have been made so they can buy luxury consumer goods with their remittances.

In a sense, the social problems posed by the overseas Chinese are inseparable from those confronting all Third World countries where large pools of people-ordinarily foreign tourists or technical experts-are granted higher than averaged income and consumption standards. But the opportunity of increased contact with overseas Chinese is also its greatest drawback. China is finding ethnic Chinese the most ready source of investment capital, largely because of the ready basis for trust resulting from shared language, values and personal contacts. By virtue of these characteristics, it is more difficult for China to , regulate and control their contact and influence upon the population to the degree possible for other foreign visitors. "With all that they have in common, it's going to be very difficult to isolate them," observers one U.S. professor.

Yet other observers stress the real contrasts that exist, culturally, between the Communist Chinese and their overseas brethren. "It could really be an explosive mixture," says one U.S. State Department official. "The overseas Chinese-particularly from Hong Kong-are one of the few remaining groups of last-ditch, hardnosed laissez faire capitalists."

In recent months, some steps have been taken to circumscribe overseas Chinese influence. The increased flow of overseas Chinese to the mainland has fueled a thriving black market in foreign exchange and smuggled goods. The Chinese have begun to crack down on the illegal importation of goods, and, they established a new scrip currency system for incoming overseas Chinese and other foreigners in April to cut down on illegal foreign exchange transactions. Even while billboards that once contained Maoist slogans fill up with consumer product ads and women flock to beauty salons for Western-style permanents, the government has stepped up its propaganda campaign against "blind worship" of Western materialism. While not strictly directed at overseas Chinese, it is a way of containing their social and cultural influence.

For the present, however, such measures appear destined to simply slow down the pace of expanding overseas Chinese influence. "The leadership is submerging most doubts; its the-economic modernizers who are tops" says one American China business consultant.

In the coming years, China watchers will be focusing their attention particularly on Guangdong and Fujian, the provinces with the greatest contact with

Hong Kong and the strongest overseas Chinese presence. Some observers suggest an entirely new social and economic dynamic may take hold in these coastal provinces. "Guangdong and Fujian will be the meeting ground between capitalist East Asia-especially Hong Kong-and China. They may become socialist-capitalist hybrids-freer from the ultimate political control of Beijing than the rest of the country." says one U.S. business consultant .

Others are not so certain, and suspect that, behind the scenes, Beijing may be keeping a tighter reign on developments than most Western observers hypothesize. "We don't really know who has the final say [on investment decisions] in these provinces," says University of Michigan Sinologist Alan Whiting. "And by and large, we don't know the lines of communications, and who really holds the veto powers in overall decision-making."

Whatever Beijing's intentions, one can be certain that the more intensive interactions between overseas Chinese and the people of the mainland will be a cause for escalating social tensions in the years ahead.