All Commentary
Saturday, March 1, 1997

Book Review: The Bamboo Network: How Expatriate Chinese Entrepreneurs Are Creating a New Economic Superpower in Asia by Murray Weidenbaum and Samuel Hughes

What Does the Future Hold for the People's Republic of China?

Free Press • 1996 • 272 pages • $24.00

Dr. Peterson is this month’s guest editor.

A sharp turn in human events since the end of the Cold War is the emergence of a powerful new global economic force, one without fanfare, and in an unexpected place: Southeast Asia.

The force is the Bamboo Network. It’s made up of rich entrepreneurial Chinese families in Greater China: booming Mainland China (population 1.2 billion with a land mass as big as Canada), Hong Kong, and Taiwan for the most part; and, in one degree or another, in nearby and similarly booming Thailand, Singapore, Malaysia, Indonesia, Vietnam, and the Philippines.

This Bamboo Network is quickly advancing from socialism or heavy state interventionism to a huge market economy, from degrees of totalitarianism to forms of limited republics—with Mainland China and its strict one-party rule having the greatest way to go.

What is more, this late-blooming economic miracle, an unmatched recast of much of the Far East, is envisioned, financed, and led in great measure not by Japanese and Western investors but by those aforementioned wealthy, mainly overseas Chinese family investors and entrepreneurs. They bring to mind the earlier House of Rothschild phenomenon of internationalization and multiplication of family fortunes.

Ironically, most of these ethnic Chinese superinvestors, while removed from their ancestral home, are now closely involved with its economic success as well as that of their new-found homes, despite some lingering local discrimination (Malays vs. Chinese, for example). These superinvestors are the refugees, or their children, who fled the Maoist communists in the 1940s. They have much to teach their Western counterparts who invest in that part of the world—or anywhere else.

Such are the fascinating Weidenbaum-Hughes findings. Murray Weidenbaum, President Reagan’s first chairman of the Council of Economic Advisers, holds the Mallinckrodt distinguished chair at Washington University in St. Louis, where he also serves as chairman of the University’s Center for the Study of American Business. Samuel Hughes, a former Center fellow, is a St. Louis-based management consultant.

The authors supply fresh meaning to networking, noting it is common for the father-CEO stationed in Hong Kong or Bangkok or Singapore to send one son to Shanghai, another to Taipei, a son-in-law to Manila, and a nephew to Kuala Lumpur, so positioning them in the Bamboo Network for future senior leadership. (Nepotism doesn’t extend as far for daughters.)

Confucian culture explains a good deal of what’s behind the dramatic rise of the Bamboo Network and its growing, pounding heart, Mainland China. The philosophy of Confucius, who died in 479 B.C., has been the fare of Chinese students ever since. His values help explain the Bamboo Network’s business success—values that include loyalty to the hierarchical structure of authority, a code of defined conduct between children and parents and other adults, a work and quality ethic, a sense of ethnic responsibility, a disdain for conspicuous consumption, consequent high saving rates, a bent for focus, and a drive for entrepreneurship as a dynamic rivalrous process to combine land, labor, and capital into profitable, privately held enterprises that serve and are served.

Covered here then are the Charoen Pokphand Group of Thailand, the Li Ka-shing Group of Hong Kong, the Ong Beng Seng Group of Singapore (whose holdings include participation in Planet Hollywood, a movie-theme restaurant chain co-owned by Arnold Schwarzenegger and Sylvester Stallone), the Y. C. Wang Group of Taiwan, the Salim Group of Indonesia, the Kuok Group of Malaysia, and the Henry Sy Group of the Philippines. (Henry Sy’s teenage daughter was abducted and killed in 1993. The authors note that rich local Chinese offer tempting targets to Filipino criminal gangs.)

The authors also note the Bamboo Network has only partially checked bribery, lack of property rights protection, and enforcement of contracts in the People’s Republic of China. Intellectual property security, such as trademarks and copyrights, is regularly broken. Imitation Bausch & Lomb Ray Ban sunglasses are sold as Ran Bans, for instance. Lux brand soap in the same colored wrapper is passed along as Lix soap. Dupont’s copyrighted rice plant herbicide formula has been filched and produced without royalties. Software and movie video theft is fair game, upsetting American executives at, among other firms, Microsoft and Walt Disney.

Relatedly, McDonald’s 20-year restaurant land lease in Beijing was summarily torn up in 1994 to make room for a more lucrative Oriental Plaza complex of commercial, office, and residential properties. A sop to McDonald’s: a guaranteed spot in the complex upon its completion in 1998.

So degrees of apathy and corruption are in in the PRC. Shangri-La it’s not. The message to entice U.S. citizens and firms: Be wary. The U.S. Foreign Corrupt Practices Act subjects American bribe-payers, if caught, to a fine of up to $100,000 plus five years in prison.

Yet the wary can win out. Coca-Cola, for example, sells 2.4 billion cans a year—or two for each man, woman, and child—winning over 15 percent of China’s fast-growing soft-drink market. Motorola has won a large fraction—$2 billion in sales in 1994 on its investment of $1.2 billion in the PRC—of the fast-growing Chinese cellular phone and pager market.

Motorola is among the 70 percent of all U.S. firms whose Far Eastern headquarters are in Hong Kong, a strategic location for mainland know-how and joint-venture connections. Motorola’s neighbors there include Bank of America, Dun & Bradstreet, Exxon, Hyatt, Time-Warner, May Department Stores, PepsiCo, Polaroid, Walt Disney, and Xerox. The largest overseas U.S. Chamber of Commerce is the American chamber in Hong Kong.

Indeed, China could already be the world’s second largest economy, suddenly surpassing Japan. (Is the United States next?) Using the controversial purchasing power parity theory of measuring output by comparing each national currency’s buying power of a similar market basket of goods, The Economist (March 9, 1996) puts China’s GDP at $3.0 trillion in 1994 against Japan’s $2.7 trillion and the United States’ $7.0 trillion.

But what of the future? Two clouds on the horizon: What happens to the Chinese Communist party leadership when time and tide catch up with the revered founder of the PRC Economic Revolution, Deng Xiaoping, now in his nineties? And how will Hong Kong fare with its Colossus parent when it becomes a special administrative unit of the PRC in July 1997, even with guaranteed retention of its present social, economic, and legal systems for 50 years, according to the British-PRC Joint Declaration of 1984?

So the authors wind up their insightful book with a self-described foggy crystal ball and see three possible scenarios for the giant PRC: successful transition to a market economy, reversion to communism, and growing instability leading to fragmentation.

The first scenario on a successful transition signals a triumph for world freedom and free enterprise along with a spur to global trade and economic growth. The second scenario on reversion to communism takes heed of PRC’s ownership of—apart from nuclear warheads—literally thousands of subsidized, mostly money-losing state enterprises, some of them very large. Many xenophobic state enterprise operators resent the intrusion of foreign competition, foreign capital, foreign products, foreign ideas, and foreign influence in Beijing and throughout the provinces. The third scenario on fragmentation sees how, for example, the highly successful southeastern province of Guangdong with its Cantonese dialect and its next-door proximity to Cantonese-speaking Hong Kong—itself shrewd if nervous—could break away.

In all three scenarios the Western-educated younger generation of overseas Chinese business leaders will play a decisive role. Ah, but how? Time will tell. Stay tuned. Meanwhile, Murray Weidenbaum and Samuel Hughes remind you that the Chinese symbol for durability is bamboo, that as an old oriental maxim puts it: Bamboo bends; it does not break.

  • William H. Peterson (1921-2012) was an economist, businessman and author who wrote extensively on Austrian Economics. He completed his PhD at New York University in 1952 under the supervision of Ludwig von Mises.