Making Capitalism in China: The Taiwan Connection

Making Capitalism in China

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Making Capitalism in China The Tttiwun Connection

You-tien Using

New York Oxford OXFORD UNIVERSITY PRESS 1998

Oxford University Press Oxford New York Athens Auckland Bangkok Bogota Bombay Buenos Aires Calcutta Cape Town Dar cs Salaam Delhi Florence Hong Kong Istanbul Karachi Kuala Lumpur Madras Madrid Melbourne Mexico City Nairobi Paris Singapore Taipei Tokyo Toronto Warsaw and associated companies in Berlin I bad an

Copyright © 1998 by Oxford University Press, Inc. Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York 10016 Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Hsing, You-den. Making capitalism in China : the Taiwan connection / by You-ticn Hsing. p. cm. Includes bibliographical references and index. ISBN 0-19-510324-6 1. Investments, Taiwan—-China. 2. Taiwan—Foreign economic relations—China. 3. China—Foreign economic relations—Taiwan. 4. Mixed economy—-China. 5. China—Economic conditions—1976I. Title. HG5782.H76 1997 332.6V351249051— dc20 96-26627

1 3 5 7 9 8 6 4 2 Printed in the United States of America on acid-free paper

For my parents, Hsing Fu-ying and Ma Liang-hsuan

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Acknowledgments

This book concerns ethnicity-based transnational networks of entrepreneurs. It is also a work supported by a transnational network of friends and colleagues that traverses ethnic boundaries. My gratitude first goes to Manuel Castells. Theories of society and space compose only a small portion of the world he has shared with me for more than a decade. Shirley Szeyun Liu's perceptive observations of Chinese culture and her delightful onion and ginger chicken, both prepared in her kitchen, have been more than inspiring. Miriam Chion, Emma Kiselyova-Castells, Maureen Sioh, Erika de Castro, Nancy Nishikawa, and Lisa Bornstein have been my comaraderie in all respects. The encouragement and intellectual guidance from Li Yiyuan, Terry McGee, AnnaLee Saxenian, Peter Hall, Michael Watts, Richard Walker, Aprodicio Laquian, Gillian Hart, Thomas Gold, and William Goldsmith have been crucial in sustaining my work. I also wish to express deep gratitude to the following colleagues who have provided many valuable comments on my draft at different stages: Aihwa Ong, Donald Nonini, Nigel Thrift, Gary Hamilton, Gary Gereffi, Barry Naughton, Hubert Schmitz, Koichi Mera, Alain Lipietz, Susan Shirk, Mayfair Yang, Laurence Ma, Cindy Fan, Richard Kirkby, Kara Wing Chan, Wong Siu-lun, Linda Lim, Li Siming, James Rauch, Kris Olds, Mark Fruin, and Chu Yunhan. My fieldwork in the Taiwanese factories in China would have been impossible without the help of Kuo Redian, Masateru Uehara, Jiang Shintien, and Lau Shienlin. My colleagues in China, especially Yao Lixin, Wong Lifang, and Zhang Jie in Beijing; Zhao Min, Peng Zhenwei, and Wong Bowei in Shanghai; Chen Haoguang, Bao Jigang, Qiu Jianhua, Li Lixun, Xue Desheng,

viii

Acknowledgments

and Li Ling in Guangzhou, have been tolerant of my endless questions. Friends in the shoe factories in Guangzhou and Dongguan, especially Wei Weicheng, Tao Yingzi, and many others whose names cannot be disclosed, not only taught me how to hold a shoe without being burned by the heated last on the assembly line, but also generously shared with me their dreams. Teachers and friends in Taiwan have helped me maintain ties with my rapidly changing homeland. Very special thanks go to Hsia Chujoe, Wang Hungkai, Bih Hernda, Shieh Gwoshyong, Chang Jingsen, Kuo Chunglun, John Liu, Huang Yinggue, Kwan Liwen, Wang Yuling, and Wong Weijen. I would also like to thank the United States National Science Foundation and the Institute of East Asian Studies at the University of California at Berkeley for providing the research grants for this project from 1991 to 1992. The Canadian International Development Agency-funded Asian Urban Research Network project at the Centre for Human Settlements, University of British Columbia and the Chiang Ching-kuo International Scholarly Exchange Foundation in Taiwan have provided funds for this research from 1993 to 1997. Finally, Mark Kremzner's good humor, patience, and intellect have been indispensable in the later stages of this project. My parents, Hsing Fu-ying and Ma Liang-hsuan, and the rest of my family are the reasons for the initiation and completion of this book. I only hope that I am able to return to them what they have given to me. Vancouver, British Columbia February 1997

Y.-T. H.

Contents

Maps xi Coastal Provinces of China Guangdong Province xii Fujian Province xiv

xi

Introduction: Ganbei to Networks 3 The Gold Treasure Restaurant, Meijie, Southern China 4 From Multinational Corporations to Transnational Networks Chinese Capitalism ?—Ethnicity-Based Transnational Networks of Entrepreneurs 8 1.

Taiwan, Southern China, and the New East Asian Economy Transnational Investors from East Asia 11 Taiwan and China's New Partnership 15 Southern China, and the World Market 21

2.

Networked Investors from Taiwan 40 The Trade of Styles 40 Taiwanese Fashion Shoemakers in the World Market 44 Networks of Creative Imitation 52 The Work of the Network: Trading Companies 60 Networks Move to China 67 Social Networks 71

t Jfavored nation eatment and quota trea Low7 ccost research Other er

Electronics manufacturers (percentage)

Textile manufacturers (percentage)

Food processing industry (percentage)

95.12

100.00

100.00

95.12 73.17 46.34

88.23 76.47 70.58

87.10 80.65 67.74

34.15

44.11

25.81

26.83 34.15 19.51 41.36

41.17 23.52 17.64 14.71

16.13 29.03 38.71 25.81

21.95 9.76 2.44

11.76 5.88 2.94

6.45 6.45 16.13

Source: 1992 Taiwan-China Economic Statistics Yearbook (liangan jin0ji nianbao), Taipei: Chunghwa Institute for Economic Research, 1994, p. 160. * Figures show the percentage of the total firms surveyed that chose each listed reason for investing in China.

20

Making Capitalism in China

ume has been much more impressive. By 1992, Taiwan was among the top foreign investors (Hong Kong, the United States, and Japan) in China, surpassing the United States, Japan, Singapore, Korea, Canada, Thailand, the United Kingdom, and Germany. China also rose to the top of the list of Taiwan's overseas investment sites (see Table 1-3, and Kao et al., 1995: 53-54). From 1979 to 1992, Hong Kong and Taiwanese investors contributed 72% of the total contracted direct foreign investment to China17 (see Table 1-8). By the end of June 1993, assuming the two investors contributed the same percentage in utilized capital, the actual investment by Hong Kong and Taiwan in China was US$77.3 billion out of the total of $107.4 billion (calculated from Table 1-9).18 It has been widely recognized that the actual size of capital outflows from Taiwan to China has been much higher than the official figures. The gap was mainly caused by the ambiguous political relationship between Taiwan and China, and by the semiunderground nature of the cross-straits investment in which the majority of Taiwanese investors in China did not register their investment projects in China with Taiwan's Ministry of Economic Affairs (MOEA). A high-ranking official in MOEA admitted that the Taiwan government did not have any reliable data on cross-straits trade and investment.19 Most Taiwanese companies have invested in China via their subsidiaries or paper companies in Hong Kong or other tax havens.20 The official statistics show that by the end of 1994, there were 24,599 Taiwanese companies investing a total of US$16 billion in China, making Taiwan the second largest foreign investor there.21 Plastic and rubber products, electronics and electronics appliances, food processing, and metal products were the dominant industries (see Table 1-10). Table 1-8 Contracted Foreign Investment in China by Country of Origin, 1979-1992

National total Hong Kong Taiwan United States Japan

1979-1990

1991

1992

1979-1992

45,244 (100) 26,480 (58.5) 2,000 (4.4) 4,476 (9.9) 3,662 (8.1)

12,422 (100) 7,531 (60.6) 1,392 (11.2)

58,736 (100) 40,502 (69.0) 5,548 (9.4) 3,142 (5.3) 2,200 (3.7)

116,402 (100) 74,513 (64.0) 8,940 (7.7) 8,173 (7.0) 6,748 (5.8)

555

(4.5) 886

(7.1)

Source: Sung, 1994:50. Reprinted by permission of the Institute of Global Cooperation and Conflicts, University of California. *US$ millon, percentage shares in parentheses

21

Taiwan, Southern China, and the New East Asian Economy Table 1-9 Foreign Capital in China (in US$ billion)

Year Contracted capital

1979-1992 1979-1982 1983 1984 1985 1986 1987 1988 1989 1990 1992 1993 (first 6 months) Utilized capital

1979-1992 1979-1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 (first 6 months)

Other foreign investment

Total

Loans

Foreign direct investment

191.100 20.548 3.430 4.791 9.867 11.737 12.136 16.004 11.479 12.085 69.439 58.760

74.697 13.549 1.513 1.916 3.534 8.407 7.817 9.813 5.185 5.099 n.a. n.a.

110.462 6.010 1.732 2.651 5.931 2.834 3.709 5.297 5.600 6.596 n.a. n.a.

5.941 0.989 0.185 0.224 0.402 0.496 0.610 0.894 0.694 0.390 n.a. n.a.

98.830 12.457 1.981 2.705 4.647 7.258 8.452 10.226 10.060 10.290 11.554 19.202 9.400

60.654 10.690 1.065 1.286 2.688 5.014 5.805 6.487 6.286 6.535 6.888 7.911

34.355 1.166 0.636 1.258 1.661 1.874 2.314 3.193 3.393 3.487 4.366 11.007

3.821 0.601 0.280 0.161 0.298 0.370 0.333 0.546 0.381 0.268 0.300 0.284

Source: Economic Statistics Yearbook Oj search Institute, 1994, p. 768.

Southern China and the World Market Southern coastal China has received the lion's share of Taiwanese capital. By the end of 1991, Guangdong and Fujian Provinces received 67.3% of the total registered Taiwanese capital in China. The two provinces hosted 72.1% of the total 2503 registered firms in 1991 (see Table 1-11). Within the two provinces, the Pearl River Delta in Guangdong22 and the QuanzhouZhangzhou-Xiamen Triangle in Fujian23 were the centers of Taiwanese investment (Map 1-1).

Making Capitalism in China

22

Table 1-10 Registered Direct Taiwanese Investment in China by Industry (US$ million) 1991-1992 Number of projects Value Plastic and rubber products Food and beverages Electricity and electrical appliances Textiles

1993 (January to August) Number of projects Value

106

110.792 (26.31%)

1,076

393.636 (15.29%)

47

65.723 (15.61%) 69.405 (16.48%)

722

259.941 (10.10%) 342.929 (13.32%)

77

18

Metal products Chemical products Others

183

Total

501

44 26

32.407 (7.69%) 26.851 (6.38%) 17.563 (4.17%) 98.409 (23.37%) 421.150

1,069 431 704 554

4,018 8,574

146.308 (5.68%) 204.720 (7.95%) 141.955 (5.52%) 1,084.689 (42.14%) 2,574.218

Total Number of projects Value

1,182 769

1,146 449 748 580

4,201 9,075

504.428 (16.84%) 325.664 (10.87%) 412.334 (13.77%) 178.715 (5.97%) 231.571 (7.73%) 159.558 (5.33%) 1,183.098 (39.50%) 2,995.368

Source: 1992 Taiwan-China Economic Statistics Yearbook (liangim jinjgji nianbao), Taipei: Chunghwa Institute for Economic Research, 1994, p.158.

Since the late 1970s, the southern provinces, namely Guangdong, Fujian, and Hainan, have been the laboratory of China's open-door experiment. All five special economic zones (SEZs) are located in the three coastal provinces. Compared to the rest of China, the coastal south has had closer connections with the overseas Chinese. Almost 80% of the Chinese who have migrated overseas came from Guangdong, and the next largest number from Fujian. Many began earning their living abroad through one of the "three knives" (cooking, hair cutting, or construction) but rose to become one of the "three highs" (intellectuals, owners, or white-collar employees). Many of the overseas Chinese have maintained family ties with the region.24 When China opened the door to foreign investors in the late 1970s, a series of special policies was made to give Guangdong and Fujian the flexibility to take advantage of its spatial and sociocultural proximity to the overseas Chinese in East Asia. Consequently, the special policies, the state's investment in the special economic zones and other infrastructures, and the overseas Chinese capital together have constituted the formula of rapid economic growth in southern China.

Taiwan, Southern China, and the New East Asian Economy

23

Table 1-11 Spatial Distribution of Taiwanese Investment in China (1991-1992) Number of establishments December 1992 1991

Area Fujian Province (excluding Xiamen) Xiamen Guangdong Province (excluding Shenzhen) Shenzhen Shanghai Municipality Beijing Municipality Jiangsu Province Zhejiang Province Hainan Province Other Total

323 (12.9%) 275 (11.0%) 829 (33.1%) 379 (15.1%)

78 (3.1%) 30 (1.2%) 56 (2.2%) 56 (2.2%) 49 428 (17.1%) 2,503

346 (12.5%) 300 (10.8%) 891 (32.2%) 422 (15.3%) 96 (3.5%) 38 (1.4%) 674 (24.4%)

2,767

Amount of investment (US$1,000) December 1991 1992 87,318 (11.6%) 92,205 (12.3%) 216,217 (28.8%) 111,682 (14.9%) 87,032 (11.6%) 25,029 (3.3%) 24,696 (3.3%) 14,851 (2.0%) 15,023 (2.0%) 76,901 (10.2%) 750,954

97,440 (9.8%) 112,544 (11.3%) 259,095 (26.0%) 152,629 (15.3%) 104,405 (10.5%) 30,641 (3.1%) 241,192 (24.2%) 997,946

Source: Investment Commission, Taiwan Ministry of Economic Affairs.

Growth in Guangdong and, Fujian Being "one step ahead in China" (Vogel, 1989), the pace and the scale of economic growth in Guangdong is unprecedented. Starting from below the national average before the reform, Guangdong's GDP grew by 12.8% per year between 1981 and 1991, compared to 8.8% per year for China as a whole.25 In 1980, Guangdong's GNP per capita was lower than the national average, but by 1991, it was 64% above it (Yeung and Chu, 1994:6-7). The gross value of industrial and agricultural output grew from US$13.8 billion to US$44.2 billion between 1980 and 1990, averaging a growth rate of 12.5% a year.26 With 5.5% of the nation's population and 1.9% of the nation's area (see Table 1-12), the share of the province in the nation's total GDP grew from 5.1% to 9.0% between 1978 and 1991, and ranked the highest in China since 1989 (see Table 1-13). The pace of industrialization has been even more impressive. Between 1978 and 1991, industrial output grew by more than 20%. From 1989 to 1990, the gross value of industrial output grew by 16.9% per year, against the national average of 5.4%. Among other rapidly growing regions in China, Jiangsu Province grew by 9.9% and Fujian Province, 11.2%.27 Among indus-

24

Making Capitalism in China Table 1-12 Population of Guangdong, the Pearl River Delta, Fujian, and Quanzhou-Zhaiigzhou-Xiamen Triangle (in Millions)

Year

China

Guangdong

1978

962.6 (100.0%) 1,058.5 (100.0%)

50.6 (5.3%) 56.6 (5.3%)

1,158.2 (100.0%)

63.5 (5.5%)

1985

1991

Pearl River River Delta n.a.

7.6 (13.5% of Guangdong's total) 8.4

(13. 2% of Guangdong's total)

Fujian

QuanzhaiZhangzhouXionen

24.5 (2.6%) 27.1 (2.6%)

n.a.

30.4 (2.6%)

11.3 (37.0% of Fujian's total)

n.a.

Source: China Statistics in Brief, 1991, China Statistical Bureau; Guan^donjj Statistics Tearbook, 1986, 1992; Fujian Statistics Yearbook, 1992; Eastern China Statistics Yearbook, 1992.

trial sectors, light industries have been growing the fastest. Light industrial goods such as electric fans, watches, color television sets, and refrigerators accounted for over 65% of Guangdong's total industrial output in 1989.28 Between 1978 and 1985, the average annual growth rate of per capita income in Guangdong was 12.2% in the cities and towns and 14.4% in villages. Between 1985 and 1991, it was 18.8% and 15.0%, respectively, comTable 1-13 Trends in Macroeconomic Indicators of Guangdong Average annual rate of Share of Guangdong increase (%) in nation 1981-1985 1986-1990 1978-1991 1978 1985 1991 Population Area

1.6 —

2.0 —

1.8 —

GDP

12.2

12.5

7.4

16.4 18.1 13.2

Agriculture output Industrial output Light Heavy Export Utilized foreign capital Average annual wages

12.6

5.3 2.2 5.1

5.4 2.2 6.5

5.5 1.9 9.0

7.7

7.1

6.1

6.8

8.0

18.5 20.5 15.1 19.3

4.7

5.5

8.9

6.1

23.2 24.5 20.1 29.0

n.a. n.a. 14.2

n.a. n.a. 10.8

n.a. n.a. 19.0

33.8

17.1

25.4

n.a.

19.8

22.4

6.5

3.3

5.4

1.00

1.21

1.44

Source: Maruya, 1994:59, data collected from Gua.ngd.ung tongji nianjian (Guangdong Statistics Year Book) and Zhonf/jjuo tongji nianjian (China Statistics Year Book), various years.

Taiwan, Southern China, and the New East Asian Economy

25

Table 1-14 Income Per Capita in China, Guangdong, and Fujian (Yuan) Year

China Urban Rural

1978 1985 1991

316 685 1,544

134 398 709

Growth rate of income per capita(%) 1978-1985 11.7 16.9 1985-1991 14.5 10.1

Guangilong Urban Rural

Fujian Urban Rural

2,536

193 495 1,143

340 673 1,736

135 396 446

12.2 18.8

14.4 15.0

10.3 17.1

16.7 2.0

402 901

Source: Fujian Statistics Yearbook, 1992; China Statistics Yearbook, 1992. Urban resident per capita income, Guangdong Statistics Yearbook, 1992. Net per capita income of rural population, Guangdong Statistics Yearbook, 1992.

pared to China's average of 14.5% and 10.1% in the same period (see Table 1-14). In 1989, Guangdong workers earned an annual average renminbi (RMB) 2,678 yuan,29 19% higher than in 1988 and 38% above the national average.30 In 1991, the wage level in Guangdong was 44% above the national average. Guangdong's performance in foreign trade and export-oriented manufacturing has been distinctive. The open-door policies allowed Guangdong to resume its historical role of linking China with the outside world.31 By 1979, Guangdong was already ranked second after Shanghai in export value. In 1989, Guangdong ranked first in trade and in exports, with export values of US$8.03 billion, a 7.3% increase over 1988, surpassing Shanghai by almost 60%.32 Between 1989 and 1990, Guangdong's exports grew even faster at 18.4%, whereas national growth was 11.4% and Shanghai, 6.4% (Sit, 1991:162). As is shown in Table 1-13, by 1991 Guangdong absorbed 22.4% of the nation's total utilized foreign capital.33 While foreign investment slowed down after the Tiananmen massacre on June 4,1989, the province continued to attract new foreign funded projects. Pledged capital in 1989 was US$2.73 billion, accounting for 43% of total contracted investment nationwide.34 Compared to Jiangsu Province, another rapidly growing region in central coastal China, Guangdong's connection with the outside world was even more distinctive (see Table 1 -15).35 Table 1-15 Comparison of Guangdong and liangsu Province in Foreign Capital Utilization and Exports, 1979-1990 (US$ Billions)

Guangdong Jiangsu

Utilization of foreign capital 1990 1979-1990

Exports 1990 1979-1990

2.02 0.44

10.56 2.95

12.35 1.79

51.77 18.96

Percentage of export in GNP 1990 33.0% 11.7%

Source: Wang, 1992:36. Reprinted by permission of Httrtg Seng Economic Monthly,

26

Making Capitalism in China

Most provinces and many cities in China have established offices in the foreign trade centers of Guangdong, such as Shenzhen, Zhuhai, and Guangzhou. These offices were used to build connections with foreign traders and to obtain technology and market information. The rapid economic growth in Guangdong has been concentrated in the Pearl River Delta (see Map 1-2). In 1985, the entire Delta was designated as an open economic zone, and was bestowed considerable economic freedom. With 31% of Guangdong's population and 23% of the province's land, the Delta absorbed 68% of the foreign capital in Guangdong; it exported 74.6% of the total exports from Guangdong between 1978 and 1993 (Jinshian Lin, 1995:7). From 1980 to 1989, the annual growth rate of industrial output value in the Delta was 21.61%. Ninety-five percent of the economic growth of the region came from industry (Xu and Li, 1990:50-51), especially the light industry, which contributed 76% of the total industrial output in 1989 (Liu and Chen, 1991:37). Fujian has been doing relatively well in the reform period. However, compared to Guangdong, Fujian has been less successful in taking advantage of the reform policies (see Table 1-16 and Map 1-3). The geographical proximity and the social connection between Fujian and Taiwan (85% of the Taiwanese are descended from Fujian) have been a mixed blessing for both. Unlike the Guangdong-Hong Kong connection, the political rivalry between the communist regime in China and the nationTable 1-16 Trends in Macroeconomic Indicators of Fujian Average annual rate of Share of Fujian increase (%) in Nation 1981-1985 1986-1990 1978-1991 1978 1985 1991 Population Area Gross domestic product Agricultural output Industrial output Light Heavy Export Utilized foreign capital Average annual wages

1.5 —

2.0 —

1.7 —

2.6 1.3

2.6 1.3

2.6 1.3

17.6

23.4

20.4

1.9

2.1

2.6

13.9

19.5

16.7

2.6

2.7

3.1

16.4 16.2 16.9 26.7

29.5 30.2 26.3 37.3

23.0 23.2 21.6 31.9

1.7 n.a. n.a.

1.7 n.a. n.a.

2.3

3.2

5.3

n.a. n.a. 13.6

11. a.

32.5

n.a.

n.a.

3.8

4.9

n.a.

n.a.

n.a.

n.a.

1.0

1.03

Source; Statistical Yearbook of China- (various years); China- Economic News, Supplement no. 7; Almanac of Fujian^s Economy, 1987.

Taiwan, Southern China, and the New East Asian Economy

27

alists in Taiwan has been a major barrier for the two territories to establish substantial economic connections in the first 10 years of China's reform. The Taiwanese manufacturers were not able to make any decisive move until the late 1980s, after the Taiwanese government lifted the ban on Taiwanese residents' visiting mainland China. Because of the geopolitical concerns and its location as the front line in potential military conflicts with Taiwan, Fujian has not enjoyed substantial investments in infrastructure and industries supported by the central government (Long, 1994:202). Productivity in rural Fujian is also much lower than Guangdong, because of the large area of inhospitable mountains and limited arable land. The per capita income in rural Fujian was 63% of the national average, 39% of rural Guangdong's average. In recent years, foreign investment in Fujian has been increasing, and the province's share of foreign direct investment in China jumped from 3.8% in 1985 to 4.9% in 1991,7.6% in 1992, and 16.5% in 1993; exports increased from 5.3% in 1985 to 13.6% in 1991. However, by 1994, Fujian's share of national gross value of industrial output was still among the lowest in coastal China (see Table 1-14,1-17,1-18).

Hong Kong Connection Hong Kong's entrepreneurs have been pioneers in connecting southern China, especially Guangdong, with the world market. Hong Kong's efficient port and telecommunication systems provide Guangdong with good access to the outside world. Hong Kong entrepreneurs have facilitated Guangdong's export-oriented manufacturing and international trade. Hong Kong's information networks, marketing channels, and financial markets accelerated Guangdong's outward-oriented economy at an unprecedented pace (Kwok and So, 1995). Most of all, as a Hong Kong investor pointed out, Hong Kong entrepreneurs have "changed the mind set" of their cousins in Guangdong by passing on the techniques of survival in the competitive and unpredictable market economy.-36 Before 1950, Hong Kong was the entrepc")t for China and the outlet for most of the Pearl River Delta's agricultural exports. Even after the border between China and Hong Kong was closed, some agricultural goods were still supplied to Hong Kong, and a substantial illegal trade escaped border controls during the Korean War. As Guangdong maintained its contact with the outside world during the prereform period, the connection between Hong Kong and the Delta has never been totally cut off (Vogel, 1989:163). Several microstudies have shown that even during the Maoist period, households in certain parts of Guangdong still had higher standards of living than other villagers because of the remittances they received from their overseas relatives and family members in Hong Kong and Macao (Wooii, 1990:143). In 1984,16 towns in the Pearl River Delta, where most Hong Kong and Macao residents are originally from, received US$66.69 million as remittance (Zheng, 1989:96).

28

Making Capitalism in China Table 1-17 Regional Industrial Output Performance, by Province, 1990 Gross industrial and agricultural output value

Region

Total industrial output value

Income per Total Total Population (1,000,000 Per capita (1,000,000 Per capita capita, 1990 (yuan) (yuan) (yuan) (yuan) (millions) yuan)

Coastal 39.5 Liaoning 10.8 Beijing 8.8 Tianjin Hebei 61.1 84.4 Shandong 13.3 Shanghai 41.4 Zhejiang 67.1 Jiangsu 30.1 Fujian Guangdong 62.8 Intermediate 24.7 Jilin Heilongjiang 35.2 Nei Monggo 21.5 28.8 Shanxi 85.8 Henan 56.1 Anhui 54.0 Hubei 60.7 Hunan 37.7 Jiangxi 42.3 Guangxi Inland 107.0 Sichuan 32.4 Guizhou 37.0 Yunnan 2.2 Xizang 32.9 Shaanxi 22.4 Gansu 4.5 Qinghai 4.7 Ningxia 15.2 Xinjiang

188 81 73 48 284 171 177 334 76 250

067 912 480 086 834 091 019 463 018 296

74 145

110 889

42 66 153 104 141 111

025 317 874 127 043 009 68 099 60 566

186 36 55 1

003 369 698 871

61 254

38 157 7 977

4 761 7 584 8 350

787

3 374 12 863

4 4 2 3

275 984 252

985

3 001 3 150 1 954 2 302 1 793 1 856 2 611 1 828 1 806 1 431 1 738 1 122 1 505

850 1 861 1 703 1 772

8 944

1 902

36 457

2 398

160 74 67 12 220 164 143

276 53 190

692 894 994 323 085 275 415 410 148 225

55 236

86 351

26 53 103 67 100

333 839 673 033 820 71 267 42 575 35 343

122 296 21 816

34 526

372 44 258

27 870 5 524 6 475 21 992

4 068 6 934

1 3 2 1 1

990 577

4 1 1 1 1

981 148 372 822 717 689 313 842

2 236 2 453 1 124 1 869 1 208 1 194 1 867 1 174 1 129 835

1 1 1 1

383 628 080 124

1 142 376 933 169 1 345 1 244 1 227 1 377 1 446

903 645 956 865 930 938 1 100 1 024 1 374

7 726 201 2 595 12 351 3 464 4 119 1 765 3 029

880

933 1 248 976 943

798

Source: Statistical Yearbook of China, 1992

The opening of China to the outside world in the late 1970s has intensified the connections between Hong Kong and Guangdong. Since the mid1970s, high land and labor costs in Hong Kong have made it difficult for manufacturers to maintain their cost-based competitiveness in the world market. Guangdong, with land 10 times cheaper and an abundant supply of labor 5-10 times cheaper, received a large amount of Hong Kong's manufacturing investments (sec Table 1-19 for the difference in wage level of unskilled workers and industrial rental among Hong Kong, Shenzhen, and

Table 1-18 Share of National Gross Value of Industrial Output by Provinces (Percentage) Region Coastal Liaoning Beijing Tianjin Hebei Shandong Shanghai Zhejiang Jiangsu Fujian Guangdong Total Intermediate Jilin Heilongjiang Nei Monggo Shanxi Henan Anhui Hubei Hunan Jiangxi Guangxi Total Inland Sichuan Guizhou Yunnan Xizang Shaanxi Gansu Qinghai Ningxia Xinjiang Total

1952

1982

1984

1990

1994

14.0 2.0 6.0 4.0 6.0 19.0 3.0 8.0 1.0 5.0 68.0

8.54 4.10 3.80 4.21 6.59 11.42 4.14 9.02 1.57 4.88 58.27

8.22 4.01 3.58 4.13 6.49 10.50 4.75 9.67 1.65 5.22 58.31

7.00 5.56 2.95 0.53 9.38 7.15 6.24 12.04 2.32 8.29 61.46

5.66 3.13 2.05 2.18 10.29 7.27 7.20 14.18 2.76 11.60 66.32

3.24 5.55 0.56 1.89 2.59 1.85 2.81 2.26 1.69 1.01 23.45

2.58 4.81 1.23 2.39 3.92 2.61 4.89 3.44 1.74 1.58 29.19

2.67 4.50 1.17 2.43 3.81 2.63 5.11 3.26 1.72 1.48 28.78

2.41 3.14 1.15 2.23 4.52 2.92 4.17 3.08 1.85 1.44 26.91

2.01 2.33 0.97 1.35 3.73 2.56 4.15 2.69 1.94 1.53 23.26

4.85 0.79 0.98 0.00 1.12 0.68 0.01 0.03 0.51 8.97

5.40 0.94 1.43 0.02 2.03 1.45 0.25 0.25 0.83 12.60

5.56 1.04 1.49 0.02 2.06 1.39 0.23 0.26 0.85 12.90

5.21 0.95 1.51 0.02 1.50 1.21 0.24 0.05 0.94 11.63

5.35 0.77 1.21 0.00 1.53 1.00 0.15 0.19 0.22 10.42

Source: Data for 1952, 1982, and 1984 from Wu, 1987:74. Based on Statistical Tearbook of China, 1983, 1985; data for 1990 and 1994 from Statistical Tearbook of China, 1992, and China Statistics Monthly, 1994)

30

Making Capitalism in China Table 1-19 Comparison of Wage Level (Unskilled Workers) and Industrial Rental in Hong Kong, Shenzhen, and ASEAN (1989) Monthly wage level (in US$)

Hong Kong Shenzhen Thailand Malaysia Indonesia Philippines

412

75 90 110 60

Monthly industrial rental (HK$/sq ft) 8 (New Kowloon) 0.8-1.5 1 (Chon Buri) 2 (Ipoh) 2 (Bonded Zone) 1 (Cebu)

(5.5)* (1.0) (1.2) (1.5) (0.8) n.a.

Source: Hung Seng Economic Monthly, Hang Seng Bank, March 1990, cited from Maruya, 1992:136. Reprinted by permission. * Compared to the base of 1.0 in Shenzhen

other Southeast Asia countries). By 1989, Hong Kong had become the largest investor in China (see Table 1-20). By the end of 1991, there were about 20,000 Hong Kong enterprises involving in export processing, assembly and manufacturing 37 in Guangdong, hiring 2 to 3 million Chinese workers (Maruya, 1992:135).38 Hong Kong's direct realized investment in China amounted to US$20-30 billion by the end of 1992, and US$47 billion in 1994.39 Of Hong Kong's investment in China, which accounted for 80% of Table 1-20 Hong Kong, Taiwan, United States, and Japan's Contracted Direct Investment in China, 1979-1992 (in US$ millions and percentage share)

National total Hong Kong Taiwan United States Japan

1979-1990

1991

1992

1979-1992

45,244 (100) 26,480 (58.5) 2,000 (4.4) 4,476 (9.9) 3,662 (8.1)

12,422 (100) 7,531 (60.6) 1,392 (11.2)

58,736 (100) 40,502 (69.0) 5,548 (9.4) 3,142 (5.3) 2,200 (3.7)

116,402 (100) 74,513 (64.0) 8,968 (7.7) 8,163 (7.0) 6,748 (5.8)

555

(4.5)

886

(7.1)

Source: Sung, 1994:50. Reprinted by permission of the Institute of Global Cooperation and Conflicts, University of California. Note: According to Margaret Pearson (1991b:70), between 1979 and 1989 the total value of pledged (contracted) foreign direct investment (FDI) in China was US$32.37 billion, the actual (realized) was US$15.61 billion, 48% of the total pledged FDI. If we use 48% as the percentage of the actual FDI in total pledged FDI, the national total of realized FDI in China between 1979 and 1992 was about US$56 billion. For more detailed statistics on China's DPI, see Y. Y. Kueh, 1992.

Taiwan, Southern China, anA the New East Asian Economy

31

Hong Kong's direct outward investment in Asia in the 1980s, 40-50% was concentrated in Guangdong (Maruya, 1992:135). On the other hand, by 1990, 62.2% of foreign direct investment in Guangdong came from Hong Kong (Lau, 1994:134). Such a spatial concentration of Hong Kong's investment is more impressive in specific localities in Guangdong. In 1985, investment from Hong Kong and Macao in Guangzhou, the capital of Guangdong, totaled US$409.4 million, accounting for 88% of the total foreign investment in the city. In Shenzhen SEZ, it was estimated that 80-90% of foreign investment originated from Hong Kong (Smart and Smart, 1991: 222). Since 1985, Hong Kong has replaced the United States as the largest trading partner of China. Hong Kong has also been the most important destination for Guangdong's domestic exports, accounting for 86.6% of Guangdong's direct export market in 1990 (see Table 1-21). The increasing manufacturing investment by Hong Kong enterprises in Guangdong has generated the export of parts and materials from Hong Kong to China for processing and assembly. By 1990, parts and materials accounted for 58.8% of Hong Kong's total exports to China40 (Maruya, 1992:129). Hong Kong's triangular trade has also become increasingly important to Guangdong since the early 1980s. A major portion of Hong Kong's triangular trade involved commodities produced in Guangdong by ventures financed by investors from Hong Kong and Taiwan. Hong Kong's trading agents have been crucial in Guangdong's rapid growth of foreign trade. The trading agents have had vast experience in assessing market signals, dealing with international buyers, maneuvering financing schemes, arranging trade-related services such as insurance and delivery, and so on. With this ready-made infrastructure of international trade in Hong Kong, Guangdong was able to accelerate its exports in a very short period of time. Foreign investors have used Hong Kong as a beachhead to invest in China. With their local knowledge and business networks in China, Hong Table 1-21 Major Markets of Guangdong's Domestic Exports (in US$ millions) Country/Area Hong Kong United States Japan Macau Singapore Germany Italy Holland Thailand United Kingdom

1986

1988

1990

2,954.61 283.58 103.81 133.40 84.00 71.33 81.53 24.03 12.04 33.11

5,724.84 326.41 262.31 142.24 36.81 109.43 27.90 48.47 43.52 63.05

8,543.10 402.97 288.20 166.01 139.74 117.01 58.50 50.27 47.92 46.15

Source: Lau, 1994:132. From Guangdong tongji nianjian (Guanjfdontj 1987-1990.

(86.6%)

Statistics Yearbook),

32

Making Capitalism in China

Kong entrepreneurs have been active in linking China with foreign capital. By the end of 1993, there were 3,544 foreign firms registered in Hong Kong, a 10% growth from 1992 when the new wave of foreign direct investment in China was at its peak.41 Hong Kong also became a center for Chinese-funded companies to raise funds in the international financial markets and to make connections with foreign investors and buyers.42 By 1992, there were 2,000 to 3,000 Chinese enterprises registered in Hong Kong, including state-owned and collective enterprises established by local governments at provincial, municipal, and county levels (Maruya, 1992:139), injecting US$10-20 billion in Hong Kong.43 The Chinese-funded companies in Hong Kong also took advantage of the favorable conditions that the Chinese government provided for foreign investors. By registering in Hong Kong, these companies were qualified as foreign companies and enjoyed tax breaks and tax free imports of materials in China.44 The economic integration between Hong Kong and Guangdong has fostered the flow of people between the two territories. Many Hong Kongbased managers, technology personnel, and professionals, including those from other foreign companies, commuted daily between Shenzhen and Hong Kong. Of the 2,300 specialists not from the People's Republic of China (PRC) working in Shenzhen SEZ in 1986,2,000 were from Hong Kong or Macao. In 1985, there were more than 10 million Hong Kong residents traveling to China; in 1990, there were 16.7 million Hong Kong residents traveling to China (46,000 per day). By 1988, citizens from China were allowed to travel to Hong Kong in tour groups. Two hundred thousand mainland Chinese visited Hong Kong between 1983 and 1988 (Sklair, 1991:211). Ninety percent of the Hong Kong-Guangdong trips were made along the 158-kilometer Kowloon-Canton railway, which takes two and a half hours from Hong Kong to Guangzhou, 40 minutes to the center of Shenzhen. The GuangzhouShenzhen highway, opened in the 1990s, has shortened the trip to one and a half hours. Since the 1980s, hydrofoil, ferry, and freight service to and from Hong Kong directly links Hong Kong to all nearby cities and towns in Guangdong. It takes about one hour by ferry from Central Hong Kong to Shekou, one of the major industrial/commercial districts of Shenzhen SEZ. Ezra Vogel reported that in the early 1980s a reservation and often a several-hour wait were required to make a phone call from Hong Kong to Guangzhou (Vogel, 1989:61). By the late-1980s, telephone calls between Hong Kong and Guangzhou could be dialed directly. These new links have brought Hong Kong and Guangdong far closer than they had been before 1949. The increasingly close social and economic connection between Hong Kong and Guangdong has facilitated the spread of Hong Kong's popular culture to Guangdong. Hong Kong TV programs are watched, Hong Kong pop songs are sung, and posters of Hong Kong movie stars are pinned up everywhere in Guangdong. Guangdong is the bridgehead of Hong Kong's pop culture in China. In the spring of 1995, during my visit to Tianjin, the northern municipality about 150 km south of Beijing, the manager of a

Taiwan, Southern China, and the New East Asian Economy

33

municipal trading company, in his mid-40s, was proudly singing Hong Kong pop songs in Cantonese and Taiwanese pop songs in Taiwanese in a karaoke bar (named The Little Taipei).*5 In the summer of the same year, it was not surprising anymore to see the smiling face of Zhou Huajian, a popular male pop singer in Hong Kong, on the wall of a small Muslim restaurant in Xinjiang Autonomous District in remote Chinese Central Asia 7,000 km away from Guangzhou. Hong Kong-Cantonese culture became the symbol of modernity and worldliness. Hong Kong-Cantonese slang was widely used in China. The most evident example is the local terminology for "taxi": in Cantonese, spoken in Hong Kong, the taxi is called "di-shi," taking a taxi is called "dadi." People in Guangdong adopted the terms when the taxi service was brought in. Now the taxi is called "di-shi" in the Cantonese language everywhere in China, sometimes with a local twist. For example, in Beijing, minivans are often used as taxies. Minivans are called "bread-loaf cars" in China. "Bread loaf is pronounced as "mian-bao" in Mandarin, which is spoken by Beijing's people. So the minivan taxi in Beijing is called "miandi," the bread loaf taxi, with the mixture of Mandarin and Cantonese learned from Guangdong. Cantonese influence is even evident in Kashgar, the westernmost city in Xinjiang, where motor vehicles were not as common and horses (ma in Mandarin) and mules (/») were used for short distance transportation in the city: the rental horse or mule carts are called "ma-di" and «/«-