CHAPTER 1

Rubies and Rice Paddies

Chinese Minority Dominance in Southeast Asia

IN BURMA,^fn1 TATTOOS are traditionally used to protect against snakebite. In 1930 and again in 1938, enraged Burmans applied these tattoos to achieve invulnerability against bullets and then proceeded to slaughter Indians in an orgy of violence. Even monks were said to have participated. At the time, Indians, along with British colonialists, were a starkly economically dominant ethnic minority in Burma and the object of mass antipathy. Killing Indians was an act simultaneously of revenge and nationalist pride among a long-downtrodden people. As a contemporary observer put it, “The average Burman on the street felt that at least once he had proved his superiority over the Indian.”¹

Today there is only a small community of Indians left in Burma. Hundreds of thousands fled in the sixties, in response to another wave of ethnic violence. But a new market-dominant minority has taken their place, far wealthier than the Indians ever were.

Markets, Junta Style, and the Chinese Takeover

Burma has one of the most repugnant military governments in the world—the State Law and Order Restoration Council, or SLORC,^fn2 which seized power in September 1988 after gunning down thousands of unarmed demonstrators. SLORC held multiparty elections in 1990, but then refused to honor the landslide victory of 1991 Nobel Peace laureate Aung San Suu Kyi, placing her instead under house arrest and earning the widespread hatred of the Burmese people.²

From its inception, SLORC has been aggressively pro-market. Reversing three decades of disastrous, socialist central planning, SLORC in 1989 launched “the Burmese way to capitalism.” Apart from enriching corrupt SLORC generals, who are all ethnic Burmans, the ensuing decade of marketization brought virtually no benefits to the indigenous population, the vast majority of whom still engage in traditional agriculture. One group, however, has benefited tremendously.

Since Burma’s shift to a market-oriented, open-door economy, both Rangoon, the modern capital, and Mandalay, the ancient City of Gems and royal seat of the last two Burmese kings, have been taken over by ethnic Chinese. Some of these Chinese are from families that have lived in Burma for generations. Like the Indians but to a lesser extent, the Chinese were disproportionately wealthy during the colonial period (1886–1948), which was characterized by essentially laissez-faire policies superimposed on Burma’s traditional rural economy. Although much of their wealth was confiscated during the socialist era (1962–88), the Chinese remained active in Burma’s black markets and, in a few cases, opium trafficking.

In Burma’s new market economy, the Sino-Burmese minority have been transformed almost overnight into a garishly prosperous business community. In addition, tens of thousands of poor but entrepreneurial immigrants from China, sweeping down from nearby Yunnan, have bought up the identity papers of dead Burmans for as little as three hundred dollars, becoming Burmese nationals overnight. Today, ethnic Chinese Burmese—looking uncomfortable in longyis, the traditional Burmese unisex sarongs—own nearly all of Mandalay’s shops, hotels, restaurants, and prime commercial and residential real estate. The same is more or less true in Rangoon. Only a tiny, dying handful of Burman-owned establishments (mainly printing houses and cheroot factories) are left, dwarfed by the Chinese-built and Chinese-owned high-rise buildings around them.

Typical of Southeast Asia, the Chinese dominate Burmese commerce at every level of society. Massive joint ventures—such as the Shangri-La Hotel deal between Lo Hsing-han, the Sino-Burmese chairman of the Asia World conglomerate, and Sino-Malaysian tycoon Robert Kuok—have turned Mandalay and Rangoon into booming hubs for mainland Chinese and Southeast Asian Chinese business networks. (Non-Burmese Chinese investors are easy to spot. They’re the ones not in longyis but in cowboy boots and sunglasses, walking around with bottles of Johnny Walker Red.) At the humbler end of the spectrum, Chinese hawkers make an excellent living selling cheap bicycle tires from China—often more than thirty thousand tires a month—for rickshaws in Burma. Nor is Chinese dominance only an urban phenomenon. After two years of severe flooding in southern China, large numbers of Chinese farmers—over a million, some estimate—poured into northern Burma. These new Burmese “citizens” now grow rice on the cleared hill country they have taken over. Entire Chinese villages have sprung up in this way.³

With the United States boycotting Burma on human rights grounds, globalization for Burma has had a disproportionately Chinese face, although the presence of French and German foreign investors can be felt as well. “Name a large infrastructure project anywhere in Myanmar these days and there is a strong possibility it will be in the hands of Chinese contractors,” observed The Economist a few years ago. “Chinese engineers are working on improvements to the highway from Mandalay to Yangon. Chinese companies are developing the railway line from Mandalay to Myitkyina, near the Chinese border, and the line from Mandalay to the capital. With the help of chain gangs from Myanmar’s prisons, they are also building a line from Ye to Tavoy in Myanmar’s far south-east. … Against international competition, Chinese contractors have won the contract to build a big bridge across the Chindwin river. Other Chinese ventures range from a new international airport for Mandalay to housing for the armed forces and 30 irrigation dams. It was the Chinese, in association with Siemens, who last year installed a ground satellite station serving the capital.”⁴

The Chinese in Burma dominate not only legitimate trade and business but also more sordid black market activities. Indeed, the line between licit and illicit commercial activity in Burma, as in many developing countries, is often vague. Some of the country’s most influential businessmen are former—possibly current—drug kingpins. “Drug traffickers who once spent their days leading mule trains down jungle paths are now leading lights in Burma’s new market economy,” lamented former U.S. secretary of state Madeline Albright a few years ago.⁵

Burma-born, ethnic Chinese tycoon Lo Hsing-han, for example, was an infamous opium warlord in the 1960s, thought to be responsible for much of the heroin that wound up in American veins. According to Burma scholar Bertil Lintner, Lo started off in his native Kokang Province as a lieutenant to the pistol-toting lesbian opium queen, Olive Yang. In 1989, Lo cut a deal with SLORC, persuading fellow ethnic warlords to accept a cease-fire with the junta in exchange for valuable timber and mineral concessions. Today, Lo’s “Asia World” commercial empire includes a container shipping business, Rangoon port buildings, and tollbooths on the resurfaced Burma Road. Lo insists that he is now a legitimate businessman. “Since the market economy appeared in Myanmar,” he explains, “it is easier to earn money trading vehicles on the Chinese border.”⁶ Whether or not Lo is clean, Burma’s “Chinese underworld” remains as dominant in drug traffic and money laundering as Chinese merchants are in Mandalay’s booming, lawful markets.

Chinese Plutocrats, Burman Misery

Ever since SLORC embraced markets, Burma has been hemorrhaging natural resources, especially teak, jade, and rubies. Apart from SLORC generals, the beneficiaries have been almost exclusively ethnic Chinese and a handful of hill tribe smugglers.

Burma’s forests hold more than 70 percent of the world’s teak. The Burmese teak is a magnificent tree, sometimes reaching 150 feet, with opposing egg-shaped leaves and clusters of white flowers. Its timber is dark, heavy, oily, of unusual strength and durability. Long the wood of Burmese royalty, immortalized by Rudyard Kipling (“Elephints a-pilin’ teak / In the sludgy, squdgy creek, / Where the silence ’ung that ’eavy you was ’arf afraid to speak! / On the road to Mandalay …”), teak today is America’s wood of choice for boat decking and salad bowls.

For over a decade now, Burma’s hill tribes, particularly the Shan, have been selling enormous quantities of teak to Chinese buyers at fire-sale prices. Technically these sales are contraband, violating SLORC’s official monopoly on timber exports. In reality, SLORC generals struck a deal with hill tribe insurgents a decade ago, granting them economic freedom in exchange for a cease-fire. As a result, since 1989, convoys of trucks loaded with teak logs—sometimes over ten feet in diameter, from trees hundreds of years old—travel daily, snaking along the mountainous old Burma Road across the border into China’s Yunnan Province.

Meanwhile, SLORC’s official timber policy has been aggressive globally-oriented marketization under government concessions. Insisting that teak logging will facilitate Burma’s economic development, SLORC has invited the full support of the private sector in promoting “forestry” (i.e., deforestation), even exempting forestry exports from commercial tax. Along with European and Chinese foreign investors, most of SLORC’s business partners are Sino-Burmese tycoons who have close ties to Thai Chinese logging companies. Leading industrialist “May Flower” Kyaw Win, born to a poor Chinese family in the Northern Shan State, is a prominent example. Since moving into the timber business in 1990, Kyaw Win—also the managing director of Yangon Airlines and often spotted with top-ranking generals—has become one of the wealthiest men in Burma.⁷

By contrast, ethnic Burmans have profited almost not at all from the country’s market-driven deforestation. Shan tribespeople continue to earn money smuggling teak to Yunnan, but adding insult to injury, the Shan, along with the paid-off Burmese border officials, spend their proceeds almost entirely on coveted consumer goods imported from China and sold by Burmese Chinese. As a result the Chinese end up with both the teak and the money, while the Shan and the Burmans are left with cheap Chinese-made ghetto blasters, Michael Jackson T-shirts, sports shoes, condoms, and beer.⁸

In addition to teak, Burma is famous for her gems: pigeon-blood rubies, ultramarine sapphires, and imperial jade. Prior to 1989, under Burmese-style socialist rule, only the state was permitted to engage in gem mining and gem sales. Thus in the 1980s, when a private miner discovered, and then sold on the black market, a raw ruby weighing an incredible 469.5 carats, he was promptly arrested and imprisoned. SLORC recaptured the ruby in 1990 and proudly proclaimed it the property of the state. Christened Na Wa Ta, or the “SLORC ruby,” its picture was displayed across the country in the state-owned Working People’s Daily. (Around the same time, the government also announced the discovery of two raw sapphires, one weighing 979 carats, the other around 1,300 carats.) During the socialist period, when all industry was nationalized, the Burmese government sold gems to foreign companies by holding annual “gem emporiums.” Private gem sales were conducted underground by hundreds of traders operating largely out of Mandalay’s 34th and 35th Street black markets.⁹

In a watershed pro-market reversal, the Burmese government in the early nineties privatized much of its gem industry. Since 1995, private mining concessions have been sold on the basis of competitive bidding, costing as much as $83,000 per acre for virgin gem mines. Once again, virtually all the concessionaires have been Sino-Burmese businessmen. One Chinese-owned jewelry company reportedly controls 100 gem mines and produces over 2,000 kilograms of raw rubies a year. Lo Hsinghan’s visible holdings, valued at an estimated $600 million, include valuable ruby concessions as well as “a mining stake in the northern ‘jade rush’ town of Phakent—said to harbor a 300-ton jade boulder, buried so deep in the jungle it can’t be moved.” Lo’s Asia World conglomerate is now the most popular partner for foreigners investing in Burma. Along with private mining, SLORC also legalized private gem sales. Today, Burma’s gem industry is dominated by thriving Burmese Chinese at every level, from the financiers to the concession operators to the owners of scores of new jewelry shops that sprang up all over Mandalay and Rangoon.¹⁰ Needless to say, SLORC officials are also handsomely paid off at every level.

It is an understatement to say that, in terms of financial and human capital, the vast majority of indigenous Burmans, roughly 69 percent of the population, cannot compete with the country’s 5 percent Chinese minority. Three-quarters of the Burmans live in extreme rural poverty, typically engaging in paddy production or subsistence farming. Despite land reforms during the socialist era, an estimated 40 percent of Burman peasants are landless. For rural Burmans, saving money is virtually impossible; anything earned is spent just to stay alive. As a result, most Burmans have little or no capital and have not profited from economic liberalization.¹¹

Lack of financial capital is not the only problem. Since abandoning socialism in 1988, SLORC has slashed real spending on health and education. According to United Nations agencies, nearly 40 percent of Burmese children never enroll in school and up to 75 percent drop out before the fifth grade. Moreover, because of the ruling junta’s paranoia about student-led civil unrest, Burma’s universities were closed for three-and-a-half years, until July 2000. Human capital levels among indigenous Burmans are thus abysmal. All these factors, along with possible cultural obstacles—some have suggested that there is a native prejudice against “greedy” profit-seeking—make it extremely difficult for Burmans to compete in a market economy.¹²

In urban areas, Burmans may actually have suffered from marketization. Most of the native residents of Mandalay were historically artisans, who made their living weaving tapestry, carving gold leaf, crafting furniture, or polishing precious stones. In recent years, low wages in these traditional industries relative to the skyrocketing prices of consumer goods have pushed the standard of living of thousands below subsistence. Meanwhile, since 1989, the price of rice in Mandalay has been rising steadily—at one point, over 1,000 percent in seven years—with no end in sight. For many Burmans, whose average per capita income is only around $300 a year, this translates into something close to starvation.

Further, as ethnic Chinese developers in the nineties snapped up all the prime real estate in Mandalay—making fast fortunes as property values doubled and tripled in the chaotic new markets—indigenous Burmese Mandalayans were pushed farther and farther away from their native homes. (In 1990, SLORC had already forcibly relocated dissidents and Mandalayan monks.) Today, thousands of poor, displaced Burmans live in satellite shantytowns on the outskirts of Mandalay, within eyeshot of the gaudy, fenced-off mansions of the SLORC generals, many of whom are openly parasitic on Chinese businessmen.¹³

Free markets are supposed to lift all boats, and indeed often do. But this is distinctly not the perception of Burma’s roughly 30 million ethnic Burman majority. In their view, markets and economic liberalization have led to the domination and looting of their country by a relative handful of “outsiders,” chiefly ethnic Chinese, in symbiotic alliance with SLORC. Mandalay’s central business district is now filled with Chinese signs and Chinese music pouring out of Chinese shops. Burmese-made products have been almost entirely displaced by cheaper Chinese imports. Chinese restaurants serving grilled meat and fish overflow with loud Mandarin-speakers. “To go to Mandalay,” snaps a character in a local cartoon strip, “you need to master Chinese conversation.” When the sun sets, Mandalay’s new money heads to Chinese-owned karaoke bars, where young Chinese hostesses sing along to the latest songs from laser discs made in Hong Kong. On weekends, wealthy Chinese relax in the mountaintop resort of Maymyo, where they have bought up as vacation homes the grand Victorian houses left behind by British colonialists.¹⁴

Meanwhile, just below the surface, anti-Chinese hostility seethes among the Burman majority. As hatred of SLORC intensifies, hatred for the Chinese intensifies as well, not without justification: Crony capitalistic relationships between SLORC generals and Chinese entrepreneurs, not to mention arms sales from China, have been critical in propping up Burma’s reviled ruling junta. But in the current reign of fear, there is no avenue for venting resentment, whether against SLORC, the rich Chinese, or the market-oriented policies that have allowed both of these groups to make hundreds of millions while indigenous Burmans become an increasingly subjugated underclass in their own country. Alcoholism is sharply on the rise among Burmans, all the more startling given that liquor consumption is considered a sin according to one of the Five Commandments of Burmese Buddhism. Fittingly, the alcohol chiefly consumed is Chinese Tiger Beer, imported from China.¹⁵

Today, ordinary Burmans speak bitterly of “the Chinese invasion” or “recolonization by the Chinese.” “The people who put up these new buildings say they are Burmese, but we know they are really from China,” a Burman shopkeeper explained angrily. “They are taking over our business and pushing us out of our homes.”¹⁶ Notwithstanding massive government repression—the Internet and all forms of political organization and free expression are banned—indigenous hostility against the Burmese Chinese is palpable and growing.

Chinese Market-Dominance in Historical Context

No other country has Burma’s lurid combination of Orwellian government, bulging rubies, and vast fields of opium poppies (which the current junta insists are being replaced with limes and soybeans). Nevertheless, the basic dynamic in Burma just described—Chinese market dominance and intense resentment among the indigenous majority—is characteristic of virtually every country in Southeast Asia.

Ethnic Chinese have played a disproportionate role in the commercial life of Southeast Asia since long before the colonial era. In the early 1400s, when the Grand Eunuch Admiral Cheng Ho led a fleet of three hundred vessels around Southeast Asia on behalf of the Ming dynasty, he discovered an enclave of fellow Chinese already prospering in Java, now in Indonesia. The admiral observed that the Chinese had fine food and clothing, in contrast to “the natives of the country, who were very dirty and were fond of eating snakes, insects, and worms, and who slept and ate together with the dogs.”¹⁷

Around the same time, in another part of what is now Indonesia, the much more advanced Tabanan was the seat of one of Bali’s most powerful and cultured royal courts. The Tabanan kingdom, recounts Clifford Geertz, was full of “rebellious conspiracies, strategic marriages, calculated affronts, and artful blandishments woven into a delicate pattern of Machiavellian statecraft.” Tabanan was also the center of the now world-famous Balinese music and theater arts. Nevertheless, even six hundred years ago, all foreign trade in the kingdom was conducted by a single wealthy Chinese, with the remainder of the tiny Chinese community acting as his agents. Indigenous commerce was practically nonexistent. Half a millennium later, little in this respect had changed. As late as 1950, virtually all the stores and factories in Tabanan were Chinese owned.¹⁸

In the Philippines, when the Spanish in 1571 founded the city of Manila on the island of Luzon, they encountered Chinese settlements that had preceded them by more than a century as well as belligerent Chinese traders, who sailed up in their junks, firing rockets and cannons. Animosity between the Chinese and the Spanish is a constant theme in the Philippines’ colonial history. The Spaniards subjected the Chinese to severe taxes and restrictions, and sequestered them in fenced-in quarters called the Parián. At the same time, the Spanish were utterly dependent on the Chinese, who, as traders, tailors, locksmiths, bakers, and so on, seemed to occupy every critical economic niche.

On May 23, 1603, three Chinese mandarins, wearing all their official insignia, and carrying a box of seals as if they were still in China, arrived in the Philippines. After receiving homage from Manila’s Chinese residents, the mandarins

presented a letter to the Spanish Governor explaining that they had come to investigate a hill of gold and silver, as yet unexploited they understood, of which the Chinese Emperor had heard tell. They bore themselves with the dignity befitting the emissaries of All Under Heaven, moving through Manila as though it were Chinese territory, and administering floggings as they saw fit. The Spaniards did not quite know what to make of it. Was it a curtain-raiser to a Chinese takeover of the Philippines? … Taking immediate precautions, the Governor issued orders for all Chinese on the island to be registered, and for the men to be divided and housed in groups of three hundred.¹⁹

The Chinese resisted, and hostilities broke out. After a Spanish envoy was killed in Parián, the Spanish took their vengeance, massacring twenty-three thousand Chinese and hungrily looting their property. Afterward, however, the Spanish regretted having killed so many Chinese, for, as one of them lamented, they had no food and “no shoes to wear, not even at excessive prices.”²⁰

The Chinese eventually returned and were massacred by the Spanish many more times. In the end, the Chinese outlasted the Spanish.

Chinese economic dominance in Vietnam dates back even further. Vietnam’s recorded history begins in 208 B.C., when a renegade Chinese general conquered Au Lac, a domain in the northern mountains of Vietnam populated by the Viet people, and declared himself emperor of Nam Viet. A century later the powerful Han dynasty incorporated Nam Viet into the Chinese empire, and for the next thousand years Vietnam was ruled as a province of China. During this period of Chinese colonization, and for many centuries afterward, waves of Chinese immigrants—bureaucrats, scholars, and merchants as well as soldiers, fugitives, and prisoners of war—settled in Vietnam. By the end of the seventeenth century a distinct Chinese community, known in Vietnam as the Hoa, had formed within Vietnamese society.²¹

The Chinese in Vietnam were notoriously enterprising. Unlike the British, Dutch, and Japanese, the Chinese were not only traders but also manufacturers, of everything from black incense to fine silk. They acted as middlemen between the Europeans and the local Vietnamese. In Hoi An, Vietnam’s busiest trading port from the sixteenth to eighteenth centuries, Chinese merchants monopolized Vietnam’s gold export business and dominated the local trade in paper, tea, pepper, silver bars, arms, sulphur, lead, and lead oxide. Resentment against Chinese success coupled with repeated attempts by China to conquer Vietnam sparked recurrent anti-Hoa reprisals, including the 1782 massacre of Chinese in Cholon, Saigon’s Chinatown. Nevertheless, by the time the French arrived in the mid-eighteenth century, Vietnam’s tiny Chinese minority dominated the indigenous Vietnamese majority in virtually every urban market sector as well as in trade and mining.²²

As throughout Southeast Asia, the Chinese prospered under colonial laissez-faire policies. Indeed, favorable economic conditions brought a rapid influx of Chinese immigrants, which continued until the middle of the twentieth century. Almost all of these Chinese settled in South Vietnam. By the 1930s the gaps between the large-scale manufacturing, commercial, and financial enterprises of the French were filled by the smaller businesses of the Chinese. The magnitude of the Chinese minority’s economic power was astounding. Constituting just 1 percent of Vietnam’s population, the Chinese controlled an estimated 90 percent of non-European private capital in the mid-1950s and dominated Vietnam’s retail trade, its financial, manufacturing, and transportation sectors, and all aspects of the country’s rice economy. Although there were also numerous wealthy Vietnamese in the commercial class, Chinese economic dominance produced a bitter outcry against “the Chinese stranglehold on Indochina,” “the Chinese cyst,” and “the Chinese excrescence.”

During the Vietnam War (which the Vietnamese call the American War), the wealth of the Chinese in South Vietnam, particularly Saigon, intensified. Vietnamese Chinese pounced on the lucrative business opportunities that came with the arrival of American troops, who needed a trade and services network. At the same time the South Vietnamese government deregulated the economy, adopting relatively liberal market practices. Local Chinese businessmen aggressively seized these opportunities as well, extending their dominance to include light industry.

Following the country’s reunification in 1976, the revolutionary Vietnamese government singled out the entrepreneurial Chinese of the south as “bourgeois” and perpetrators of “world capitalism,” arresting and brutalizing thousands and confiscating their property along with that of their Vietnamese counterparts. “Employing the techniques Hitler used to inflame hatred against the Jews,” reported U.S. News & World Report’s Ray Wallace in 1979, “Hanoi is blaming day-to-day problems in Vietnam on resented Chinese control of commerce and the Mekong Delta.”²³ As Vietnam was transformed into a socialist economy, thousands of Chinese either died laboring in Vietnam’s “new economic zones” or fled the country.

Today in Vietnam, both markets and the Chinese are back. The government’s post-1988 shift to market liberalization, or doi moi (“renovation”), has led to an astounding resurgence of Chinese commercial dominance in the country’s urban areas. Vietnam’s 3 percent Chinese minority cluster in Ho Chi Minh City (still Saigon to most Vietnamese), where they control roughly 50 percent of that city’s market activity and overwhelmingly dominate light industry, import-export, shopping malls, and private banking. Once again, resentment among the indigenous Vietnamese is building.²⁴

Globalization and the Explosion of Chinese Wealth

Vietnam, however, is still technically a socialist country, with the state retaining control over major sectors of the economy. By contrast, in most of Southeast Asia, global markets have catapulted wealth creation—and wealth disparities—to an entirely different order of magnitude. In Thailand, Malaysia, the Philippines, and Indonesia, ethnic Chinese tycoons, richer than entire nations, oversee multibillion-dollar financial empires stretching from Shanghai to Kalimantan to Mexico City.

For several decades prior to the 1980s, most of the Southeast Asian governments pursued disastrous non-market economic policies. Starting in the 1980s and 1990s, in what the World Bank has called “the third wave of globalization,” the countries of Southeast Asia embarked on aggressive market reforms, including free trade and pro-foreign investment policies, deregulation, and privatization of state-owned enterprises. These reforms generated rapid economic growth throughout the region, particularly in the labor-intensive, export-oriented manufacturing industries. At the same time, the turn to free markets unleashed the entrepreneurial energies of Southeast Asia’s Chinese minorities, enormously enhancing their visibility and economic dominance.

Thailand, for example, was isolationist in the fifties and sixties, its economy mired in state-owned enterprises. Over the next several decades, internationalization and market-oriented policies led to the dramatic emergence of a massive export-oriented, large-scale manufacturing sector, which in turn jump-started the economy. Virtually all of the new manufacturing establishments, including the now behemoth Siam Motors, were Chinese controlled. Indeed, a recent survey of Thailand’s roughly seventy most powerful business groups found that all but three were owned by Thai Chinese. (Of these non-Chinese groups, one was controlled by the Military Bank, another by the Crown Property Bureau, and the third by a Thai-Indian family.)²⁵

In Malaysia, too, privatization and other market policies have starkly magnified the economic dominance of the country’s Chinese minority. This is true despite extensive affirmative action policies for the indigenous Malay majority, which have been in place ever since bloody anti-Chinese riots in 1969 left nearly a thousand dead in Kuala Lumpur. Today, the Malaysian Chinese—the largest Chinese minority in Southeast Asia, representing about a third of the population—account for 70 percent of the country’s market capitalization.²⁶

A good portion of this 70 percent figure is attributable to Robert Kuok, who started off selling palm oil but now commands a sprawling business empire that includes everything from manufacturing to real estate (including hotels in Burma) to media. Kuok is “the quintessential Asian tycoon,” The Economist wrote recently, “amassing wealth, spreading it across countries and industries to reduce risk, and above all keeping quiet about it.” “Gregarious and chatty, Mr. Kuok nevertheless ensures that virtually nothing of substance is known about him.” When an international investigative agency probed into Kuok’s empire a few years ago, this is the profile they came up with: “Name—Robert Kuok; political affiliation—unknown; adversaries—none identified; litigation—nothing known; ambitions—not known.” According to Forbes in 2002, the Kuok group’s net worth is around $4 billion.²⁷

Chinese market dominance in the Philippines is equally striking, if slightly more complex. Filipino Chinese range widely in cultural identity: from highly assimilated, fourth-generation Chinese mestizo families, like the Cojuangcos; to relatively recent immigrants like my own family, who retain more of their Chinese culture and insularity; to the latest arrivals from mainland China, who are widely disliked—even by other Chinese Filipinos—because they are “loud and pushy” and “spit everywhere.” Further, unlike in other Southeast Asian countries, the Chinese in the Philippines share their economic dominance with a powerful and glamorous “Spanish-blooded” gentry class. Today these hacienderos still live like feudal lords and control almost all of the land in the countryside.

Although the hacienderos also have extensive businesses, it was the country’s tiny Chinese minority whose economic power exploded with the pro-market reforms of the late-1980s and 1990s. Today, Filipino Chinese, just 1 to 2 percent of the population, control all of the Philippines’ largest and most lucrative department store chains, major supermarkets, and fast-food restaurants, including the McDonald’s franchise and the Jollibee chain, which makes “Filipino-style” burgers with soy sauce. With one exception, all of the Philippines’ principal banks are now Chinese-controlled, including George Ty’s Metrobank Group, the country’s largest and most aggressive financial conglomerate.

The Manila Stock Exchange, located near Chinatown, is dominated by Filipino Chinese stockbrokerage firms. Ethnic Chinese also dominate the shipping, textiles, construction, real estate, pharmaceutical, manufacturing, and personal computer industries as well as the country’s wholesale distribution networks. Outside of commerce and finance, Chinese Filipinos control six out of the ten English-language newspapers in Manila, including the one with the largest daily circulation. Apart from the aristocratic Zobel de Ayala family and possibly the Marcos family (Ferdinand and Imelda’s son Bong Bong and daughter Imee are currently both elected officials in the Philippines), all of “the top billionaires in the Philippines” are Filipino Chinese or Chinese-descended, at least according to a recent report in the (Chinese-owned) Philippine Star.²⁸

Even the relatively unmarketized economies of Cambodia and Laos are showing signs of Chinese market dominance. Cambodia’s capital city Phnom Penh is now teeming with thousands of prospering Chinese businesses. In Laos, which has almost no indigenous commercial culture, the 1 percent Chinese minority more or less constitute the country’s entire business community, profiting eagerly from every grudging inch of globalization-induced market opening.²⁹

Globalization has unquestionably had some positive effects even for Southeast Asia’s poor indigenous majorities. According to a recent World Bank report, global integration and market policies since 1980 have reduced absolute poverty in a number of Southeast Asian countries, including Thailand, Malaysia, and the Philippines, raising average incomes in these countries at all levels.³⁰ Unfortunately, this kind of statistic hides a number of troubling facts.

First, even with these income improvements, the indigenous majorities in these countries remain unmistakably, often shockingly poor. Impoverished Filipinos do not rejoice in World Bank empirical studies showing that their per capita income has increased by a few cents per day. Second, more fundamentally, globalization and free markets since 1980 have aggravated, in appearance and almost certainly in reality, the grotesque ethnic wealth disparities in the region. In the eyes of Southeast Asia’s indigenous majorities, global markets have produced multimillionaires, billionaires, and multibillionaires—but only among members of another ethnic group. As a result, despite marginal increases in their income, indigenous Southeast Asians often feel that free markets benefit only “outsiders”—ethnic Chinese and foreign investors—along with a handful of corrupt indigenous politicians in their pockets.

In all the countries of Southeast Asia, free markets have produced countless rags-to-riches success stories among the ethnic Chinese, but remarkably few among the region’s indigenous majorities. As an informal illustration of globalization’s disproportionate ethnic effects, consider two roughly contemporaneous vignettes of Southeast Asian economic history.

Bean Curd or Chicken Feed?

Between bean curd and chicken feed, which would have been the better business bet in 1920s Southeast Asia? It’s hard to imagine two humbler products. As it happens, a bean curd industry in Java and a chicken feed industry in Bangkok emerged around the same time. The first, operated by indigenous Javanese, has remained virtually unchanged for eighty years and today is suffering badly from globalization and market competition. The second, founded by two Chinese brothers, is now a $9 billion global agro-industrial conglomerate.

In 1920, in the east Javanese town of Mojokerto, a local Javanese woman started manufacturing bean curd in a bamboo shack. Soon afterward, four similar bean curd factories appeared. This part of town became known as the “Bean Curd Neighborhood,” because almost all of its inhabitants over the age of ten were involved in producing bean curd in one way or another. In his 1963 book Peddlers and Princes: Social Change and Economic Modernization in Two Indonesian Towns, anthropologist Clifford Geertz describes the production process:

Bean-curd, a small piece of which most Javanese eat with every meal, and which is probably their major source of protetin, is made from soya bean. … The beans are soaked in water for about six hours until they become mushy. They are then ground between one fixed stone and one movable one, the movable one being rotated by hand through an ingenious spindle-and-pulley arrangement suspended from the ceiling. The result of this operation, which may take a half-hour or so, is a semiliquid pulp which is then screened for major impurities and cooked in a large vat for several hours. This cooking is an attention-demanding job because the pulp must be added gradually, can by can, and must be stirred continually. While still boiling, the cooked product is now screened again, this time through a piece of cheesecloth stretched over a vat, and vinegar is added to cause the by now milk-like substance to curdle. The separated liquid is siphoned off, and the curds are placed in a bamboo tray to dry in the sun, this whole straining, siphoning, and curdling process taking perhaps ten or fifteen minutes. When, in about an hour, the curds are dry, or reasonably so, they are carefully molded into squares through a process of enclosing them in a small piece of cloth and dextrously folding the cloth into a flattened cube. Next, the little patties thus formed are pressed even dryer with a flat board, and then they are fried in deep fat for about a half-hour. Finally, they are wrapped separately in paper for sale; and this, as bean curd does not keep, must take place within a day or two of manufacture.³¹

These details of bean curd making are worth noting not just for the craft, but because they have remained essentially unchanged for eighty years. Today, tofu manufacturing in Indonesia is still a cottage industry, in the hands of small indigenous producers, many of whom cater to street vendors. In Jakarta’s smog-filled streets, hundreds of these vendors peddle their ta-fu and tempeh (fermented tofu cakes) in pushcarts known as kaki lima, or “five-legs,” for the two legs of the peddler, the two wheels of the cart, and the post it rests on. According to a 2001 Javanese bean curd industry website, the equipment used to make tofu still consists of the “rolling machine, wok, boiler, soaking basin, and boiling basin.” Of the thousands of Javanese families that have engaged in this business since it began, none has introduced major technological innovations or become dominant through greater efficiencies. Nor has there been any product diversification or vertical integration to speak of.

Globalization and economic liberalization, moreover, thus far have brought only pain for Indonesia’s tofu producers. Whereas soybeans were locally grown when Geertz described Mojokerto’s tofu industry, Indonesia today imports most of its soybeans from the United States. When the rupiah crashed in 1998, the price of soybeans soared—a disaster for Indonesia’s tofu producers, whose monthly income is only around twenty-seven dollars and who are unable to pass higher costs along to their even poorer vendors and customers. Some eighty-four hundred tofu producers in East Java went out of business in 1998. Meanwhile, to control a ballooning budget deficit, the IMF and the World Bank are urging Indonesia to do away with government subsidies for fuel oil, which currently sells for only about a quarter of its world market price. Fuel prices have already increased significantly. For family-based tofu businesses, which typically buy one hundred liters of fuel a day to fire the ancient pressure cookers that turn their soybeans into slurry, free market policies have made Indonesians choose between starvation and removing their children from school—both to put them to work and to eliminate the cost of tuition.³²

Also around 1920, two young immigrant brothers—who had left China virtually penniless just a few years earlier—scraped together enough capital to open their tiny Chia Tai seed shop in Bangkok. Over the next few decades the brothers, Chia Ek Chor and Chia Siew Whooy, struggled, importing seeds and vegetables from China, exporting pigs and eggs to Hong Kong, experimenting incessantly while living on next to nothing. In the 1950s the brothers began specializing in animal feed, especially for chickens, establishing the Charoen Pokphand Feedmill in 1953. Through the 1950s and 1960s the Chia family—now surnamed Chiaravanont—vertically integrated, combining their feedmilling operations with chicken breeding. By 1969 the Charoen Pokphand (CP) Group had an annual turnover of between $1 and $2 million.

As Thailand opened up its economy in the 1970s, embracing globally-oriented market policies, the CP Group took off, entering into various business arrangements with major Thai banks, the Thai government, and foreign companies. The core of the CP Group’s agribusiness was contract farming: The company supplied Thai farmers with chicks and feed and taught them how to raise chickens. In turn, the farmers sold the grown chickens back to the CP Group, which processed the chickens and then marketed them to high-volume buyers such as grocery stores, restaurants, and fast-food franchises. At the same time, the CP Group expanded internationally, exporting their contract farming formula first to neighboring Indonesia and Malaysia, then to the rest of Asia, and eventually all over the world, from Mexico to Turkey to Alabama.

In the 1980s, with Thailand now aggressively privatizing and in full free market mode, the CP Group moved into aquaculture, applying their contract farming formula to raising and marketing shrimp. In 1987 the group acquired the 7-Eleven and Kentucky Fried Chicken franchises for Thailand. It also moved into Shanghai, manufacturing motorcycles with a license from Honda and brewing beer with a license from Heineken. In 1989 the CP Group entered the petrochemical business through a joint venture with Solvay, one of Belgium’s largest firms. In 1992 the group signed a contract to rebuild Thailand’s telecommunications system, a $3 billion project. In 1994 it signed a joint venture agreement with Wal-Mart to establish super-retail stores throughout Asia. Today the CP Group claims $9 billion in assets and is among the most powerful business conglomerates anywhere in the world.³³

Needless to say, these two stories do not amount to a scientific sample; they are intended only to be suggestive. And they do suggest a number of points. For one thing, the key to success doesn’t turn on what product you start with, whether bean curd or chicken feed. My own family in the Philippines started off manufacturing fish paste, another humble product best thought of as mashed anchovies. To save on costs, my family members decided to produce their own containers. They eventually dropped the fish paste to focus exclusively on plastics.

Nor does the existence of “social networks” explain economic success. Both the Javanese bean curd industry and the CP Group operate substantially through kinship networks. In Mojokerto, tofu production was essentially communal, involving about fifty close-knit families. The CP Group is now headed by Dhanin Chiaravanont, the youngest son of the elder Chia brother, and the founders’ other twelve sons are all on the board of directors.

What distinguishes the CP Group from the Javanese tofu industry is not social networks or the nature of its products, but rather its breathtaking dynamism. Moreover, while the Chiaravanont family’s economic success is extreme in magnitude, it is representative of Chinese success stories at all levels of Southeast Asian society.

It seems safe to say that this entrepreneurial dynamism—together with frugality, hard work, willingness to delay gratification, and intense desire to accumulate wealth almost as an end in itself—cannot be traced to any single cultural, much less genetic source. (There are plenty of individual Chinese in Southeast Asia who do not exemplify these qualities. My own maternal grandfather was a poor schoolteacher who had an aversion to commerce.) A given ethnic group can be entrepreneurial and market-dominant in one setting, but not in another. The Chinese in China were market-dormant, so to speak, for centuries.

Why some groups prosper disproportionately over others has been the subject of a long and fascinating debate ever since Max Weber described the Protestant work ethic and desire to accumulate wealth as “the spirit of capitalism” itself.³⁴ Explaining the market dominance of various ethnic groups is not the focus of this book. I leave this debate to others more qualified to resolve it.³⁵

The critical point, however, is that today the “spirit of capitalism” may no longer be enough. What economists call “path-dependence” now plays a tremendous, unavoidable role in group economic success. Access to capital is so important to economic success in a modernized global economy that already-prosperous ethnic groups have an enormous market advantage. The Chinese minorities have a worldwide head start advantage of roughly $2 trillion in assets, not to mention their famous “social networks” of business connections, which are not merely intra-ethnic but include Western and Japanese foreign investors as well. In much of the world, history may have moved beyond the point where a poor ethnic group could, fortuitously or otherwise, develop the “spirit of capitalism” and thereby attain market dominance.

Jakarta Burning

Although Americans prefer to forget this, Indonesia’s General Suharto was a longtime darling of the United States government and business community because of his rejection of populist redistribution in favor of liberal markets and foreign investment. Starting as early as the 1970s, and in exchange for the support of the United States, the World Bank, and the IMF, Suharto pursued raw, globally-oriented free market policies.³⁶

As in all the Southeast Asian countries, the result was an influx of foreign capital, unprecedented levels of growth, and spectacular Chinese economic success. By 1998, Sino-Indonesians occupied a position of economic dominance wildly disproportionate to their numbers. Just 3 percent of the population, the Chinese controlled approximately 70 percent of the private economy. All of Indonesia’s billionaires were ethnically Chinese, and almost all of the country’s largest conglomerates were owned by Sino-Indonesian families. The major exceptions to this rule were companies owned by the children of Suharto, which themselves depended on state favors and Chinese entrepreneurialism. More generally, although Chinese Indonesians were certainly not all well-off, they were economically dominant at every level of society. Ethnic Chinese dominated petty trading occupations in rural areas. They also dominated both retail and wholesale trade in urban areas as well as the country’s informal credit sector. Indeed, almost every tiny town had a Chinese-run general store that was the center of local economic life.³⁷

The extraordinary market-generated economic growth of the 1980s and 1990s almost certainly left Indonesia’s roughly 200-million-strong indigenous (or pribumi, “of the soil”) majority better off, at least in terms of average income. But that was not their perception. On the contrary, there was a pervasive belief among the pribumi that Suharto’s market liberalization favored the “already rich” Sino-Indonesians at the expense of indigenous Indonesians. Even though most Chinese Indonesians are struggling and hardworking members of the middle class, with no political connections whatsoever, all the pribumi majority seemed to see in the years leading up to 1998 was a handful of brazen Chinese plutocrats accumulating immense wealth by exploiting their corrupt ties with the increasingly hated Suharto.

One of Suharto’s most prominent Chinese cronies was Liem Sioe Liong, who emigrated to Indonesia from Fujian Province, China in 1938 at the age of twenty-one. Liem started off in his uncle’s peanut oil shop in a backwater Javanese town, eventually scraping together enough savings to start his own business. Along the way he adopted the Indonesian-sounding name Sudono Salim and won the favor of an ambitious army officer named Suharto. After Suharto became president in 1966, he granted Salim lucrative franchises in banking, flour milling, and telecommunications. In return, Salim financed Suharto’s pet projects, both private and public—developing Indonesia’s steel sector, for example—while adding enormously to the personal wealth of the Suharto family. Meanwhile, by forming alliances with foreign industrial and commercial enterprises, Salim aggressively acquired technology, information, and market expertise. By 1997 the Salim Group was reportedly the world’s largest Chinese-owned conglomerate, with $20 billion in assets and some five hundred companies.³⁸

Ethnic Chinese timber tycoon Bob Hasan was another of Suharto’s close business associates. In the 1980s, Hasan wielded so much influence over the president that he could essentially write legislation favoring his own group of rattan and plywood companies.³⁹ Hasan’s logging companies further maximized profits by using environmentally disastrous burning methods to clear land. During the last few months of 1997, vast areas of Southeast Asia were smothered by thick smoke from massive forest fires in Indonesia. At the height of the fires, provinces in Sumatra and Kalimantan (the island formerly known as Borneo) were recording air pollution levels hazardous to human life. Eighty percent of the fires—burning 1.4 million hectares in Kalimantan alone—were caused by the behavior of Chinese-owned commercial entities. According to a recent, unpublished World Bank report, all of Sumatra’s lowland forests will be extinct by 2005, and Kalimantan’s by 2010.⁴⁰

By the end of the 1990s the spectacle of Suharto and a handful of Chinese cronies engorging themselves at the nation’s expense had provoked massive, widespread, long suppressed hostility among the pribumi majority. Suharto’s resignation in May 1998 was accompanied by an eruption of vicious anti-Chinese violence. Even as globalization’s enthusiasts celebrated the fall of Indonesia’s dictatorship and the good judgment of global markets—“Who ousted Suharto?” Thomas Friedman would later write. “It wasn’t another state, it was the Supermarkets, by withdrawing their support for, and confidence in, the Indonesian economy”⁴¹—thousands of torch-carrying Indonesians headed for Jakarta’s Chinese neighborhoods.

For three long days, terrified Chinese shop owners huddled behind locked doors while screaming Muslim mobs smashed windows, looted shops, and gang-raped over 150 women, almost all of them ethnic Chinese. Salim’s Jakarta home was burned to the ground as were nearly five thousand other homes and stores owned by ethnic Chinese. In the end, over two thousand people died, including many pribumi rioters trapped in flaming shopping malls. The resulting $40 billion to $100 billion of capital flight, almost all Chinese-controlled, plunged the economy into a crisis from which the country has not recovered. At the time, however, the prevailing view among the pribumi majority was that it was “worthwhile to lose ten years of growth to get rid of the Chinese problem once and for all.”⁴² Meanwhile, the U.S. State Department called resoundingly for free markets and democratic elections.

After the May 1998 riots, anti-Chinese violence, often preceded by spray-painted symbols marking Chinese shops and homes as targets, continued to break out, not just in Jakarta but throughout Indonesia’s cities. Unlike Salim or other tycoons, most Chinese Indonesians did not have the wherewithal to leave the country. They remained in the only home they had ever known, stockpiling weapons to defend themselves. Hundreds of Chinese Indonesians purchased “anti-rape corsets”: a stainless steel chastity belt, complete with tiny key, developed by a Chinese entrepreneur.⁴³

MUCH OF THE capital that fled Indonesia in 1998 ended up in Singapore. (Australia was another favorite destination.) Often disappointingly sterile to Western visitors, Singapore has for years been a multipurpose haven for Sino-Indonesians. Today, violence in Indonesia has subsided, and even as the great majority of pribumi Indonesians struggle to survive, the Friday afternoon Garuda Airlines flight to Singapore is packed with gaily jabbering ibu—the wives of Chinese Indonesian businessmen going to Singapore for the weekend to shop and dine. The latest rage in Singapore is “medical tourism.” Given Indonesia’s frightening hospital and health statistics, a constant stream of Indonesian Chinese fly to Singapore for cutting-edge medical care, from chemotherapy to liposuction and, especially popular among young Chinese women, operations on the epicanthic fold to produce Caucasian “double eyelids.”

Indonesia’s population is 210 million; Singapore’s population is just over 3 million. Whereas the Chinese are a market-dominant minority in Indonesia (and the rest of Southeast Asia), in Singapore they are an 80 percent market-dominant majority. Indonesia’s per capita income is around $2,000—and it’s that high only because of the country’s many wealthy Chinese. Singapore’s per capita income is around $27,000, higher than that of France, Germany, and the United Kingdom.⁴⁴ Ethnic violence in Singapore is virtually unheard-of. For Indonesian Chinese, explains one Singaporean law professor, “Singapore is seen as Valhalla: a place where things work, where things are what they should be and would be if Chinese were in charge.”

The Wrath of the Many

The Chinese are not the only market-dominant minority in Asia. Throughout the region, resentment and vindictive terror have been directed at other disproportionately successful minorities with the same ferocity. India, for example, has no market-dominant minority at the national level, but plenty of market-dominant minorities at the state level. Thus, in the oil-rich northern state of Assam, Bengali immigrants, now roughly 40 percent of the population, have for years dominated commerce and the professions. Between 1979 and 1983, enraged members of the Assamese majority repeatedly attacked Bengalis in widespread, vicious ethnic riots.⁴⁵ In Sri Lanka, the Ceylon Tamils, historically more educated, prosperous, and “advanced” than the Sinhalese majority, dominated the economy until a wave of anti-Tamil reprisals in the 1970s; ethnic strife continues to this day. Recently, writes Thomas Sowell, “a Tamil woman picked at random was dragged off a bus in Sri Lanka, doused with gasoline, and set ablaze by a Sinhalese mob in which people danced and clapped their hands while she died in agony.”⁴⁶

Nevertheless, no minority in Asia is, or has ever been, as stunningly wealthy or glaringly market-dominant as the ethnic Chinese communities of Southeast Asia, who collectively control virtually all of the region’s most advanced and lucrative industries as well as its economic crown jewels. As the U.S. government and international financial institutions continue to call for faster and tougher market reforms, there festers among the region’s indigenous majorities deep anti-Chinese resentment, rooted not just in poverty but in feelings of envy, insecurity, and exploitation. Such resentment is ready at any moment to be catalyzed, whether by another economic downturn, a charismatic hatemonger, or simply a dispute between a Chinese employer and an indigenous laborer. Even during relatively stable periods the Chinese throughout Southeast Asia are repeatedly subjected to kidnapping, vandalism, and violence. Just recently a Muslim Filipino kidnapping gang known as “The Pentagon” executed two Chinese hostages, both employees of a multimillion-dollar irrigation project in Mindanao, and vowed to behead a third if a $10 million ransom was not paid. Reacting to another series of kidnappings last year, one Filipino official shrugged and said, reflecting widespread sentiment, “The Chinese can afford the ransom.”

Thus globalization and free markets in Southeast Asia have generated not only tremendous growth but also tremendous ethnic hatred and instability. During the 1998 Indonesian crisis I did a brief stint at the World Bank. At one point it was suggested that I join a delegation to Jakarta. A few days later, however, I was told not to go, as I was of Chinese descent and thus at risk. This surprised me; I thought my American passport and the auspices of the World Bank would surely be sufficient to protect me. One of my colleagues at the bank explained that Indonesian officials were apparently marking the passports of anyone “with Chinese blood” with a red stamp, Hitler-style. I don’t know if the rumor was true, but the sad truth is that it easily could have been, given the intensity of anti-Chinese fury in Indonesia at the time.

The situation developing in Burma today is dangerously similar to the one that eventually sent much of Jakarta up in flames. Indeed, in its pro-market, pro-Chinese military dictatorship, the Burmese government is openly modeling itself on Suharto’s Indonesia, despite the latter’s disastrous collapse. If anything, SLORC is even more universally hated than was the Suharto regime, and the Burmese Chinese—SLORC’s financiers—are seen as even more flagrantly plundering. Symbolically, near the border town of Ruili, a Chinese-owned factory houses three hundred Burmese brown bears. The wretched beasts are packed into cages one cubic meter in size and further restrained by metal harnesses used to collect the bile from their gall bladders.⁴⁷ The bile is a highly prized Chinese medicine, exported at great profit to Hong Kong and South Korea. As well-intentioned Americans and international human rights organizations properly celebrate the release of Aung San Suu Kyi, and earnestly demand democratization, they are completely oblivious that global markets, SLORC-style, have turned Burma into a powder keg.

fn1 Members of the majority ethnic group in Burma are called Bamahs (in the spoken language) or Myanmahs (in the written language). The newly independent state that emerged from the end of British colonial rule in 1948 was called the Union of Burma. In 1989, SLORC changed the country’s name to Myanmar. (It also changed the names of various cities: Rangoon, for example, is now called Yangon.) In deference to the democratic opposition party, which has refused to acquiesce in the name change, the United States government currently refers to the country as Burma, and I do the same. Unless otherwise indicated, “Burman” refers to the majority ethnic group, who comprise about two-thirds of the population, while “Burmese” refers to any citizen of the country.

fn2 In 1997, SLORC was purged of many members, reorganized, and renamed the State Peace and Development Council. But most Burmese continue to call the government SLORC.