Published or Presented Writings

Business Talks: Chinese Capitalism and Chinese Network 

Janghyo Koo

The ethnic Chinese living outside Mainland China's primary jurisdiction sphere, mainly in Hong Kong, Taiwan and Southeast Asia have played critical role in the development of Asian economy for the past 20 years. Since the mid-1980s, these Chinese have become major players in Asia in terms of outflow of foreign direct investments. With recent development of Southeast Asian economies dominated by ethnic Chinese, about 80 percent of total foreign investments in South China can be traced back to the 'overseas Chinese' sources, employing an estimated 20 million people (East Asia Analytical Unit 1995, 6). This essay explores the recent history of discourses on this new phenomenon in relation to the forming of Chinese Capitalism in global economy, and its cultural implication with the Chinese business network.

1 Discourse on Chinese Capitalism and Culture

In retrospect, discourse on Chinese Capitalism is an integral part of discourse on Global Capitalism. From the latter part of 1970s, Global Capitalism has brought about an increasing mobility of capital from the "capitalist core" of high labor costs and environmental over-regulations to the "peripheries" of Asia, where multinational corporations soon set up factories and investments, specially in Southeast Asia and South China. Visible expansion and accumulation of these capital in Eastern Asia began to raise questions on the origins and characteristics of Chinese Capitalism, often entailing triumphalist view in comparison to the conventional Euro-American Capitalism.

Does Chinese-style capitalism exist? How does it contribute to the economic development? In order to answer these issues, classical studies of overseas Chinese history were dominated by new fields of inquiries of anthropology, sociology, political science, and linguistics. Sociologist S Gordon Redding in 1990 implying the work of Max Weber's The Protestant Ethic and the Spirit of Capitalism took on a culturalist approach to the cultivation of Confucianism (thus Confucian Capitalism) in the formation of Chinese Capitalism ( Redding 1990). His work revealed some of the problems his followers would soon face. In dealing with cultural norm and practices he would emphasize deterministic homogeneity of "Chineseness" and ignore the locality, different interpretations and rearrangements of cultural traits in different social and political background.

Gary G. Hamilton took attention of one important feature of this 'Spirit of Chinese Capitalism' which is a networking based on Chinese kinship culture and ethnicity. He was interested in organizational structures and networking of Asian entrepreneurs in various countries in Asia, including Japan and Korea (Hamilton 1991). Hamilton's work on business network throughout the years has been how Chinese network assumed particular configuration in different social, economic and political contexts (Hamilton 1997, 258). However one very interesting aspect of his work is that he takes development and spread of Chinese network as the sole institutional medium of Asian economic activities and focal point of Asian local capitalisms in the global economy. But he gives little thought to the variety of sociological or cultural background of the network.

However early from 1992, culture-oriented writers were criticized for being too culturally deterministic. In Southeast Asian Capitalists, Ruth McVey writes (McVey 1992, 18),

In accepting this (argument that Chinese domination of economy in South East Asia is observable and it is a result of cultural factor) we rather tend to forget that the overseas Chinese economic role is relatively recent and was determined by historical-political factor which had little to do with Chinese culture. There was nothing particular entrepreneurial about the China from which the immigrants to came꿽alues are important, but they must be observed in social and historical context.

McVey's explanation of Southeast Asian capitalists, though majority might be ethnic Chinese, are not confined to the "Chineseness". Rather she is critical of it. Instead she puts ethnic Chinese in the larger context of Southeast Asian history, their relationship with colonizers, and indigenous political-bureaucratic elites that encouraged the "environment of growth".

While McVey is a mainstream political scientist, as a Marxist post-modernist, Dirlik points out "what the discourse on Chinese Capitalism is really suppressing". Arif Dirlik (Dirlik 1993, 1997, 1999), since his 1993 book What is in a Rim which asserts his critical perspectives on concept of Pacific-Asia, has been criticizing the idea of Chinese culture in Chinese Capitalism for quite different reasons. While he was tracing back the discourse on Chinese Capitalism, he noticed that the invention of Chinese Capitalism was not born out of Chinese society but out of U.S orientalism and later supported by Asian elite's self-orientalizing.

According to Dirlik, the first literature that stimulated discourse on Chinese Capitalism was the work of Herman Kahn in 1979 in which he argued "Neo-Confucian societies registered higher growth rates than other cultures because of Confucian ethic". Later these ideas were institutionalized through relentless series of conferences on Confucianism, and East Asian culture and modernization. Many of Asian countries like China and Singapore of which leaders were critical of western culture and its influence on their population, were very willing to re-sinify themselves through the promotion of these conferences and publication (Dirlik 1997, 305). In political context, these discourses ended up supporting prevalence of repressive authoritarian regimes and class and gender differentiations in Asia. In 1993, Lee Kuan Yew and Mohammad Mahathir joined with Beijing leadership in denouncing the U.N human rights as an intrusion into their cultural traditions. Also as seen in Aihwa Ong's Ungrounded Empires: the Cultural Politics of Modern Chinese Transnationalism, oppressive and exploitative regulations on female factory workers are easily dissolved into the discourse on Chinese Capitalism through the vocabularies of Chinese traditions (Ong 1997, 115).

2 Chineseness and Chinese Diaspora

The idea of homogenous and unchanging Chinese culture as basis of Chinese Capitalism was criticized by authors such as McVey who insisted on historical and social factors more than culture, and by authors as Dirlik who demonstrated the instrumental use made of the various narratives of Chineseness. Moreover extensive research by Asian scholars such as Tu Wei-ming on "Chineseness" and Chinese culture soon revealed one of the most significant questions on the subject, that is, what is true "Chineseness". Thus the culturalists were inclined to define culture as a more flexible yet viable existence. They found flexibility and viability compatible with Chinese diaspora or transnationalism.

Recently scholars like Aihwa Ong, Donald Nonini, Leo Douw and Timothy Brook have revived the cultural capitalism under such banners as "Bringing Culture Back In", "Chinese Transnationalism and Diaspora", "The Cultural Logic of Transnationality" or "Cultural Revival". Dirlik in response wrote an article called "Bringing History Back In" (1999, 119) in which he argues against the idea of diaspora and hybridity identities and insists on "place-based" (local) identity that has historicity. Anyhow, in new cultural studies of Chinese transnationalism, the contents lost their previous optimism and the new formations have been evaluated very differently (Leo Douw 1999, 7).

The pioneering work on the cultural politics of Chinese Transnationalism by Aihwa Ong and Donald Nonini (1997), both American anthropologists, vilifies the present day Chinese diaspora as empires ruled by ethnic Chinese capitalists with flexible sense of citizenship, often in collusion with political establishments of authoritarian regimes in the suppression of democracy and sharing of dirty profits. Such pictures almost remind people of Lords of the Rim (Seagrave 1995). Chinese Transnationalism is inseparable from the networks and strategies of Global Capitalism. These Chinese Capitalists not only exist cutting across national borders, but also affiliate closely with state-bureaucrats inside each state because much of the new capitalism is actually state-led and state-driven. In return the state uses these capitalists to strengthen the state power (1997, 324). Chinese Diaspora suggests a new emerging 'imagined communities' in the global age, in dynamic and corrupt interaction with the nation-states they reside in.

Culture and Economy by Timothy Brook and Hy V Luong (1997) is a product of joint project of Taiwanese fund and Canadian academia to explain the Asian capital expansion. The book argues that concept of culture must be incorporated into our understanding of the shaping of capitalism in Eastern Asia and hopes to explain capitalism in the flexibility of cultural context. Unlike previous culturalists who adhered to the homogenous Chinese culture, Brook and Luong explains (15),

The historicity of culture and its vulnerability to change are the givens that are too often forgotten in the rush to explain merely the present. ..Rather than a system or fixed dispositions, culture is an arena of discourse and action in which claims against others are raised and conflicts acted out through the articulation of meanings and values.

The authors refrain from using directly the terms like "Chinese Transnationalism" and Chinese Diaspora is also used in a more general term. However, for Brook and Luong, reinventing culture in Eastern Asia to provide a native genealogy for capitalist engagement is a postcolonial matter. As is explained well in case of Singapore (1997, 12) the experience of colonialism works as the backdrop of different cultural policies of both 1960s and 1980s.

Leo Douw and Michael Godley teamed up in this latest and most comprehensive work on Chinese socio-economic network with articles contributed by Australian and Southeast Asian scholars (Douw, Godley 1999). They go beyond where Ong and Nonini left off in the cultural studies of transnationalism and diaspora. They acknowledge the empirical study of Chinese network dynamism should be concerned with the question of how transnations or diasporic communities come about, how they work on a day-to-day basis and how they relate to the existing political formations with they are suppose to supplement or in the process of transforming (13).

In the study of Overseas Chinese Entrepreneurs, Isabelle Thireau and Hua Linshan (Douw, Godley 1999, 195) stress they need to take into account the influence of specific historical and social contexts on the transformation of cultural forms. Their study shows how overseas Chinese entrepreneurs use kinship ties in China to develop their economic endeavor, a feature often considered as characteristic of overseas Chinese business. Their findings reveal that ethnic Chinese entrepreneurs do rely on given cultural practices to develop particularized bonds with their business partners and to establish their reputation or trustworthiness. But the practices and their effectiveness vary with the identity of these counterparts and the particular institutions. Matter of a fact, choices are made in the whole range of values and forms offered by a given cultural tradition. And kinship ties considered being an economic culture could be just as well ignored in a context as a useful resource (210).

3 Conclusion-Asian American Studies in Chinese Diaspora

Asian American studies have become the dominant force in the recent discourse of Chinese Diaspora because of a newly given role of Chinese-American as a "Bridge-building transnational" between North America and Asia (China) often in economic sense (Hu-Dehart 1999). A Chinese living in Los Angeles might have more stake in identifying with his African or Hispanic Americans than with some distant cousins in Hong Kong. However the idea of diasporic American persists, because flexible and somewhat unstable identity is not regarded as a weakness but rather a basis of these groups' economic success. And there is no doubt countless books such as Lords of the Rim (1995), The Bamboo Network (1996) Stepping out (1994) worked to popularize the "model minority " under often repeated Confucian notion.

In case of Asian American Studies, the real problem lies in gradual absorption of Asian American Studies into Asian Studies. It has now quite common to have one or two Asian-American specialists participating in Asian Studies conferences. In America, Asian American Studies was born out of ethnic studies in the 60s and fueled after that by explosion of students of Asian origin. It will be interesting to observe the how ideology of Globalization interacts with diasporic ideology which is a constituent of the former in the disciplines of Academia.

State and Chinese Business in Malaysia
-Kuok Group case study(1950-1990)

Janghyo Koo

1. Introduction

My analysis of Malaysia's economic policies and of expansion strategies of the Kuok Group explores how Malaysia's state policies with strong political reluctance to incorporate Chinese capital, affects the traditional strategy of diversification and expansion in the Kuok Group, one of the most prominent ethnic Chinese entrepreneurs in Southeast Asia. This study shows the fluctuating political objectives of Malaysia's interventionist policy in curbing the ethnic Chinese business as a means to redistribute and foster Malay capitalism and at the same time keeping the high rate of economic growth.

The Malaysian state is constantly burdened with political pressure to enhance ethnic Malay's dominance in national economy and to sustain the high economic performance in order to please the growing Malaysian middle class and achieve national unity. In such an environment of general market failure and the state's continuous interventionist approach, ethnic Chinese corporations like Kuok Group are often very vulnerable to the state policies. However such policy is inevitable for such fluctuant state policies between the ethnic redistributive policy and economic growth policy relieve the government and ethnic Chinese corporations of extreme confrontation and also provides enough room for the Chinese to practice their business networks and expand into high profit new markets. As suggested by many scholars, basic strategy of Ethnic Chinese business has been strongly manifested in the continuation of diversification and expansion at home and in their offshore operations. This is usually done within closely associated business linkages with state bureaucrat elites and other Chinese capitalists of Southeast Asia and in exploiting new high risk markets opened up in the region.

Upon independence of Malaya in 1957, government adopted relatively laissez-faire policies in export substitution and diversification of commercial commodities in order to promote economic growth and employment. Policy makers at the time were faced with political pressures to alleviate the rural Malay poverty and to engage in a more equitable distribution of income and wealth in the midst of growing Malay nationalism. However the government's economic policies were mainly dedicated to achieving the growth and stability rather than achieving employment and equity objectives. The policies were laid out with the fact that it was implicitly assumed by the government that in Malaysia the ultimate objective of equal distribution would be achieved if steps were taken to bring about enough economic growth to discourage the ethnic confrontation between the Chinese and Malays.

Though the outcome of the policies benefited foreign investors more than the domestic entrepreneurs, some Chinese businessmen such as the Kuok family were quick to utilize their personal ties with Malay politicians to make use of all the benefits given by the government at this time. Thus their ascendancy in the sugar industry in the 1960s was in part due to the government's liberal policies to promote economic growth through diversification of important commodity products and in part due to Kuok's advantage in traditional practice of business linkages with officials.

In the 70s, the backlash toward these liberal policies in the 1970s by growing Malay nationalism and their discontent accompanies with the Kuok Group's apparently showing strong tendency to offshore expansion to Singapore and Hong Kong. Malaysian government's new policies made plain that government's success of its economic policies was to be evaluated strictly in terms of 'distribution of wealth' in domestic economy in proportion to the Malays and that it meant no direct hostility against the Chinese. However it meant over-regulation and it would inevitably have impact to the ethnic relations.

It is interesting to notice that in general Kuok Group's 'internationalization strategy' was made inherently separate from the government's intention. Upon consolidating themselves in domestic economy in the 50s and 60s the Kuok Group was already considering diversifying their operations abroad in search of a new investment opportunity that were unavailable or too costly in Malaysia. I believe their internationalization pattern and strategy historically derived from their identity as minority immigrants. Thus even without New Economic Policy from the 70s to over-regulate the Chinese business in its national economy, Kuok Group's strategy to diversify and expand would still have been a strong strategy especially in the area of their specialty, which was sugar trading. From my perspective, their ascendancy in sugar industry further strengthened Kuok Group's strong drive to diversify and expand, which the Kuoks achieved by utilizing various old school network of prominent Malay partners and ethnic Chinese network of capitalists.

2. Between Redistribution and Growth (1960-1990)

?Ethnic Redistribution

After the independence in 1957, Malaysia's economic policies gradually departed from the colonial economic framework and attempted to revitalize the economy with laissez-faire policies and seriously restrained the role of the state. These economic policies were to embark on more concerted programs of import substitution and Malay economic development in the rural area.

Import substitution offered infrastructure and credit facilities as well as tariff protection to both foreign and domestic investors. However since the technological base for domestic companies was rather small and the government viewed the foreign investment as crucial players, it led to preserving the foreigners' role and market in Malaysian economy. This left many Malays and ethnic Chinese relatively little space to participate. Still some ethnic Chinese were able to make impressive gains in the 1960s by taking the advantage of the collaboration with foreig firms who had favorable position. Inevitably the development of domestic Malay capital in the 1960s was very small and the Chinese were still perceived as the chief beneficiaries of post-independent economic development.

The problem with the developmental plans was that they didn't involve redistribution of land or capital and never considered the backwardness of the Malay economy and lack Malay desires to expand their economic power. Thus to Malay nationslists, government's effort was seen as no more than modest and restrained.

As Malay frustration increased over insignificant changes in ethnic ownership patterns, culminating in the May 1969 riots, the government was forced to implement the New Economic Policy (NEP) once new generation Malay nationalists came into power. The goals were not entirely different from the ones before 1969 but the approach was different from the pre-1969 plans. The main component of NEP was the vast expansion of the state enterprise and institutions, and the attempt to rear Malay capitalists through interventionist redistribution. State enterprises worked as the vanguard of state capitalism, and development banks and state agencies were established to make selective funds and licensing available for Malay entrepreneurship.

However not surprisingly this was costly and there was little actual net increase in production and employment. Still Malay leaders were prepared to pay a high economic cost to build up Malay assets and economic participation through state programs because there was already a strong ethnic politicization of the NEP. Instead of inducing Chinese capital participation, the government relied heavily on domestic taxation and foreign debt to promote industrialization. In reality as in import substitution, domestic capitalists had few opportunities to benefit from export-oriented industries which government promoted. Foreign firms continued to dominate these industries with their control over technology. So the actual leverage of Malay success largely depended on the government's administrative powers to sustain the extreme protectionism on behalf of the Malay business.

While the NEP was perceived to be primarily redistributive, economic growth had largely been taken for granted. The earlier formations had clearly spelled out assumptions of high growth rates needed to realize the NEP's redistributive goals. But because of the pre-1969 policies with relatively little regard for redistribution, earlier emphasis of NEP on economic growth and expansion was deliberately silenced as politically it could imply stimulating private investments and giving the Chinese leverage to catch up with the Malays in domestic markets.

?Liberalization and Economic Growth

Overshadowed during the commodity price boom since the mid-1970s and thus gaining relatively high growth rate, the state enlarged and over-burdened with foreign debt and inefficiency didn't feel the importance of providing economic growth. In 1985-1986, severe recession followed. Decline in commodity-oil, tin, rubber, cocoa and palm oil-prices registered into the economy as a shocking -1 percent growth rate in 1985 and following discontent and instability of the growing middle class. The recession led to a dramatic turning point in government policies and its perception. Growth, industrialization, deregulation, privatization, and increased foreign investment incentives became key initiatives again by the new Prime Minister Mahathir, giving NEP a new direction in 'Growth with redistribution'. For the ethnic Chinese, this meant not only relaxation on rigidly implemented NEP regulations and more room for participation in private sector, but also opportunities to invest in Malaysia.

In domestic politics this new growth opportunity in Malaysia had helped to bring out a system of patronage between Chinese entrepreneurs and Malay bureaucrat elites. Later this patronage expanded into the national scale involving Malays and becoming the only way to be rich. Thus despite the rapid growth of large Malaysian middle class and upper-middle class in the latter part of NEP, there was more authoritarianism in the government then before, justifying the ethnic harmony through redistribution and continuos economic growth.

Despite Prime Minister Mahathir's strong criticism of earlier policy-makers before 1969 and authoritarianism over domestic politics, his position in domestic economic policies stands as little different from his predecessors. His ambiguous position on ethnic redistribution and economic growth persists. This position probably allows the ethnic Chinese capitalists in Malaysia to expand into foreign market and operations in their traditional strategy.

3. Development of Kuok Group (1950-1990)

Kuok Group is the largest ethnic Chinese business group in Malaysia and an internationally renowned Chinese transnational corporation in Asia to have emerged in the post-independent Malaysia. Robert Kuok's father, an immigrant from Foochow came to Johore Baru in 1909 and established Tong Seng Company in wholesaling and retailing rice, sugar and flour. The Kuok sons took it over in 1949 as Kuok Brothers Company. It mainly dealt in rice and sugar trade. Since then it has grown from a small family firm into a family-run transnational conglomerate, with total net worth amount to more than US$5 billion. Among them, assets in Hong Kong and China are worth US $3.2 billion and in Malaysia and Singapore worth US $700 million, and rest scattered in Thailand, Indonesia, Philippines, Australia, Canada, Africa, Chile, France, Germany and Mexico.

Until the early 1970s most of Kuok Group's business activities were concentrated in Malaysia in sugar industry. The group began to venture into Singapore and settled down in Hong Kong in 1974, diversifying into hotel industry, property development, shipping and mass media, in an incredibly speed, by the time of 80s finally into China market. Kuok Group's development of business operation has been a fast track continual expansion in spaces of geography and economic activities, often taking on new high-risk opportunities as they move in the region.

Kuok Group's development shows distinctive geographical pattern in their activites. The group's operations can be categorized into three different 'poles' from which they maintain and expand each operation. Malaysia, Singapore and Hong Kong; these three 'poles' have their own separate period of main development as well.

Centered on Malaysia is the sugar industry, which still comprises 40 % of total operation. Kuok Brothers (Malaysia) owns sugar plantations and refineries in Malaysia, Thailand, Indonesia and Chile. Especially in Malaysia, about 20,000 hectares of sugar plantations are owned by the Kuoks including those of Perlis Plantations, which was incorporated in 1968. They also control 4 sugar refineries that produce about 80% of sugar in Malaysia.

The important thing to notice is that now Perlis Plantations are not limited to sugar operations. It also functions as an investment holding to integrate other operations in Malaysia. This company's growth is expressed in the increase in its assets and dealings, from just RM 500 million in 1984 to RM 3 billion in 1993 and RM 300 million in 1984 to RM 6 billion in 1995. Throughout 70s and 80s, merger exercises were often taken to bring most of Kuok's unrelated loosely knit Malaysian companies including Federal Flour Mills, and Shangri-La Hotels.

In Singapore and in Hong Kong, they built their first international trading and shipping industries. The Kuoks established international trading companies in these countries as they began to invest. Besides the trading and property development, now the products they manage are diverse but tend to focus on grain, oil, food and sugar. Kerry Trading (Hong Kong) possesses 30% of Sucden Kerry International (France), which controls 60% of world sugar market. To coordinate with their international trading, Kuok Group also own shipping companies in Malaysia, Singapore and Hong Kong. Pacific Carriers (Singapore) and Kerry Shipping are both prominent shipping companies in Southeast Asia. Pacific Carriers was established in the early 70s and since then its operations have developed into various areas of shipping industry including management and investment holdings. Its own capital S$ 200 million is distributed among Singapore, Malaysia, Hong Kong, United Kingdom and Canada, and has developed into its own transnational corporation with 36 of its own companies. The largest shareholder is Kuok Group with 36.64%.

Hotel, property development and mass media are the core business of the Kuok Group today in Hong Kong. There are more than thirty Shangri-La International hotels around the Asia Pacific, of which bulk is managed by Shangri-La (Asia) in Hong Kong. In addition to hotels, though not primarily a property developer, Kerry Group (Hong Kong) has made huge investments in beachfront in Penang, World Trade Centers in Beijing and Shanghai, shopping malls apartment buildings in Singapore and Shanghai, office towers in Manila and Beijing, luxury apartment buildings in Hong Kong.

The Kuoks first invested in mass media and entertainment in the 70s. However it was only from the mid 1980s that they began investing heavily in cinemas, television and newspapers. In 1987 they joint-ventured in establishing Golden Communication which manage about 70 movie theaters in Malaysia. In 1993 Kerry Group (Hong Kong) bought 34.9% share of South China Morning Post in order to control the newspaper and shares in TVB (Hong Kong) with Run Run Shaw.

In addition to geographical moves, another characteristic in the expansion of Kuok Group, can be noticed in the Group's preference for business linkages or networks. This characteristic is known as Robert Kuok's essential practice that resembles a trader's approach to business. The Group initially expands into new markets through either making business deals with state capital or ties with other Chinese capitalists. When in new markets, not to mention plantations, manufacturing or shipping industry, Kuok Group often makes joint-ventures with state companies or other prominent Chinese capitalists in that country. The strategies of joint-venture and joint-investment is a common risk-reducing strategy among ethnic Chinese, a historical tactic developed in societies where anti-Chinese sentiment is usually very pervasive in the political environment, and economic institution is poorly developed. The principal idea is to utilize the solidarity of the network of few prominent players to reduce the risks and reduce the transaction costs of moving into a new market. Repetition of joint activities fosters understanding and trust, and in the long term reduces risks.

The group's first breakthrough in the sugar industry and shipping in Malaysia was with sugar plantations and refineries or shipping companies in joint-venture with state-run companies. In China, same investment pattern can still be witnessed with China's state companies investing in parts of the group's new activities. In Indonesia, joint investment with Salim Group's PT Gunung Madu gave the Kuoks the exclusive rights to develop 100,000 hectares of land for sugar plantations. Sugar refineries in Indonesia produce about 10% of Indonesian total output. At present Kuok Group has flour mills with Salim Group in both Malaysia and Indonesia controlling half of Malaysia's flour business. In all of Southeast Asia including China, the Kuoks own plantations and refineries for vegetable oil, wood, and food with Salim Group, which Kuok Group purchases with their own trading companies and transports using their own ships. Salim Group also owns 15% shares in Shangri-La hotel (Hong Kong).

Thailand's Bangkok Bank continues to be one of the biggest sources of source of venture capital for the Kuok Group. The group's business relationship fostered during international sugar trading with the bank's founder Chin Sophonpanich continues down to Chin's son, Chatri, as he becomes a joint-venture partner in the Shangri-La hotel (Bangkok).

?Ascendancy in Kuok Group

Originally from Foochow, Kuok family business in their host country (Malaysia) was confronted with new challenges and opportunities after the independence in 1957. Their cultural identity as Chinese immigrants and the new political and economic environment in the decolonization Malaysia compelled Kuoks to redefine their strategy in adapting to the wake of new opportunities that rose from development policies of the government. For Robert Kuok, it meant the only way they knew that would allow them to build up a trading base for their group and continue the diversification and dispersion in terms of their activities and products.

As new economic opportunities appeared in the decolonization process, independent Malaysian government's main policy was to encourage diversification of industries to create less dependence on rubber and tin, and give private sectors incentives to increase productivity and employment. Malaysian Industrial Policy formed with the help of International Bank of Reconstruction and Development was designed by the government to create favorable investment environment mainly for foreign private investors. Enactment of the Pioneer Industries Ordinance (1958) was designed to give incentives to foreign and local investment. In 1963 the Malaysian Tariff Advisory Board was established to protect the virgin industries against foreign export. In order to increase productivity government introduced legal provisions such as Industrial Relations Act (1967), the Investment Incentives Act (1968) and Free Trade Zones. These laws offered wide range of tax exemption and tariff protection, which also helped to secure British capital in the country.

With their ties with Malay leaders formed earlier from their father's generation, Robert Kuok used this chance to secure many of the lucrative economic concessions from the government for their sugar refinery and trading. In 1959 they were able to establish Malayan Sugar Manufacturing Company with joint-ventures in capital and technical assistance with the government and two Japanese partners Nissin Sugar Manufacturing and Mitsui Bussan Kaisha. In 1962 Federal Flour Mills was incorporated in addition to the sugar as a part of government's import substitute policy.

At the same time the group realized political and economic field was open for non-British companies to capture markets previously dominated by British trading houses. Government helped local companies to buy backe British trading firms and plantations at the market price. Robert Kuok went to London to familiarize himself with the London Commodities Exchange in the early 50s and bought a trading agency Rickwood & Company (later Kuok Brothers Singapore). They used it as a trading foothold in Singapore to penetrate into international trading activities.

For a decade Kuok Group was able to secure and vertically integrate the sugar operations in Malaysia and in other parts of Southeast Asia, of which pinnacle was the incorporating of Perlis Plantations in 1968 to handle sugar-cane cultivation to sugar refining and distribution, earning Robert Kuok the name 'Sugar King' and laying down the core family business of Kuok Brothers as sugar and flour.

However instead of establishing itself in the export manufacturing area in Malaysia under the liberal atmosphere created by government, Kuok Brothers began, long before the state's intervention, to divert a major portion of their new investments to foreign locations using Singapore as a new 'pole' rapidly expanding into property development and hotel industry.

Growing tourism in Singapore and acquisition of prime property at attractive price using old school boy network, Kuok Group built hotel chains of international standard starting from Shangri-La (Singapore) in the late 60s and in Penang and Kuala Lumpur, and gradually in offshore areas to Bangkok, Jakarta and Hong Kong. They opened up a second headquarter in Singapore same time as Shangri-La Hotel was established in 1971.

At this time he was also actively involved in international sugar trading already forging alliance with Indonesia's Salim Group run by Liem Sioe Liong, and Thai sugar producers and refiners. Later this partnership in Thai sugar mills also became their partnership in Shangri-La Hotel (Bangkok), and Salim Group became their partner in Shangri-La (Jakarta) and Shangri-La (Hong Kong), and sugar plantations, mills and refineries in Southern Sumatra, thus regionalizing the operations.

From the early independent period, Kuok Group has been relying on Malay patronage in their economic activities, with the company equities distributed to these elite groups in return. Robert Kuok was also appointed to the boards of state-owned enterprises and agencies such as Malayan-Singapore Airline, Malaysian International Shipping Corporation (1968-1979). Kuoks invested their own capital and enjoyed the shipping business. His rare expertise in business put him as a board member of Bank Bumiputra (before the full implementation of NEP).The group seized every opportunity to get involved in the Malaysian economy.

?Malaysia's Ethnic policies and expedited expansion to Hong Kong

Inter-ethnic violence that erupted in 13 May 1969 confirmed the discontent and ethnic tensions that have been accumulating through Malaysian government's policies. It was fairly clear that despite relatively high economic growth and low inflation after the independence, income inequalities apparently increased while import substituting industrialization failed to reduce unemployment. The second Bumiputra Economic Congress organized in 1968 reflected the dissatisfaction of the new Malay middle class and Malay bureaucrats with ethnically accommodative policies of Tunku Abdul Rahman. To achieve restructuring of Malaysian economy, government passed the 1973 Industrial Coordination Act, which required non-Malay businesses to allow 30% equity participation for Malay shareholders. At the same time numerous state agencies and enterprises were established to conduct business and acquire economic assets on behalf of Malays.

Even before 1971 when the state's intervention policy was implemented, Kuok Group was already getting ready to move their operations to Hong Kong. However it is fair to say when state intervention through New Economic Policy (NEP) expedited the diversification process of Kuok Group using Hong Kong as a new 'pole' to penetrate into new markets. Since government was only interested in domestic redistribution of wealth and income, had little object in Kuoks as they were not in direct competition with the state companies.

While Singapore's status as a free port and entrepot initially served Kuok's needs before the 70s, they felt increasingly constrained by interventionist role of Singapore government to achieve economic development through state companies and foreign multinationals. Hong Kong had the lowest corporate taxation rates in the region as well as no taxation of offshore operations of locally incorporated companies.

So was natural they found Hong Kong as a new ideal headquarters. Hong Kong had the most laissez-fair policies in Asia and it was a proximity to China, which just had begun to reestablish its relations with United States in 1972 and with Malaysia in 1974 and showed great potential as a future market. Kuok Group found strategies that will both tap into China market and safeguard Malaysian base.

Some of the reasons the Kuoks decided to move out into their new Hong Kong headquarters are reveled in some of the interviews they later made. First, is not hard to see that over-regulation had made Kuok Group very critical of government's policies. Second reason is the high taxation in Malaysia in the beginning of NEP to fund the state expenditure. Third, opening up of communist China to capitalist countries in the early 70s that Kuok Group saw as a new potential market and Hong Kong to work as a gate way to it.

However we must remember that it was also easier for Kuok Group to move its headquarters because of the development structure of its business, which was based on international trading. Especially for Kuok Group, which already had international connection established through the sugar trading, and the way they expanded, it relied very little on Malaysian government to promote their penetration into a new market.

In 1970s Kuok Group established Kerry Trading (Hong Kong), a foothold in Hong Kong and gradually expanding into Southeast Asia and penetrating indirectly into China. Using Kuok Brothers (Malaysia/Singapore) as one 'pole' and Kerry Group (Hong Kong) as a new outreach 'pole' they developed into a transnational corporation.

?Diversification from each 'pole'

At home in Malaysia, as Kuok Brothers was expanding their capacity of traditional product, sugar abroad, they also integrated Malayan Sugar Manufacturing Company and all principal aspects of sugar industry including growing, milling, refining and distribution under the control of Perlis Plantations. Throughout 70s and 80s, similar merger exercises were often taken to bring most of Kuok's loosely knit Malaysian companies including Federal Flour Mills, Shangri-La Hotels (Malaysia) under one company. In addition to integration of sugar operations, Kuok Brothers also diversified in Malaysia/Singapore operations, acquiring Jerneh Insurance, Cathay Cinemas, Golden Communications, GB holdings. But its scale of diversification was very small compared to Hong Kong.

Meanwhile Malaysian operations were integrated under Perlis Plantations, their new headquarter in Kerry Group (Hong Kong) was also engaged in their new expansion in their modern service sector and integrating vertically as time passed. Their Shangri-La Hotel chains continued expansion into Hong Kong, Malaysia, Thailand, China, Philippines, Indonesia and Canada. They also participated extensively in electronic and publishing media, property development, manufacturing and trading.

In 1993 Kuoks through Kerry Group acquired 35 % share in the South China Morning Post. In addition they also bought large shares of TVB in Hong Kong through joint investment with another ethnic Chinese Run Run Shaw of Hong Kong.

?China as a new potential market

In 1991 Kuok's Kerry Properties moved into the building of Bank of China in Hong Kong. The main reason for this was to forge a better relationship with China and reinstating the fact that Kuok Group takes China as their new 'pole' of diversification and expansion.

In the early 80s when Hong Kong's economy was hit by recession, Kuok Group again took serious risks and initiatives to start working with Chinese state-enterprises to invest in China. He invested in building of Beijing World Trade Center (1984) and also developed Shanghai Shangri-La Hotel chains in various cities in China.

Just as they first used Singapore as a pole for their base as an international trading for their commodity product Kuok Group used Hong Kong as a gate way to gain access to China's market establishing their operations in a very similar pattern of growth. They expanded their traditional industry taking forms of exactly the same traditional procedure as they did with sugar trading. They employed sugar-trading network with other ethnic Chinese in Thailand, Philippines, Indonesia and Cuba to meet the market demands in China. In his capacity as a major supplier of sugar to the Chinese government, Kuoks established connection with Chinese State officials, and laid down the foundation for his subsequent expansion and diversification of business operations in China.

In 1984 Kerry Group was contracted to build World Trade Center in Beijing. Kuok Group's successful operations in Hong Kong as a gateway to China allowed Kuoks to transfer itself from a family firm into a family-run conglomerate.

4 Conclusion

For Malaysian government, political burden and economic cost of the state in carrying out interventionist policies were not apparently felt during the booming years of commodity prices in the seventies. However when the global recession and the fall of commodity prices in the mid-eighties exposed the potential insecurity that existed in such a restraint policies, State's political mission to redistribute wealth according to ethnic line had overshadowed the imperative need to keep the economic growth.

Malaysian state's state apparatus to realize ethnic equality between the Chinese and Malays compels it to fluctuate in terms of policies to redistribute wealth and keep the high economic growth. In the 60s growth was the focus of their policies while in the 70s redistribution was the focus and again in the 80's more attentions was given to the growth rather than the redistribution.

In such a swing back mood of state policies, large ethnic Chinese corporations such as Kuok Group take advantages of deregulation as incentives for active business activities, but at the same time builds up strong transnational strategies of diversification and expansion without government's domestic interference. There is still little incentive for Kuok Group to reinvest heavily in Malaysia, but they still have large amount of operations in Malaysia though they are not the core. Their tendency to diversify had already made Malaysia a part of Kuok Groups business empire.

For Kuok Group, finding strategy to secure their diversification and expansion into international market comes from their strong tendency to form business linkages. Kuoks who had started their business in sugar trading, found it easier to forge business connections with other ethnic Chinese and prominent politicians to diversify their business interests into property development, media industry and hotel business throughout Southeast Asian and China. Thus their informal system of partnership network was already well formed by the end of 1960s, and Malaysia's Malay nationalism and New Economic Policy (NEP) was a factor that local level politics provided for Kuok Group readily take off on their operations based on Hong Kong.

night sky

By Janghyo Andrea Koo

I Was Just Thinking

By Janghyo Andrea Koo