The New Yankee Traders
Henry Y. Hwang may be a small fish back home in Los Angeles, but in Beijing he has his run of the pond.
Hwang is chairman and president of tiny Far East National Bank, in downtown Los Angeles. Over the past few years, however, Hwang has been quietly wheeling and dealing like a big-time financier, arranging contracts from businesses and government bureaus in China -- contracts that could be worth hundreds of millions of dollars to his bank, his associates, and his bank's clients. Many of those contracts would have gone to someone else, or not been let at all, if Hwang were not Chinese-American.
With their cultural, linguistic, and family ties to China, Chinese-American entrepreneurs like Hwang are proving to be America's secret weapon in recapturing a predominant economic role in the world's most populous nation. "We want America to be number one in China," says the 57-year-old Hwang, who fled his native Shanghai just as the Communists were preparing to take the city in 1948." And with our special relationship, we can get it there."
In an earlier era, American clipper ships crammed the harbor of nineteenth-century Shanghai, and the China trade was responsible for countless fortunes, including those of John Hancock, John Jacob Astor, and R. H. Macy. Similar fortunes are waiting to be made today. Determined to improve the quality of life for its 1 billion people, China has embarked on a massive industrial-modernization drive that has led to the purchase of some $2.5 billion worth of U.S. goods in the first eight months of 1985, up from about $500 million in 1978. And even at that, the potential for trade has barely been tapped.
It's not that China is simply a big country, although it certainly is that. Its economy is also growing at a fantastic rate. In just the first eight months of last year, China's gross national product grew nearly 25%, an amount roughly equal to the total annual economic output of the wunderkind of the Orient, South Korea. And even with government attempts to slow down an overheated economy, industrial growth is expected to top 15% to 20% during the next two years.
Chinese-Americans are already playing a major role in this startling modernization drive, building hotels and apartment complexes, developing a service sector, and selling industrial equipment and high technology. More often, they win these opportunities by beating out bigger, better-financed U.S. trading companies that specialize in helping smaller firms find business overseas. The difference probably has a lot to do with what the Chinese call guanxi, or influence obtained through family or friends -- something that often packs more punch in family-oriented China than corporate pedigrees or M.B.A.s.
Fred Spieler, until recently a consultant to San Francisco's giant Crocker National Bank and its sister trading company, says he felt at a disadvantage in China without an ethnic connection. Most of the big American trading companies, Spieler says, are too timid and bureaucratic to be successful in dealing with the Chinese. He tells the story of an American customer that lost out on a contract to build a $25-million aluminum-foil plant, despite its low bid. One plausible explanation: Spieler says that a British competitor had hired the services of a Chinese-American middleman.
Similarly, Hwang gives credit to a distant cousin for providing him with the vital contacts that led to agreements in which Far East will be the lead bank for a $100-million hotel project in Shanghai. In addition, Far East International Trading Co., a separate entity of which Hwang's is chairman, is in a joint venture with a Santa Monica, Calif., architectural and development firm to handle the design and construction.
Hwang has business in Beijing as well. Far East National has been named the lead bank for a new $150-million shopping and office complex that will serve as national headquarters for the government's Friendship Stores, which cater to China's growing tourist trade. And at China's Ministry of Education, Hwang signed a letter of intent to handle the financing of a $70-millioin order for electronic-education facilities for Chinese schools. He sealed the deal even before he had the suppliers to fill it.
Although the Chinese have an advantage over their fellow Americans, they still have plenty of competition for the China trade. Ever since China opened wide its doors to the West in 1979, the Japanese have targeted the Middle Kingdom with the same perseverance that has marked their drive for American markets. The streets of such major Chinese cities as Guangzou and Beijing are clogged with Japanese cars, while even the most modest Chinese dwellings are stocked with Japanese-made radios, televisions, and even videocassette recorders. Far outpacing their American rivals, Japanese traders exported almost $10 billion worth of products to China in the first nine months of 1985, more than three times the pace of American exports.
"When we come to China, we are shocked to find all those Japanese goods," says Hwang, whose earliest boyhood memories include having to bow before Japanese soldiers guarding bridges in Shanghai."We tell them they are crazy doing business with Japan instead of America. The Japanese killed 20 million Chinese in the war, and now they want to dominate them economically. I think we are beginning to convince them."
Not that the Chinese need much convincing. As Hwang suggests, the wounds from Japan's brutal invasion during World War II have barely healed. A visit last summer by Japan's Prime Minister Nakasone to a shrine for Japanese soldiers killed during the war engendered large student demonstrations. And in the weeks that followed, government-controlled Chinese television showed a program about Chinese resistance to the wartime occupation that painted the Japanese in a light so harsh that it might well have embarrassed John Wayne.
But beyond memories of past abuses, many Chinese also resent the Japanese companies for purely economic reasons. In China, as well as in much of the rest of Asia, Japanese companies are widely accused of the crudest economic imperialism, essentially refusing to share technology while flooding local markets with Japanese-made consumer products. Complains Zeng Xiao-ming, manager/engineer at Beijing Chang Feng Industry Corp., "The goal [of the Japanese] seems to be to keep us backward and buying."
Although these products clearly have boosted China's standard of living, industry officials such as Zeng fear that Japan's one-way approach to trade is draining off vital foreign exchange, which dropped from about $16 billion in September 1984 to about $11 billion a year ago. China's trade deficit with Japan during the first eight months of last year was nearly $4 billion, dramatically more than the record $1.3-billion deficit of 1984.
But, as in Europe and the United States, Japan's business methods are now engendering a backlash in China. Last fall, for instance, the Communist Party imposed new taxes on purchases of such consumer goods as cars and televisions, which have provided the bulk of Japanese sales. And greater emphasis has been put on importing vital technology and machinery that will help China to manufacture its own consumer goods, create skilled factory jobs for a burgeoning urban population, and propel China toward its goal of becoming a full-fledged, modern industrial state.
"When we started opening up to the outside world, we were very naive and bought a lot of things that didn't really help us," notes Tang Junde, deputy secretary-general of the China Science & Technology Exchange Center. "Sometimes the goods were inferior, and when we turned to the Japanese to ask them how to make things ourselves, they were very reluctant. We need to find partners who will bring us practical technology that can help us go forward."
In their search for such "partners," Tang and other top government officials are counting heavily on assistance from overseas Chinese, particularly those from the million-strong community in the United States. Chinese-Americans are greatly admired throughout China for their high level of prosperity and achievement. And though they don't necessarily share their capitalist orientation, Chinese Communist Party functionaries believe that members of their race's far-flung diaspora will prove more considerate of their nation's long-term needs than other "foreigners," most notably the Japanese.
Among the Americans most admired by the Chinese is An Wang, whose computer company has established a major presence in China. Last year, Wang Laboratories Inc. signed a joint-venture agreement with the Chinese government to produce up to $150 million a year in computer products in factories to be located in Beijing, Shanghai, and Xiamen. The deal was negotiated by a team headed by Chauncey Chu, a Chinese-American who is manufacturing vice-president at Wang.
"Chinese people are enormously proud of what Chinese-Americans have done. We feel a special bond of understanding and sympathy with them," says Tang. "We know that, no matter what the problems, they are committed to China."
In an attempt to further develop these links, Tang agreed last fall to sponsor a technology trade fair with the Asian American Manufacturers Association, a Silicon Valley-based coalition of some 200 technology entrepreneurs, almost all of Chinese descent. Scheduled for late May in Beijing, the conference will expose Chinese-American entrepreneurs to potential Chinese customers and present special seminars for Chinese managers and technicians.
For many of those who travel to the fair in Beijing, the return to China will represent the end of personal odysseys that began with the flight from the very regime that now beckons them home. Joe Wu left his native Guangzou in 1945 as Mao was just coming to power, and his experience is somewhat typical. After receiving an undergraduate education at Purdue University and a master's degree in engineering from the Illinois Institute of Technology, Wu worked for Motorola, Philco-Ford, and Cushman Electronics. In 1970, he set up his own company, TFT Inc., a Santa Clara, Calif., manufacturer of sophisticated communications equipment, which last year boasted sales close to $5 million.
"I thought I'd be the least likely guy ever to come back here," says the 52-year-old Wu, taking a break between negotiations with his Chinese partners. But this country is changing. They really want the Chinese overseas capitalists to come help. Maybe they are realizing that Communism doesn't work."
But typically, it was old-fashioned guanxi, not ideology or latent patriotism, that brought Joe Wu and TFT to China. TFT's entrance into China has its origins back in 1984 when Jiang Wen-zhao, economic adviser to the northern Chinese province of Hebei, contacted a friend living in the San Francisco Bay area about a local radio plant that needed modern test equipment. As it turned out, the friend, Lester Lee, president of Recortec Inc., a Sunnyvale, Calif., maker of recording equipment, had known Wu for 25 years. He knew that Wu's company manufactured exactly the sort of equipment needed by the Chinese factory. Lee promptly introduced Wu to Jiang, who then set up the meeting with Yang Zhen-sheng, director of Hebei's Zhang Jia Kou Number One Radio Factory.
Making the connection is but one part of doing business in China, however. Over the 18 months since his initial contact with Yang, Wu shuttled back and forth to China, trying to cement the deal. Although the factory manager desperately wanted to purchase TFT's equipment, there has been an endless series of frustrations in dealing with a business environment no American would call modern or efficient. Telephones, for one, frequently don't work, even within Beijing.Hotel accommodations, despite a spree of new construction, are more often second rate or downright seedy, and even the sorriest rooms are not available without advance booking. When an American finally sits down to do business with a Chinese customer, discussions are often prolonged by lifestyles reminiscent of another epoch, including long and somewhat elaborate breaks for the noontime meal. Want to work into the evening and grab a late dinner on the way back to the hotel? That's not very likely: most restaurants close around 8 p.m.
Perhaps most frustrating, Wu had to guide his proposal through the vast Chinese bureaucracy, which, despite all the hype about China's move toward capitalism, still retains the final say on almost every major business decision. Largely because of policy shifts within the bureaucracy, Wu had to settle for a $500,000 order, which was half of the originally agreed-upon sum.
"You have to totally reacclimate yourself to a different state of mind here," Wu said stoically in his run-down, out-of-the way Beijing hotel after completing his deal. "More than anything else, you have to concentrate on gaining their confidence, sitting down to eat with them, becoming friends. Decisions are made by committee and on a lot of levels. You have to make each person you meet feel involved and important. It sounds like a pain, and it cuts into your profits in the short run. But the potential is too great to let it get in your way."
Patience is a virtue long practiced by the Chinese. But it takes more than patience to win their business. Like anywhere else, the contract eventually goes to the supplier that provides the right products at reasonable prices. Those who hope to be real players with the new China, notes Wing F. Chung, a co-founded of Action Computer Enterprise Inc., in Pasadena, Calif., must be willing to tailor their marketing and their product lines to the specific demands of China's drive toward industrial modernization.
In some instances, this means not necessarily selling the advanced and expensive products, but those with a technology suited to the Chinese business and cultural environment. Both Japanese and American computer companies have sold millions of dollars' worth of equipment that their Chinese customers have later found are too delicate, too difficult to program, or simply too complex for local needs. Chung tells the story of the large trading company in Shanghai that bought an expensive mainframe only to find that it took two years to get it running.
"One-third of the computers in China today can't even be used. Most of them are in the closet," notes Chen Hong-bo, an Action customer and director of Guangdong Foreign Trade Corp. Computer Center. "We are still a backward country that needs to acculturate itself to technology. For us, sometimes the simpler and easiest-to-learn systems are better than what you may think is state of the art. We care more about things like support and whether we can train people on the machines than impressing anyone."
Action has developed a low-cost multi-processing microcomputer that is rugged, inexpensive, and easy to operate -- virtues in a country where air-conditioning (other than in tourist hotels) is still rare and sophisticated programming skills hard to come by. And with a large staff of native Chinese and Chinese-American programmers and service representatives working out of the company's Hong Kong offices, Action provides convenient support to its numerous customers throughout the vast Chinese mainland.
This tailoring of products to local needs, and with it the investment in long-term service to Chinese clients, has paid off handsomely for Action. Since opening up on the mainland in 1979, Action's China trade has blossomed to such an extent that it now accounts for 30% of its $5 million in annual sales. And with China just beginning to introduce the computer into its society, Chung expects it to become his largest market for years to come.
Chung's Action Computer may be a unique situation, but an example that is instructive nonetheless: China is an incredible opportunity for America to reverse its trade imbalance with the Orient, presenting small-business people, especially those of Chinese heritage, with an opportunity that has only just been tapped. "You look at the poverty, the backwardness, the bureaucracy, and maybe you want to give up," says Henry Y. Hwang. "But China has produced the greatest empire the world has ever seen, and it's coming back. To get in on that -- hell, that's an opportunity no Yankee trader can ignore."