Debunking the Myths of Chinese Capitalism

Family business will never go out of business. That is the conclusion of Associate Professor Henry Yeung Wai-chung after more than 10 years of research into how the family business operates, in particular, the Chinese family business.

Family business will never go out of business. Associate Professor Henry Yeung Wai-chung from the Department of Geography has put in more than 10 years of research into how the family business operates, in particular, the Chinese family business. And his conclusion is that it is here to stay.

Associate Professor Yeung's research interests cover the geography of transnational corporations, Asian firms and their overseas operations and Chinese business networks in the Asia-Pacific region. He was awarded the Commonwealth Fellowship and the Fulbright Foreign Research Award (2002-2003) to spend his sabbatical leave at the University of Manchester, UK and the University of Washington at Seattle, US.

Like many family businesses throughout the world, companies run by ethnic Chinese have undergone radical transformation in the global era. Contrary to perception of many scholars, Chinese capitalism is not static. Ethnic Chinese and their firms are no longer hierarchically organised. The participation of these firms and players in the wider organisation process has led to fundamental changes in their operations. But Associate Professor Yeung admitted that like everybody else, he started with the concept that these companies are characterised mainly by cronyism and nepotism.

He wrote in the preface of his recently-published book, Chinese Capitalism in a Global Era: "I began my research and writing on Chinese capitalism as a half-baked 'culturalist' who quite believed in the intrinsic importance of guanxi or social relationships in explaining the economic organisation of Chinese capitalism. I saw these cultural traits as shaping the behaviour and activities of ethnic Chinese firms, whether they are large or small, in manufacturing or service industries"

His subsequent change in perception and his continued interest in the Chinese family business have resulted in the book which examines the dynamic ways in which millions of ethnic Chinese in East and Southeast Asia economies organise their business activities. Challenging the conventional notion of Chinese capitalism as "crony capitalism" he analyses how Chinese capitalism has changed under conditions of contemporary globalisation and anticipates what the future holds for it.

He has researched Chinese firms in Singapore, Hong Kong, China and Taiwan, including some in Malaysia and Indonesia which have operations in Hong Kong. In Singapore, some of the very large business concerns included Eu Yan Sang Holdings Ltd, the Hiap Moh Printing businesses well as the Pacific International Line. He had interviewed the bosses from some 150 large family businesses in Hong Kong alone, tracking these companies through more than 10 years of changes.

"The economic crisis of the late 90s wiped out those businesses which did not want to change. But the impetus to globalise comes from the hunger for further growth," said Associate Professor Yeung.

The transformation spurred on by globalisation, in turn, led to these firms shaping the Asian economy in a major way. In Chinese Capitalism in a Global Era, he wrote that "the sheer diversity and prowess of economic activities controlled and coordinated by these ethnic Chinese have enabled some of them to become the very foundations of the Asian economies in which they primarily reside and operate."

He cited the example of Hong Kong-based tycoon, Li Ka-shing, whose empire controlled about 16 per cent of Hong Kong's stock exchange index in 1998, caused the index to fall by 1.6 per cent on 23 December 1998 with his remarks about the unfriendly business environment in Hong Kong.

In another example, Wee Cho Yaw, the second-generation banker from Singapore and his family-controlled United Overseas Bank succeeded in taking over the fourth-largest Singapore bank (Overseas Union Bank) on 26 October 2001. After the acquisition, the Wee family held controlling stakes in at least 14 public companies listed on the Singapore Exchange. UOB became the largest bank in Singapore, with an international network comprising 273 offices in 18 countries in the Asia-Pacific region, Western Europe and North America.

Ethnic Chinese players pick up new organisational knowledge and practices in non-Asian host countries through transnational operations - through intensive interaction with customers and suppliers in the host countries or from their previous employment in foreign firms. The networks are formed between ethnic Chinese players and their customers, suppliers and competitors on a global scale, facilitating interpersonal information and knowledge flows and organisational adaptations.

Said Associate Professor Yeung: "Chinese businesses are no longer 'ruled' by only members from within the family. In fact, family members may be sent far and wide to graduate from significant schools overseas and eventually ending up in major companies before returning to work for their family. Leading positions in their firms are not held exclusively by family members or Chinese."

Hong Kong tycoon Li Ka-shing for example, has a track record for appointing non-Asian managers to top executive positions in his flagship company, Hutchison Whampoa. Two former managing directors of Hutchison Whampoa were British expatriates.

Associate Professor Yeung sees Chinese capitalism today as "hybridised". While not losing its cultural roots and values totally, Chinese businesses have adopted international standards of corporate governance and technologies.

"People see the family business as something that's disappearing and not sustainable. But just look at the listing of public companies in Fortune 500, one third of these are family business!" said Associate Professor Yeung.

Please visit Associate Professor Yeung's website for more research materials on the Chinese family business.