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The New Asia

From Hong Kong to Jakarta, only the geography remains the same.
August 1, 1997

Above photo: Herbert G. Klein ’40, a former director of communications in the White House who traveled to China with Richard M. Nixon in the 1950s, returned to Asia this spring with a delegation of USC trustees. This article, excerpted from a multi-part series that originally appeared in the San Diego Union-Tribune, is a reflection on the changes he saw.

Story by Herbert G. Klein
Originally published in USC Trojan Family Magazine (Autumn 1997)

When I first flew into the British Crown Colony of Hong Kong in 1950, the airport was mainly what was left of a World War II Japanese air base with a steep hill at both ends of the short runway. Even the Pan Am Clipper pilots feared the landing.

British troops were poised at the ready on one end of the territory’s Kowloon Peninsula. From a nearby hill we could see Chinese communist soldiers across the border in the same tense pose. Fighter planes of Chiang Kai Shek’s Nationalist air force patrolled the skies ready to shoot down any communist challengers.

Hong Kong in 1950 was a bargain-hunter’s paradise and a notable center of international intrigue and espionage. Gen. Claire Chenault of Flying Tigers fame resided with his bride Anna at the Peninsula Hotel, then one of Hong Kong’s few first-class establishments. I interviewed him there.

A ramshackle rail line from Hong Kong to Canton served the then-modest trade between the colony and mainland China. Chinese and British crews exchanged control at the border.

Fast forward to 1997. Everything but the geography here has changed, dramatically.

The rail connection to the mainland is now state-of-the-art modern, carrying thousands of passengers. Speedy hydrofoil boats carry thousands more. Millions of visitors and travelers arrive at Hong Kong’s international airport, soon to be replaced by the even larger, $20 billion Chek Lap Kok airport, built to accommodate 35 million passengers a year.

And more change is on the way. At midnight on June 30, Britain’s Union Jack was hauled down and replaced with China’s red banner. Hong Kong, a British colony since 1841 and now a gleaming monument to capitalist success, became the special province of a China still ruled by the Chinese Communist Party. The world watches as it begins testing Beijing’s promise of “one country, two systems.”

But, in truth, Hong Kong already has seen such dramatic change in recent years that the change in national flags proved less than traumatic. The changeover was basically ceremonial, despite “doomsday” predictions to the contrary. “We have had British rule but we actually have been Chinese for years,” explained one Hong Kong official.

For many Chinese here and elsewhere, the ceremonial turnover symbolized an end to the humiliation China suffered in the 19th-century opium wars that prompted Britain to seize Hong Kong as one of the spoils of victory.

Much has been written about out-migra-tion from Hong Kong, Chinese moving abroad to escape Beijing’s rule. But among the new special province’s bigger problems under Chinese sovereignty will be controlling immigration from mainland China into this economic dynamo. Countless thousands, if not millions, wait to taste the riches of Hong Kong. Many here describe the anticipated problem as similar to the chronic illegal immigration along the United States- Mexico border. What has happened in Hong Kong thus far fitted the pattern USC President Steve Sample and trustees observed in April meetings with the new governor, Tung Che-Wah, and other top business, financial and Trojan alumni leaders. In a one-hour personal discussion with USC trustees, Tung promised free elections next year.

The startling economic growth in Asia has been given far too little attention by the U.S. government.

Beyond Hong Kong, change is the rule throughout much of Asia. Many former Marines and Navy men recall being stationed in pre-communist Shanghai, where much activity centered around a closed international enclave and the “Bund” along the banks of the Huangpu and Yangtze rivers.

The area still resembles a colonial Western enclave in the heart of China. It retains its charm but in a deteriorated form. It has grown shabby.

Little except the communist government that seized it had changed in Shang-hai from the days of a foreign domination until I first visited there with Henry Kissinger in 1972, and later with a University of Southern California trustee delegation in 1977. Security was tight, but the area looked distinctly Western.

Today’s Shanghai is very different.

This city of 14 million has ambitions to become China’s major international financial center. Instead of restoring the crumbling infrastructure of the old city, Shanghai authorities are building an entirely new Pudong Economic Develop-ment Zone which includes factories, apartments, sparkling hotels, giant freeways and an 80,000-seat stadium. China’s government considers it a showplace.

The world has been amazed by the free market growth in Eastern Europe since the fall of the Iron Curtain. But I find the economic change in East Asia far more dramatic.

For a few years after President Richard Nixon’s historic diplomatic breakthrough with China in 1972, Americans were enthralled with Asia. China in particular became a major center of interest for travelers, business types and, most significantly, for the United States government.

In recent years, however, Washington’s focus has been on Europe and the Middle East. The startling economic growth in Asia has been given far too little attention by the U.S. government. Not surprisingly, both foreign and American business leaders in Asia are critical of what they call “inconsistency and critical neglect” of Asia at what may be the most important time for American interests in the Orient since the Nixon era.

The most positive U.S. outlook regarding present-day Asia stems from growing West Coast attention toward the Pacific Rim. The rest of the nation, including the White House, remains focused primarily across the Atlantic, not the Pacific.

Many Americans couldn’t find Indonesia, the world’s fourth largest country, on a map.

Schools such as USC and UC San Diego have instituted special Asian study departments. These have attracted students from Asia as well as America. Presidents of 20 universities met at USC this spring to form the Association of Pacific Rim Universities. They plan to accelerate student exchanges with more Americans going to Asia. Sample is the new chairman of that group.

Cities and ports such as San Diego, Seattle, Tacoma, San Francisco and Los Angeles have adopted major Pacific Rim strategies. Under Gov. Pete Wilson, California operates trade offices in Tokyo, Hong Kong and Jakarta and several other Asian capitals.

Meanwhile, Japan, China, Indonesia, Singapore, South Korea and even India and Vietnam, among other Asian nations, have made trade a keystone of their economic strategy. This gives them a weighty national advantage as opposed to the United States’ mostly regional economic forays into the Pacific. “Asia for the Asians” is finally more than a slogan.

Japan has advantages over the United States as it seeks to exploit Asia’s continuing economic growth through the end of the century.

Armond Fingleton, an American chamber of commerce official in Tokyo, says that of all the world’s economies, Japan, with the exception of 1993, has fared best. Despite slower growth since the heady 1980s, Japan’s cumulative growth since 1990 of 15 percent surpassed the American economy’s 13 percent expansion over the same period.

“Japan keys its growth to exports,” he says. The United States consumes more than it produces. “Japan invests in savings,” he adds. Forty percent of all the world’s savings are in Japan.

Asia experts look at China as a country which has done well in its exports to the United States, but still has to learn com-petitive marketing and needs monetary stability. American advantages in the Asian market come from unequaled high-tech products and from the marketing skills of a variety of firms ranging from Coca Cola to Amway.

Beyond economic opportunities, the varied anecdotal patterns of growth and change one finds today in Asia are mind-boggling.

Whether in Hong Kong, Jakarta, Guang-zhou or Shanghai, the music most played on public address systems in modern shopping centers and Asia’s proliferating malls is American. Current Asian favorites include American pop classics from the 1940s and 1950s.

Many young professionals in Hong Kong now get their recreation by taking weekend hydrofoil boats to golf courses in China. Golf is new to communist China.

But the sport is growing.

No Asian city is more surprising than modern Jakarta. More than 8 million people crowd the capital of the world’s fourth largest country.

Indonesia has more water than land within its boundaries, which encompass 17,000 islands. Its president jokes that the number goes to 19,000 islands at low tide.

President Suharto, all but certain to be elected to a seventh five-year term in 1998, bases his claims to a major place in history on the national stability he has created and on growth which has brought his country from bankruptcy in the 1960s to annual growth rates today of 7 percent.
Protest demonstrations in Java and East Timor prior to the most recent elections marred Indonesia’s image of stability. But Suharto remains in firm control. His Golkar Party claimed over 70 percent of the vote in the recent elections.

In another private discussion with USC trustees, it became apparent that Suharto takes great pride in the high-rise buildings and the giant shopping centers of Jakarta as signs of remarkable economic growth. His next goal, he says, is to help 22,000 of Indonesia’s poorest villages. Toward that end he gives each impoverished village a $30,000 grant. Large businesses are assessed a payment of two percent of after-tax profits to help the low-income communities.

Jakarta has become a center of world architectural competitions. Its giant, high-rise apartments, banks, offices and hotels offer modern construction outclassing any American city. Yet many Americans couldn’t find Indonesia on a map.

W hen one looks for proof of massive growth in Asia, however, it is demonstrated most vividly in Shanghai Pudong. In 1990, the Chinese communist government announced it would showcase its new “economic socialism” by making Pudong the locomotive pulling Shanghai into an international economic, financial and trading center.

The Chinese see Shanghai, with its own Shanghai stock market, developing into a competitor with Hong Kong. Businessmen in Hong Kong see Shanghai Pudong as an internal financial center for China in the next century, while believing they will remain China’s dominant center for international commerce.

Morgan Stanley, a Wall Street brokerage with its Asia headquarters in Hong Kong, has become the first foreign company to join in a partnership with the People’s Construction Bank of China. Together, they have formed a private investment bank to help finance more entrepreneurial business in China.

In 1996 one-third of all of the world’s major construction cranes were said to be operating in Shanghai Pudong.

Jack Wadsworth, who heads Morgan Stanley in Asia, still sees a major problem. “China will have full access to western capital markets only when its currency becomes fully convertible,” he says. Beijing has set the year 2000 as its goal for convertibility.

Henry Kissinger recently called Pudong “one of the most admirable places I’ve ever been to. It is an incredible success.” Kissinger is not given to excessive praise, and few would dispute his description.

In 1996 one-third of all of the world’s major construction cranes were said to be operating in Pudong, which has as its Eiffel Tower-style trademark a giant communications tower in the center of the financial district.

When I first visited Shanghai in 1972, transportation consisted mainly of bicycles with a few cars and buses. Today Pudong’s freeways are crowded with cars.

By mid-June of 1996, Pudong had attracted 3,931 foreign-financed projects with a total worth of $16.7 billion. During the past six years an average of $1.9 million in foreign capital was invested in Pudong each day.

Shanghai has a major international airport, but the Pudong project includes a separate airport now under construction and planned for completion in 1999. Its planned capacity will be 20 million passengers a year, expandable to handle 70 million passengers in the future.

In a meeting in Pudong, visiting Trojan trustees were amazed to hear the Chinese Communist director of the giant project talk glibly of using capital gains, tax benefits, stocks and bonds, profits and capital investment. Obviously, economic change is a breathtaking reality in China.

In the midst of this momentous growth, one still finds smaller Chinese entrepreneurs who are finding niches in the PRC’s seemingly paradoxical “socialist-free market” system.

Shanghai Fuller Foods began as a dairy operation. When Rich Wang graduated from USC in 1985 as a business major, he returned to his father’s dairy business. After Wang learned of tax advantages offered in Pudong, he and his family built a modern plant to convert their old-fashioned dairy business into a company producing chocolate, coated ice cream bars and chocolate milk. Wang’s ultra-modern, mechanized ice cream factory has 200 employees and is about to expand from Pudong to Beijing.

Under China’s “socialist” system, Wang provides his employees two meals daily and the government supplies housing and benefits. Wang’s employees say they are happy with their $300 monthly salaries, with which they can purchase what they want.

The world will change as it moves into the next century. But in no part of the world will the economic growth be greater than in Asia. This poses both a problem and an opportunity for the United States. It already is providing an opportunity for leadership by the University of Southern California.

International free trade becomes more important to the U.S. economy each year. The cultural differences found in doing business in Asia are far more complicated for the United States than when we focus mainly on Europe.

As a nation, we have much to learn about our neighbors around the Pacific Rim. But this is the opportune time to learn, and then put that knowledge to good use.

Asia’s huge market is expanding at record rates. The United States needs to be a major player in this vast and rapidly growing market.

It is long past time for Washington to regain the focus it had on Asia a quarter of a century ago when President Nixon opened the way with his historic trip to China