A Capitalist Domino Theory Worries China
International Herald Tribune
April 23, 1993
Michael Richardson 

Foreign investment that is flooding into China, mainly from companies controlled by overseas Chinese in non-Communist East Asia, is more likely to bring about increased political openness than is renewed pressure on Beijing from the United States for democratization and human rights, Asian officials say.

Some specialists maintain that free-market penetration of China and Vietnam is so far advanced that fears about capitalist countries in Asia falling like dominoes to Communist power have come to haunt leaders in Beijing and Hanoi.

"The reverse of the domino theory is now taking place, with the expansion of the Asian economies into the socialist countries gathering momentum," said C.H. Kwan, senior economist and head of Asian research for Nomura Research Institute in Tokyo.

He said that increased foreign investment, trade and tourism should help to integrate China and Vietnam into the mainstream of Asia-Pacific economic growth, which is the fastest in the world.

China's transformation into a "true market economy" would also ease the reintegration of Hong Kong into China when Beijing regains control of the territory in 1997, Mr. Kwan added.

Asian officials say that nothing should be done to isolate China or impede the process of economic reform there because it would only slow political change.

In an interview with a Taiwanese newspaper earlier this year, Lee Kuan Yew, Singapore's senior minister, warned that any clash between the United States and China would cause economic damage, not only to China but also to all East Asian countries, especially those that had invested heavily on the Chinese mainland.

The best policy for Asia, he said, was to encourage China's economy to become more free-market. Then the Chinese people "will have multiple job choices and will be opened up to the ideas and behavior of the rest of the world."

"They will become more aware of the need to change their system to accommodate an increasingly better-educated population, which in 15-20 years will have a large middle-class," Mr. Lee said.

China has reported that it approved foreign direct investment worth $57.5 billion last year. This was three times as large as the 1991 figure and more than the total foreign investment in China from 1979 to 1991.

Specialists estimate that at least three quarters of the 1992 investment commitments in China were made by companies owned or controlled by Chinese in Taiwan, Hong Kong and Southeast Asia who are using their ties of language, culture and kinship to establish a low-cost export base and a strong presence in a market that has enormous profit potential.

Overseas Chinese businessmen from the region are "making China the focus of their corporate growth for the next decade," said Michael Selwyn, industry editor for Asian Business magazine in Hong Kong.

China's increasingly market-oriented economy grew 12.8 percent last year. A report last week by the Asian Development Bank in Manila said that despite concerns about overheating, prospects "seem quite favorable" for continued robust economic growth in China over the next couple of years.

Chinese companies from non-Communist parts of Asia are also the leading investors in Vietnam.

Mahathir bin Mohamad, Malaysia's prime minister, said that China, by concentrating on its economy and being willing to accept systems that were alien to its original Communist ideology, had grown much more rapidly than other nations and avoided the turmoil that had engulfed the former Soviet Union and much of Eastern Europe.

"I think Vietnam is well on the way to doing what China has done," he said.

Authoritarian rule, Mr. Mahathir said, cannot be sustained once a country achieved prosperity because people demanded more freedom.

"Helping undemocratic nations to prosper under a free-market system is the most positive way to achieve democracy," he added.

The transformation of China, said Robert A. Scalapino, a leading American scholar on East Asia, "is made more fascinating by the incorporation of important portions of the nation into natural economic territories that cut across political boundaries."

The most advanced of these territories links the southern Chinese province of Guangdong and Hong Kong through large-scale cross-investment and trade.

In the past few years, Taiwanese investors have poured billions of dollars into nearby Fujian Province in China.

Mr. Scalapino said that southwest China was "gravitating economically" toward Southeast Asia while parts of northern China, notably Shandong Province, were developing economic ties with South Korea.

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