“One of the best business books of 2007, and one of the best on Asia.” —Rowan Callick, The Australian

“A superb and thoughtful book that deserves a broader range of readers than the serious policy wonks, economics fans and Asia hands likely to reach for it reflexively.” —Steve Hirsch, Washington Times

“A myth-shattering look at Southeast Asia’s powerful Chinese tycoons . . . A richly reported study of power and stunted economic development.” —BusinessWeek

“There have been few attempts to examine dispassionately the real role of the great tycoons and the origins of their wealth, or to put them into the context of the fast-growing, immediate post-colonial societies in which they prospered. Joe Studwell, editor of the China Economic Quarterly, has done so and with a flair for writing that is matched by an understanding of the region’s economic and social dynamics. . . . Studwell is a master at separating harsh reality from comfortable myth and, without muck-taking, to put into print important if unpalatable facts which are known in elite and media circles but which the power of the tycoons often keeps out of the media.” —Asia Sentinel

Persians and Chinese (the latter hailing from Thailand’s main international trade partner) operated trading monopolies and tax farms—paying an agreed, fixed sum to the royal household for the right to collect a given tax in a given locale. As of the eighteenth century, Chinese are recorded working for the Thai court as administrators and accountants. In many cases—perhaps most—however, Persians, Arabs and people from the Indian subcontinent were preferred as administrators; the Bunnag clan, which is still prominent in the Thai civil service and politics, were Persian Muslim immigrants who from the late eighteenth century ran the entire greater Bangkok region. Chinese dominance in court-sanctioned commercial monopolies in Thailand became overwhelming in the nineteenth century. On the island of Java, in today’s Indonesia, there is evidence that Chinese entrepreneurs entered into administrative and monopoly management arrangements with Javanese aristocrats before the arrival of Europeans in the sixteenth century.

What developed, in the early stages of state formation in south-east Asia, was a pattern that has never disappeared: a racial division of labour in which locals were the political entrepreneurs—focused on the maintenance of political power against indigenous rivals and, later, in partnership with European and American colonists—and outsiders who became economic, and as a corollary bureaucratic, entrepreneurs. Political power, of course, trumps all other power, and so the arrangement made perfect sense to indigenous aristocracies.

That immigrants know their place is attested by the direction of acculturation—the process of cultural adjustment. South-east Asian aristocracies did not become clones of their immigrant employees; instead, the immigrants acculturated to them. This was as true of Chinese as Persians, despite the reputation of the former as having an unbiddable cultural identity. Pre-modern Thai history, for example, is a story of Chinese who were successful in the country turning rapidly into Thais. The Thai kings encouraged this, ennobling their ethnic Chinese revenue farmers and officials. All Chinese were required to choose between a Thai and a Chinese identity on reaching adulthood; if they opted for the former they cut off their Manchu queues. The vast majority of families did so within two or three generations. The Thai élite was the place to be; it took a fat slice off the top of commercial profits for no risk, while unassimilated Chinese traders received a secondary cut in return for all the risk. It was hardly surprising that, given the choice, Chinese immigrants preferred to be political rather than economic entrepreneurs. A similar trajectory occurred in Java, where successful Chinese sought to marry into the Javanese aristocracy.

Despite the attention lavished by historians on the impact of Chinese culture throughout Asia, migration to the south-east of the region—Chinese, Persian, Arab and Indian—really highlighted a different lesson: that migration into existing societies is less about the export of a culture, and more about the migrants’ willing approximation to dominant local forms. Moreover, the most rapid acculturation occurs among the most ambitious, go-ahead individuals who recognise that economic progress is all but impossible without integration into local élites. This was a lesson that proto-godfathers learned early, and it was not difficult to follow because south-east Asia was a broadly ecumenical and tolerant place with sparse populations that meant limited competition for resources. Put simply, in an agricultural era, south-east Asia was blessed with natural abundance, particularly when compared with China and India.

Out for a Burden

The arrival of European colonists, present from the sixteenth century but not aggressively expansionist until the nineteenth, both reinforced and realigned the tendencies that were already apparent. Reinforcement occurred because colonialism in the countries with which we are concerned was not backed by heavy allocations of personnel. As a result, the colonials sought to rule through existing élites, both political and economic. Realignment occurred because colonial power created triangular relationships where before there had been simpler bilateral ones. The Europeans now represented ultimate power and local political and economic leaders needed to have relations with them as well as with each other. This had profound effects. For ambitious migrants, it meant they began to acculturate towards the Europeans because they represented dominant power. The local political élite also moved some way towards European cultural norms, while its relationship of cultural superiority to immigrants—most notably the Chinese—was shattered. The exception was Thailand, which was not formally colonised. There, the process of Chinese turning into Thais continued apace until the early twentieth century, when a rapid increase in the pace of immigration (driven by economic and political breakdown in China and the availability of new passenger ship services), the arrival of more Chinese women and a surge of Thai nationalism temporarily interrupted the assimilation process.

It was the Dutch in Java, and subsequently the rest of Indonesia, who most ruthlessly built on the division between political and economic activities. Control of the bulk of the population was exercised through the local priyayi aristocracy, who continued to govern their provinces and districts, with small numbers of Dutch colonial ‘residents’ in the background. Key economic roles went to the Chinese. They were revenue farmers for all kinds of taxes and monopolies, ranging from fees on the slaughtering of animals to the right to operate licensed markets. The biggest revenue farm was that for the manufacture and sale of opium. It became a mainstay of government income in each of the territories we are concerned with, but it was particularly important in Indonesia because indigenous people were also big consumers; elsewhere opium smoking was largely a Chinese pastime.

As well as cementing the Chinese economic role, the Dutch exalted a small number of powerful Chinese community leaders (immigration from China increased markedly in the seventeenth century) who were loyal to them. These men became some of the region’s original tycoon godfathers. The Dutch picked up on a tradition begun by the Portuguese—the first European power in south-east Asia—to give the foremost person in the Chinese community the military title of captain. This was expanded into a complete officer system of Majoor, Kapitan, Luitenant—a hierarchy that persisted for two centuries. The Chinese officers kept a Chinese census, levied Chinese taxes and fines, issued permits, and their opinions were important in court cases. They were extremely powerful and, simultaneously, usually held the big revenue farms and worked as compradors—intermediaries—for the Dutch. Moreover, ordinary Chinese were compelled to live in designated Chinese quarters of approved towns and travel only with permission. These restrictions did not apply to the Chinese élite and their revenue farm employees. The cabang atas, or “highest branch”, as the Chinese élite came to be known, had the run of the country at the same time that their compatriots—and potential competitors—were theoretically confined to urban ghettos. The pass laws were often ignored, but the officers had more than enough power, including quasi-legal authority, to make life deeply unpleasant for anyone who crossed them.

Chinese society at large continued its process of acculturation in Indonesia, with successive generations of immigrants losing command of their different Chinese languages and becoming habituated to local customs. But as the Dutch expanded their power through the archipelago there was less incentive for ambitious migrants to seek employment in the households of Javanese kings or marriage into the priyayi aristocracy. On the other hand, white northern European society would not tolerate intermarriage and assimilation to the Dutch group. Unlike Thailand, where complete integration with the ruling élite was possible, what happened was that a “halfway house” identity developed. By the nineteenth century the Chinese who spoke Malay (the indigenous language of trade), followed a culture comprised of both southern Chinese and Javanese elements, while looking to the Dutch colonials for favour and advancement, were a large and definable group called peranakan. It was the leading peranakan who were the leaders of Chinese society: they worked with the Dutch as officers to keep the Chinese population in line; they tendered for revenue farms; and they worked with the local priyayi to protect their farms—which were often challenged by smugglers, especially in the case of opium. The most successful entrepreneurs were almost inevitably the least purely “Chinese” ones. They required a position of cultural equilibrium between Dutch residents, priyayi aristocrats and an evolving mix of almost exclusively male Chinese immigrants.

A similar state of affairs developed in the Philippines, where the Spanish arrived from across the Pacific via their Latin American colonies in the late sixteenth century. Unlike Dutch and British colonists, who were represented by monopolistic trading corporations—the Dutch Vereenigte Oost-Indische Compagnie (VOC) and the British East India Company—the Spanish colonial mission was an overtly political and religious one. It sought to convert Filipinos to Catholic Christianity. In this respect the Chinese, who were already trading in the Manila region when the Spanish arrived, were irksome. The Spanish needed the Chinese to provision their garrisons and trade Chinese luxury goods; but the Chinese were initially resistant to Christianity. There followed an uneasy stand-off punctuated by a series of bloody pogroms in the course of the seventeenth century. At the same time, the Spanish rewarded Chinese who did convert to Christianity, and who married local women, with lower taxes, freedom of movement and an ability to join the local political élite. A process of acculturation began and by 1800 there were an estimated 120,000 Chinese mestizos—equivalent to the Indonesian peranakan—versus 7,000 Chinese and 4,000 blancos, or whites, in the Philippines; they accounted for around 5 per cent of the population. Strict controls on the number of pure Chinese who were allowed residence further encouraged the development of mestizo society.

The mestizos dominated internal trade in the islands and moved increasingly into landholding. The Spanish always feared they would lead the native indios in rebellion, but in reality the Chinese mestizos were at least as attached to the Philippine version of Spanish culture as were the urbanised indios, and gave up most attachment to Chinese culture. As in Indonesia and Malaysia, they acquired their own dress forms and customs that reflected a hybrid culture.

The Era of Mass Migration

From the mid-nineteenth century, the pattern of low-volume migration and a heavily assimilated resident Chinese population began to change. There were two reasons for this. First, the number of immigrants increased exponentially. And second, the objectives of the ruling colonial powers both changed and broadened.

Technology facilitated a migration boom. The first steamships came into use in the 1840s and were widely deployed on passenger routes in Asia by the 1860s. The so-called Opium Wars of 1839-42 and 1856-60 forced open the principal ports of the Chinese coast, particularly the traditional migrant centres of the south, and these were quickly connected by steamer link to the major ports of south-east Asia. Much migration was determined by nothing more complex than the destination of the local steamship link. The opening of a service from Haikou in Hainan island to Bangkok, for instance, is a key reason that there are lots of people of Hainanese ancestry in Thailand.Best estimates suggest that by 1850 there were half a million people of Chinese extraction, mixed race and not, in the territories we are following. The largest concentrations were in Thailand and Indonesia, with Hong Kong, Singapore and Malaysia (not yet formally incorporated into the British Empire) just taking off. By the time of the First World War, there were 3-4 million ethnic Chinese in the region, the vast majority of them first generation. There was an increasingly long list of reasons for people to get out of China. The country came under serious population pressure from the eighteenth century. Rebellions occurred with increasing frequency, building up to four major conflagrations in the mid-nineteenth century: Muslim-led rebellions in the south-west and north-west of China, and the Nian and Taiping rebellions in the central provinces. The latter, led by a man who believed himself to be the younger brother of Jesus Christ and a deputy who claimed to be the Holy Ghost, was the most disruptive; it cost the lives of several tens of millions of people in the 1850s and 1860s.

With regular steamships to transport them from what one historian dubbed their “grimly Malthusian setting,” the southern Chinese found south-east Asia’s underpopulated and relatively peaceful destinations most attractive: labour rates were often a multiple of those at home. In the mid-nineteenth century there were just 5 million people in Thailand, 2.5 million in Malaysia and 23 million in Indonesia (Java was the one place in south-east Asia that was relatively densely settled)—around one-tenth of today’s levels. The more fortunate migrants were assisted, both financially and with job-seeking, by relatives or kinsmen who had already travelled abroad.

The rising tide of migrant workers coincided with the dawn of so-called “high imperialism” from the middle of the nineteenth century, and a sustained, labour-intensive commodities boom that continued into the twentieth century. From the 1830s the monolithic Dutch and British trade monopolies were dismantled and the European states took over colonial management in southeast Asia. An agreement between Holland and Britain in 1824 to delineate their respective areas of interest in the region presaged a Dutch campaign to control the complete Indonesian archipelago and, later, the rolling-out of the British presence in peninsular Malaysia. Direct colonial control was sometimes the prerequisite for the development of vast new plantations or mines and sometimes—as in peninsular Malaya, where small Chinese mines were well established—it occurred after the fact. There was to an extent a contradictory political impetus in Europe—on the one hand to extend the limits of colonial power, on the other to deregulate many aspects of international trade and investment. In an era informed by the writings of David Ricardo and Adam Smith, both Singapore (1819) and Hong Kong (1842) were established as free ports without restrictions or taxes on trade. (These colonial acquisitions also reflected the British imperial appetite to control strategic islands.) A Hong Kong governor persuaded the Thais to deregulate trade with the eponymous Bowring Treaty in 1855. Even the Spanish Philippines moved in this direction, ending the trading monopolies of provincial governors in 1844 and opening up to foreign business; since the industrial revolution had passed Spain by, trade came to be dominated by British and American firms with little more than the flag to remind merchants that they were on Spanish soil.

By the second half of the nineteenth century, the pieces were in place for a globalisation-driven boom which in certain respects pre-figured the one that began in the 1990s. The demand impetus was the developed world’s hunger for agricultural and mineral commodities which were either buried in the ground in south-east Asia or could be grown there; vast tracts of land were available for the establishment of plantations. Technological facilitation came with the opening of the Suez Canal in 1869 and the concurrent development of steamships that allowed for low-cost bulk shipping throughout the year. The final component was abundant, cheap, imported Chinese and Indian labour.

As a general distinction, it is fair to say that the great majority of Indians were imported to work in estate agriculture in the British colonies and parts of Indonesia, with minority subsets of manual labour for public works projects and colonial civil servants; a tiny élite of Indian entrepreneurs—including Parsees, Sindhis and Chettiar—was spread around the region. Chinese immigrants dominated mining, but were also widely dispersed across trading, retailing, what would today be called logistics services, agriculture and more. This reflected the fact that the average Chinese had relatively greater freedom of choice in making migration decisions. The vast majority of Indian emigrants between 1850 and the First World War were indentured agricultural labourers, meaning that they signed contracts to work on plantations, were transported to those plantations and housed in barracks and—if they survived—were usually sent back to India. The southern Chinese used credit ticket systems, which meant that migrants were bound to employers until they had paid off their passage, with interest, but subsequently they were relatively more likely to stay on in south-east Asia and merge into the established, mainly urban communities of overseas Chinese that had roots going back centuries. A United Nations report on migration published in 2004 makes a brave attempt to pull together historical records from India and concludes that 30 million Indians left for destinations around the world between 1834 and 1937, but 24 million came back. We do not know the returnee proportion among Chinese because China has no state records comparable to those maintained by the British in India, but it was certainly much lower.

This is an important point. There were huge numbers of Indians around in colonial south-east Asia but they did not become more important to local economies in the long run because most of them did not hang around long enough to become embedded in society. They were also, relative to the Chinese, a more downtrodden and unhappy group of people. The Indian arkatia—or recruiters—who organised indentured labour for export focused much of their attention on minority groups at the bottom of the caste ladder (which has no sociological equivalent in China), like Tamils from the south or hill tribesmen from the north-east. These people suited plantation owners and colonial governments because—unlike the more uppity Chinese—they created no trouble. Sir Frederic Weld, governor of the Straits Settlements from 1880 to 1887, recommended an increase in the importation of Indians when leaving the job with the words: “Indians are a peaceable and easily governed race.” He probably did not realise he was used to a rather atypical cross-section of Indians.

The original agricultural produce that had drawn Europeans to southeast Asia was spices, used largely for curing meat in the era before artificial refrigeration. But the nineteenth century brought a host of other cash crops, among which sugar from the Philippines and Thailand was the most important. Then came tin, first mined by Chinese gangs in Indonesia but later found in far greater quantities in Malaysia and southern Thailand. At the turn of the century there was rubber—in whose production Indian labour was thoroughly dominant—which was an essential input in the dawning age of the automobile and for many other consumer products. There was also a rolling cycle of commodity booms in the region in which technological advances further increased the scale of trade. In mining, for example, new technologies transformed the activity from an essentially manual undertaking with mattocks to a large-scale mechanical one involving dredges.