& Tornado Alley
Although in every economy there are a few dominant enterprises, in East Asia the dominant firms have a distinctive character. They are generally family enterprises and represent the Asian extended family extended into the business world. They tend to be conglomerate in order to avoid having to deal with entities outside of the family. Guanxi is the extension of business association beyond the family to a network of trusted allies.
The East Asian business association have different names in different countries. In Japan they were first the zaibatsu (financial cliques) and later the keiretsu (business associations). In Korea they are the chaebol. In Hong Kong they are the hongs. In Taiwan they are called guanxi qiye (This is the pinyin transliteration of the name).
Taiwan's conglomerate businesses have generally been smaller than those of Japan and South Korea. They are less familiar to the American public than the South Korean and the Japanese firms. Here are the top ten guanxi qiye as of 1991.
|Yue Loong Motor||$2.6||$1.9||11||Mainlander|
|Yuen Foong Yu||$1.5||$6.2||6|
Because of political domination of Taiwan by the Mainlanders who came to Taiwan in 1949 the Taiwanese could only rise in the business world. As a consequence most of the businesses of Taiwan are controlled by Taiwanese. The Mainlanders and their descendants control some businesses but generally it is the Taiwanese who dominate the business world of Taiwan.
The listing below of the twenty largest firms in Taiwan based upon the valuation of their stock brings up some new names not included in the above listing.
|The Twenty Largest Firms
in Taiwan Based Upon
Market Valuation c. 1990
|First Commercial Bank||4.9|
|Hua Nan Bank||4.7|
|Chang Hwa Bank||4.4|
Bank of China
|Nan Ya Plastics||2.9|
|Cathay Life Insurance||2.6|
|Municipal Bond Bank|
|Municipal Bond Bank|
of Hsin Chu
|China Development Corp.||1.4|
|Municipal Bond Bank|
The background of a few of the Guanxi Qiye of Taiwan are given below.
The Cathay Trust was a business group that rose to prominence and then collapsed in scandal. The founder was Cai Wanchun, a poor Tiwanese peasant from southern Taiwan. As a youth of sixteen, during the Japanese occupation, he moved to Taibei and sold cosmetics for a Japanese company. In 1938 he bought a department store and later a factory for producing soy sauce. After the end of World War II he greatly expanded his business as the Japanese left Taiwan. By the 1950s Cai Wanchun and his bothers were operating a quanxiqiye. In 1977 Cai took over the Tenth Credit Cooperative Association of Taipei, the largest credit association in Taiwan, giving his group financial leverage.
By the end of the 1970s the Cathay business group was the largest of the quanxi qiye in terms of assets. It had 20,000 employees. But at the peak of success Cai Wanchun suffered a serious stroke. He divided the Cathay Group firms into five independent units and each of his two brothers were given control over one unit. Two of his four sons each were given control over a unit and the other two sons shared control of one unit. Initially control over the Tenth Cooperative Credit Association of Taipei went to the brother, Cai Wanlin, but after some difficulties with the Ministry of Finance he turned over control to Cai Zhenzhou, the oldest son of Cai Wanchun. The division of the Cathay Group is shown below:
|Cai Family |
to Cai Wanchun
|New Group||Most important
|Cai Wanlin||brother||Linden International||
Cathay Life Insurance|
|Cai Wancai||brother||Fu Bang||Foremost
|Cai Zhenzhou||son||Cathay Plastics||
Tenth Credit Cooperative
|Cai Zhennan||son||Cathay Trust||
Cathay Investment & Trust|
Lai Lai Sheraton
Sunrise Department Store|
Lai Lai Shopping Mall
The son, Cai Zhenzhou, illegally turned the Tenth Credit Cooperative into a source of financing for his projects. In particular, Cathay Plastics was losing money because of the increased price of petroleum and petroleum products and needed substantial infusions of funds to keep from going bankrupt. This desperate attempt to save Cathay Plastics by milking the Tenth Credit Cooperative led to the scandal and collapse. Since Tenth Credit Cooperative could only loan to individuals Cai Zhenzhou induced some 700 Cathay Plastics employees to take out loans for his use. Some cases Cai Zhenzhou took out more loans in the name of these employees than they were aware of. The total of these illegal loans grew to $190 million in 1983. Cai Zhenzhou also raised funds by turning Cathay Plastics into something like a financial depository. Cathay Plastics offered high interest rates (as high as 30%). When Cathay Plastics collapsed these depositors lost approximately $100 million. Cai Zhenzhou also raised funds by means of postdated checks. The amount of these postdated checks could have been as much as $125 million.
In 1985, after an audit revealed the extent of the irregularities and illegalities the government took control of Tenth Credit Cooperative Association. Some the business groups were forced to reorganize. An Economic Revitalization Committee was created.
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