`Greater China' Could Be The Biggest Tiger Of All

Many people thought the deal the British cut in 1984 to hand over Hong Kong to China amounted to a death sentence for the colony. But with the 1997 transfer date approaching, Hong Kong is booming. Property values have soared 60% in the past two years. "This place is going to be like Tokyo," predicts John T. Hung, executive director of property and shipping giant Wharf (Holdings) Ltd.

The reason is that Western executives, hot-shot financiers in Tokyo, and ethnic Chinese tycoons from Southeast Asia are all scrambling to Hong Kong. While much of the industrial world slogs through recession, they see the city as the epicenter of an emerging 21st century economic superpower dubbed "Greater China." It would combine the capital, technology, and entrepreneurial wizardry of Hong Kong and Taiwan with the 1.2 billion-person market, cheap labor, and natural resources of mainland China.

Of course, huge obstacles lie in the way of achieving the "Chinese century" that overseas Chinese are euphoric about. Political upheaval on the mainland and repression in post-1997 Hong Kong are both possible. And Beijing and Taipei haven't even begun serious reunification negotiations. The next big test will be the 14th Party Congress in Beijing in October, where Deng Xiaoping's economic-reform program will be at the top of the agenda.

But regardless of the political hurdles, a growing flood of cross-border investment, trade, tourism, and cultural exchanges are binding the three Chinas together. That has potentially huge ramifications for Asia's balance of power. Already, the three have accumulated $160 billion in reserves--more than Japan's $70.5 billion. "Greater China is the entity that could rival Japan," says Pacific Rim Consulting Group Managing Director George Baeder.

The investment flows are huge. Hong Kong and Taiwanese entrepreneurs, who already have pumped more than $25 billion into plants in southern China, are now pushing into northern population centers such as Beijing, Shanghai, and Tianjin. At the same time, Chinese state companies are now the biggest foreign investors in Hong Kong. These flows, says Harry Harding, an Asia expert at Washington's Brookings Institution, could "accelerate China's overall rise as a political power." Even the recent decision by the U.S. to sell $6 billion worth of advanced jet fighters to Taiwan isn't expected to derail the process.

MIXED FEELINGS. Among the world's economic kingpins, Japan is the most threatened by an emerging Chinese colossus. While Japan is now the leading exporter to mainland China, few Japanese speak Chinese, and some Japanese businesspeople say Chinese entrepreneurs are already trying to ease them out of the action. "It's as though we've been left completely out of the loop," says one Japanese investment banker.

Washington has mixed feelings about an emerging Greater China. While economic integration puts pressure on Beijing to liberalize, the U.S. still worries about an increasingly powerful China throwing its weight around. That is why the U.S. is giving China's military and trade activity such close attention. With China's surplus with the U.S. passing $15 billion this year, the Bush Administration has given China an Oct. 10 deadline to agree to open up its domestic markets or face sanctions. A bolder China has threatened to retaliate in kind. A compromise is likely this time, but keeping this tiger on a leash will get tougher.