Chang: Business Groups in East Asia 00-chang-prelims Final Proof page 7 20.1.2006 10:19am

Contents

Preface v Contributors viii Map of East Asia and Vital Statisitics xiii

1. Introduction: Business Groups in East Asia 1 Sea-Jin Chang

Part I: and Former NICs (Newly Industrialized Countries) 2. Japanese Business Groups: Continuity in the Face of Change 29 Christina L. Ahmadjian 3. Korean Business Groups: The Financial Crisis and the Restructuring of Chaebols 52 Sea-Jin Chang 4. Taiwanese Business Groups: Steady Growth in Institutional Transition 70 Chi-Nien Chung and Ishtiaq P. Mahmood 5. Singaporean Business Groups: The Role of the State and Capital in Inc. 94 Lai Si Tsui-Auch

Part II: Emerging Market Countries 6. Malaysian Business Groups: The State and Capital Development in the Post-Currency Crisis Period 119 Edmund Terence Gomez 7. Thai Business Groups: Crisis and Restructuring 147 Piruna Polsiri and Yupana Wiwattanakantang 8. Indonesian Business Groups: The Crisis in Progress 179 Alberto D. Hanani

Part III: New Horizons for Business Groups in East Asia 9. Chinese Business Groups: Their Origins and Development 207 Donghoon Hahn and Keun Lee 10. Conclusion: The Future of Business Groups in East Asia 232 Sea-Jin Chang

References 243 Index 259 Chang: Business Groups in East Asia 12-chang-index Final Proof page 259 19.1.2006 1:04pm

Index

Chang: Business Groups in East Asia

Abdullah Ahmad Badawi 135 contract-based 211, 227, 229 accounting reforms 13, 39–40 definition 1, 30, 70, 179 accounting standards, international 66 diversification 228–9 acquisitions see mergers and acquisitions economic benefits of 47–8 Ahmadjian, C. L. 13, 34 equity ties 213 American Depository Receipts (ADRs) 68 expansion 173 Anwar Ibrahim 124, 126, 135 experimental 213–14 Aoki, M. 48 financial actions 173 239 histories 32–3, 151–2 Asset Management Corporation 169 horizontal 13, 30–1, 33, 43–5, 207, Astra International Group 201, 202–3, 204 210–11, 213 Au, Alex 110 industrial breakdown 81–3 intragroup organization 225–8 Bank 151 lack of controlling centre 33 Bangkok International Banking Facilities listings 1, 18–24 (BIBF) 152 mixed opinions on 29–30 Bank Central Asia (BCA) 195 operational actions 173 Bank Mandiri 193, 204 performance 175–7, 189 Bank Negara 127–8 political connections 15–16 bank-led bailouts 38 power structure 211 banking: pyrmidal structure 86–7, 91, 124, 133, restructuring 192–3 163 state intervention 102 registration 209 bankruptcy 38, 52, 57, 60, 64, 172, 175, restructuring 60–1 194, 234 robustness 232, 233 banks 121–2 size 77, 223–4 as cashiers 190–1 stability 41–2 and corporate restructuring 10–11 state run 14–15 crisis 13, 37 Suharto-linked 186–8 foreign 65 vertical 13, 30–1, 45–7 inadequate regulation 10 see also chaebols; conglomerates; mergers 11, 31, 129–31, 135 corporations; jituanqiye; nationalization 56 keiretsu ownership structures 21–2, 169–71 performance monitoring 106 16 Biggart, N. W. 3 Campbell, J. 5, 236 Bimantara 197, 198–200, 204 capital: brand names 222, 229 foreign 4, 12, 64–5, 67–8, 73, 151–2 239 markets 5 broken equity ties 44 structure 166–7 broken trading ties 45–6 capitalism, divergent 236 business groups: Caves, R. E. 34 breakdown 38–9 chaebols 119 characteristics 3 Boards of Directors 63 cohesiveness 227 chief executive officers 63 Chang: Business Groups in East Asia 12-chang-index Final Proof page 260 19.1.2006 1:04pm

260 Index chaebols (cont.) reforms 11–12 corporate governance 67; reform 61–3 restructuring 10–11, 132–4 corporate workout 58, 60 corporations: cross-shareholding 61 government-linked 94, 95, 103–4, debt-equity ratios 52 107–8, 114 foreign investment 63 see also enterprises; state-owned enterprises formation 55–6 (SOEs) future of 66–8 corruption 56, 135, 194, 203 and globalization 66–8 credit boom 8 minority shareholders 63–4 cross-shareholding 31, 61, 91, 124, 133, top groups 53–4 163, 190–1, 229 see also business groups; Korea decrease in 37–8, 39 Chandler, A. D. 71, 91 EU 238 Chang, S. J. 13–14, 36 cross-subsidization 3–4, 34–5, 42, 65, 66–7 Charoen Pokphand (CP) Group 152 culture see socioeconomic environment Chiang Ching-Kuo 75 Chile 239 Daim Zainuddin 123–4, 125–6, 135 Chin Sophonpanich 151 DBS Group 107, 108, 111–12 China 16, 207–31 debt 135, 179 Asian Crisis 6 guarantees 56–7, 58–60 banking 11 high 133 bottom-up initiatives 213–14, 229 see also leverage civil aviation 218 debt-equity ratios 52, 56–7, 58–9 conflicting objectives 215 decision-making 227–8 economic transition 209–10, 211, 229 development, divergent paths 232, 233–6 employment 221 directors 63, 166 government: local 215; reform directorships, interlocking 124–5, 140–4 215–17; role 208, 212, 213–14 disintermediation 38–9 SOEs 208, 212, 215–17, 220 diversification 70–1, 79–81, 90–1 State Asset Administration Djankov, S. 87 Commission 216, 217 Doosan Group 67 State Power Corporation 217 telecommunications 218 Eastern Europe 239 vertical and horizontal segmentation 216 economic crisis 8–9 Chokwattana family 163 economic liberalization 70–1, 74–5 Chung, C.-N. 14, 73, 74, 79 entrepreneurs 180 civil aviation 218 ethnic Chinese 94, 95–8, 101, 105–6, Claessens, S. 87, 163 108–13, 233, 235 Clark, K. B. 35 ethnicity 3–4 comparative institutional framework 2–5, European Union (EU) 238 36, 180–1 external linkages 83–5 competition, international 214 competition: familism and favoritism 181, 185 global 111 family international 240 control 71, 73, 85–7, 98–9 conglomerates 179 ownership 114 see also business groups power 4 control: Fields, K. J. 73 family 71, 73, 85–7, 98–9 financial liberalization 6–7, 75–6, 106, 152, new structures 91 168, 185 and ownership 124–5, 131–4, 161, financial markets 56 190–1, 224–5 financial regulation 75 corporate governance 67 financial reporting 32–3 Chang: Business Groups in East Asia 12-chang-index Final Proof page 261 19.1.2006 1:04pm

Index 261 financial restructuring 58–60, 237 history 181–4 financial supervision 240 IMF support 8 Financial Times 29, 42 Jakarta Stock Exchange (JSX) 190, 202 Flath, D. 35 new legal framework 194, 203 Fligstein, N. 237 New Order 183, 185, 203 foreign capital 4, 64–5, 67–8, 151–2 political alliances 15–16, 190 foreign direct investment (FDI) 75, 83–4, privatization 186 236, 237 rupiah 183, 191 foreign funds 127 state-owned enterprises (SOEs) 188–9 foreign investors 40–1, 63, 240 Suharto-linked business groups foreign ownership 13, 107 186–8, 195 foreign ventures 111 Surbaya Stock Exchanges 202 Formosa Group 87, 88 yayasans 188 238 Indonesian Bank Restructuring Agency Fujimoto, T. 35 (IBRA) 192, 194, 195, 198 industrialization 56, 73, 104 General Agreement on Tariffs and Trade innovation 71, 92 (GATT) 12 institutional changes 5, 35–41 Gerlach, M. L. 34–5, 38, 39, 48 institutional environment 17, 232, 236 238 institutional framework, comparative Ghosn, Carlos 40 2–5, 36 Gilson, R. J. 35 institutional inertia 47 globalization 66–8, 233, 235–6 international competition 65–6, 111, 214, Gomez, E. T. 15 240 Granovetter, M. 3 International Cosmetics 163, 165 growth: International Monetary Fund (IMF) 12, and control 71, 87 66, 233, 234 unbalanced 4 and 9, 184 and Korea 9, 52, 57–8, 65 Hahn, D. H. 16 and Malaysia 9, 128 Halim Saad 125 and 9, 147, 169, 172 Hamilton, G. G. 3, 70 investors: Hanani, A. D. 15 foreign 12 Hewison, K. 152 rights 12 Hitachi 48 small 189 Hobday, M. 71, 83–4, 91 see also shareholders Holdiko 195 Isuzu 46 Honda 41 Hong Kong 6, 16 Japan 9, 29–51, 85, 233, 234 Hong Leong Group 110 accounting reforms 39–40 Hoshi, T. 34, 38 Asian Crisis 6 Big Six 30–1, 33, 41, 43 Indonesia 6, 10, 15, 179–204, 235, 236 disintermediation 38–9 asset bubbles 8 distinctive economy 48 banks 11, 190–1 FDI 237 business groups performance 189 financial crisis 36, 37–8 colonial period 182 financial reporting 32–3 economy 183–4, 191 foreign investment 40–1 ethnic Chinese 183 institutional changes 35–41 family and friends 181, 185 keiretsu 13 financial deregulation 185 US occupation 32 Financial Sector Policy yen 8 Committee (FSPC) 192, 194 zaibatsu 66 Chang: Business Groups in East Asia 12-chang-index Final Proof page 262 19.1.2006 1:04pm

262 Index jituanqiye 74 McArthur, General 66 joint ventures 83–4, 91, 218, 220, 221, McNally, C. A. 220 227, 229 Mahathir Mohammad 123, 125, 126, 129, Jung-Hee Park 56 134–5 Mahmood, I. P. 14, 90 Kaplan, S. N. 34 Malayan Banking 122 Kashyap, A. 34, 38 Malaysia 6, 9, 119–46, 235, 236 keiretsu 119 asset bubbles 8 see also business groups asset redistribution 121–2 Keppel Group 107 bank loans 127–8 Khanna, T. 4, 79, 90 banking 11, 121–2; consolidation Khong Guan Flour Milling 111 129–31, 135 kinship 3 Bumiputeras 15, 121, 122, 124, 134 Ko, C. E. 87 Chinese 14, 119, 133 Korea 6, 52–69, 233, 234, 236 colonial period 121 bank nationalization 56 corporate decline 126–8 banking 11, 56–7, 64 corporate restructuring 132–4 bankrupt 52 currency crisis 126–8 Big Deal 60–1, 62 ethnic asset distribution 122–3 business restructuring 60–1 ethnic Malays 119 chaebols 8, 13–14 foreign funds 127 financial markets 56 Indians 119 financial restructuring 58–60 inter-ethnic ties 124 foreign investors and creditors 64–5 Kuala Lumpur Stock Exchange (KLSE) IMF support 9 123, 126, 133 industrialization 56 listed companies 126–7 international competition 65–6 New Economic Policy (NEP) 119–20, markets 55 121, 123 People’s Solidarity for Participatory ownership and control 124–5, Democracy 63–4 132–4, 144–5 sociocultural environments 55 political power 129, 134, 135, 136–9 state role 55 privatization 122 see also chaebols ringgit 127 Krugman, P. 8, 57 SMEs 135 Kwek Hong Png 111 state 119 state ownership 133 La Porta, R. 163, 236 UMNO 125 Lang, L. H. P. 87 Urban Development Authority (UDA) 121 Lawrence, R. Z. 34 Malaysian Code of Corporate Lee, K. 16, 229 Governance 132 Lee Hsien Loong 112–13 managers 215 Lee Seng Wee 110 professional 67, 87–9, 105, 108, Leff, N. 4 110–11, 114, 179 leverage 179, 225, 227 turnover 175 see also debt Mao 210 LG Group 67 markets 180 Li Kwoh-Ting 73–4 capital 5 licensing 83–4, 91 financial 36 Liem Sioe Liong 195 imperfect 4, 179, 233 Lincoln, J. R. 34–5, 38, 39, 48 see also financial markets Lippo Group 200, 204 Matsushita 48 Lopez-de-Silanes, F. 163, 236 Mayer, C. 236 Chang: Business Groups in East Asia 12-chang-index Final Proof page 263 19.1.2006 1:04pm

Index 263 mergers and acquisitions 61, 63, 65, 75, positive discrimination 119–20 111–14, 213, 218, 220–2, 228–9 privatization 122, 186 banking sector 135 product diversification 79–83 USA 237 profits 71, 89–90, 91–2, 166 Mexico 239 pyramids 86–7, 91, 124, 133, 163 Minton, B. 34 Mitsubishi 31, 32, 42, 48 Rajan, R. 65 Mitterand, F. 238 Ramseyer, M. 35 Miwa, Y. 35 Rashid Hussain 128, 134 Mizuho Bank 42 Renong 126, 128 monopoly prevention 218 Roe, M. J. 35 moral hazard 57 Morck, R. 34–5 Sakakibara, M. 35 Multi-purpose Holdings Group 125 Salim Group 195–8, 204 multinationals, foreign 12 Scharfstein, D. 34 Myanmar 16 Shamsuddin Kadir 134 Shanghai Baosteel Group 214–15 Nakamura, M. 34–5 shareholders: Nakatani, I. 34 minority 63–4, 179 nationalization 169 see also investors Ng, Philip 111 Shih, Stan 92 Nikkei Weekly 42 Shleifer, A. 163 Nippon 42 short-term speculative funds 6–7 Nishiguchi, T. 35 Singapore 6, 9, 14, 94–115, 234–5, 237 Nissan 40, 41, 48 business groups in 95–9 North, D. 203 culture 114–15 growth 106 OCBC group 108, 110, 112 industrialization 104 Okabe, M. 37–8 intervention in banking 102 Olds, John 108 ownership 98–9, 109–10 Orru, M. 3 People’s Action Party (PAP) 101–2 overseas linkages 71 policy changes 106–7 ownership: sociocultural continuity 102–3 and control 124–5, 131–4, 161, state-capital relationship 99–103 190–1, 224–5 Singh, K. 90 family 114 SingTel 107 foreign 169 SK global 64 government 98 SK Telecom 64 Malaysia 144–5 small and medium-sized enterprises patterns 43–4 (SMEs) 135, 149 state 133 social and cultural norms 36 85–7 socioeconomic environment 3–4, 14–15, 102–3, 180–1 Palepu, K. 4, 79, 90 Sophonpanich Group 151 patents 83–4, 90 South America 239 political democratization 75 spin-offs 213, 218, 221, 229 political power 190–1, 235 staff organizations 63 Indonesia 182–3, 186 Stark, D. 239 Malaysia 129, 134, 135, 136–9 state: Thailand 151 biased 180–1 Polsiri, P. 15 involvement 4, 14–15, 36, 233 Porter, M. 35 see also under country names Chang: Business Groups in East Asia 12-chang-index Final Proof page 264 19.1.2006 1:04pm

264 Index state-owned enterprises (SOEs) 149, 235 Corporate Debt Restructuring China 208, 212, 215–17, 220 Advisory Committee (CDRAC) 172 Indonesia 188–9 financial liberalization 152, 168 Strachan, H. 3 foreign capital 151–2 Su, Y. H. 87 government officials 147 subcontracting 83 IMF support 9 Suehiro, A. 152 Industrial Finance Corporation (IFCT) Suharto 183, 186–8, 195, 203 151–2 Sukarno 182–3 methodology and data 159–66 Sumitomo 48 military regime 149–50 Syngman Rhee 55–6 National Economic Development Plan 151 Taiwan 6, 9–10, 14, 70–93, 233, 234 ownership and control 161 asset distribution 119, 121, 122–3 People’s Party 148–50 Business Groups in Taiwan 78–9 political power 151 corporate debt 135 SMEs 149 industrialization 73 state ownership 149 jituanqiye 74 Stock Exchange 147, 152, 159, 161 mergers and acquisitons 75 Thanom Kittikachorn, Field Marshall 150 OEM 73 T.K. Lim 125, 134 ownership and control 85–7 Tong Kooi Ong 134 political democratization 75 Toyo Keizai 33 product diversification 79–83 Toyota 41, 42, 46, 48 research and development 73 transparency 10, 61, 66, 221, 236 state 72–3, 74–5 Tsui-Auch, L. S. 14 Statute for Encouragement of Investment 73–4 Uekusa, M. 34 stock market 85 United Malayan Banking Corporation top groups 76–9 (UMBC) 122 Takahashi 35 32, 85, 237–8 Takeuchi, H. 35 Uruguay 239 Tatung 84 tax incentives 14 vertical and horizontal segmentation 216 technical innovation 89–90 Vietnam 16 technology 152 Vodafone 238 technology transfer 83 telecommunications 218 Wan Azmi Wan Hamzah 125 Temasek 103–4 Wee Ee Cheong 102 Temasek Charter 107 Weinstein, S. 34 Temasek Holdings 95–7 Whitley, R. 3 Thailand 14, 147–78, 235, 236 Wiwattanakantang, Y. 15, 163 asset bubbles 8 Woo, J. E. 229 baht 166 World Bank 66, 233 banking crisis 168 World Trade Organization (WTO) 12, 65 BIBF 168 Big Five 149, 150, 152, 159 Yafeh, Y. 34, 35 business groups: development of Yeh, Y. H. 87 148–50; performance 175–7; restructuring 173–5 Zingales, L. 65 business listings 153–8 Chinese 148–51