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SEPTEMBER 27, 1999 VOL. 154 NO. 12

SHANGHAI NORTH STATION: The Flight from Communism, 1949
Exodus of the Business Class

By the time Wai Sai-Piu fled Shanghai shortly after the communist takeover in 1949, the only way out was by train from the city's bomb-scarred North Station to Hong Kong. Wai's sudden urge to leave Asia's leading commercial and banking center--the "Manhattan of the Orient"--for a colonial backwater was strictly a business decision. Wai was a tailor, and when he learned that the Shanghai businessmen who were rich enough to buy his suits had quietly departed for Hong Kong on the eve of "liberation"--before international air and sea routes to the outside world were blocked--he felt he had no choice but to follow his customers.

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For Wai and the 1.4 million other Shanghainese who joined the capitalist exodus from the mainland to Hong Kong, the trip involved a 10-day ordeal by rail and, in places where the tracks had been sabotaged, by road or on foot over terrain devastated by China's long civil war and plagued by bandits. Wai, now 75, recalls the sweet breath of economic freedom that greeted him when he finally crossed the border. "The first question I was asked by the immigration officer, was not, 'Do you have a permit?' but rather, 'Do you have Hong Kong dollars?'" Unlike mainland authorities he had encountered, the official was not soliciting a bribe, but trying to keep out indigents.

It was precisely that unapologetic pursuit of profit--and the laissez-faire environment in which it thrives--that attracted Shanghainese capitalists to Hong Kong in the first place. What started as a trickle before the Japanese invasion of China in 1937 became a flood after the resumption of civil war in 1946 between the Nationalist government, or Kuomintang (KMT), and the Communist Party revolutionaries. Eager to escape the harsh exactions imposed by the corrupt KMT, Shanghainese captains of industry discreetly moved their money into Hong Kong banks and diverted shipments of equipment, often newly purchased from the West, to warehouses in the British colony that offered textile tycoons and shipping magnates attractive incentives to relocate their factories and register their vessels. The communist victory accelerated the human and capital flight. "What took place was nothing less than the exile of Chinese capitalism from the mainland to Hong Kong," says Ming Chan, executive director of the Hong Kong documentary archives at Stanford University's Hoover Institution.

Almost overnight, Hong Kong metamorphosed from a sleepy colonial entrepôt to a regional manufacturing and financial center, thanks largely to the contributions of this affluent, new breed of migrants, so different from the coolie laborers who had poured out of Fujian and Guangdong earlier in the century to work Southeast Asia's plantations and mines. Shanghainese textile tycoons, bankers, movie moguls and shipping magnates--including Tung Chao-yung, father of Tung Chee-hwa, who in 1997 would become post-colonial Hong Kong's first Chief Executive--endowed their adopted community with expertise, technology and capital.

When the United Nations imposed a trade embargo on the mainland in 1951, following the outbreak of the Korean War, the market for made-in-Hong Kong products soared, compounding the wealth and status of the leading Shanghainese families. "The Shanghai industrialists represented a new kind of emigrant--an economic élite in flight," says Wong Siu-lun, director of the University of Hong Kong's Centre of Asian Studies and author of Emigrant Entrepreneurs.

Shanghai did not emerge from its socialist stupor until a full decade after other coastal areas had begun their transitions to market economies. As China's major industrial city, Shanghai was required to finance costly communist programs to redistribute income and relocate strategic industries from the coast to the interior. At first the new regime sought cooperation with those capitalists who had not fled. Henry Tang, 47, scion of one of Hong Kong's most prominent Shanghainese textile manufacturing families, recalls visiting his grandfather in the old family mansion in Shanghai seven years after the communists took power. "His lifestyle and work style had not changed much," says Tang. "The only difference was that the profit he was making managing the family business no longer belonged to him." But when Mao's policies veered radically leftward in the late 1950s, capitalists were harshly persecuted. Tang's grandfather fared better than many. "He was forced by his workers to write a self-criticism, but they were just going through the motions of purging the capitalist who was 'exploiting the proletariat,'" says Tang. "When he was paraded through the streets, the people did not throw stones at him."

Those who survived to tell about their more grueling experiences are among capitalism's most eloquent defenders today. For a time Zong Zhihu's expertise as deputy manager of a privately operated Yangtze River shipping company was valued by the communist government, which in 1956 promoted him to deputy director of the Yangtze River Shipping Administration Bureau. However, his business background made him a target of the anti-capitalist Red Guards, who forced him to spend the Cultural Revolution working as a waiter on a river boat. "I was 52 years old when the Cultural Revolution began," says Zong. "I was looking forward to my golden years as a time when I could explore my potential, but instead I lost everything." He praises Deng Xiaoping for restoring political stability and economic sanity in 1978.

When the central government finally loosened the shackles on Shanghai's revenues in 1992, the city demonstrated that it had lost little of the entrepreneurial spirit that had accounted for its early dynamism. Since then it has restored the foreign bank buildings on the Bund and developed the Pudong area into a high-rise financial district, featuring the largest stock market trading floor in the world. Today it is touted as Hong Kong's rival in a race to become the future financial capital of China and hence East Asia as a whole. "I predict that by 2010 the total volume of Shanghai's GDP will surpass that of Hong Kong," says Yao Xitang, president of the Pudong Academy of Development in Shanghai. However, he believes that Shanghai's poorly developed legal system and its still-heavy obligations to the state will prevent it from supplanting Hong Kong for at least as long as the former colony is exempted from paying national taxes.

Meanwhile, 50 years after capitalism's exile from the mainland, China stands to profit from the equivalent of two Manhattans within its borders to finance its future development.

With reporting by Isabella Ng

SHANGHAI: City of Illusions
CHILDREN'S PALACE: Spoiling the Single Child

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