Despite Rivalries, Chinese Link Their Economies

ALTHOUGH still riven by political rivalry and suspicion, a new economic powerhouse is taking shape in Asia.

In recent years, this emerging mega-economy - known as ``Greater China'' and including China, Hong Kong, and Taiwan - has drawn international attention, as a flurry of trade and investment blurs the divisions among these political rivals.

Earlier this year, the World Bank pronounced that the area was ``arguably becoming the fourth growth pole of the global economy.'' As the United States, Japan, and Europe strive for faster growth, the Bank said Greater China's average economic expansion rate of 7 percent since 1962 is boosting the regional and world economies.

In a controversial suggestion disputed by many Western analysts and Chinese officials, the World Bank predicted that Greater China's output will rival US domestic output by the turn of the century, although it still lags far behind in per capita income. The Bank said that official accounting ``greatly understates'' the size of the Chinese economy.

Anchoring this new economic sphere is southern China, which has been flooded by Taiwanese and Hong Kong investors aiming to capitalize on the area's increasingly liberalized, fast-growing economy. Since China's paramount leader, Deng Xiaoping, opened China and launched economic reforms in the late 1970s, southern China - stretching from Hainan Island in the south through Guangdong Province opposite Hong Kong to Fujian Province just across the sea from Taiwan - has enjoyed an explosive 14-year economic boom.

Mr. Deng designated the provinces as the main laboratories for his economic experiment, allowing extra freedom and tax breaks for foreign trade and investment and establishing five ``special economic zones'' with even more liberalization.

As a result, the economy of Guangdong, the cornerstone of southern China, has been growing at a 13 percent average annual clip and posting 17 percent yearly increases in exports, mainly channeled through Hong Kong. That economic miracle, impossible without investment from Taiwan and Hong Kong, is merging the three areas in a network of trade, investment, and business connections in Asia, analysts say.

Hong Kong businessmen have invested an estimated $10 billion in the mainland, while Taiwanese investments are estimated about $4 billion, despite official restrictions on Taiwanese business activity imposed by Taipei.

``Southern China is largely a Hong Kong and Taiwan phenomenon. The factories are Hong Kong- and Taiwan-designed and built and run by their managers,'' says a Western diplomat in Hong Kong. ``Absent Taiwan and Hong Kong, it wouldn't have happened.''

Beijing's strategy for southern China ``is to develop Guangdong into a large trading and service region, providing transportation, communications, marketing, financial, and business services to the rest of China,'' says Tsang Shu-ki, an economist at Hong Kong Baptist College. ``In such a scenario, Guangdong will be serving China in a manner similar to the way that Hong Kong has been serving Guangdong.''

Still, political differences hinder Beijing's dream of reconciliation and reunification. Hong Kong is due to pass from British to Chinese control in 1997, although the two countries are now locked in an ideological battle over democratic reform proposals for the colony.

The Taiwanese government has nervously watched the growing economic links to mainland China, worrying that they will bolster Beijing's claims to the island, which it still considers a province. But China has signaled it is rethinking its position toward Taiwan, agreeing to accept separate representation for Taipei within the Asian Pacific Economic Cooperation forum and to negotiate nonpolitical issues with Taiwan.