Politics & Business. A Study of Multi-purpose Holdings Berhad 9679080579

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A STUDY OF

MULTI-PURPOSE HOLDINGS BERHAD :and i I

GALE

Eastern Universities Press (M) Son Bhd

To Carolyn with love A girl in 6,547,300

(Malaysian Census, 1980)

First published 1985 Copyright

©

Bruce Gale

All rights resewed. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or

and

information storage and retrieval system, Without permission in writing from

the publisher. EASTERN UNIVERSITIES PRESS (M) SDN BHD 106, Boon Kong Road, #07-05, Singapore 1233. 39, Jalan SS 20/ I 1, Damansara Uta ma, Pedaling Java, Selangor, Malaysia.

Prillted by Koon Was Printing Pre Ltd, Singapore. 18, Tues Avenue 5

Singapore 2263 ISBN 967-908-057-9 (boards)

ISBN 967 9080595 (limp)

Contents

Preface vii Glossary of M o r Personalities ix Abbreviations xi

Introduction I 1

__

KOPERATIF SERBAGUNA MALAYSIA

15

The MCA in the 1960's Proposal to Form an Economic Organisation The Establishment of KSM Early Projects The Appointment of Tan Koon Swan Continued Growth 2

THE ESTABLISHMENT O F MULTI-PURPOSE HOLDINGS Political Developments 1969-1974 Economic Reassessment An MCA-backed Company Campaigning for Chinese Support

CORPORATE

Early Moves

EXPANSION

27 32

40

4/ 46 52 57

64

Restrained Opposition 3

15 19 21 23

70

Acquiring Bandar Raya and Magnum

74 74

Controversy with the Kuala Lumpur Stock

Exchange C-

Takeover of Plantation Holdings

d.

The Birth of Malaysian Plantations Ber fad

Further Developments

a.

Rights Issue

b.

Expansion in Properties

c.

Magnum's New Outlook

d.

Consolidation

78 8/ 88

90 90 9/ 94 96

vi/Contents 4

RELATIONS WITH THE CHINESE COMMUNITY 103 Early Difficulties

/05

a. Southern Banking b. The Selangor Chinese Chamber of Commerce Elections

5

New Bases of Support

I06° HE

a. The Corporatisation Movement b. Kojadi C. The Political Rise of Tan Koon Swan

I2.5 /28

MULTI-PURPOSE AND UMNO

Guthrie Ber fad

The Dunlop Dea] Conclusion

HNVSOI-IPATTQN Building a Sogoshosha

H6

137

The UMBC Controversy Another Increase in MPHB's Equity Base

6

105

141 I'53 /57 /62

172

178

Properties

/81 /90 /92

b.

Plantations

196

c.

Finance

/97 /99 200 208 204

Rationalisation

a.

d. Conclusion The Kepong Project New Controversies a.

The Koch Lanas Deal

b. The Kean Slew Controversy

207

MPHB and the New Economic Policy

209

Appendiccts 220 Index 235

Preface This study is based on preliminary research undertaken as part of the requirements for a PhD thesis to be submitted to the Universiti Kebangsaan Malaysia (Malaysian National University). The thesis itself, which will examine various aspects of Malaysian political economy, is still in preparation. It will be published in due course.

This book focuses on the activities of Multi-Purpose Holdings on the Malaysian corporate chessboard and the significance of the company's actions, in. to the MCA and the other partners in the National Front government. It is hoped that the observations recorded here will be of value not only to academics, but also to businessmen, corporate plannersand other professionals. Several people have contributed in various ways to this study. A special word of thanks must go to Tan Koon Swan, the managing director (operations) of the Multi-Purpose Group, who took time off from his busy schedule in 1983 and early 1984 to allow me to conduct several interviews. Datuk Chu Ching Hwa MPHB managing director (administration), and Kee Yong Wee, executive director of Bandar Raya Developments Ber fad, also agreed to be interviewed. Tan Ken Sin of the Multi-Purpose Group Public Relations Department provided invaluable background information during frequent discussions, as did Thain Ah Mole, Mr Tan's personal assistant. I would also like to thank Poa Soon Teong, the executive secretary of the Chinese Assembly Hall in Kuala Lumpur for his assistance. All of the officials in Multi-Purpose with whom I spoke answered my questions frankly and patiently. They may not agree with all of

the judgements presented in this book, but I trust they will not regard my descriptions or conclusions as misrepresentations. A number of academics assisted me by reading various sections of the manuscript and offering constructive criticism. As with my two previous books, I owe a special debt to Professor Khoo Kay Kim of the I-Iistoly Department, University of Malaya, for his comments and general encouragement. In addition, I would like to acknowledge the help I received from Lee Kam Hint, also of the History Department of the University of Malaya. His specialised knowledge ofMCA politics helped me avoid making several errors. Others who read parts of the manuscript include Raymond and Susan Lee from the same university.

viii/Prefa be

My PhD supervisors at the Universiti Kebangsaan, Dr Zacharia bin Hali Ahmad and Dr Harold Crouch, also provided valuable guidance. I look forward to their continuing assistance as the material published in this book is reworked and extended to fulfill the requirements of the PhD programme. Finally, I would like to express my sincere appreciation to my friend Lee Kai Hoe who translated a seemingly endless stream of Chinese newspaper cuttings that were presented to him. Without his

help this study would have been unable to explore Chinese reactions to Multi-Purpose Holdings in as much detail. For the convenience of English educated readers, however, I have avoided referring to Chinese newspapers in the footnotes whenever substantially the

same material can be found in the English language press. A few comments also need to be made about titles. The 'Yang diPertuan Agong' is the title of the Supreme Ruler, or Malaysian King, 'Tengku' or 'Tunku' are hereditary titles denoting links with the royal families of West Malaysia, 'Tun' and 'Tan Sri' are conferred titles

awarded by the Yang di-Pertuan Agong, 'Datuk' is also a conferred tide, being awarded by the 'Sultaris' (Rulers) of the states. In the case of the personalities mentioned in this book I have chosen to give their full names and titles on the first occasion and later resorted to a shortened version. For example, Datuk Choo Ching Hwa is later referred to simply as Datuk Chu or C h o p Ching Hwa. The only exception to this rule is in places where this system would result in ambiguity. For this reason Datuk Lee San Choom and Datuk Lee Kim Sai are referred to in several places in the book by their full names. Difficulties also occur when one tries to take account of personages who have received their titles halfway through

the narrative. In order to avoid confusing the reader 1 have avoided this problem by using current titles throughout. For those unfamiliar with Malaysian names, a brief glossary of the main personalities mentioned has been included. As is usual in such matters, I accept full responsibility for the

judgements and statements of fact presented in this book.

Bruce Gale Kuala Lumpur

April 1984

Glossary of Major Personalities Anwar Ibrahim bin Hajj Kamaruddin

Former president of the Angkatan Belia Islam Malaysia Malaysian Muslim Youth Movement). Became UMNO Youth leader in Sep~ tember 1981 and was later appointed Minister for Culture, Youth and Sports.

Chao Ching Hwa, Datum Honorary secretary of KSM since its establishment. Became chairman of Magnum in 1982. Currently an MCA Central Committee member and managing director (Administration) of MPHB.

Ghafar Baba An UMNO vice-president and prominent businessman. He is the chief executive of Goodyield Plaza. Hussein One, Datum

Became Prime Minister in 1976 after the death of Tun Razak. He retired in 1981.

Ibrahim Mohamed, Tan Sri Executive chairman of the Pemodalan Bersatu Ber fad (PBB). Chief executive of Pro ret. Kee Yong Wee, Senator Chiefexecurive of Bandar Raya Developments Ber fad. His personal invcsunsents are concentrated in Malaysian Resources Sendirian

Ber fad. A close associate of Tan Keen Swan. Khoo Kay Pens, Datuk Chairman oT- -Mafayan

United

Industries

(MUI). Chairman of

Magnum umiljune T982. A dose associate of Tan Keen Swan. r

Lee Kim Sai, Datuk Head ofMCAYouLh until the MCA crisis of In/larch 1984. 'ReinstatedL' at the controversial MCA General Assembly in May. A close

associate of Tan Keen Swan.

x/Glossazy Lee Loy Send, Tan Sri Datum Executive chairman of KL Kepong. Chairman of1\/IPHB until 1983.

Lee San Choom, Datum Honorary president of KSM since its establishment. MCA president from 1974 to 1983. Currently executive chairman ofMulti-Purpose

Holdings Ber fad. Lee Yan Lian, Tan Sri Prominent businessman and philanthropist. Former president of Selangor Chinese Chambers of Comnlerce (SCCC) and the Associated Chinese Chambers of Commerce and Industry (ACCCIM).

Neo Yee Pan, Datuk (Dr) Former university lecturer. Succeeded Datuk Lee San Chook as acting MCA president in 1983. Oon Send Lee, Datuk Currently chairman of KSM, founding member of KSM and MultiPurpose Group chairman. Rayleigh bin Hamzah, Tengku Former chairman of PERNAS and the Bank Bumiputra. Became Minister of Finance from 1976-84. Currently Minister of Trade and Industry.

Suhaimi bin I-Iaji Kamaruddin, Datuk UMNO You Lf leader until September 1981.

Tan Koon Swan Managing director [Operations] of MPHB since 1977. Became MP for Reub in 1978 and Federal Territory Liaison Conlmiu;ee chairman

in 1979. Won the Darnansara constituency for the MCA in 1982. Became chairman of MPHB for a brief period after Tan Sri Lee Loy Send resigned. Vice-president of the MCA until his expulsion from :he party in March 1984. 'Reinstated' an the controversial MCA General Assembly in May. His personal investments are concentrated in Supreme Corporation.

Abbreviations/xi

Tan Slew Sin, Tun MCA president until 1974. Chairman of Sirne Darby.

Abbreviations

ACCCIM

Associated Chinese Chamber of Commerce and Industry

CIC

Capital Issues Committee

DAP DEB FIC GMHB

Dernocradc Action Party

Dunlop Estates Ber fad Foreign Investment Committee Guthrie Malaysia Holdings Ber fad

HIL

Hutchinson International Limited

ICA IHD KLSE KOJADI KSM MCA MIC

Industrial Co-ordination Act

MPB

Malaysian Plantations Ber fad

MPHB

Multi-Purpose Holdings Ber fad Malaysian United Industries New Economic Policy Pernodalan Betsatu Ber fad

MUD NEP PBB PHL

PNB SCCC

UDA UMBC UMNO

International Housing Development Limited

Kuala Lumpur Stock Exchange Koperasijaya Diri l Koperatif Serbaguna Malaysia Malaysian Chinese Association Malaysian Indian Congress

Plantation Holdings Limited Pemodalan Nasional Ber fad

Selangor Chinese Chamber of Commerce Urban Development Authority United Malayan Banking Corporation United Malays National Organisation

Introduction Today, Multi-Purpose Holdings Ber fad (MPHB) is one of the largest companies in Malaysia. Its investments, which include interests in plantations, property, trading, insurance and finance, cover virtually every major sector of the Malaysian economy. It sometimes comes as a surprise to foreigners, unfamiliar with the Malaysian scene, to discover that such a large corporation is closely associated with a political party. The Malaysian Chinese Association (MCA), one of

the key partners in the nation's multiracial government, does not own MPHB directly, but it has certainly been responsible for the corporation's establishment and growth. Almost all the key positions in MPHB are filled by influential MCA members. The creation ofeconornic organisations by political institutions is not a new phenomenon in Malaysia. British colonial policies on the Malay peninsula in the nineteenth and early twentieth centuries consisted largely of providing the appropriate infrastructure to assist entrepreneurial efforts by private (mainly British) companies. However, the establishment of influential Malay political organisations after the Second World War soon forced modifications to this policy. In 1951, the Rural and Industrial Development Authority (RIDA) was established after Datuk Onn urged the British High Commissioner to take positive action to help the predominantly rural Malay population. At the time, Datum Onn was president of the United Malays National Organisation (UMNO) and had recently been appointed Home Affairs Minister in the colonial government. Independence in 1957 saw further government intervention in

the economy. At first, efforts by government departments and other agencies to assist the economically weak Malay communities concentrated on opening up new estate settlements and constructing roads, schools and other community facilities. In the 1960's, the work of statutory bodies such as RIDA and the Federal Land Development Authority (FLDA) was supplemented by the establishment of Statc Economic Development Corporations (SEDC's) in the various states. RIDA (later MARAI also began to provide loans and training for Malays who wished to establish businesses. These government agencies were not seriously expected to make profits and there were no shareholders to demand dividends. The intellec-

2/Imiroduciion

t a l climate of the time still regarded the use of private enterprise rather than public enterprise as the more appropriate development strategy. 1

The 1969 coinmurialdisturbances marked the abandonment of this philosophy and the adoption of policies leading to the creation of a mixed economy. The New Economic Policy (NEP) was a determined attempt at social engineering in which previous policies were extended and linked together to form a coherent whole. It aimed to alleviate Malay economic discontent by eliminating poverty and removing the long established identification ofraee with economic function. With only 2% of corporate wealth in 1970, Burniputras (Malays and other indigenous people) were expected to increase their share to 30% by 1990. This was to be done in the context of an expanding economy so that the generally more

prosperous non-Malay (Chinese and Indian) communities would feel no sense of deprivation. In fact, non-Malay corporate ownership was expected to increase from 23% to 40%. During the same period, foreign share ownership was to drop from 62% to 30%. 2 After 1970, the government vigorously encouraged Malays to participate as full partners in the nation's economic and commercial life. Existing agencies were revitalised, new organisations established, and specific socio-economic objectives laid down. PERNAS, a large government-owned business corporation, played a Particularly significant role. It acquired investments (to be held in trust for the Malays] in key economic sectors. The stage was thus set for the rapid politicisation of the Malaysian economy. 3 In some respects MPHB was set u p in response to these developments. Chinese businessmen saw various governmental activities in

the l910's in an unfavorable light. Meanwhile, Chinese political leaders in the MCA began to advocate the modernisation of traditional Chinese family businesses. This modernisation, they said was essential i n order to ensure that non-Malays reached the targets allocated to them under the NEP.

Malaysian Chinese occupy a unique position among the Chinese minorities in Southeast Asia. In Indonesia, Thailand and the Philippines, the Chinese are known for their influence on their respective national economies. But it is only in Malaysia that the

Chinese, in combination with other immigrant communities, have sufficient numbers to present a challenge to the political dominance

Introduction/3

of indigenous groups. 4 such challenge is likely in the foreseeable future. Most Chinese, in common with their Malay and Indian fellow citizens, realize only too clearly the disaster that may befall the nation if latent communal tensions are aroused by confrontationist political tactics. The aftermath of the 1969 elections, in which savage race riots followed determined campaigns by Malay and Chinese-basccl opposition parties, has been sufficient to prove that point. For several decades the vast majority of Malaysian Chinese have regarded Malaysia (formerly Malaya) as their permanent home. In the process of settling down in colonial Malaya in the nineteenth and early twentieth centuries, Chinese immigrants gradually adapted their ways to local conditions and needs. Modern Chinese in the country like to point out that they now have a distinctly Malaysian, but not Malay, dimension to their way of life. However, it is also true that they have sought to preserve aspects of their religious, cultural and linguistic heritage. Many Chinese have been slow to recognise Malaysian political realities. The history of the Malaysian Chinese Association (MCA)

since its establishment in 1949 has been very largely the history fan English educated leadership concluding inter-communal agreements within the multiracial Alliance (later National Front) government while at the same time trying to maintain its credibility in the eyes of influential Chinese chauvinist elements. The MCA's problem has been that while a strong p truly representative of the Chinese Community was essential negotiating with Malay leaders in UMNO, this could not be achieved unless the party took a firm

an. m

public stand on issues such as Chinese language, culture and citizenship. MCA leaders often found themselves having to justify or.

unpopular government policies to the Chinese electorate. Under these circumstances, party splits and mass resignations were inevitable. As will be seen in later chapters, the formation ollMPI-IB in 1975 was part of a long series of efforts by the MCA to maintain its leadership

of the Chinese. In Malaysia, the nation's Malay and non-Malay coinrnunities are

finely balanced. The 1980 census revealed that in Peninsular Malaysia, the Malays made up 55.396 of the population, the Chinese 33.896, Indians 10.2% and others 0.7%5. The Malays have not always held a majority. Large scale Chinese and Indian immigration in the

4/Introduction

early decades of this century meant that by 1931 Malays constituted only44.7% of the population of colonial Malaya (including Singapore). 6 The British reacted to Malay fears that they would be swamped by foreign cultural and racial groups by prohibiting further immigration. When Malaya became independent in 1957, the proportion had risen to

49.8% largely as a result oldie exclusion of the predominantly Chinese island of Singapore from the Malayan Federation. 7 After the Second World War an attempt by the British colonial administration to unite die states of Malaya by establishing a unitary goveinrnent was body opposed by the Malays on the grounds that the sovereignty of the Malay Sultans in the states would be transferredto the British crown. This, they believed, would inevitably result in the counuys affairs being run by the more economically sophisticated nonMalay cotnniunities. It was at this time that the influential United Malay National Organisation (UMNO) was formed to protect Malay interests. As a result of this agitation the Malayan Union Scheme was replaced by the Federation ofMalayaAgree1nent in 1948. It guaranteed the special position of the Sultans and the Malays as the indigenous people. In return Malay leaders accepted due principle that non-Malays could obtain citizenship. s UMNO has been the senior partner in the

multiracial coalitions that have ruled the nation since independence. Singaporejoined an enlarged Malaysian federation in 1963. This was possible only because die British territories of North Borneo (Sabah and Sarawak) were also admitted. Malay leaders hoped that the predominantly bar and Kadazan indigenous communities of these states would form an effective counter to additional numbers of Chinese in Singapore. The experiment failed. Singapore was expelled from the Malaysian federation in 1965 amid heightened communal

tensions. 9 The states of Sabah and Sarawak remained, but showed persistent signs of political independence. It was only after 1970, with 53.2% of the population of peninsular Malaysia belonging to their ethnic grou that Malays could again feel secure in their I numerical superio Racial arithmetic has always played an important part in Malaysian politics. The fact that the Chinese constituted a large proportion of

IL_

I

-

the country's population has encouraged Chinese communal organi-

sations to make political demands that few Malays have been willing to accept. With the Chinese already holding substantial economic

power, Malay leaders have been reluctant to hand over political

Introduclfton/.S

power as well. In cultural, linguistic and religious matters, there have

been similar tensions. To the Malays, the Malay peninsula was "Tarah Melayu" (land of the Malays] and they expected immigrant communities to accept this point. In practice, non-Malays have had to accept Islam as the official religion and Malay (later Bahasa Malaysia) as the national language. Major political institutions have

also been created out of the combination of Malay and British traditions.

The pattern of economic development in colonial Malaya was not

conducive to the promotion of inter-communal harmony. The colonial period produced an economic dualism in which advanced non-Malay enclaves existed side by side with a rural Malay subsistence economy. In the early stages of British rule, Peninsular In/lalavsia was J

inhabited almost entirely by Malays and a few nomadic aboriginal people in the interior. There were also a number of small Chinese and Indian settlements. During the nineteenth century, however, the British, like the Malay Sultans in the previous era, encouraged the introduction of Chinese to work in the tin mines in the Malay states of Pcirak and Selangor. Later, they also became concentrated in the towns where they began to dominate business and the professions. Meanwhile, Indians were recruited to work on newly established British owned rubber estates, in Shore, Selangor and Perak. Today most Indians can still be found on the estates, although many also work in the towns as shopkeepers and professionals. Several reasons have been given to account for the predominance of the Chinese in the cities and towns. Except for the development of estates, Chinese have historically had difficulty getting titles to agricultural land. There are small Chinese-owned plots in some

areas, but these are not common. Another reason is that during the Emergency period after 1948, when the communist insurgency was at its height, almost every Chinese rural dweller was moved into

protected resettlement areas called New Villages. 1 1 Similarly, the apparent preference of the Chinese fOr business activities may be partly due to the fact that few were able to join the civil service. In theory, British rule was imposed through the co-operation of the hereditary Malay Sultans in the various states. 1 2 This meant that many Malays, particularly those of aristocratic descent, were able to

join the expanding civil service. The majority, however, remained farmers and fishermen. There were also differences between various

6/Infrotiudion

regions. Malays living along the developing and increasingly multiracial West Coast experienced a lower incidence of poverty than those in the eastern states of Pahang, Trengganu and Kelantan. It was not until the mid- l 970's that many young Malays drifted to the cities where they obtained work in unskilled and low paid jobs as policemen, soldiers and factory workers. For most of its history, therefore, Malaysia's three main racial groups have been separated

both geographically and economically. The racial imbalance between rural and urban areas led to further problems. In the towns and cities, the predominantly non-Malay population had better access to medical, educational and other facilities generally unavailable to rural dwellers. This has given nonMalays (particularly the Chinese) an advantage over the majority of` Malay kampong (village) folk. Because of their more lucrative occupations and access to urban facilities, non~Malays have had, on average, higher incomes than Malays. There were, of course, many poor Chinese and Indians, just as there were a few rich Malays. I n fact, the number ofwell-to-do Malays increased substantially in the l970's as a result of the implementation of the NEP. Many scholars, realising the importance of ethnicity in Malaysian political, economic and social life, have described colonial Malavaas a plural society in which the various races, separated by culture, language and economic function, met only in the market place. i s

Today it may be argued that urbanisatiorrand modern economic development have meant that the notion of pluralism is not strictly applicable. However, it must also be recognised that there is little

evidence that the forces of modernisation have led to an erosion of ethnic allegiances. Communally-based political parties continue to

thrive while most political controversies still acquire strong communal overtones. Other writers have suggested alternative analyses. One of the most popular has been to emphasis the differing interests of the various social classes.

14

This approach has some validity, but the writers

concerned have yet to deal convincingly with the fact that the population as a whole has a very underdeveloped sense of class solidarity. 1 5 Another suggestion has been drawn from the writings of the German sociologist Max Weber and others. It points out the importance of vertical patron-client relationships between indivi-

duals of different social classes. The patrinfionial model follows a

Introduction/7

similar course by emphasising the How of political and economic resources along informal social networks. It has the advantage of helping to explain inter-elite co-operation as well as the absence of significant class antagonisms. 16

In Malaysia practising politicians have generally found that an appeal to racial loyalties has been the most effective means of rnobilising political support. It is, of course, difficult to determine to what extent these tactics have reflected or shaped the ethnic perceptions of the electorate. Social class and patron~client analyses, despite their seemingly contradictory premises, appear to be more relevant in understanding conflicts within communal groups than between them. Even here, however, political leaders need to be careful that their opponents do not succeed in portraying them as

abandoning the interests of their race. To complicate matters further, the various ethnic communities also exhibit a considerable degree of internal socio-eeonornic and linguistic variety. Many of those now referred to as Malays, for example, are actually immigrants from Sumatra, Java and elsewhere in Indonesia. Most have been able to assimilate easily into the indigenous community because they shared a common religion and a similar linguistic background. i i Howevenjavanese cominunities,

with distinct language and cultural traits, can still be found in shore. Similarly, it Is also possible to point to significant cultural, linguistic and economic differences between Malays in the southern and western Malay states and those in the more undeveloped states

of Trengganu, Kelantan and Ked ah. i s Such differences have not been without significance in Malay politics. Since independence U M N O has had its role as the political

representative of the Malays persistently challenged by the PMIP (later PAS). PAS today is an Islamic fundamentalist party which gains tnost of its support from the northern Malay dominated states, particularly Kelantan and Trengganu.

The Indians for their part were also divided initially on the basis of linguistic and other cultural barriers. In Malaysia today it is largely the Southern Indians, Tamils of peasant and lower caste origin recruited by the British to work in rubber estates, that predominate in the rural areas. A smaller number of Punjabis are to be found in commercial or professional employment in the cities. These social and geographic barriers became less important than class ones in the

8,»'Introriuc£sI0n

twentieth century. There were also substantial foreign influences in their political orientations. The English educated professional classes in the cities, for instance, were attracted by the independence movement against the British in India. After 1957 Indians were represented in the Alliance government through the Malayan Indian Congress (MIC).

The Malaysian Chinese community is far from homogeneous. The Chinese are divided into a. number of different dialect groups such as Cantonese, I-Iokkien, Hakka, 'Teochew and I-Iainanese. Most communication between these groups has therefore been limited to those educated in Mandarin or English medium schools. As if that was not enough, the English and Mandarin educated Chinese are

themselves divided by different outlooks. The English educated elites of the various communities are more likely to have continuous and meaningful contact with each other as well as shared values and perceptions. It is they who have worked out the major communal compromises. There are also important class differences. The population includes wealthy multi-millionaires, middle class shopkeepers, professionals, squatters and general laborers. It is little wonder,

therefore, that Chinese political leaders (especially those in the MCA) have had difficulty keeping such disparate groups united within a single political party. There were several waves of Chinese immigration to colonial Malaya. i s Each brought new dialect groups. The Hokkiens arrived first, coming in large numbers during the late eighteenth and early nineteenth centuries. They established themselves in the major ports ofMalacca, Penang and Singapore. These ports were the first to come under British control and were collectively known as the Straits Settfements. Holckien communities also developed around other ports on the Malavan Peninsula such as Kiang and Alor Sta.r. Some Hookier Chinese became wealthy as import-export traders, linanders, wholesalers and dislribulora. The Hokkiens were closely followed be the Teochews. Many Teochews worked in Singapore while some planted pepper and gambier crops in _Johore. Others grew sugar cane in Province Wellesley opposite Penang Island. The Cantonese were the next major dialect group to arrive in Penang and Singapore in large numbers. '1`hev later moved inland and set up shops and restaurants

Inrfrorfuciion/9

in developing towns such as Ipoh, Kuala Lumpur and Seremban. The arrival of the Hakkas after 1850 corresponded with the opening u p of the tin mines in Selangor and Perak. They provided mostolthe l a b o r in the mining areas. Many also became squatters and market gardeners. The Hainanese arrived later and worked on newly established Hokkien-owned rubber estates in Perak and Negri

Sembilan. Today many Hakkas and Hainanese are to be found among working class Chinese. The forces of modernisation have blurred these patterns in modern Malaysia. Most Chinese are able to speak several dialects, and those who cannot usually use English, Mandarin or Bahasa Malaysia as a result of nnprovemenrs i n education. However, some socio-economic divisions are still visible. Motor parts distributors, for example, are generdlv Hoklcien whereas mechanics are usually Hakkas. Cantonese still dominate the retail trade as shopkeepers, goldsmiths and restaurant owners, but the I-Iainanese, have managed to establish themselves as coffeeshop operators," and there are substantial numbers of Teochews working as hawkers. To some extent, political differences within the Chinese community in the pre-independence period reflected dialect and class differences.

Cantonese formed the backbone of the support for the Kuomintang in Malaya. Sun Yat Sen was himself a Cantonese and this was undoubtedly an important consideration for many. The Cantonese were joined by substantial numbers of Hokkien Chinese who had been born in China. However, many second and third generation Hokkien Chinese in the Straits Settlements were reluctant to follow. Many were offspring of mixed marriages as the early Chinese immigrants did not bring along their womenfolk. They retained

some aspects of' Chinese culture but adopted a different life-style. 'Their leaders, having had access to English medium schools and @.I".2i.ri"s l?Iritishleg.al privileges and protection, were more concerned about maintaining their lationship with Britain. The Straits Chinese British Association (SCBA) was the most representative organisation of this group. 21 The I-Iainanese and Hakka communities were the bases from which yet another powerful organization grew. The Malayan Com~

monist Party (MCP) was first formed among Hainanese estate workers in Negri Sembilan. Their attraction to communism was not

simply because of their economic circumstances. It can also be

I O/Introduction

partly explained by the fact that Hainan Island was the first area in China where the comn;1urlists gained a firm foothold. This association with the communists drew the I-Iainanese, and later the Hakkas, into the Kuomintang.

After 1927, when Kuomintang and communist forces in China split, the I-Iai r a n e e and Hakkas in Malaya left the Kuomintang in large numbers. They formed their own organizations which later led to the formation of the MCP in 1930. During the Japanese occupation the MCP led the fight against the Japanese so that by 1945 the communist-led Malayan People's Anti-japanese Arrrw (MPA_]A} was very influential. Not surprisingly, most of its leaders were Hainanese and Hakkas. 22 Malaysian Chinese politics at the national level in the early 1980's does not exhibit such marked cleavages among dialect groups. But this does not mean that linguistic differences are unimportant. Large numbers of Chinese still take pride in belonging to at least one Chinese association. This point is recognised be Chinese politicians during elections when they seek the su.pport of the various guilds,

clans and dialect groups. More

or is still p o s s t o

divide Chinese-based parties into

genera] class categories on the "basis of their political support. The DAP fi most"ol` its support among urban lower-middle and working class Chinese. Most established Chinese businessmen, on the other l'1a.nd, are sympathetic to the MCA. The Gerakan began its political life by appealing to English educated professionals. Since then in has expanded to win support among small businessmen especially in Perak and Penang. (given

these differences it is not really surprising that the establish-

ment o{IMPI-IB should be condemned by the DAP as cynical device to increase the power influence and wezdth of MCA politicians. Similarly, Gerakan criticisms of MPI-IB centered upon its alleged

racial chauvinism -

reflecting the party's initial rejection of

communal themes. Throughout its history the MCA has never been able to establish itself as the unquestioned leader of the Chinese community. In this respect its most important. handicap is that it is clearly a junior partner to UMNO in the National Front government.

Unlike

opposition parties it is therefore limited in its ability to champion Chinese causes. However, its position in the government does allow

Introduction/I I it to influence some policies Chinese businessmen.

- . -

especially those of most

COHCCTI1 to

Multi-Purpose Holdings Ber fad [MPHB] was formed in response the establishment of various government-owned 'Burniputra' companies in the 1970's. MCA leaders saw MPHB as having both a defensiveand an innovative role. It was hoped that by purchasing o r establishing subsidiary companies in key sectors of the economy £0

(plantations, trading, finance and shipping} MPHB would prevent these traditionally foreign-dominated sectors being monopolised by Bumiputra interests. At the same time the MCA hoped that the very success of MPHB in rnobilising Chinese capital would encourage Chinese clans and guilds to set u p similar holding companies. In time, the traditio ally family-based structure of the Chinese business

community would be transformed. MPHB and its forerunner, the Koperatif Serbaguna Malaysia (KSMI, have played a key role in MCA politics. KSM was established in 1968 by the Chinese educated lower middle class leadership of MCA Youth. The wealthy English educated MCA president, Tun Tan Slew Sin, was not an eth usiastic supporter of the project at first, but seems to have changed his mind when Datum Lee San Choom, the MCA Youth Leader, used both KSM and MCA Youth to support Tun Tan during the struggle with the Perak Task Force in 1972. When Lee San Cheer became MCA president in 1974 he was not

easily accepted by the Chinese multi-millionaires who formed the party's traditional backbone. The formation of MPHB in 1975 can be seen as an attempt to bypass this group be gaining the support of the Chinese middle class in the same way that KSM had attracted lower-middle class Chinese. The support of KSM members i n the

party certainly appears to have been an important factor in the MCA president's defeat of Michael Chen's leadership challenge in 1979. MPHB could be expected to provide similar political advantages. In the early years ofits operations MPHB experienced considerable opposition from sections of the Chinese business community as well as other Chinese-based parties. Determined Malay opposition, particularly from UMNO Youth, came later when MPHB's plans for expansion seemed to conflict with the interests of organisations such as PERNAS and the Peinodalan Nasional Ber fad (PNB). The most controversial MPI-IB moves came in 1981 with the attempted takeover of the UMBC bank and the joint acquisition (with Pegi

I 2/1 n.£roa'zwriorz.

Malaysia] of Dunlop Estates Ber fad. Such controversies usually involved differing interpretations of the NEP and were thus not easy [ O resolve. Even within KSM and M PH B there were conflicts. Some occurred between the highly-paid English educated managers and lower-paid Chinese educated employees and honorary company directors. Others centered upon whether the two organisations were expanding too rapidly through heavy borrowing. The fact that MPHB survived and expanded despite these problems is a tribute to the political and business acumen of its leadership as well as the support of key business personalities such as Tan Sri Datuk Lee Low Send. By the early 1980's

MPHB was gaining importance in the

continuing factional politics of the MCA. The company had become the power base ofTen Koon Swan. Mr Tan, who entered politics as an MCA MP in 1978, became company Managing Director (Operations) in i977 and was later Ugly 1983) appointed Croup Chairman. He was opposed in the part be Datuk Neo Yee Pan (MCA president after May 1983] who has often spoken of the need to keep politics and business separate. 11 is clear that both KSM and MPHB have helped the MCA maintain its influence among Malaysia's Chinese. By the mid1980's, however, the existence of MPHB had raised difficult questions about the definition and intentofthe government's equity restructuring programme. Despite the reference to apparently precise goals (kg. Malays to have 30% of corporate equity by 1990) many ambiguities remained. Whether MPHB had succeeded then in guarding the long term economic interests of Malaysian Chinese, as opposed to the show-term political interests of the MCA, remained

to be seen. The aim of this study is to present a history of MPHB, its sponsorship of the Chinese corporatisation movement among the Chinese societies and its relationship with government agencies

charged with attaining Malay corporate objectives under the N EP. In the following chapters it will be seen that many of the difficulties the company faced were closely connected to those experienced by the MCA.

Intro/Iucfiorz/I 3 1

On the Malaysian bureaucrat' in the l 95tl's and l 960's see Robert Titman Buroaucratir Transition in Malaya [Duke Universih' Commonwealth Studies Centre, 19641, Galle Ness "Modernisation and Indigenous Control of the Bureaucracy in Malaysia", Asian Survey Vol. V. No. 9 (September 19651 pp465 473, Milton Esmark Administration and Development in Malaysia (Ithaca, Cornell

University Fress, 1972). For further details see the Second Malaysia Plan, 1971 - 1975 (Kuala Lumpur: Government Printing Ofiiee, 197 Ii. 3. 4.

See Bruce Gale Politics and Public Enterprise in Malaysia (Eastern Universities Press, Kuala Lumpur, 19811. For further comparative information see Maw S. Heidhues Southeast Asiaic Chinese Minorities (Longman, Studies in (Iontemporarv Southeast Asia, Mel-

bourne, 197-l'. li

Figure 3.3 "Percentage Distribution of the Population be Ethnic Group and Religion" General Report of the Population Census Vol I. \Dept. of Statistics, Malaysia,

19ss; p. 18. Figures taken from the 1931 Census. Quoted in Leon Cotnber 1.3 May I969: A Historical Survey of Sino-Malay Relal!ions (l-Ieinemann, Kuala Lumpur, 1983] p. 106. 7. Federation of Malaya, The 1957 Census Preliminary Report Based on 'First Conn: Total' Returns r Kuala Lumpur, Government Press, 1957}. J. Allen Nu: -Malrzjvan Union (Yale University Southeast Asia Studies, 19671. 8.9. See Noordin Sopiee Frmn Malayan Union to Singapore Separation (Oxford University Press, 1974).

6.

10. In 1970 the racial breakdown of the population was as follows: Malays 52.796, Chinese 35.896, Indians 10.7% and others 0.8%. Government of Malaysia Fourth Malaysia Plan I98/ - /985 (Kuala Lumpur, Government printers, 1981). Table 4.2, p. 74. 1 1. Abdullah Taib and Muhammad Yusof Ismail 'The Social Structure' in Fisk and Osman Rani (cos) The Political Economy if Malaysia (Oxford University Press, 19821. PP 113 - 114. 12. The history of colonial rule in Malaya has been discussed in many derailed studies. A good overview, incorporating the results of recent scholarship, can be found in Barbara W. Andaya and Leonard Y. Andaya A History

of M[alaysia

(Macmillan Press, 1982).

13. For example, Frank Golan, 'Malaya' in Golan

Cl al. Underdevelopment and Ecorlomzr NationafsSrn in Southeast Asia (Cornell University Press, 1969}. 14. For example, B.N. Cham 'Class and Communal Conflict in Ma.laya'J'ournaE of Contemporary Asia Vol. 5 No. 4 1975, pp 446 -461. 15. Seejudirh Nagata's 'Perceptions of Social Inequality in Malaysia' in Contributions to Asian Studies Vol. 7 1975, pp 113 13 6. 16. Cale op. ii; especially Chapters I and II. 17. For information on some of the early economic differences between indigenous Malays and Javanese immigrants see Lim Teck Ghee Peasants and Their Agricultural Economy in Colonial Malaya 1874-1941 (Oxford University Press, 1977) PP 20 - 2 1 and pp 2 3 5 - 2 3 9 .

-

I 4/lrz.lroductéo'n 18.

Recent studies have given attention to these cleavages. See john Funston Malay

Politics in Malaysia: A Study of UMNO and PAS (Heinenlantl, Kuala Lumpur and Singapore, 1980). On the political impact of class differences within a Malay state, see Clive Kessler Islam and Politics in a Malay State: Kefantan 1838- /969 (Cornell University Press, Ithaca and London, 1978).

19. The following discussion is based upon W. L. Blythe The Impact rjlCftinese Secret Societies in Malaya (Oxford University Press, London, 1969) pp 39 - 45. Victor

20.

Purcell also gives information on the Chinese in industry. See Ute Cllliirte.te in Malaya (Donald Moore Ltd., Singapore, 19641. See Lim Ban Bcng, 'A Socio-economic Study o f Chinese Family Businesses with

Particular Reference to the Cofieeshop Tl'ade'. Graduation Exercise, University of Malaya 1979. 21 . See Means .Malaysian Politics (Hodder and Stoughton, 1976 edition) pp. 103 105 for a brief account of the Kuomintang and the SCBA. 22. On the communist influence in Malaya sec Gene lianrahan, The Communist Straggle in .Malaya (University of Malaya Press, Kuala Lumpur, 1971).

-

1

Koperatif Serbaguna Malaysia (KSM)

The formation of Koperatit Serbaguna Malaysia (KSM) by MCA Youth was a reaction to a number of events in the 1960'5 which contributed to a continuing decline in the MCA's standing among Malaysian Chinese. MCA president Tun Tan Slew Sin had suggested that an investment company be formed which would set u p new industries on behalf of the Chinese. This proposal eventually led to the establishment of KSM in 1968 and Multi~Purpose Holdings Ber fad (MPHB) in 1975. These moves reflected the concern felt by many Chinese leaders that increasing Malay demands for government assistance in commerce and industry would adversely affect the economic position of the non-Malays. This chapter presents an outline of the events in the 1960's which contributed to the continuing failure of the MCA to win leadership of Malaysian Chinese. Also included is a review of the major activities of KSM during the first ten years

o?lits operations.

The MCA in the 1960's With the formation of Malaysia in 1963 the MCA found itself facing a powerful and well organized competitor. The Singapore-

based People's Action Party (PAP), led by Lee Kuan Yew, acted in ways which clearly showed its intention Lo replace the MCA in the Alliance. Its demand for a "Malaysian Malaysia" also encouraged

the non-malays to challenge Malay special rights and other agreements made at independence between the MCA and UMNO. 1 The MCA supported Singapore's expulsion from the federation in 1965. It had been worried by the PAP's open challenge to it as the leader of the Chinese in the peninsula. Some Malaysian Chinese, however,

saw the expulsion as an anti- Chinese move designed to ensure Malay political supremacy. The fact that the MCA supported the expulsion can hardly have added to the party's prestige in Chinese eyes. The MCA regained some credibility in 1967 with the passage through Parliament of the National Language Act. In 1957 it had been agreed that national language policy would be reviewed after

1 6/Kopemafgf Serbagzma Malaysia (KSM)

10 years, The Chinese were concerned about the future use of

Mandarin and English. The MCA took up their cause. However, within UMNO Malay leaders had to contend with extremists who demanded that Malay be the sole official language for all purposes. The result was a compromise. Malay (renamed Bahasa Malaysia) became the official language but English could also be used at the discretion of the Yang Di~Pertuan Agong (Paramount Ruler). Some Chinese may have felt that the MCA had let them down, since there was no provision for the use of Mandarin. Within UMNO, however, there were more vigorous protests over the use of English. 2 The year 1968 saw a further challenge to the political influence of the MCA. Former English educated leaders of the defunct Labour

Party joined with intellectuals from the University of Malaya and politicians associated with the United Democratic Party to create a new political grouping. Formed in April 1968 the party assumed t.he name 'Gerakan Rabat Malaysia' (Malaysian People's Movement). Although Gerakan emphasised non-communal issues in its election manifesto, it was clear that the party would be primarily dependent on Chinese political support. Its leader, Dr Lim Chong Eu, was a

former MCA president. As the 1969 elections approached the MCA also knew it would

face a determined challenge from the remnants of the PAP on the peninsula. They were led by Lim Kit Slang. Devan Nair was the PAP's sole representative on the peninsula, having won a seat during the 1964 elections. The group had been reconstituted in Malaysia as the Democratic Action Party (DAp). Following the style of the PAP in Singapore, the DAP was more outspoken 111 its support of the nonMalays than either the MCA or Gcrakan.

There were many issues which the MCA's non-Malay opponents could use to attack the party. One of the most communally sensitive of these was education. 5 In November 1967, two months after the passage of the National Language Act, the Education Minister {Khir

Johari) announced that only students who possessed the overseas Cambridge School Certificate or its equivalent could go overseas to study. Chinese clan and guild associations, who had been supporting Chinese medium primary and secondary schools, were worried. It was clear that the new directive would prevent the graduates of these schools from going to Taiwan or Hong Kong to obtain a tertiary

education. The Chinese societies therefore reacted by announcing a

Koperatzf Serbaguna Malaysia (KSM)/I 7 plan to build a Chinese language university (the Merdeka University). Communal feelings on this and other issues were running high, so much so that when the Labour Party in Penang organised a cartel to protest the devaluation of the Straits dollar later the same month the result was a serious race riot. In the early months of 1968 the call for the establishment of the Merdeka University continued t.o gainrnornentum. I n February, the MCA Central Executive Committee decided not to support the

move. However, in March the National Delegates Conference of the party passed a resolution appealing to the government to set u p colleges to provide higher education for Chinese students. With the elections only a year away, the MCA could not afford to ignore Chinese wishes completely. Onjulv 3rd the MCA deputy president submitted a proposal to the government for the setting u p of a higher education institute to be called the Turku Abdul Rah ran (TAR) College. The College was named after the Prime Minister at the time. The speed with which a

decision was taken provides some indication of how serious the government saw the matter. Within two weeks Turku Abdul Rah ran College gained official approval. The language medium of education was to be English, not Chinese as in the case of the Merdeka University proposal. However, students from Chinese medium schools were to be given extra classes to help them make the transition. Unfortunately, these moves were not sufficient to defuse the issue. In the same vcar the Minister of Education felt it necessary to rescind t h e original order preventing students without the Cambridge Higher School Certificate from pursuing their studies overseas. The

government was dearly worried that discontented Chinese might join the Malayan Communist Party which had just announced a seven year plan to capture power by force. Throughout the controversy it appeared that the MCA was reacting to events rather than leading or guiding them. The publication of the Aziz Report on Education in early 1969 seemed to

provide Chinese guilds and societies with further evidence that their views were not being adequately represented. Among other things, the Report proposed that the Chinese School Boards be abolished. Other incidents also embarassed the MCA. In mid-April 1969 Tun Tan was quoted as having said in Malacca that it was impossible

18/Koperatzf .Serbaguna Malaysia (KSM)

for the Mcrdeka University LO be set up. However, on May 8th 1969, two days before the general election, the Merdeka University Company was registered. It seemed that the MCA was not in control of events. The r i o s which followed the elections led to the suspension of Parliament and the temporary rule of the National Operations Council (NOC). The NOC prevented the establishment of the Merdeka University by passing the University and University Colleges Act. This Act specified that all universities were to be funded by the government. It is obvious, therefore, that during the late 1960's the MCA was in serious trouble. Above all, the party needed an issue around which it could rally the Chinese. If the MCA could not provide the required leadership in language or education, perhaps it would do better in the economic field. Throughout the decade political tensions on economic matters had also been rising. In 1961 the Malay press was aroused by the release of a government report which showed that Malays held less than one per cent of investment in registered businesses4 The campaign to provide more assistance to Malays in the economic field was led by the Assistant Minister of Commerce and Industry, Hajj Khalid bin Aware Osman. By December 1964, it was clear that the agitation for more decisive action had substantial support within UMNO. In that month UMNO back-bcnchers complained strongly in Parliament about the lack of adequate government assistance to help Malays enter the commercial world. .J The government reacted by announcing at the UMNO General Assembly in May 1965 that it planned to require some industries participating in the Pioneer Industries Scheme to employ Malays

and ensure that a certain proportion of their shares were held by Malays. In the following month the government convened the first Bumiputra Economic Congress to discuss ways of prornoting Malay participation in commerce and industry. At the Congress Deputy Prime Minister Tun Razz announced that the Bank Bumiputra would be established. Another result of the Congress was that the ailing Rural and Industrial

Development

Authority elfRIDA) was

reorganised as the Mailis Amanah Rakel. (MARA) in 1966. The responsibilities of MARA were broader than those of RI DA. It could become involved in manufacturing, purchase shares and " d o all acts which the Mallis considers desirable or expedient". Equally impor-

Koperatzf Serbaguna Malaysia (KSM)/I 9 tent was the fact that in; had a gCIlCIIOLlS budget and the direct support of Tun Razz. MARA's Chairman, Ghafar Baba, was another important political figure" The Second Burniputra Economic Congress held in September 1968 made further recointnendations. This time delegates wanted the government to assist Malays by establishing a. trading corporation and a public insurance company. The government responded by setting u p the Perbadanan Nasional (PERNAS) in 1969.7

To many Chinese these developments represented a breach of the quid pro quo agreement made at independence in 1957 which allegedly gave political power to the Malays while allowing the Chinese to maintain their commercial dominance. In fact, this agreement, assuming it ever existed, could not have been so simple. The constitution itself made provision for special scholarships and licences for Malays. s Proposal to Fonz an Economic Organization As early as 1966 Tun Tan Sieve Sin reacted by suggesting LO leading Chinese For/Jkrzys (btxsinessmen) that they join together to form a large company IO establish new industries and promote Chinese economic interests. Later, at the MCA General Assembly in May 1967, he urged the Chinese to establish large public companies, rather than continue to operate family businesses." He returned to this theme on several occasions. Speaking at a Civics leadership training course in Kuala Lumpur on October S1 st 1968, Tun Tan described his proposed investment company in the following wav:

So far about 3% million has been promised or subscribed . . . I would like [O emphasise that although this project is the brain child of the MCA, it is not the intention of the MCA to control it. It will run as a purely business venture, though I hope that the broad aims will be something more than mere money making. It is our

hope that this project will create more emplovmcnt opportunities for our urban. youth. It is our hope also

that through this project the lowest income groups in this will be able to have a stake in the leading

county

industrial concerns which operate in Maulavsia. 10 Tun Tan did not explain how lower class Chinese would be able to

20/Kopera tzf Serbagzma Malaysia (KSM)

afford to buy shares in the proposed company. The company's main usefulness seemed to be its symbolic value. I n the same speech the MCA president also referred to the inability of Chinese family businesses to survive or become larger corporations:

The only way to get around this difficulty is to have

genuine public companies so that they can last forever and become bigger and bigger with the passage of time. It should also be remembered that only companies operating on this basis can operate effectively with our Malay brethren and help them advance economically.

1]

Datuk Lee San Choom, who was at that time Chairman of MCA Youth, wanted the parts's youth wing to set up a similar project which would be of genuine value to less wealthy' Chinese. In pursuing this matter he was probably influenced by his own lower class background and that of' rnanv other MCA Youth members. He was born in Pekan lPahang} in 1935. His father was an unlicensed village dentist. He attended a Chinese medium primary school in Pekan before the family moved to Shore Bahru. Injohore Bahru he attended the .1ohorc English College [now called the Maktab Sultan Abu Bakar). 1\1eanwhile, he had continued his Chinese education part-time. Alter obtaining his HSC he planned to go to Australia for tertiary studies but dropped the idea soon afterwards because his father was unable to atTot'd it. If)

He became familiar with the problems of poorer Chinese in his first job in the governrnenCs Social Welfare Department in .fohore Bahru. Later he worked as a clerk i n a textile factors at Tarripoi. In

1958 he and a few others set up the first MCA Youth branch in _lohore Bahru. Two 'fears later, in August 1959, he was elected the Alliance MP for Kluang Utara. In 1961 he became the Executive Secretary

of` the Alliance in Kuala. Lumpur a n d in 1962 was elected

Chairman of the MCA Youth Section.

Other MCA Youth leaders who actively supported his proposal had similar lower middle class backgrounds. Datuk Choo Ching Hwa, for one, was educated in a Chinese school in Trengganu. Later, he studied in Chung Ling High School in Penang and worked as a Chinese school teacher br some years until he had saved enough money to study accr.mnta.ncy in Australia. Datuk Oon Seng Lee was

Koperarzf Serbaguna Malaysia (KSM)/2]

another key figure. His father began by operating a provision shop in Sungai Buloh and later owned a small rubber factory. I .3 The Establishment 0fKSM In July 1967 the Annual Delegates Conference of MCA Youth passed a resolution in support of Lee San Cheer's proposal. However, the Conference did not specie the form the proposed economic organisation should take. The Central Working Committee began discussing the details in the following months but there was

disagreement about whether an investment company or a cooperative should be established. Finally it was decided to set u p a cooperative along the lines suggested by Chop Ching Hwa. During his sojourn in Perth between 1959 and 1963 to study accountancy Chu had been impressed with the success of Australian Housing Co~ operatives. This, he believed, was the most democratic organisational form. 1 4 The n t h Annual Delegates Conference in August 1968 accepted the recommendations of the Central Working Committee and the name 'Koperatif Serbaguna Malaysia' (KSM) was adopted. KSM was registered and approved by the government as a co-operative society on the 8th August 1968. MCA Youth was not the first political body to set up a co-operative. In 1960 the Malayan Indian Congress (MIC) had set up the National Land Finance Co-operative Society. Its purpose was to prevent the fragmentation of estates which threatened the livelihood of Indian rubber tappers. In the 1950's it had been fashionable to sub-divide estates and sell them off in small lots. This enabled those involved to reap a considerable profit. In the process, many Indians were thrown

of work. The aim of the MIC's co-operative was to raise funds from its members to buy estates which were to be divided. i s In doing this the MIC had been influenced by the popularity of the co-operative inoveinent in India. The concept of a co-operative, however, was new to the Chinese. They associated this form of economic organization with farmers' and fishermens' organisations which were rather limited in their functions. Even Chinese clans and out

dialect groups had not attempted to establish such organizations.

They did not understand that KSM was to be a general co-operative, engaging in a wide range of economic activities. The result was that the Chinese were reluctant to join. MCA Youth officials toured the

22/Koperargf Serbaguna Malaysia (KSM)

country calling on MCA members to give their support. The response was disappointing. Many Chinese apparendy believed the venture would not succeed financially and were therefore afraid [O invest their money. 16 Another reason may also be suggested. Tun Tan did not oppose KSM publicly, but it was known that he was not happy about the project. Potentially, it was a rival to his own proposed investment company. With the exception ofDatuk Lee San Choom, all of the key organisers of KSM were Chinese educated. The important personalities were as follows;

Chairman Deputy Chairman Honorary Secretary Honorary Treasurer Executive Directors

: : : :

Datuk Lee San Choom Datuk Low Fook Yen Datuk C h u Ching Hwa Datuk Oon Send Lee

: Datuk Ngau Boon Min

Lim Eng Chang Datum Teoh Ah Kiang The English educated MCA leadership looked on the activities of this group with suspicion. It is little wonder that the MCA did not pay any of the initial financial expenses ofKSM's establishment. i t It seems that MCA leaders were also reluctant to help the Society expand. In 1968 MCAYouth leaders rnetTun Tan informally to seek his assistance, as Minister of Finance, to help KSM set up abank. He refused. i s Under these circumstances it is not surprising that MCA members were reluctant to join. To do so may have risked incurring the displeasure of Tun Tan. Apart from their feelings of personal loyalty to the MCA president,

Chinese tokays had their own reasons for withholding support. The rules of the Co-operative Societies Ordinance of 1948 allowed each member to have only one vote regardless of the size of his investment. This meant that they had no hope of controlling the Society.

KSM survived despite these problems. Lower middle-class Chinese were attracted to KSM. Membership provided the opportunity to buy a house at an attractive price and a chance to invest one's savings profitably in the Society's business activities. Such people were mainly Chinese teachers and small businessmen who would otherwise have been unlikely to risk their limited cash reserves on the

Koperatzf Serbaguna Malaysia (KSM)/23

stock market. Moreover, KSM's activities were designed to create employment for its members and their families. Members' children, for example, were given preference in employment in all of the Society's subsidiaries.

Financial support for the venture came from the Public Bank led by Teh Hong Plow, a friend of Lee San Cheer. The Society was also fortunate in that its initial investments were highly profitable. In i KSM purchased 100,000 shares from Fusan Fishing Net Manufacturing Ber fad. This brought in a net profit of 68% or $68,000. Apart from strengthening the Society's finances, this achievement also helped boost the confidence of its members and the general public. The Society was also granted 50 taxi permits by the Road Transport Department. This helped establish a solid foundation for later expansion. In 1969 it was able to declare a 7% dividend. 19 Meanwhile, other events were to alter the attitude of the MCA leadership. Tun Tan's proposed investment company made little headway, having become embroiled in struggles for control between various t o k a y s . In any case, the political climate prevailing in the aftermath of the 1969 riots meant that any attempt to revive the idea might be seen as racially inflarnrnatory. At the same time the MCA, after having lost many seats to Chinese based opposition parties, was anxious to regain its credibility in the eyes of the Chinese electorate. KSM's activities were one way in which this could be done.

Early Projects Since its establishment

KSM has engaged in a wide variety of

activities including housing, oil palm cultivation and insurance. Membership rose from 1,896 in 1968 to 3,778 in 1970. Within ayear it had developed assets of more than $1.9 million. KSM began its first housing project in Kuantan and later acquired a $200,000 stake in Malaysia Textile Industries Sendirian Ber fad. The project consisted of 68 units of single storey terrace houses. The Society also

purchased a 4-storey office block together with 11 Hats and 2 shophouses in Kuala Lumpur in the same year." To its credit, KSM quickly saw the income generating possibilities of rubber and oil palm and bought the Nanyo Estate at KluanI in 1971. The estate consisted of 1,881 acres of which 796 acres were under oil palm and 1,085 acres under rubber. Both crops were fully

Q4/Kopefatzf Serbaguna Malaysia (KSM)

mature giving the Societv a steady income. The estate cost $2.4 million. The Society had inadequate finances to purchase the land outright so it was bought through a bank loan provided be the J

Public Bank. The loan was personally guaranteed by the directors since KSM still had inadequate asset backing. 21 It was clear that. before the Societv could embark o n more

ambitious projects it needed a larger membership. A membership campaign launched in 19?1 increased membership to 9,881 u p from 3,778 in 1970) and gave KSM a paid-up capital of just over S1 million. A second membership drive in the following year was equally successful. In 1972 membership rose to 17,681 and the 5ocietyls paid-up capital t o t a l e d EB2,012,924.1312 This rapid increase was due to the efforts of the directors (who worked on an honorary basis) and a special group of MCA members.

Interestingly enough, the campaign coincided with similar attempts by Lee San Choom to strengthen the Perak M C A Youth organisation to counter the influence of the Perak Task Force, an organisation originally set up to promote the MCA in the New Villages. KSM was

another means through which Lee San Chook could extend his own influence while supporting Tun Tan's efforts to regain control of the party. In 1972 KSM continued its expansion with the implementation of several ambitious projects. One of the most important of these was the purchase of7,500 acres ofjungle land in Kahanglroin thejohore State Government fOr of] palm cultivation. In accordance with the purchase agreement 1,500 planted acres were later surrendered to the shore State Economic Development Corporation. The m a i n objective of KSM was to allow members to invest. in the Societv's

business activities by owning 5 or 10 acres of oil palm. Members were able to pay for the land in installments spread over 5 or 6 years without interest. The scheme received an overwhelming response from the membership. There were over 2,500 applications. A public draw had to be held to select. 662 successful applicants. Initially it was proposed that members should work on the land themselves. However, it was soon discovered that they preferred to

let KSM hire workers in their place. The land was purchased by lower middle-class Chinese teachers and small shopkeepers who regarded the venture as an investment. Members could sell their land at any

time but only to other members. This condition did not seriously

Koperatzf Serbaguna Malaysia (KSM)/25

affect land values since any citizen could easily become a KSM member on payment of $100. It should be noted here also that the land was not physically divided up into small lots. Members were simply given a certificate by the KSM estate management stating that they owned a particular acreage. Profits were shared according to the amount of land a member owned. The project vas so successful that in 1975 KSM purchased another piece of virgin land in Merchong (Pahang) to develop a similar scheme. Members again responded enthusiastically so that another public draw had to be held. This time 500 members were succes soul. KSM would have continued in this way, opening up new oil palm estates all over the country but the Society soon found it difficult to obtain additional land. In the early 1970's most states began to freeze all applications for land in order to offer it to the newly established State Economic Development Corporations (SEDC's). as In 1973 KSM became heavily involved in housing projects for its members." Projects included 15 units of flats in Kuala Trengganu, 38 single storey houses in Ber tong, 40 single storey terrace houses

in Banting, 182 single and double storey terrace houses in Prai and 27 single storey terrace and semidetached houses in Sungei Petani. Two housing projects were also completed in that year. These were 15 units of 5-storey flats in Kuala Trengganu and 29 units of single storey houses in Alon Gajah, Malacca. However, these projects were still not sufficient to satisfy the demand for houses from members. Houses built by KSM for its members were, o n average, 20% cheaper than chose available OI1 the open market. The Society purchased a further 14 acres of land, this time in Kuala Lumpur, and planned to construct a further 160 residential and shop house

units. KSM's involvement in housing continued throughout the 1970's. In 1976, the Society bought 186 acres of land in Sri Lallang Whore] for housing and industrial projects. By 1979 KSM was involved in a

total of 26 housing projects with an area of approximately 300 acres comprising about 3,000 units of various types of houses. Several projects first mooted in 1973 were to become firmly established in later years. An insurance company, KSM Insuran Sendirian Ber fad, was set up in $973 with a subscribed capital o f $ 2 million. However, it was not until late 1975 that it was granted approval to transact business. A Finance Section was also set. u p in

2 6/Kojberatzf Serbaguna Malaysia (KSM)

1973 to pool member's savings. Seven finance branches WCII€

established in 1975 as KSM Finance. Two other subsidiary companies, KSM Credit and Leasing Sendirian Ber fad and KSM Trading

Sendirian Ber fad, were set u p in 1978. In 1974 KSM's Board of Directors decided to establish a palm oil mill at Kahang. The mill was to process the crop from two nearby oil palm estates (Nanyo and Kahang) owned by the Society. Construction began in August 1975 and it was officially opened by KSM Chairman Datuk Lee San Choom in 1978. By that time Datum Lee San Cheer was MCA president and also Minister of Labour and Manpower. The mill, which represented an investment of $3.8 million, had an initial processing capacity of 10 tons of Fresh Fruit Bunches (FFIB] per hour. 25 In March 1974 KSM's General Manager, Chan Chop Thor, announced that the Society also intended to set up a chain of n'1ini~ markets throughout the peninsula. is The main aim of the project was to combat inflation by selling goods to Members at reasonable prices. Other objectives included the provision of additional invest~ rent and employment opportunities for members. The first minimarket was opened in Muar on the 1st of August 1974, followed by another in Kuala Trengganu a month later. Eventually KSM set up a chain of 14 mini-markets and supermarkets on the peninsula. The chain was operated on a 50 ' 50 basis between the Society and its members. 27 By the late 1970's, however, it was clear that many of these new projects were not producing the required results. KSM Insuran, for example, suffered from bad management as a result of preference being given to the employment o r C A party members rather than

experienced professionals. KSM Finance also appeared to be stagnating. More serious still were the problems involved in running the mini-rnarket chain. KSM found it difficult to find suitable managers to run the stores. Experienced and well-qualified managers expected high salaries which KSM was unable to pay. In any case, such people preferred to run larger establishments. Hiring managers with less experience and qualifications meant that the risk of mismanagement or fraud was correspondingly greater." A further

problem was a political one. By running a mini-market chain KSM left itself open to criticism that it was competing with Chinese family businesses.

Koperatgf Serbag"ma. Malaysza (KSM)/27

One result of the mini-market chain's management problems was

that the prices of goods sold were actually higher on average than those available elsewhere. The attempt to combat inflation had failed. As a result the mini-market chain incurred huge operational losses. Appointment of Tan Keen Swan Datum Lee San Choom, who by this time was also MCA president, decided that the Society needed a new Chief Executive to run KSM's businesses. The man he chose for the job was Tan Koon Swan. Mr Tan had a lower class background similar to the MCA president but had made a name for himself in business rather than politics. 29 A Hainanese, Mr Tan was born in Kuala Lumpur in September 1940.

His father worked at the Selangor Club as a waiter while his mother was a construction worker. Like Datuk Lee, his primary education was in the Chinese medium and his secondary education was in English. Tan Koon Swan attended the Methodist Boys School in Sentul. After obtaining his School Certificate (G. C. E.) he went to work as a clerk for the National Electricity Board (NEB) injanuary 1958. In the evenings he studied for his H.S. C. I-le wanted to become an electrical engineer but was unable to get a government scholarship. Mr Tan's introduction to the world of finance began in 1960 when he started speculating on the stock market using his savings. In 1962 he took

job in the Income Tax Department. Six years later he left

this position to take u p an appointment as a tax adviser with Exxon. It was here that h e was First introduced to modern management concepts. In 1970 h e became the first General Manager of Gcnting

Highlands Ber fad and in the following eight years supervised the development of the company's hotel, casino and tourist complex. At the same time he built u p a close working relationship with Datuk Lim Goh Tong, the company's Managing Director and major

shareholder. Tan Koon Swan's decision to give up his comfortable position with one of the biggest petroleum companies in the world was typical of the man. The opportunity to plan an organization from the start appealed to him even though it also involved risking his career. In an

interview given in 1976 he remarked that he was:

2 8/Koperatif Serbaguna Malaysia (KSM)

the ilrst employee of Getting Highlands Hotel Ber fad and today there are over 1,600 employees with this Company. Many people laughed at me when I l f [ Exxon, but one must always be ready to take a chance, to take risks. If you do not take chances you will never know." J

During the sharemarket boom of 1973 Mr Tan made a huge profit by selling the shares he had acquired in Genting Highlands. This enabled him, together with a few friends, to take another risk by purchasing a controlling interest in Sungei Way Dredging (a British tin mining company). Later it became known as Supreme Corporation. Br 1976 the company had a wide range of diversified investments. Mr Tan was Managing Director of the corporation. Datuk Lee first met Tan Koon Swan in 1976 soon after Mr Tan returned from a short three-month course in advanced rnanagernent at the Harvard Business School. The MCA president was introduced to Mr Tan by two of Mr Tan's close friends. They were Datuk Khoo Kay Peng (associated with Malayan United Industries) and Quek Leong Chan (owner and Chief Executive off-long Leong Industries).3' These businessmen knew Datuk Lee through their personal association with Tengku Rayleigh, the chairman of PETRONAS (Malaysia's national oil corporation). Rayleigh later became Minister of Finance. Later that year Mr Tan made a name for himself in the Malaysian business world when he led Genting Highlands in a corporate battle against Harrison and Crosfield (a British plantation company).) At stake was the controlling interest in Golden Hope, one u I the 'three

sisters' plantation subsidiaries which was said to be the best in the country. The bid by Getting Highlands was part ofits diversification policy. Mr Tan caused a sensation when he managed to raise a M$160 million loan to finance the deal. Previously loans of that size were unheard QE Unfortunately, the attempt Failed when I-Iarrisons and Crosiield successfully merged the three subsidiaries into a holding company known as Harrison Estates. Mr Tan was unable to convince Datuk Lim Goh Tong to proceed with a fresh bid. Despite this, Tan Koon Swan became known as an outstanding corporate strategist. Datuk

Koperatif Serbaguna Malaysia (KSM)/29

Lee therefore asked him to take over the operations of KSM and Multi-Purpose Holdings Ber fad, a new company being promoted by the MCA. For Mr Tan, who felt he did not have complete control over corporate strategy in Genting Highlands, here was another chance to build a company from scratch.

The appointment of Mr Tan as General Manager of KSM on May I t 1977 marked a watershed in the history of the Society. Mr Tan introduced two new principles to guide the running of KSM. These were that the Societywould employ professional managers to run its business operations and that it would not participate in any venture

which brought the Society into competition with Chinese family businesses. He also closed down unprofitable operations and employed sophisticated corporate expansion strategies. so

Changes introduced by Mr Tan included introducing a completely new management team into KSM Insurant and appointing experienced and well qualified Chief' Executives to run the Society's various companies. New life was also injected into KSM Finance with of new branches with a new image. the establishment an In thd case of KSM's chain of mini-rnarkets, which had been making heavy losses, n Koon Swan tried to save the project by

u

developing a new approach. The changes seem to have been designed to encourage family enterprises at the same time. In May 1978 KSM set up a wholly-owned subsidiary, KSM Trading Sendirian Ber fad to Lake over running of the! chain. Mr Tan then announced that KSM hoped to recruit aspiring businessmen to participate in its newly established '$1 trepreneur Development

a.

. . .

.

. . . .

Scheme".33 Under the scheme the Society hoped to arrange for loans for the operators from the government-run Credit. Guarantee

Corporation (CGC). The KSM then planned to establish a company to buy goods in bulk to supply the mini-markets at competitive

prices. The Society would provide the sales promotion and the initial

training. The mini-markets were to come under a corporate name but individual operators would also be allowed to display a name of their choice. The profits would belong to the operators with KSM charging a nominal fee to cover administrative costs. Mr Tan stressed that family retail businesses could remain

profitable if they were organised alongrnodern lines. Applicants had to be above the age of25 and preferably married. Initially the minimarkets were to be set u p in the larger towns but the final aim was to

3 0/Koperatgf Serfyaguna Malaysia (KSM)

set up such markets throughout Peninsular Malaysia. However, the efforts ofKSM Trading to ratio nalise and reorganize the mini~market operations proved unsuccessful. The wholly~ owned subsidiary reported to the KSM board that the mini-market and supermarket operations were so disorganised they were impossible to salvage. Moreover, there were difficulties in arranging loans from the CGC. KSM therefore decided to abandon the entire project.

One source gave three main reasons for the failure of the original venture. These were the lack of a proper feasibility study before the

project was implemented, the inappropriate capital structure of the business and the lack of patronage from members. Other reasons included bad management, lack ofskilied staff and chronic cash flow problems. is For each mini- market the capital investment was $60,000 while the capital outlay for a supermarket was 3100,000. In both cases the capital outlay was split equally between KSM and participating members. One KSM member closely associated with the business made the following comment: What can you do with $60,000 or even $100,000 when you are talking about setting up a business that requires at least three or four times that amount? For a start, the rent of a proper premise would probably take away half the amount before you think about stocking the shops, not forgetting overhead costs 35

Regarding the lack of patronage from members he explained that members realised they were paying higher prices for goods they could get cheaper at other sundry shops. Moreover, the management

of the supermarkets and mini-markets was such that all decisions had to be taken by the centralised management committee in Kuala Lumpur. In closing down its mini-market operations KSM inevitably faced criticism from the Chinese community. Speculative reports in the

Chinese press about the imminent closure of the chain created concern among members that they would lose their investments. is This prompted the Society to release an official statement saying that whatever decisions were taken by the KSM Board the investments of members would not be affected. so Another venture aborted by Tan Koon Swan was a proposal to buy

Koperatgf .Serbaguna Malaysia (KSM)/31

a printing press. When Mr Tan took over in 1977 , preparations were well advanced. KSM staff had already been trained and the purchase was almost finalised. He ordered that the project be scrapped on the grounds that it would compete with Chinese family businesses." The changes introduced by Mr Tan were not always well received by KSM staff. The most serious difficulties arose as a result of the recruitment of experienced and professional managers. Most of these new employees were English educated. They were also paid high salaries. The predominantly Chinese educated staff generally lacked the business skills and experience necessary to run modern commercial enterprises. Nevertheless, they resented the introduction of the new managers because they were paid relatively higher salaries even when Chinese educated employees, who had worked for KSM longer, had equivalent qualifications. There was no deliberate policy ofdiscrirnination against Chinese educated employees. The problem

arose because English educated employees could generally command higher salaries than Chinese educated personnel on the l a b o r market as a result of their wider experience." Despite this problem Datuk Lee San Cheer, continued to support Tan Koon Swan as General Manager. Opening KSM's palm oil mill at Kahang in May 1978 the MCA president urged the Society's employees to adopt a new approach and attitude to meet the challenges brought about by the changing economic environment. Unity within the Society was also important. He told KSM members to:

. . . upgrade your skill and modernise your business techniques so as to position yourselves to meet the challenges imposed by the continuing changes in the social, political and economic environment. You should be bold to move into new frontiers, into bigger enterprises so as Lo maintain and consolidate your position. But whatever you may do, I must again remind you that your past achievements were built on the foundations ofurlity and co-operation. Remember, these are the prerequisites for the success of anything you wish to do 40 Tensions between Chinese and English educated start su"BsI°3'e3 considerably after 1980 with the establishment of Multi-Purpose Management Sendirian Ber fad. It was set up as z"` subsidiary of

32/Kope ralfaf Serbaguna Malaysia (KSM}

KSM. Its major duty was to cake over the management functions in all the subsidiaries of KSM and Multi-Purpose Holdings Ber fad. In taking over the management of the Multi-Purpose Group the new company solved its staffing problems by eliminating salary distinctions between English and Chinese educated employees. 41 Continued Growth Tan Koon Swan also launched KSM on a major corporate expansion programme. In August 1977, little more than three

months after Mr Tan took up his appointment, KSM acquired a 20 per cent stake in Plantation Holdings (PHL) PHL, as its name suggests, was basically an oil palm and rubber plantation company. However, it also had control of several undertakings engaged in

specialised engineering and electronic activities. KSM's block of 8.9 million shares were bought for $1 .95 each from Pahang Consolidated {a U. K. incorporated company). The purchase meant that for the first time there was major local participation in the company. The transaction represented an important investment for KSM which financed the deal partly through internal resources and partly through borrowing. At the end of the previous year the Society's total assets were only $20 million against net current liabilities of $7.5 million. The purchase helped increase KSM's assets considerably, particularly in th.e plantation sector. Moreover, KSM's investment

involved it with a potentially high earning company. In 1972 pre-tax profits of PHL were £1.02 million but this had risen to £35 million in 1976. with buoyant commodity prices still prevailing profit for 1977 was estimated at £5.85 million." At the time PHL owned 21 ,350 planted acres under eight estates

along the West Coast of Peninsular Malaysia. Rubber constituted about 65 per cent of the total acreage while oil palm made up the rest.. The most interesting of PHL's assets, however, were the tin

deposits which lay beneath Brooklands Estate. It formed part of the rich Kuala Lariat tin reserves. Deposits below the estate were estimated at 300,000 tons of tin concentrate (75 per cent metal). The Brooklands land was gazetted for mining and was thus subject to compulsory acquisition by the state government. However, financial analysts believed that PHL would st.ill be able to gain a large

surn as compensation, 45 At first transactions such as this created confusion and uncertainty

Koperalfzt Serbaguna Malaysia (KSM)/33

among KSM directors and managers because many were unused to

modern corporate business practices. A case in point was KSM's swap of two pieces of land in return for shares in Bandar Raya Developments Ber fad (a housing development firm). The land involved was 186 acres of freehold housing land in Sri Lallang, _Shore, and 13:06 acres of land in Pedaling, Kuala Lumpur. Bandar Raya issued 2.606 million new shares valued at S1 .40 each to KSM in exchange for the land.44 This meant that KSM owned about 30% of the shares in the company, making it the largest single shareholder. It was not long before KSM directors saw the advantages of the

a.rrangemcnt.*~* Share swapping soon became a common means of expansion for the Multi-Purpose Group.

At the joint opening of the MCA Youth and Wanita General Assemblies on November 25th 1978 Datuk Lee San Cheer announced his resignation from the post of KSM Chairman. The result was a brief struggle for power among Datuk Lee's former associates in the Society. Most speculation centred on the Vice-Chairman Datuk Loh and the Treasurer Datuk Oon Send Lee. The other KSM ViceChairman, Datuk Chan Slang Sun, was apparently uninterested in

the position. KSM Secretary Datuk Choo also contended. Some observers at the time believed that Datuk Lee's resignation gave the KSM Board of Directors a dear choice between continuing the Society's close association with the MCA or attempting to repudiate public accusations that KSM was simply the part)/'s tool. Datum Loh Fook Yen was the MCA MP for Kuang until his defeat by a DAP candidate in the 1978 elections. At the time he was also Parliamentary Secretary to the Ministry of Primary Industries. 46 If KSM wished to continue its close association with the MCA, it was

argued, then Datuk Loh was the obvious choice. Datuk Oon had also been active in the MCA at one time but by 1979 he was more well known for his business activities. He was a former Selangor MCA State Assemblyman for Kluang, Selangor MCA Secretary, and MCA Youth Treasurer. However, he had retired from politics in 1969 after being defeated in the General Elections of that year by a Cerakan candidate. At the time of the KSM

election Datuk Oon was Chairman of Hock Lee Plantations Sdn Bhd, Hock Lee Enterprises Sdn Bhd, Unirup [manufacturer ofshocsoles), KSM Insuran and ACE Agriculture Sdn Bhd." Datuk Oon won the appointment. Some members were clearly

3 4/Koperatzf Serbaguna Malaysia (KSM)

unhappy with the outcome. KSM Vice-Chairman Datuk Chan Slang Sun, a millionaire from Pahang, resigned unexpectedly prompting suggestions that it was a reaction co Datuk Oon's appointment. Datum Loh took over Datuk Oon's former post as honorary treasurer while Datuk Too Ah Khiang, ajohore State Executive Councillor, became Vice-Chairman."

The struggle for the KSM Chairmanship did not spill over into a general battle for control of the Society. In August 1979, at KSM's annual meeting in Kuala Lumpur, all of the incumbents were returned to the Board. Under the Society's constitution one third of the elected Board of Directors retired every year. They could seek reelection if they wanted to continue to serve the organization.

Twenty-two candidates stood for eight vacancies. Datuk Lee and Datuk Chan Slang Sun were the only incumbents that did not seek re-election. The two contestants who replaced them were the former state assemblyman for Serdang, Yap Pian Hon, and Lee Eng Chang. Mr Yap was also the Selangor MCA Youth leader. 49 It can be seen from these results that despite the election oi'Datuk Oon as KSM Chairman, the Society continued to be closely linked with the MCA. Indeed, it could be argued that it was this very fact, together with the continued popularity of Datuk Lee within KSM, that prevented another leadership battle. At the elections Datuk Lee had called on the delegates to return all the incumbents. The polling

clearly showed that delegates had followed his advice. These circumstances suggest another interpretation of the leader-

ship changes. Both Datuk Loh and Datuk Oon were closely associated with the MCA. It is difficult to believe, therefore, that the choice was simply one of deciding whether or not KSM's close

relationship with the MCA should continue. An equally important consideration may well have been which candidate was more likely to remain loyal to the MCA president. Such loyalty may not have been so readily forthcoming from a chairman tempted to use his position to further his own political career. Of great significance for Datuk Lee was the fact tha.t an estimated two-thirds of the 900 KSM delegates were also to be delegates at the MCA General Assembly in September of the same year. so If KSM delegates had been willing to follow Datuk Lee's advice in the co-

operative's elections they might also do the same at the 1979 MCA General Assembly. As things turned out, the MCA president was

Koperatif Serbaguna Malaysia (KSM)/35

able to defend his position successfully against a determined challenge by Michael Chen, an influential MCA leader with strong links among Chinese educational organisations. For Datuk Lee, KSM was an impo'rtant political base. Datuk Lee's£__Pu1arig o _ in KSM was not difficult to understand. As chairman of' KSM since option he had presided over the

_

_

Society's rapid growth. In May 1978, one year before the re-election of-Board members referred to previously, Datuk Lee announced that KSM would be giving members a bonus issue. S i The bonus issue was to be derived from the surplus arising out of the revaluation of a substantial portion ofKSM's fixed assets. The assets, explained Datuk Lee, had been purchased before the onset of inflation. Therefore a revaluation was needed because their book value did not accurately reflect prevailing market conditions. "The Society is among the first, if not the first, in the history of the cooperative movement in the country to issue bonus shares to members," he announced. 52 The following table shows how KSM's membership and financial

position improved over the years: Table I

The Iixpansiovz of KSM 1968 - / 9 8 I

Yea r 1968 1969 1970

Membership

Assets

72,000 357,000

3,778 9,88 1

69,000 292,060 550,960 1,023,340

4,148,000

1972

17,681

2,012,924

5,685,000

1973 1974 1975 1976 1977

25,978 35,100 41,821

3,578,375

9,305,000 10,048,000 16,105,000 33,776,000 76,345,000

1978

60,554

1979 1980

68,998

1971

1981 SUrfrCP.'

1,395

Paid- LQO Capita!

2,222

48,371 55,649

80,404 169,551

4,818,609 5,678,584 6,565,042 7,580,394 8,531,058 9,756,782 14,099,837 30,376,538

1,906,000

89,264,000

121,017,985 195,794,840 347,772,201

'Perangkaan Perkembangan' in Laporan Tahunan Kopera.-Serbagurm Malaysia

198/ pp. 9 - 10.

3 6/Koperatzf Serbaguna Malaysia (KSM)

The financial success of KSM during the 1970's provoked other political parties to launch similar schemes. Mention has already been made earlier in this chapter about the MIC's National Land Finance Co-operative Society which was set up in 1960. This cooperative, however, had rather narrow functions. In January 1974 the MIC launched another co-operative society known as Kerjasarna Nesa. It was headed by Mr M. Shanker, a leading lawyer. The

significance of the project lies in the fact that for the first time the National Union of Plantation Workers {NUPW) had agreed to cooperate with the MIC in setting it up. Until then the NUPWhad avoided involvement in MIC affairs. This change in NUPW policy followed changes in the MIC leaderships one 1973 Tan Sri Manickavasagarn had replaced Tun Sarnbanthan as MIC president. The new leader had dose relations with P.P. Narayan who controlled the NUPW. Compared to KSM, Nesa was a small co-operative. In 1977 it had only 12,000 members who paid $60,000 a month in subscriptions. :as

Of even greater significance was a co-operative established much later by the MCA's chief rival in the National Front government, the Gerakan. After years of criticising the MCA for mixing politics and

business, Gerakan launched its own co-operative (Koperasi Rabat) in 198 I. In an apparent attempt LO remain consistent in its stand that politicians should not run co-operatives, senior Gerakan leaders were not involved directly. Koperasi Rabat was run by former MCA members close to Gerakan Vice-President Michael Chen. The

Chairman was Hew See Tong, a Perak tin miner from Kampar. Mr I-Iew was a former member of the Perak State Liaison Committee of the MCA. The Secretary, Wong Cheng Yee, was also a former MCA

member. He once worked as the political secretary to Michael Chen. Both Mr Hew and Mr Wong supported Michael Chen's 1979 attempt to become MCA president. They were expelled from the MCA soon afterwards and later joined Gerakan. In leaving the MCA these leaders had brought the concept of a. cooperative modeled on KSM with them. They had also apparently learnt the lesson that such organisations could form important political bases. Michael Chen was named special adviser to the eooperative. 111 Februar' 1982 Koperasi Rabat was restructured and a determined attempt at expansion was made. A membership campaign

Koperat

Serfnaguna Malaysia (KSM)/37

raised membership figures from over 100 to more than 5,000 by November. At the same time paid-up capital rose from $5,000 to $700,000. Three subsidiaries were set up. They were Rabat Holdings Ber fad, Rabat Credit Ber fad and Rabat Development Ber f a d , The aims of the co-operative were similar to those of KSM. Koperasi Rakvat planned Lo carry out low-cost housing projects for its members. It also wished to become involved in finance, education, land development and general investment.""

For the sake of clarity this chapter has avoided a discussion of the factors which led to the formation of Multi-Purpose Holdings Ber fad in 1975 and the subsequent political rise ofTen Koon Swan. However, after 1977 the history of KSM and MPHB (collectively referred to as the Multi-Purpose Group) 1up intertwined that it is e • flowing chapter deals with the impossible to separate t or political circumstances in the MCA, and the Chinese community generally, into which MPHB was born.

_

l.

R.S. Milne 'Singapore's Exit from Malaysia: The Consequences of Ambiguity'

2_

Asian Survey Van. W No. 3. (March, 1966) pp 175- 184. Margaret Rofh 'The Politics of Language in Malaya' Asian Survey Vol. WI, No. 5 3 (19671 pp 16 - 328.

5. The following account of the Merdeka University issue in the late 1960's is taken from K. Das, 'The Merdcka University's Long Road to Oblivion' in The Mr Eastern Economic Review Sept. 8rd 1982, pp 46 - 47; Additional information has been extracted from Quekjin Teck The MCA and Chinese Society (Reader Service 4.

Co., KL 19801. Original in Chinese. Benita Harlan Feb. 25th, 1961.

D.

Straits Times Dec. 12th, 1964.

Et.

For further information see "MARA" in Bruce Cale, Pnlizzbsand Public Enterprise in

Malaysia (Eastern Universities Press, Kuala Lumpur, 19811 pp. 44 - 85. See 'PERNAS' in Gale op. viz. pp. 86 -. 138. 7.8. K. Das 'The Mysterious Compact to Put the Malays in Business' in The .Far Eastern Eronomic Review Sept. 3rd 1982, p. 47. 'W'hy Malaysian Chinese Must be Loyal to this Country' in Victor Morals (ed)

lffueprinl for Unit' [Selected speeches of Tun Tan Sicw Sin). {Published by the

MCA, 1972) p. 257.

10. 'Tun Tan Opens a Civics Leadership Training Course' (MCA mimeograph, Kuala Lumpur, October 31st 1968). p. 3. Also available in Morais

up. ciz. p. 240.

Marais gives the venue as Port Dickson.

1 l , ibid. 12. The following information on Lee San Cheer was provided by Tan Ken Sin of Multi-Purpose Group Public Relations on July 20th 1983.

38/Koperatif Serbaguna Malaysia (KSM) 13. Information on Datuk Chop and Datuk Oon was also provided by " a n Ken Sin O11 the same dare. 14. Interview with Datuk Chop Ching Wa on _[one 18th 1983 at the KSM 15.

headquarters in Kuala Lumpur. V.K. Chin 'Political Parties Co into Business', Business Times June 3rd, 1977.

17,

Interview with Datuk Choo. June 18th, 1983. ibid. The interpretation, however, is my own.

18.

information provided by Tan Ken Sin. Once again, the interpretation is my own.

16.

19. See 'KSM: A Brief History' {mimeogl'aph provided by the KSM Management, dated December 1979) p. 1. 20.

'KSM: A Brief History' p. 3. Additional facts, on which the Following discussion

21.

is based, were obtained from Datum Chop. 'KSM: A Brief History' p. 2.

22.

'PerryMan Perkembmgan' in Mporan Tahunan I981, [Koperatif Serbaguna Malaysia Ber fad) p. 9. 23. Interview with Datuk Choo. 24. The following is based or 'KSM a Brief HistoIq/'. passim. 25. Star May 21 st, 1978. 26. Bertha I-Iariurz March 4th, 1974. QUO. 'KSM: A Brief History' p. 3. 28. Interview with Tan Koon Swan, General Manager of KSM and Multi-Purpose Holdings, MCA Headquarters, July 21 st, 1983. 29. Biographical information supplied by Multi-Purpose Group Public Relations. 30. Malaysian Business November 1976, p. 11. 31. Inten'iew with Tan Koon Swan, _[Lily Holst, 1983.

32. ibid. 33. Star May 26th, 1978. 34. Star May 29th, 1980. 35. ibid. 36. Malayan Thing Pau May Sth and 9[h, 1980. 37. Star May 29th, 1980. 38.

lurervicw with Tan Koon Swan, _Duly 21 st, 1983.

39. ibid. Similar problems also developed in later years between the Chinese educated directors of MPH B, who worked in an honorzuyf capacity, and Lhe

coiiiparnfs highly paid English educated chief executives. 40. Nanyang Slang Pau May 22nd, 1978. 41. Interview with Tan Keen Swan. Juli/ 21 st, 1983. 42. Bu.5znes5 Times August 15th, 1977. 43.

ibid.

44.

BusiNess Times April 10th, 19179.

45. Interview with Tan Koon Swan july 21st, 1983. 46. Business Times January 1st, 1979. 47. Husirzess Times January 3 rd, 1979. 48. ibid. 4.9. Buiine'is Times August 8 th, 1979. 50. ibid. 51. Busimrxs Fines May 29th, 1978.

Koperarzf Serbaguna Malaysia (KSM)/_39 52. Star May 29:11, 1978. 53. Business Hmcsjune 3rd, 1977. 5-1. Sing Pin ./in Para Nov. 121h, 1982.

2

The Establishment of Multi~Purpose Holdings

Multi-Purpose Holdings Ber fad does not simply owe its existence t.o the successful efforts of MCA Youth leaders to establish Koperatif Serbaguna Malaysia (KSM). it. can also be seen as an extension of moves begun be Tun Tan Slew Sin in the early 1970's no revitalise the party and increase its support within the Chinese community. Be* encouraging discussion within the party about the future role of the Chinese in the Malaysian economy, the MCA President provided the political atmosphere wL'.ch allowed Datuk Lee,. EM tosen successor, I O formally establish the company in 1975. It was Datuk Lee who concluded that t o maintain his position within the party, and ensure the economic future of the Chinese community, a new approach to the solution of politico-economic problems was needed. To understand the circumstances within which MPHB was formed, it is necessary to outline events in Malaysia after the 1969 elections as they affected the 3/ICA. Datuk Lee San Chook came to power through the interplay of political and economic forces which also enabled him, together with a small group of supporters closely associated with KSM, to build up Zi. huge multi-million dollar .... .. .. ..

*

un

conglomerate.

The 1969 elections dealt a serious blow to the Alliance, but it was the MCA that was most badly affected. IL had won only 13 of the 33 parliamentary seats it contested - 14 less l.han in the 1064 elections.

Moreover, of these 13 seaHQW1 [nee had l>_een.won unopposed and three others were won in eonstituenc'ies where the Malays held a ma.jori1.y. The MCA-dominated Alliance government in Penang lost control of the State government to Gerakan, while in Selangor, another predominantly Chinese state, the opposition won halfofthe '28 state seats {DAP 9, Gerakan 4 and Independent 1). In Perad< the Alliance also suffered setbacks. In that state the opposition won 19 of the 40 state seals. The People's Progressive Part (PPP), another non-

Malav based opposition party, won 12 sears, the DAP 6, Gerakan 2 and the Islamic fundamentalist Pan Malayan Islamic Party (PMIP} gained ore.'

The Establ£shmerlr.o_f Multi-Purpose Holdings/4 I

Political Developments I969 - /974

Technically, the Alliance had won the election, but opposition parties were elated at their gains. As soon as the results became known unruly demonstrations by supporters of the non-Malay opposition parties were held in Kuala Lumpur. These were followed by Malay counter-demonstrations which soon erupted into bloody racial violence. The lighting, which was mainly confined to Kuala Lumpur, lasted for three days before security forces were able to

regain control. Hundreds of people were killed or injured and a great deal of property destroyed. It is not necessary here to give a detailed account of these events or their immediate political consequences. This task has already been done in numerous studies? Of importance to this discussion is the effect on the MCA. MCA leaders were clearly stunned by the election results. On May 13th, before the riots began, the MCA announced it would withdraw from the government since "the Chinese in this country have rejected the MCA" although it would continue to support the government in Parliaiiient' After the ethnic disturbances broke out the government was forced to declare a state of emergency. However, the MCA agreed to serve once again in the cabinet.

The election results, and the violence which came soon afterwards, stimulated a rethinking of economic policy. The result was the formulation of a New Economic Policy (NEP) which involved an expansion of government control of the economy in order to reach J

socio-political objectives. Despite its name, the NEP was not entirely new. Many of the policies adopted were merely extensions of those

which had been pursued in earlier years. The main difference was that the NEP was a much more coherent statement of governrrient.

objectives. It was also clear that NEP policies would be carried out with much more v i g o r than in previous years. The Second Malaysia Plan I 9 7 ] ...- / 9 7 5 contained the first formal expression of the NEP. Officially the NEP had two prongs. The first one aimed "to reduce and eventually eradicate poverty . . . irrespective of race." The second involved "accelerating the process of .»

restructuring Malaysian society to correct economic imbalance, so

as to reduce and eventually eliminate the identification of race with economic function". This meant creating a Malay commercial and . . . ..

. . .

industrial community so that Malays and other indigenous people (later referred to as 'Burniputras') would become "full partners in all

42/The Establishment cfMul$i-Purpose Holdings

aspects of the economic life of the nation".4 I n order [O achieve this, the government aimed to €IlSl1II€ that Burniputras would own 30% of corporate equity by 1990. During the SMP it was the second prong which received the greatest emphasis. This reflected the views of senior Malay leaders in UMNO, such as Prime Minister Tun Razak, who apparently believed that Malays rioted in the streets of Kuala Lumpur as an expression of their frustration that not enough was being done to help them economically. Faced with these major policy changes, the MCA seemed politically impotent. For months the party stumbled along without direction or substantial support from the Chinese community. Finally, in January 197 l , Tun (Dr) Ismail, a leading U M N O politician, shocked the MCA by warning in a speech that it might be better for UMNO to break with the MCA and MIC if these two Alliance partners continued to he "neither dead nor alive".' Tun Tan reacted angrily, explaining that the MCA was "a target for extremist Malays on the one hand and chauvinist Chinese on the other"." The result was immediate expressions of support for the MCAby a large number of Chinese guilds and associations. In a speech in early February before one thousand Chinese commuriiqf leaders in Kuala Lumpur, the MCA President admitted that the party had made mistakes but called for unity behind the MCA in the Alliance. He offered to resign in" he was considered a barrier to Chinese unity. However, those present at the meeting were unwilling to accept the MCA as the vehicle for Chinese unity. Instead they formed a ten-man Malaysian Chinese Liaison Committee for National Unity. Not all of the committee members were MCA members, but the organization clearly had the blessing of the MCA

President. Those who supported the movement in its early stages included Chinese businessmen and community leaders, activists in the Chinese education movement and a few young and successful English educated professionals. The aim of the Chinese Unity Movement, as it became known, was to sponsor a series of public rallies throughout the country' and use the enthusiasm thus generated to mould the MCA into a party truly

representative of the Chinese? The MCA "old guards" were quick to see that this new development was a potential threat to their positions. MCA Viee-President Tan Sri Khaw Kai Boh called the movement an "overt act of chauvinism".*" Other leaders such as Tan

The Establishment

of Multz'-Purpose Holdings/43

Sri T.H. Tan, resigned in protest at what they saw as an attempt by the Unity Movement to undermine the authority of the MCA.

Tun Tan soon had second thoughts about his support for the movement. In mid~April the Liaison committee applied to the Registrar of Societies for permission to form a political organisation. The MCA President, who had not been informed in advance, was clearly opposed to the move. He warned that it would lead to

confusion and disunity. Without the support and patronage of Tun Tan, the movement began to lose its momentum. Two of the movement's leaders were charged under the Sedition Act. By May dl talk of forming a separate political entity had faded and the movement soon became deilunet.9 Little of the support generated for the Chinese Unity Movement was carried over into the MCA. Meanwhile, as the Chinese Unity Movement began to die, there were other developments in Perak. Some months earlier Tun Tan had approached Datum Teh Slew Eng, a former MCA Senator and an important figure in the Perak Chinese Chamber of Commerce, to revitalize the Perak MCA. Datuk Teh's group, referred to as the

Perak Task Force, attempted to build up support for the MCA in the New Villages by organizing civics courses, discussions, blood donation drives and classes in Chinese physical culture." Initially the Task Force did not use MCA machinery and did not mention its ties with the MCA. At first the villagers were suspicious of these activists. The MCA, after all, had not been active in the New Villages since the 1950's. One researcher has suggested that even then MCA officials rarely came into contact with the village masses." Loh KokWah notes that it was only after the Perak Task Force and MCA leaders "had

accommodated themselves to fight for certain socio-economic concerns perceived by the villagers as pressing issues that popular, in addition to local MCA members' support, was achieved".'2 In other words, the villagers only really became interested in the Task Force when it showed that it was willing to work in their class interests.

As the Perak Task Force succeeded in gaining widespread support at the grass-roots level it encouraged Chinese villagers to join the MCA. Soon, a struggle developed between the party "Old Guard" in the state and the "new bloods". However, Tun Tan Slew Sin and MCAVice-President Tan Sri Khaw Kai Boh continued to support the Task Force. In December the group seemed set for further success

44/The Establishment

of Multi-Purpose Holdings

when one of their number, Dr Lim Kent Yaik, was appointed a Senator and later became Minister with Special Functions (New Villages).

Pressures within the MCA continued to build up. In April, 1972 Tan Sri Khaw died in London. He was succeeded be Datuk Lee San Cheer. Lee, the President of MCA Youth, had been using the Youth wing in Perak to oppose the Task Force. As mentioned previously,

this period also coincided with a highly successful membership drive by KSM - another organization closely connected to Lee. In the end Tun Tan apparently became convinced that there was a plan to remove him as president. He removed Datum Teh as head of the organization and sacked Dr Lim from the Chairmanship of the Perak MCA Liaison Committee. In November the Task Force was

ordered to disband. Once again an attempt to revitalise the MCA had failed because it had threatened the positions of established groups. Throughout 1973 the expulsions and mass resignations continued. Some of those affected, such as Lim KengYaik,joined Gerakan, MCS's major rival. Other developments at the national level were also putting pressure on the MCA. In February 1972 it was announced that Gerakan had joined in a new coalition with the Alliance government. The move, which was part of a wider strategy by Prime Minister Tun Razak to broaden the governrnenCs base of support and reduce "politicking", represented a major break with pose independence Malaysian political history. Similarly PAS was neutralized by drawing it into the coalition. It is true that in 1970 the Sarawak United People's Party (SUPP) had joined the Sarawak Alliance. But political conditions in the East Malaysian states had always been different and

it was not expected that events over there would lead to the transformation of the tripartite Alliance structure on the peninsula. The coalition agreements between the Alliance, Gerakan and later the Per-plc's Progressive Party (PPP), represented a direct. challenge to the MCA's claim to be the sole representative of Malaysian Chinese within the government.'3 Both Gerakan and the PPP relied

primarily on Malaysian Chinese electors support. Moreover, they were, a t least in theory, rnultiracial parties. Because oflthis they were continually at odds with the MCA's call for Chinese Unity. The MCA was clearly unhappy about these developments. During 19?2 and 1973 many MCA members left the party to join Gerakan. These

The Establishment

of Multi-Purpose

Holdings/45

defections appeared to strengthen Gerakan vis-a-vis the MCA in its dealings with UMNO, the senior partner in the coalition. Gerakan also established new organisations in Perak and Selangor. As the 1974 elections approached various M CA branches began to make their objections public. Many MCA leaders wanted the party to have the chance to contest all the seats that it had in 1969. This would be impossible if the MCA remained part of' an enlarged government coalition that included Gerakan. In March the Penang MCA declared that it was opposed to the concept of the National Front (Barisan Nasional). The division was supported in its stand by the Perak MCA - another state in which non-Malay opposition parties had done well in 1969.14 UMNO leaders made no public comments, but after the resignation of Tun Tan a.s MCA President in April the press became more critical of the MCA rebels. Faced with dNs pressure the MCA bowed to the inevitable. The party's Central Committee announced later in the month that it was "prepared to enter into serious discussion" with other parties on the nlatter.l* Be .June, it was clear that the MCA, now led by Datuk Lee San Chook, had decided to remain in the National Front. In the 1974 et-ctions the MCA was therefore forced tO contest Fewer seats than it had in 1069. The continuing decline of the MCA's influence in the government was confirmed after the 1974 elections when the party lost control of the Ministry of FinaNce, Formerly headed by Tull Tan Sieve Sin. In

1976 Tengku Rayleigh bin Hamzah, a member of the Kelantanese royal family was made Finance Minister. He had made his reputation through his Chairmanship of PERNAS and the Bank Bumiputra. Both organizations were closely linked to NEP objectives aimed at helping the Malays economically. The new Finance Minister could

therefore be expected to take a firm stand against Chinese businessmen reluctant to comply with the NEP. However, in the complicated web of interrelationships that make up Malaysian politics, few situations remain static. In the mid-1970's Tengku Rayleigh developed close ties with several leading Chinese businessmen. These ties were to prove highly significant in later years. The Finance Minister became one of the few senior UMNO leaders with whom Datuk Lee San Chook could claim close rapport.

46/The Estabiishrnenlf

of Mu[t£-Purpose Holdings

Economic Reassessment The implementation of the New Economic Policy (nEw), and the establishment of government-owned 'Bumiputra' organisations such as PERNAS, prompted the Chinese community to reassess its

future role in the Malaysian economy. Chinese businessmen were particularly concerned to ensure that the new economic opportunities being offered to Malays would not work to their detriment. Tun Tan Slew Sin, as Minister for Finance, probably understood better than any other non-Malay at the time the full economic implications of the government new policies. He soon began to encourage discussion within the MCA about the economic future of the Chinese. This move appears to have been part of a general attempt be the MCA President to inject new life into the party and widen its political support. Other actions by Tun Tan have already

been mentioned. They included his sponsorship of the Chinese Unity Movement and the Perak Task Force. Like the NEP itself, Tun Tan's reaction was not really new. As early as October 1968 the MCA President had told participants at a leadership training course that Chinese family business did not offer any real hope of permanent financial security. According to him:

Such companies rarely outlast the lifetime of their founders. With a little luck it may last one or two generations, but it is asking too much to expect it to survive for even three generations. The founder will have

all the qualities required of a successful businessman. His sons or one of them may be good enough to carry on after him, but it is too much to expect his grandson or grandsons to be good also." In September 1972, at the MCA Annual Assembly in Kuala Lumpur, the MCA President again referred disparagirigly LO Chinese family businesses which by their very nature, are unable to adapt themselves to take advantage of the opportunities available.1" In other similar speeches Tun Tan began LO stress the need for Chinese businessmen to change their conservative attitudes and adapt to the

changing times. Injanuary 1973, speaking in Ipoh to the Perak Chinese Chamber of Commerce Tun Tan told his audience that opportunities for business expansion were no longer as limited as they had been in

The Establishment

of Multi-Purpose

Holdings/47

colonial times. Those traders dealing in the import of textiles, for example, should try to become manufacturers instead: To set up industries, however, you will often need 3. larger enterprise than the average business enterprise of today which is basically a family concern in the vast

majority of cases. There is nothing wrong with a family concern. It was viable in the days fold when this country

was largely a producer of raw materials and a market for the manufactured goods of the West. It is, however, ii geared to meet the needs of an industrial age when business enterprises have to be larger. The Chinese community will have to adjust its thinkiniarid practices if it does not want to be left behind."

The Second Malaysia Plan (SMP) had set specific targets in the corporate sector to be achieved by Malaysia's main ethnic communities. Malays were to be given massive assistance to help them achieve their target of 30% of the paid-up capital in public limited companies by 1990. The non-Malay (predominantly Chinese) target was 40%. The Malays, of course, needed greater help since their share of corporate equity in 1970 amounted to a mere 2% while at the same time the Chinese owned 23%. Chinese leaders, however, feared that the structure of Chinese business operations would inhibit growth. Some independent observers were inclined to agree. Referring to statistical studies completed in 1968 and 1970, Fred Von der Mehden noted that, although the Chinese were well established in the commercial and construction sectors of the economy, they were

finding it increasingly difficult to compete with large foreign operations. In the manufacturing sector the Chinese were faced with even greater difficulties. While Malaysian Chinese firms were small in terms of staff and sales, Me large companies were overwhelmingly foreE n-owned. Von der Mehderi concluded that: With little direct government help it is difficult to see how the Chinese will be able to compete with both the openly encouraged foreign skills and capital, and the state supported Malay-oriented enterprises. Without denying the very considerable acumen of Chinese businessmen,

48/The Establishment

of Multi-Purpose

Holdings

my own assessment. is that either the local Chinese community will be unable to meet the 1990 target or it. will do so with the behind-the-scenes aid of Singapore and Hong Kong entrepreneurs."

In March 1974 the MCA held an Economic Congress on the role of the Chinese in the NEP. Tun Tan had earlier retired as party president and been replaced by Datuk Lee. In his opening speech Datuk Lee explained that 'the Chinese community as a whole must take stock fits position and consider ways and means how the goals set for the Chinese community in the Plan can be effectively met and achieved'. He also favored 'a movement to change outmoded attitudes' and warned that the Chinese could I \ O t afford to 'cling to the age-old ways and traditions of doing business'. Family businesses, he said, remained stagnant. This was particularly true of the retail trade where most Chinese businesses had small profit margins." The general opinion, echoed by various speakers at the Congress, was that Chinese businessmen should pool their financial resources and set up viable corporations which could withstand competition from other big firms. In order to move beyond the wholesale and retail trade, in which the Chinese had traditionally specialised, large corporations were essential?" Senator Lew Sip Hon, the Head of the MCA Economic Bureau, presented a paper which sought to evaluate the structure of existing Chinese businesses and assess their stake in the Malaysian economy. Reviewing the manufacturing, construction and commercial sectors, he argued that the apparent dominance of the Chinese was caused by the presence of a large number of small sole proprietorships and

partnerships. The paper, which was based on statistical information for the years 1970 - 197 l , is interesting for the light it throws on the relative positions of Malay, Chinese and foreign interests in the economy at the beginning of the NEP.

Senator Lew began by noting that in the manufacturing sector Chinese-owned establishments owned 32.5% of the fixed assets." This compared well with Malay firms, which owned only0.9%. NonMalaysian lirrns, however, owned 51% of the total assets. Some

indication of the size of Chinese and Malay manufacturing firms could be seen from the fact that on average, they had fixed assets worth only $148,000 and $90,000 respectively. Foreign firms

The Establishment

of Multi-Purpose Holdings/49

averaged $1.26 million in fixed assets. Local (Chinese and Malay) manufacturing firms also tended to be more l a b o r intensive. The value added of all Chinese firms combined, for example, only amounted to one third of the total value added, although they employed more than half the l a b o r [55.4%1 in the sector. An examination of the legal status of Chinese firms was

revealing. In 1970 - 1971 1,908 (or 77%) of die Chinese firms were sole proprietorships or partnerships. Of the sole proprietorships (8741 the average fixed asset value ($33,0001 was only marginally higher than the 52 Malav sole proprietorships ($3I,000). The low value of the fixed assets suggests the predominance of" undercapitalised, labour intensive manufacturing establishments. Foreign companies clearly dominated the private and public limited company categories both in size and number. Non-Malaysian firms averaged $735,000 in fixed assets for private limited companies and $5.7 million for public limited companies. The corresponding ligules for Chinese-owned finns were $400,000 and $1.8 million. Malay establishments were even smaller. Fixed assets in Malay private limited companies averaged $211,000 while the figure for Malay public limited companies was $623,000. The 3,192 establishments in the manufacturing sector were m ainlv small manufacturing units. More than half of them employed less than 20 workers. Another indication of the size of the firms was the fact that 2,162 or 68% were registered as sole-proprietorships or partnerships. The gross value of production of the manufacturing sector of $3,930 million with value added of only $1,181 million further showed the underdeveloped state of the Mala_vsialn manu-

facturing sector. In evaluating Chinese participation in the manufacturing sector it should be* noted that 51% of the gross value of production was derived from foreign firms. Chinese firms accounted for 38. 1 % and Malay firms 0.8%. In the provision of employment, however, there was a different pattern. Chinese workers employed 55% of all the

fulltime paid workers in the sector while foreign firms took in only 33%. Malay firms provided employment for less than 2% of the manufacturing workforce. Senator Lew pointed out that because of the Labour intensive

50/The Establishment

of Multi-Purpose Holdzlrzg.s

nature of Chinese firms ($4,000 capital per unit l a b o r employed) capital was more efficiently utilized. One dollar of assets in Chinese firms on average produced $4. I 0 of output, while foreign iirrns produced $3.50 and Malay firms $3.20. Of the 148,305 workers in the manufacturing sector 6 1 .396 (90,9241 were Chinese and 28.7% (42,613} were Malays. The racial composition of workers in Chinese firms on the average was 72.7% Chinese, 20.4% Malays and 7.0% others. However, it should be pointed out here that about one third of the total number of Chinese employed (32, 1541 were working in sole-proprietorships or partnerships. In the larger companies (private and publiclirnited companies) the proportion of Malays was greater. The most likely explanation for this, said Senator Lew, was that most of the Chinese firms were small family businesses. Non-Chinese workers could therefore not be easily absorbed. 41. In order to increase the intake of Malays in the manufacturing sector," Senator Lew concluded, "the most feasible course of action appears to lie in the larger manufacturing establishments operated on a scale large enough to merit their being registered as private or public limited companies." A corollary, not mentioned explicitly by Senator Lew, was equally important. The MCA had a firm basis for

arguing that the establishment of large Chinese-owned corporations was not incompatible with the provision of jobs for an expanding Malav urban workforce. Chinese firms predominated in the construction sector. Out of 895 firms which did construction work valued at $100,000 or more during 1970, 797 were Chinese-owned whereas only25 were Malayowned. Chinese hims accounted for 88.5% otfixed assets, 84.7% of

the value of construction output and employed 89.6% of the work force in the category. However, the pattern of Chinese participation was similar to the manufacturing sector. Most Chinese firms were sole-proprietorships and partnerships which had, on average, fixed assets valued at around $53,000. Malav participation was dominated by four large limited companies, with an average of nearly $0.5 million per firm. Turning to the commercial sector, Senator Lew noted that it had an aggregate turnover of$7 ,878 .4 million in 1970. This was twice the gross value of production of the manufacturing sector (3,930 million). Chinese firms accounted for 66% of the total turnover in the

The Establishment

of Mu[ti-Purpose Holdings/5 I

wholesale trade and 81% of the retail trade. Turnover per firm, however, was not large. Chinese wholesalers had an average turnover of $0.78 million compared to $1.98 million for foreign Iirms. Turnover in Malay wholesale firms was even lower ($0.28 million). The pattern was the same for retail firms. Careul study ofemplovmem patterns reinforced the widely held belief that Chinese-owned establishments in the commercial sector were iarnily-run enterprises. Chinese firms employed 62% and 76% of the workers in the wholesale and retail trades respectively. In Chinese firm s, however, the average number of employees per firm was only 6.1 for the wholesale trade and 3.0 for the retail trade. The MCA's Economic: Congress produced no specific plan of action to expand or modernise Chinese businesses. This was probably due, at least in part, to the failure of Lee San Choom to gain the support of the Chinese towkavs. But even this is disputed. The establishment of a large company along the lines attempted be TLII1 Tan in the I 960's, for example, was doomed to failure with multimillionaires running the corporation. Datuk Lee had been Tun Tan's personal choice as his successor, but the t o k a y s were inclined to distrust him because of his lower middle class origins. .a

Datum Lee San Chook's problem was that., despite his virtually ult-

assailahle position in the MCA, he was riot widely recognised as the principal leader of the Chinese community. Moreover, his cabinet position as Minister for Labour was not a key economic portfolio which he could use to help establish close links with business leaders. The establishment ofl Multi-Purpose Holdings in 1975 can therefore be seen as an attempt by the MCA President to increase his personal stature within the Chinese corntnunity.

Two events in 1975 encouraged Datuk Lee and Chinese businessmen to co-operate. The most important, was the passage through Parliament of the Industrial Co-ordination Act {ICA). Under this Act manufacturers had to obtain a licence from the Mini SET of Trade and Industry. The Chinese were alarmed at the wide powers given to the minister which permitted him to impose any conditions he saw tit when issuing the licence. Many believed the government would use its newly-acquired powers LO force Chinese manufacturers to employ more Malays and sell shares in their establishments to government-owned Bumiputra. companies." Because of the underdeveloped state of the Malaysian manufacturing industry, the ICA

52/Th6 E5.Cal'Jli.§hitnera! of Mufti-Purpose Holdings niainlv affected smaller Chinese businesses. Foreign investors were worried. There' was a sharp drop in manufacturing investment, a brain drain and a general outflow of capital. The second event was notable, not so much because it represented a direct challenge to Malaysian Chinese interests, but because it demonstrated the increasing economic power of government enterprises. In mid- 1975 PERNAS was involved in a sensational attempt to gain control of Haw Par International {a multi-national company

based in Singapore) as part of a strategy to control London Tin. London Tin was important to PERNAS because it had extensive shareholdings in several Malaysian mining companies. These initial moves were thwarted by the rulings of' regulatory bodies in Singapore and London, although PERNAS did eventually gain control of London Tin by other means in the following vear.l*5 The point. here is that PERNAS had demonstrated publicly its intention to expand by acquiring a. controlling interest in large companies. It was II development Chinese multi-millionaires such as Tan Sri Datuk Lee Low Seng and the late Tan Sri Lee Yan Lian could not afford to ignore. An M(.l,-5 million was partially offset by the repayment of$21 I million owed to MPH B by PMP. The balance was paid. Another aspect of the rationalisation saw MPI-IB transfer its 32.21 million shares in Malaysian Plantations (representing a 53.7 per cent stake) to DEB. In return DEB issued c u r l alive convertible redeemable preference shares which were then offered to Bumiput.ras at their par value of $1. DEB thus acquired two plantation companies and four other plantation-related assets from KSM br $107 .1 million via a share swap. The two plantation companies were Segar at Oil Palm Plantations Sendirian Ber fad and Ace Agricultural Sendirian Ber fad. The plantation-related properties were Kahang Estate, Merchant Estate, Kahang Oil Mill and Kahang Mixed Farm. As a result of these deals, and following a 2 for 1 scrip issue, KSM thus held 46.298 million DEB shares, representing 17 .65 per cent of

the company. Like Bandar Raya, DEB also sold off investments in order to generate working capital. I n j u r e DEB sold its 40 per cent stake in Banana Bersama Segarnat Seridirian Ber fad for $1 O million. Banana

Bersama owned a 70 hectare piece of land in Segar at, shore, which had been approved For housing development. A report by a London-based stockbroking firm, James Capet and Company, in January 1984 was optimistic about DEB's future earning prospects because of an expected increase in the price of rubber at the end of the year. The company/'s gearing, said the report, was at "a very comfortable level of only 16 per cent after the

Consolidation/I 9 F'

deals [acquisitions of the plantation assets of KSM and a controlling stake in Malaysian Plantations] despite the issue of the $80.5 million in loan stock to acquire Malaysian Plantations."55 The purchases, according to Ca increased Dunlop Estates' total area to 38,291 hectares compared to 23,677 hectares before the deals. The acquisition of Malaysian Plantations, for example, gave DEB control over a further eight estates totaling 8,640 hectares. The report also noted that although the estates were not in sufficiently good locations for major development, the fringes of some estates

could be used for housing." (c)

Finance

There were few major changes in Magnum's portfolio as a result of the rationalisation process. Perhaps the most important was its agreement to acquire from MPHB the company's entire 40.68 per cent stake in UMBC. Magnum also sold its interest in Chelas Estate to Bandar Raya and disposed of its stake in the Development and Commercial Bank. The first of these moves began in December 1982 when it was announced that Magnum had agreed to sell its 1 1.92 per cent shareholding in the D and C Bank to Datuk Seed Kechik and Senator Alexander Lee." The two purchasers, who were already major shareholders in the Bank, paid $39.3 million for Magnutn'l 7.15 million shares. This worked out at $5.50 per share olD and C, giving Magnum a profit of$31 .36 million which could be used as working capital. The sale also increased Magnum's net asset backing per share by 28 cents. The newly appointed chairman of Magnum,

Datuk Chop Ching Hwa, told shareholders in the following year that Magnum decided to sell its D and C stake because it could not gain management influence or board representation." Magnum then concentrated upon building up its finance operations through Magnum Finance Ber fad (MFIB).59 In January 1983 the company raised its 43.4 per cent stake in the company to 50.1 per cent, making MFB its subsidiary. MFB ranked eleventh in terms of assets among non-bank owned financial institutions. The company did not have any difficulty getting approval for the purchase from the Finance Minister. Mohamed Khir johan, a retired UMNO leader, was chairman of MFB and also a director of Magnum. It was the intention of Magnum, said Datuk Choo, to involve itself further in

I 98/Consolidarion

the finance industry and expand MFB into one of the leading finance companies in the country."

These moves were followed in July by the announcement that Magnum had accepted an offer from MPHB to purchase the company's 40.68 per cent holding of UI\/IBC through a share swap.6] The acquisition was designed not only [ O help MPHB reduce its gearing, but also to boost Magnum's finance operations. Another result of the transaction would be to reduce Magnum's heavy reliance on its four digit forecast operations through a widening omits income earning base. Magnum also proposed a split in the existing parvalueotits shares from $1 to 50 cents each and, following this and the UMBC

acquisition, a rights issue of one for time at a price of $1.25 per share." The proceeds from the rights issue were to provide additional working capital, including fresh capital expected to be

called up by UMBC to enable it to meet adequacy requirements in the future. Following the UMBC purchase, share split and rights issue, Magnum's paid-up capital of 111.339 million shares of one dollar each was to increase to 468.265 million shares of 50 cents each. Group net tangible assets per share were expected to rise from $1.36 to $1.96 (before the share split) or from 68 cents to 98 cents after the share split. However, at the time of writing the necessary official approvals for the UMBC acquisition had not been obtained. Under the compromise formula for control of the UMBC in 1981 both PERNAS and MPI-IB agreed to give the other first option to buy iilone decided to sell. PERNAS may have felt that by offering UMBC shares to Magnum, MPI-IB was breaking this agreement. I n any case PERNAS,

as a Bumiputra [and therefore Muslim) commercial organization, would have difficulty justifying a partnership with Magnum, a company which depended largely on the lottery business. Meanwhile, UMBC was itself canoing out expansion plans. In September the corporation announced that it had agreed to set u p a joint-venture company, with the First National Bank of Chicago." The 116W company, to be known as UMBC First Chicago Leasing Sendirian Ber fad, was set up to provide a lull range of financing options. UMBC was to own 70 per cent of the company's $3 million paid-up capital. At the same time UMBC announced that it planned to double its paid-up capital from $60 million to $120 million t o

Consolidation/199

meet the capital adequacy ratio set by the Bank Negara (Central Bank). (dl

Corzcfusion

By late 1983 MPHB's corporate structure was much more streamlined. Operational responsibilities were clearly delineated and the heavy debt burden substantially reduced. It was at this point that Tan Sri Datum Lee Loy Send finally stepped down as chairman and was replaced by Tan Koon Swan, thus beginning a new phase in

the companys development. The ratio nalisation exercise involved a number of complicated corporate moves. It seems appropriate, therefore, that the major effects of these developments be reviewed before the discussion proceeds to other issues. In properties the rationalisation of Bandar Raya's investments enabled the company to avoid double taxation difficulties, while the sale fits stake in UEP brought in close to 3100 million. In trading MPHB seemed to suffer a blow at first with the failure of the proposed merger between CMI-IB and ITM. However, later events involving political developments in Nigeria, where ITM International had substantial assets, proved that MPH B's caution was well taken. At one stage MPHB directors appeared divided over the advisability of investing in shipping. However, the move into Hong Kong through New Star, and the injection of Proinptship into the company, meant that MPHB was set to take advantage of any improvement in international trade. Future rationalisation plans seemed almost certain to involve placing New Star (now called Mulpha Enterprise HK) and Prorriptship under Alpha International. Phi com in Britain was also likely to move into the Mulpha stable.

In plantations DEB became the main holding company. ;»»=~¢~.muuau importantly, MPHB's transfer of Malaysian Plantations Ber fad in return for convertible loan stocks proved a ITIEHUS OT raising fiends for MPHB. These stocks, together with the sale of DEB shares in excess for control, meant that MPHB stood to get back around $150 million. The sale of UMBC shares to Magnum could also be used to raise cash. Under the purchase agreement, MPHB was to acquire . . .. .

. . .. .

around 100 million new Magnum shares giving it64 per cent control of the company. The part of this shareholding not necessary for control could be sold off to raise another $100 million. The only worrying point here was that for political reasons regulatory

200/Consoliciatzbrn

authorities seemed reluctant to let. the deal proceed. Speaking

at

a press conference, after the announcement that

MPHB planned to transfer its shares in UMBC LO Magnum, Tan Koon Swan pointed o u t that the company had achieved its major objective of having a significant interest in every strategic sector of

the economy. According to him: MPHB has thus completed its expansion programmers. It

will expand horizontally no more. The only expansion will be vertical, that is organic growth. And if there are any acquisitions, they will be done by the operating

subsidiaries of the group." the Kepong Protect Meanwhile, indications that MPH B's expansion programme was slowing down meant that political conditions for inter-party economy lie co-operation were more favorable. In September 1982 Deputy Prime Minister Datuk Musa I-Iitam suggested that the Pemodalan Nasional Ber fad (PNB) and the Multi-Purpose Group combine to set up large joint-venture projects.65 He also suggested that joint seminars be held by UMNO and the MCA to discuss business matters and exchange views. Prime Minister Dr Mahathir made similar statements about the desirability of economic co-operation between the races. Tan Koon Swan was quick to welcome the Deputy Prime Minister's proposal, claiming that since MFI-IB's inception the company had been working towards that direction. "We will look into the difiCrent angles and identify areas where we can co-operate

with the PNB," he said.l*" MPHB had good reason to welcome Datuk Musa's statement. The NEP required large companies to restructure their shareholdings to ensure that at least so per cent was owned by 'Bunliputra' individuals or organisations. Without such equity participation MPI-IB would obviously *find its operations severely

curtailed in future years. MPI-IB responded to Datuk Musa's overture Br quietly contacting the Pernodalan Bersa.tu Ber fad {PBB), the investment arm of UMNO, to suggest that the two companies form a joint-venture to develop MPHB's agricultural land in Kepong into a housing estate. This land, consisting of 587.6 hectares (1,452 acres) about 20

Consolidation/201

kilometers from Kuala Lumpur, was the area MPHB planned to develop in 1977. The company's application to convert the land for housing development had been beset with problems which made it difficult Lo gain the necessary approvals. The negotiations which followed were successful and in September 1983 t.he two companies signed an agreement to set u_.p a jointventure company to develop the area." The new company, MultiPurpose Bersatu Development Sendirian Ber fad, was to have ,.

initial paid-up capital ot"$5 million of which MPHB would hold 51 per cent and PBB 49 per cent. Tan Sri Ibrahim, the executive chairman of the PBB, told newsmen that PBB and MPHB shareholders would be given preference in the allocation of houses. "The rationale is that having been happily married in the political field, there is no reason why we should not be happily married in the economic field as well,wss he said. Personal links were also of importance. Tan Sri Ibrahim said that the idea of a commercial venture between the PBB and MPHB had been l i s t moored six years earlier when Mr Tan and Tan Sri Ibrahim were managers in Genting Highlands. For MPHB the deal was the latest in a series of attempts by the company to find Burniputra partners for its business ventures. According to Tan Koon Swan, the formation of thejoint-venture was "an important event, not only in the history of Multi-Purpose but also in the history of the corporate sector in Malaysia". He believed that this form of co-operation was unique because of the number of people indirectly involved. MPHB, he said_,. had about 200,000 members while Kooperasi Bersatu, wlilicll controllled the PBB on

behalf of UMNO members, had about $00,000. *

g

consider this

.joint venture very significant and different from thers in the corporate sector," he went on, "because it brings about not only social interaction between the two major races but will in fact work in the national interest by expanding the economy and fostering national unity."59 Mr Tan could also have added that with the

political support of UMNO implied in the PBB's participation, the company would also be unlikely to have any further problem getting the land rezoned for housing development. In later months otherjoint-ventures between the two organisations were announced. The PBB joined MPHB to develop the Cheras Estate and the two companies were identified as the likely partners to

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224/Appendix III

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MPHB Annual Reports of various years

Net assets per share ($) Net tangible assets per share ($)

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RESULTS Profit before taxation Taxation

Appendix III/225

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