(FORTUNE Magazine) – THE VENTURESOME diaspora of some 55 million Overseas Chinese is emerging as far more than the main force behind the sizzling growth of the Pacific Rim economies -- though that in itself is no small achievement (see previous story). Spurred by a distinctive business culture that relies upon constant scanning for opportunities and an incomparable cooperative web, they are fast establishing themselves as nothing less than the world's most vigorous capitalists. Says Barton M. Biggs, the head of global investment at Morgan Stanley and a man who has made -- and won -- a number of sizable bets by investing in Overseas Chinese companies: "No group is more entrepreneurial and intensely commercial." Experienced investors in Asia have long known that the best way to get something done there is to plug into the Overseas Chinese network. Its members dominate trade and investment in every East Asian country except Korea and Japan. They possess not only the biggest reservoir of capital but also critical political connections and the best practical information for surviving in difficult markets such as Indonesia, China, and Vietnam. Says Victor Fung, 49, chairman of the Hong Kong investment bank Prudential Asia: "If you are being considered for a new partnership, a personal reference from a respected member of the Chinese business community is worth more than any amount of money you could throw on the table." Now the Overseas Chinese are increasingly expanding beyond their Asian base. As they do that, more and more Europeans and Americans -- potential customers, partners, and competitors -- are seeing their drive and clout firsthand. In Point Comfort, Texas, Y.C. Wang, 77, founder and chairman of Taiwan's Formosa Plastics Group, has just completed a $2.1 billion petrochemical and plastics- making plant -- the largest investment by a privately held corporation in that size-conscious state's history. In New York City, Cheng Yu-tong, 68, a Hong Kong real estate billionaire who owns the Renaissance and Stouffer hotel chains in the U.S., has taken control of Donald Trump's troubled Riverside South project, which aims to build a $2.5 billion apartment complex in Manhattan along the Hudson River. Even that quintessential American product, the Girl Scout cookie, is now produced mainly by eight U.S. bakeries owned by President Enterprises, a Taiwanese food conglomerate that has also acquired the maker of Famous Amos chocolate chip cookies. For all this group's growing power, though, theirs is still an intensely private world, only dimly understood by outsiders. As a minority group that has long suffered persecution and discrimination -- problems that still flare up from time to time today -- most Overseas Chinese shy away from publicity and cling to their own community. Even the public companies they run are merely parts of family-controlled conglomerates that rarely reveal the full details of their finances or ownership structure. The businesses the Overseas Chinese dominate, fields like trading, real estate, and finance, purvey no branded products, which also tends to keep them out of the public's eye. That's changing as they expand into such high-tech growth fields as telecommunications and computers, but there's no Overseas Chinese equivalent of a highly visible business leader like Sony's Akio Morita -- yet. Still, this secretive world does occasionally open up. For more than a year I have interviewed scores of top Overseas Chinese executives, including many who rarely talk with the press. They spoke candidly about their operations, their business philosophy, their future plans. One striking revelation: Probably the big-gest worry troubling these first- generation business pioneers, who have tended to share power reluctantly and only with family members, is how best to cope with their success. A study of mostly Overseas Chinese conglomerates by T.C. Chu and Trevor MacMurray, consultants in the Hong Kong office of McKinsey & Co., warned recently, "Their organizations are overcentralized, and their management processes are too ad hoc or complex" for the scale their businesses have achieved. Even so, I came away convinced that most of these Oriental John D. Rockefellers and Andrew Carnegies will respond imaginatively and adapt to these new challenges as they have to past ones. Meanwhile, they have much to teach outsiders about how to build, manage, and sustain fast-growing businesses. Start with values. Regardless of where they live or how rich they are, the Overseas Chinese share an abiding belief in hard work, strong family ties, frugality, and education. Yes, this same constellation of virtues defines much of what Westerners have labeled the Protestant ethic, but for the Overseas Chinese these attributes aren't musty relics from their culture's past but compelling rules to live by. The best of them derive a joy from business and pursue it with an intensity that has become uncommon in many developed ( countries. "Losing money is a crime against society," says Taiwan's Kao Chin- yen, 65, vice chairman of $905-million-a-year President Enterprises. "If our business were to collapse, I would feel like committing suicide. And work has become such a habit that if I had none to do, I would feel ill." Not surprisingly, nearly every ethnic Chinese billionaire is self-made. Y.C. Wang, the Taiwanese plastics king, had to quit school after the sixth grade but taught himself to master a complex industry. Wang, who looks a bit like Ross Perot and is even more flinty, still never takes a day off and views most personal consumption as undue extravagance. To keep him appropriately garbed, Wang's wife gets a tailor to copy his worn suits and sneaks the new ones into the billionaire's closet. His basic philosophy sums up the stern creed of his compatriots: "Work hard and never waste money." Li Ka Shing, 66, a shrewd Hong Kong real estate trader with a personal net worth of over $5 billion, has donated an entire medical university to his native city of Shantou, China. Still, Li has no corporate jet and wears a Japanese Citizen electronic wrist-watch that cost him under $100. Li once proudly remarked to this writer, "I'll bet your watch is more expensive than mine." (He was wrong -- but not by much.) Even in their vices, wealthy Overseas Chinese often demonstrate fiscal prudence. When changing mistresses, for example, one super-rich Hong Kong businessman allows his soon-to-be-ex to put a value on their relationship by handing her a signed, blank check. But this seemingly open-handed gesture in fact has a cap. The mistress knows the check is drawn from a special account set up solely for this purpose; what she doesn't know is how much money is in it -- roughly $200,000. So if she proves too greedy, the check will bounce.

Such frugality carries over to stewardship of corporate assets. Compared with the hired managers of Western corporations, the Overseas Chinese are decidedly wary of debt. The most treasured asset of any ethnic Chinese businessman, be he a billionaire or a small manufacturer with a one-room workshop, is xinyong, which means having both a good reputation and a solid credit rating. One consequence: in the mid-1980s, when Western investment bankers were hawking participations in leveraged buyouts, they found few takers among Overseas Chinese. "We didn't want to seem responsible for all that debt," explains Peter Woo, 48, chairman of Hong Kong's Wheelock Group, % whose $12 billion in assets range from real estate to a cable television network. "It was a burden of reputation." Don't confuse a keen appreciation for the value of money with risk averseness, however. In pursuit of their goal of constant expansion, these entrepreneurial executives are ready and willing to place big bets. While Texans may marvel at the giant petrochemical project Y.C. Wang is building in the Lone Star state, it's small stuff compared with the $9 billion complex he's erecting back in Taiwan -- a mini-city that just may be the largest manufacturing investment on the planet these days. What fuels this high-octane mix of conservatism and overweening ambition? Some academics stress the teachings of Confucius, the ancient Chinese philosopher who extolled the virtues of family solidarity and education. But Confucius' legacy also had a downside: In his hierarchical vision of society, merchants ranked at the very bottom, which helps explain why China created few notable capitalists during the centuries before Mao Zedong. The more crucial element seems to be this group's common heritage as immigrants. Says Lee Shau Kee, 65, who moved to Hong Kong just before Mao came to power and has amassed an estimated $6 billion personal net worth from developing real estate: "The success of the Overseas Chinese is the result of bad times in China itself. The Chinese who left the mother country had to struggle, and that became a culture of its own, passed on from father to son through each generation. Because we have no social security, the Overseas Chinese habit is to save a lot and make a lot of friends."

LIKE YEAST mixed with warm water and flour, the Overseas Chinese rose only when they reached alien lands that provided them with stability and the freedom to flourish. This outpouring is not merely a recent phenomenon. In the 15th century, when the great eunuch Admiral Zheng He led a fleet of 300 vessels around Southeast Asia to impress the natives with the glory of the Ming Dynasty, he discovered that many of his fellow Chinese had already settled there. The biggest wave of migration came at the high tide of colonialism in the last century, when Chinese streamed into Southeast Asia as poor peasants and coolie laborers. Many who started as workers at Western- owned rubber plantations and tin mines later became small merchants. By the time the colonialists departed from places such as Indonesia and Malaysia after World War II, the Chinese were simply the most experienced local businessmen left. The uncertainties and hardships posed by their life as immigrants have reinforced the Overseas Chinese penchant for a guarded, controlling style of doing business. Most of their enterprises, even multibillion-dollar public companies, are family affairs, ruled by a patriarch who makes all key decisions. Major deals are done only with people he knows and trusts. Just about every Chinese business proprietor is a hands-on entrepreneur. One benefit of such a culture is speed. Says Washington SyCip, the ethnic Chinese chairman of the accounting and management consulting firm SGV in Manila: "The Overseas Chinese smell profits quickly and make decisions even quicker. They are pragmatic, not legalistic." Peter Woo claims, for instance, that he can close a deal to buy a hotel in Asia in days, while a similar transaction in the U.S. might easily take months. Another advantage is patience. With both ownership and management firmly in the hands of a single family, Overseas Chinese companies are often more willing -- and certainly more able -- than widely held public corporations to take a long view of their investments. Without the pressure of outside shareholders who demand ever-rising quarterly earnings, they focus instead on the cash that a potential deal will throw off. Explains Peter Woo: "That means you can do a good project that doesn't yield an immediate return. It's your money, so you never sell things simply to dress up the profit-and-loss statement. It doesn't matter whether the payoff is coming this year or next year." Following this philosophy, Woo himself is moving to invest as much as 20% of his company's $12 billion in assets in projects in mainland China -- albeit very gradually. Above all, business intelligence and capital speed across the Overseas Chinese community because its members are superb networkers. At its most basic level, the Overseas Chinese network allows you to deposit dollars at a gold shop in Hong Kong and pick up Vietnamese dong at a favorable exchange rate from that shop owner's compatriot in Ho Chi Minh City. (This underground banking system works because its operatives are willing to wait to settle their accounts in safe havens that boast hard currencies.) During political upheavals in the Philippines in the 1980s, the informal banking system shifted Overseas Chinese funds into Hong Kong and Singapore. If tax collectors get overzealous in, say, Thailand, a friendly supplier in Hong Kong can overbill a Thai factory owner for equipment and deposit the difference in an offshore account. By accident, I first discovered the efficiency with which this network exchanges information while randomly interviewing Overseas Chinese business leaders in several Asian countries more than two decades ago. After the first stop, all the other businessmen knew about my assignment and precisely whom I had already met. This cooperative web has evolved from hundreds of interlocking family companies and relationships held together by trust that has been tested for decades. Tapping into the Chinese network can provide a tremendous advantage in Asia even to the largest and most capable Western companies. Example: The mighty retailer Wal-Mart, which has never before ventured beyond the Western hemisphere, plans to open stores in Hong Kong and China in league with an ethnic Chinese conglomerate from Thailand, the Charoen Pokphand Group. Says Don Shinkle, Wal-Mart's vice president for corporate affairs: "There's not a heck of a lot that we know about retailing in China, so we found an outstanding teacher." Wal-Mart's Asian partner already has stakes in over 55 ventures in the People's Republic, including one with Pizza Hut in Shanghai. The foundation of this pervasive network is guanxi -- personal connections. These often extend beyond mere business connections to include relationships with political powers-that-be -- influential army generals in Indonesia and Thailand, say, or Communist Party officials in China. According to Lee Kuan Yew, 71, the senior government minister in Singapore, Overseas Chinese use guanxi in China "to make up for the lack of the rule of law and transparency in rules and regulations." In that hazy business environment, speaking the same language and sharing cultural bonds is a vital lubricant for any serious transaction.

STEP INTO the deep-carpeted Hong Kong boardroom of the Lippo Group, an Indonesian financial and property conglomerate with some $6 billion in assets, and you can quickly spot the importance that Overseas Chinese businessmen place on meeting the right people. Prominently displayed in ornate gold- trimmed frames are two photographs of Chairman Mochtar Riady -- one with Premier Li Peng of China, the other with Bill and Hillary Clinton. Says Riady, 65, who specializes in cultivating relationships for Lippo and leaves day-to- day business operations to his two sons: "I open the door, and others walk through." Riady has built a global business by leveraging the contacts of a lifetime. Born in Indonesia, he studied banking in Nanjing and added mainland Chinese friends to his network. After the communists took over, Riady returned home and skillfully revitalized several small banks. Consequently, Liem Sioe Liong, the richest Indonesian Chinese entrepreneur, recruited Riady to help manage his Bank of Central Asia and gave him a stake in it. In 1984, having made the kind of connections that fuel business in Indonesia, including a partnership with a bank owned by an Indonesian navy foundation, Riady acquired the oldest Overseas Chinese bank in the U.S., now called Lippo Bank California. Pursuing the Chinese art of reciprocal back-scratching, Riady then set up a string of Hong Kong public companies with total capitalization of $2.5 billion. Earnings of Lippo Ltd., the flagship these sail under, leaped 80% last year to $55.7 million, on revenues of $221 million. Property billionaire Li Ka Shing has taken a 9.4% stake in Lippo Ltd. and is bringing his Indonesian friend into various real estate deals. Says Stephen Riady, 34, the chairman's youngest son and his deputy in Hong Kong: "My father always says that to catch a horse, you've got to ride another fast horse." To gallop into China, Chairman Riady has made strategic alliances with two leading PRC companies in Hong Kong, China Resources and China Travel Service. It helps, of course, that a former classmate is a senior executive of China Travel Service, which has acquired 50% of Riady's Hong Kong Chinese Bank. In turn, China Travel is a partner in a bank that Riady has set up in Shenzhen, just across the border from Hong Kong. This joint venture can deal in Chinese currency, a privilege normally off limits to foreign banks. Next year much of the network that currently exists only in the heads and Rolodexes of master dealmakers like Riady will be going on-line. The Singapore Chinese Chamber of Commerce is organizing a computer database of ethnic Chinese business people around the region that will include their specialities and how to contact them. Says Kwek Leng Joo, 41, president of the Singapore chamber: "The idea is to make the network more systematic and help facilitate cooperation."

It's not clear whether outsiders will be able to tap into this network. But what's certain is that crucial Overseas Chinese contacts in the People's Republic will not be shared in cyberspace. Says Kwek, a senior executive in his family's diversified Hong Leong Group, which has $5 billion in assets and several ventures in the PRC: "Who I know in China and whether I have some network there is exclusive information. I hardly make it known even to my closest friends." But don't waste time fretting about this group's inevitable edge in doing business in mainland China. The main lesson the Chinese business community has to teach a globalizing economy is the profit that can be realized by taking advantage of what John Kao, an associate professor at the Harvard business school, calls knowledge arbitrage. Think of this as a fancy term for cross- border dealmaking -- especially dealmaking aimed at bringing suppliers and technology together from disparate markets to serve a third market's unmet need.

Richard Li, 27, the youngest son of Hong Kong billionaire Li Ka Shing, carried off a splendid feat of knowledge arbitrage in 1990 by launching Star TV, the first pan-Asian satellite broadcaster. He built that valuable new business by bringing together a U.S. satellite vehicle, a rocket launcher made in the PRC, and international expertise in broadcasting. Though the company's operations have yet to turn a profit, Li already has. Last year Rupert Murdoch bought most of Star TV in a transaction that valued Li's creation at $825 million, six times the amount Li invested in the company.

WHEELOCK Group's Peter Woo plows a similar furrow. Already this year he has formed joint ventures with such companies as Fosters of Australia, to establish breweries in China, and the Virgin Group of Britain, to open stores offering records, books, and videotaped entertainment in Hong Kong, Taiwan, and China. A former Chase Manhattan banker, Woo catapulted to a high position within the Overseas Chinese world after he married one of the four daughters of the late Y.K. Pao, whose greatest business feat was building the world's largest private charter shipping fleet and then selling much of it well before the shipping industry crashed in 1975. A hyperactive networker, Woo serves as an official adviser to Beijing as well as an adviser to the British governor of Hong Kong. He hobnobs with George Bush and Britain's Prince of Wales, and is the first Asian trustee of Columbia University, where he earned an MBA. With a Beijing-controlled partner, Woo is building a new tunnel under the Hong Kong harbor. He's also developing office buildings with shopping centers in such cities as Shanghai, Beijing, and Dalien. And should any of his allies need financing, Woo can handle that too, through a new investment bank he has set up in Hong Kong with National Westminster of Britain. Now, lest you assume knowledge arbitrage is merely a game for dealmakers, consider Patrick Wang, 43, managing director of Johnson Electric. Over the past decade, Wang has transformed his family's Hong Kong company from a manufacturer of motors for toys into a producer of industrial micro-motors that's second only to Mabuchi of Japan. Most of us, without realizing it, use Johnson motors every day -- to control windows and adjust mirrors in cars, to run hair dryers and kitchen appliances, and to cut paper on fax machines. Where does the arbitrage come in? Wang, who has a master's degree in electrical engineering from Purdue University, develops products at Johnson's labs in Switzerland and Germany and assembles them in Hong Kong, where the factory is highly automated, as well as in Thailand and South China, where labor is cheaper. To keep track of this sprawling operation, Wang recently installed a videoconferencing system that operates around the clock. Now Johnson's customers in the U.S. and Europe can see their motors taking shape in South China while talking (in German or English) with engineers in Hong Kong. For all its new technology, Johnson Electric, which last fiscal year earned $44 million on $195 million in sales, remains in many ways a traditional Overseas Chinese enterprise. Its board is dominated by family members. Wang Seng Liang, 80, the patriarch, is chairman and his wife, vice chairman. Each owned and ran factories in Shanghai until they were nationalized by the Communists. In 1950 the entrepreneurial couple started all over again with tailor shops in Hong Kong. (The Chinese name for Johnson, Zhou Chun, means making things inch by inch and thus connotes quality.) Patrick grew up hearing his parents discuss business at the dinner table, an experience that he describes "as a living case study on financial problems." The chairman continues to come to the office each morning and advises Patrick, who says, "I still learn a great deal from my father, such as to expect the unexpected and always stay open-minded." Wang had occasion to recall his father's advice during a frustrating three- year search for his first factory site in China. Turned off by the bureaucratic attitudes of most local officials, he finally came across the unexpected at Shajing, a rural village in Guangdong province that was so poor even older children ran around without pants. Recalls Wang: "Still, here was this village leader saying his people were the most honest and hard-working in China. I wondered if he could be serious. Then I saw how he ran things. You know, Chinese business is basically people and contacts. We struck up a very good relationship, and today he's still our partner." Johnson Electric, which began assembly work in a grain storage shed, now has three modern plants around Shajing.

AS THESE AGILE family firms grow into substantial global corporations, finding competent managers who can carry the founder's vision forward is by far their biggest challenge. No patriarch can foreordain that his eldest son, the traditional successor, will have the right stuff. To raise the odds, they rigorously prepare their offspring through a combination of instruction at first-class universities and on-the-job training. At its best, this is a nepotism of merit. Once his education ends, an heir must prove he possesses the requisite entrepreneurial grit by independently pulling off a successful business deal. Says Peter K.K. Lee, 31, the eldest son of Lee Shau Kee, the billionaire founder of Henderson Land in Hong Kong: "Maybe it's good training, but the pressure is terrible." Lee's first big test came three years ago, when he was dispatched to Texas with orders to find real estate for the family's private investment company. Rather than simply acquiring a single trophy property, such as a downtown office tower, Lee purchased and renovated "a couple thousand or so" apartments scattered around Houston, Dallas, and San Antonio. Altogether he invested more than $230 million on properties that yield an annual return from rentals of 13% to 14%. The transactions demonstrated his knack for spotting hidden value. Says Peter, who also acquired an ulcer putting together that portfolio: "After all those purchases my dad went there, checking out whether I made any mistakes. He was satisfied, and I got a free hand to develop property in China." As this younger generation rises, a new model for Overseas Chinese enterprises is gradually emerging, one that relies more on Western management techniques and yet retains the traditional strengths of a family-owned firm. Says William Fung, 45, managing director of Li & Fung, one of the oldest trading companies in Hong Kong: "We typify the transition from a first- generation entrepreneurial firm to a company that is being made more professional to compete with Japan and the multinationals." Even for Fung, a Harvard MBA, it took a lot of tinkering to modernize Li & Fung, which specializes in exporting toys, garments, and consumer products to the U.S. and Europe. Ownership of the company was scattered among dozens of relatives who treated the business -- founded by William's grandfather in 1905 -- as a birthright. The firm employed just about any Fung who needed a job, but operated without a real financial plan or budget and paid no dividends. William's solution was to take Li & Fung public on the Hong Kong stock exchange, which helped improve both its accounting practices and its management team. Later, however, many family shareholders got nervous about China's scheduled takeover of Hong Kong in 1997 and wanted to cash out. So William and his elder brother Victor, another Harvard MBA, who is chairman of both the family company and Prudential Asia, arranged an LBO with bank financing in 1989. Says William: "Our relatives worry about the future, but we see this as the golden age for a trading company," especially one with a low-cost manufacturing base like China nearby. After cleaning up the privatized company and selling off fringe businesses like chartered boats, the brothers took it public again in 1992. Last year Li & Fung earned $25.6 million on wholesale revenues of $650 million. WITH the characteristic Overseas Chinese flair for leveraging business relationships, Victor and William have generated new sources of income for a firm that once thrived by flogging fireworks. No longer merely a buying agent, Li & Fung now invests in some of its American clients through a venture capital arm based in San Francisco. The returns can be phenomenal. A few years ago the Fungs invested $200,000 to acquire 33% of Cyrk, a small company that makes t-shirts and novelty promotional items for the likes of Mars and Nike. Cyrk has just gone public, and the Fungs have cleared over $11 million while retaining half their shares. Separately, through a private Hong Kong company, the Fungs are bringing U.S. retailers into Asia, including Toys "R" Us and Circle K convenience stores. At President Enterprises in Taiwan, founder Kao Chin-yen is one of the rare Overseas Chinese who have built a world-class company by relying heavily on professional managers. Kao, who grew up as a poor country boy in the southern town of Tainan, got his start by plugging into a powerful local network, a group of legitimate businessmen who happen to be called the Tainan Gang. Its members provided seed capital to start President in 1967, but Kao hires no one's relatives. Since then, Kao has expanded President from a simple flour mill to a conglomerate that dominates the food industry in Taiwan and is growing fast internationally. Many senior executives are former schoolteachers, recruited because Kao regards them as leaders with good moral character. He also likes managers who are hungry for success. Says Kao: "The people who achieve the most in business come from poor backgrounds. They struggle and are willing to take any challenge." To keep managers busy long after he eventually retires, Kao has imbued them with the vision of making President the world's biggest food company within 25 years. That may seem ridiculously audacious, considering that President's sales last year totaled only $905 million -- mere crumbs alongside Nestl's revenues of nearly $39 billion. To Kao, though, President's expected growth is just a matter of "simple arithmetic." His company is systematically establishing food-processing factories in key parts of mainland China plus Southeast Asia -- new markets with a total of more than 1.7 billion consumers. And then there's America, where President has invested over $400 million to acquire cookie manufacturers and is looking for more acquisitions.

FOR THE FORESEEABLE future, look for this kind of grand ambition -- and the drive to achieve it -- to remain a hallmark of Overseas Chinese companies, regardless of whether they are run by professional managers or patriarchs. Case in point: Formosa Plastics, whose 77-year-old chairman, Y.C. Wang, is making some of the largest manufacturing investments in the world at an age when even pioneering industrialists typically slow down a bit. Starting with a $670,000 loan in 1957, Wang has constructed a plastics empire that generated $7 billion in sales and earned a 16.3% return on its capital last year. Says Winston Wang, 43, eldest son and senior vice president: "This group is really the story of one man." Maybe. But what assures its future is that the chairman has trained and installed a management team that seems certain to follow his example. They include not only Winston but eight other children, plus the founder's brother. Though he talks mainly about the nitty-gritty of plastics, Wang has molded his well-educated offspring to fit his values. Daughter Susan, 34, a graduate in economics from Barnard College of Columbia University, oversees part of the U.S. operations with the deceptively modest title assistant to the president. Says she: "We know how valuable money is and teach that to our children." All of Wang's children, in fact, proudly talk and act like young clones of their old man. Probably no other Wang, however, has the stature or the nerve right now to play the founder's role in mainland China, where he has been haggling for seven years over a potential giant investment. Says Wang, who is constitutionally unable to make any business move unless it is economically rational: "As long as you have a socialist system, you do not have a market economy. Anybody who wants to invest in China has to wait for the system to be improved." Rather than waiting forever, Wang is trying to bend the PRC's system by setting up three plants that will make plastic pipe and pay managers solely on an incentive basis. Though officials in China have resisted the idea, he keeps hammering away at them. Insists Wang: "I want to teach China the entrepreneurial spirit and introduce efficient management." If Wang and his compatriots around Asia do manage to infuse the People's Republic with their pragmatic approach to business and their industrious values, China will surely become the dominant force in the world economy during the next century. More likely, though, their homeland will absorb only bits and pieces of the diaspora's fabulous success formula. And the most dynamic capitalists on earth will continue to be the Overseas Chinese.