Chinese bring black economy to the blue Danube

Thirty thousand Chinese have settled in Hungary since 1989, the year in which democracy was crushed in China but triumphed in Europe.

Although the exiles have since prospered by colonising emerging markets in the old Soviet empire, some Hungarian officials now think their success is getting out of hand - not least because the oriental richesse has caught the attention of a greedy underworld.

Bao Lu Zi confesses she had not even heard of Hungary when she boarded the Trans-Siberian Express seven long years ago. Her destination was Germany, where she was to be reunited with her lover, Zeng You Xuan. A graphic artist who had made a small fortune drawing Japanese cartoon strips, he had no stomach for China after the rape of Tiananmen. She was prepared to go to the end of the world to be with him. That is practically where they ended up.

"We found out that Hungary was the only place on earth where Chinese people didn't need a visa," she explains, grappling heroically with rock- hard Magyar consonants which still remain beyond her partner's powers. For three years they lived off his copyright income and love. Then, as the money was running low, they set up the country's first Nintendo shop.

But that is all in the past. The bottom eventually fell out of the Gameboy market, and they had to find a new opportunity. Ms Bao's ninth-storey flat on an outer-Budapest housing estate now doubles as the editorial office of Shi Chang, which means "Market Newspaper" - one of five weeklies catering for Hungary's Chinese community.

It is a small enterprise, but with great potential for growth. Up to 30,000 Chinese are estimated to live in Hungary, and thousands more of the pioneers who have since fanned out to the neighbouring virgin territories still kowtow to Chinatown on the Danube. Virtually all the goods sold by Chinese traders in the streets of Eastern Europe pass through Budapest on their circuitous journey, never seeing a customs man. The Hungarian retail trade alone is worth an annual pounds 200m, insofar as anybody knows.

For this is a simply cash-in-hand economy, happily blending Chinese commercial savvy and an awesome talent for finding loopholes with Hungarian officials' inclination to look the other way. The Budapest government does not even want to know - and claims not to - how many Chinese nationals live in the country. In 1992 visa restrictions were re-imposed, yet the Chinese keep coming. The word on the Chinese grapevine is that visas can still be bought at the Hungarian embassy in Peking - under the counter.

The hub of this trading empire, now also linking the United States and Western Europe, is the "Four Tigers" market thrown up along the railway tracks in the inner city wasteland of Jozsefvaros. This is skinhead country, so shoppers have to pass through metal detectors under the watchful gaze of a private army of macho security guards kitted out in fatigues. The mile-long rows of shacks enclosed by a wall on one side and containers welded onto the outside track have an air of permanence. Buses arrive daily from the Ukraine, Poland and Serbia, disgorging shoppers who buy in bulk. Everything has two prices; one for a single item, and the other marked "many".

You can buy plausible looking joggers for the equivalent of two pounds, "branded" jeans for two, and "Panascanic" ghetto blasters and "Pieonear" car radios for prices that would seem suspiciously low in the Far East. In the air the aroma of slightly-burned paprika mingles with the smell of stir-fried ginger. Central Europeans, people from the Balkans and from the distant Caucasus jostle in their shopping frenzy. You will not find a cheaper "feather coat" - as it is labelled - this side of Samarkand.

"Hurray," say Hungarians, especially the estimated 15 per cent who buy all their clothes in one of the Chinese markets, because they cannot afford to go anywhere near a real shop. But the authorities, whose dream of turning their country into a bridge between East and West has not worked out quite as planned, are not so delighted. The Chinese, and Hungarians sympathetic to them, talk of "low-level harassment" aimed at forcing the uninvited guests to move on. Although foreigners are entitled to apply for permanent residence after three years, only 430 Chinese - who happen to be the richest - have so far been granted this privilege.

Tensions, meanwhile, are rising between the traders and the people who live off them. Matters came to a head last month, when some of the guards hit two Chinese women, allegedly for late payment of rent. The heavies were chased away, the riot police despatched to restore order were pelted with stones by 2,000 traders. The Battle of Jozsefvaros was won by the foreigners, who also claimed a moral victory: one guard is under investigation for assault.

But the incident was enough to launch an inquiry into the affairs of the Chinese colony. The initial conclusion is that, like true Hungarians, the Chinese may not pay all their taxes. The other, more worrying suggestion, is that the activities of some of the guests and of organised crime are beginning to overlap.

The police, unable to infiltrate the community for obvious reasons, are only guessing. There was a spate of bomb attacks earlier this year against restaurants in Budapest, including some Chinese ones. Two Chinese people died when the Great Wall restaurant was blown up, but the owner, a major wholesaler, seems keen not to make a fuss about the matter. Perhaps it is because of the Yugoslav weapons that were discovered on the premises.

The Hungarian authorities, with only a tenuous grasp on law and order, are scared. The Chinese and the their 3,000 registered companies in the country are getting richer by the day and increasingly inscrutable. But sending them packing does not seem to be an option. They create jobs, generate wealth, and their diligence holds the host nation in awe. And if they were to leave, who would clothe the poor? Try dressing up at Western prices for the average pension of pounds 50 a month.

As the government ponders its decision, Ms Bao, feeling less adventurous now at 49 than seven years ago, clings to her adopted home. "I like Hungarians," she says. "They are friendly people. For me China is now a foreign country. I cannot imagine ever returning there." Ms Bao's partner is one of the lucky 430 with a residence permit. She herself has just submitted her application - for the third time.