Indonesia's Chinese have risen far. But in accumulating wealth they have aroused envy, and as Louise Williams reports, when times get tough, they have further to fall.

At a vehicle spare parts shop in Semarang, in central Java, a customer angry at rising prices shouted at the Chinese shopkeeper that he wanted to slash him with the thick, curved blade of a harvesting knife. The man was convinced that the Chinese was trying to cheat him. The shopkeeper quickly closed his store.

Further east along the staunchly Muslim coast, angry mobs had already attacked Chinese shops, burning down a supermarket and hurling stones at traders in several clashes last week, and blaming the relatively wealthy ethnic Chinese for hoarding rice and sugar as prices spiralled in the face of the collapsing rupiah.

In Jakarta, members of the business elite say Chinese children are disappearing from the city's most expensive schools and moving with their families to Singapore. Others have shifted to homes near a private airport where executive jets wait on standby in case chaos breaks loose. Ahead of the ethnic Chinese have gone billions of US dollars, part of the capital flight that has sent the Indonesian economy into a spin.

The military announced that food hoarders would be charged with sedition, as officials blamed the rich and middle class (many of whom are Chinese) for panic-buying which forced prices up.

Anecdotal evidence suggests that Chinese merchants in rural villages are seeking out the comparative safety of larger towns and closing their businesses as the devastating economic downturn raises fears of bloody ethnic scapegoating.

Over the past two years, as the gap between the rich and poor has widened, angry Muslim mobs have attacked Chinese and Christian targets in a string of riots fuelled by social envy.

Indonesia's ethnic Chinese, many of whom are Christians, make up about 3 per cent of the population, but control about 70 per cent of the wealth. Millions of poor Muslims will be the first laid off from menial jobs and the least able to cope with inflation when the full impact of the dramatic currency devaluation is felt.

But that picture leaves out the key to economic power, the political elite of Soeharto's New Order regime.

President Soeharto has used the business acumen and the regional networks of the ethnic Chinese to provide business opportunities for his friends, relatives and military officers. And the wealthiest of the Chinese have used Soeharto for access to monopolies and concessions over natural resources, commodities and key local markets.

Now, in the face of rising anti-Government sentiment and increasing hardship for tens of millions of poor Muslims, it is not inconvenient for the Chinese to take the blame, to shift the focus away from the crony business practices, corruption and nepotism built during Soeharto's more than three decades in power.

"The Chinese have a strong economic role, which is why the poor people have strong negative feeling towards them, and so if there is a feud or a riot then the Chinese become the scapegoats," says a psychologist and commentator, Darmanto Jatman.

"The situation is becoming much worse because of the economic crisis. Two days ago mobs even stoned the luxury train from Jakarta because it is a symbol of wealth and now they hate the symbols of the rich.

"In normal times the Javanese are used to repressing their feelings, and the relationship is fine, because that is their culture, so if they hate someone they just repress it. But if something happens to spark a fight then they express their hatred very aggressively."

The political commentator Professor Arief Budiman says the Chinese have always been used as a buffer. "The Government uses the Chinese like a money machine. The Chinese have a South-East Asian business network, they are easy to bribe, and then they [indigenous Indonesians] turn around and blame them – so the Chinese are very useful."

The position of the ethnic Chinese is not so different now from what it was under Dutch colonial rule, when the economic distortions were introduced, Budiman argues.

The Chinese were granted a position somewhere between the colonisers and their subjects. Indigenous Indonesians were banned from commercial activity to prevent them gaining any power to rebel, so the Chinese were relied upon to keep the colonial enterprise ticking over, handling a string of profitable monopolies and even acting as de facto tax collectors on behalf of the Dutch.

"The number of Dutch was very small, so they had to rule by using the local people. They used the Chinese to prevent the indigenous people from gaining any economic power, but kept the Chinese isolated and used them as a kind of buffer who could be blamed any time something went wrong," Budiman explains.

Darmanto refers to an incident from colonial times that speaks volumes about attitudes towards Indonesia's Chinese. In the early 1800s Prince Diponegoro rose up against the Dutch in Java. But, as the story is still told in the region, the prince fell in love with a Chinese girl, and immediately the battle turned against him. And so, many believe, if a Javanese man falls in love with a Chinese woman, his fate will be bad.

When Paulus was a young child his town of Juana, on the coast of central Java, was ablaze with anti-Chinese rage. Hundreds of kilometres away in Solo, an ethnic Chinese man riding a motorcycle had collided with a Javanese man riding a bicycle, sparking a fight that engulfed much of heavily populated region for days.

Today, Paulus is leaning on the counter of his electronics store. It is the Muslim fasting month of Ramadan. Outside, the heat is thick and the streets are sleepy, as the residents of the predominantly Muslim town wait out the last hours of the day before they are permitted to eat.

In three weeks the price of the portable cassette decks on the shelves has gone up from 140,000 rupiah to 250,000 rupiah – about a month's wages for a factory worker. The players are locally made, but from imported components, so the plunge in the rupiah has hit hard.

Paulus has Javanese friends and believes relations are OK on a personal level.

"But, people do blame the Chinese – that is just the way they think. The Chinese are the outcasts, they are the scapegoats everywhere," he adds. "My parents remember 1980, when the town was on fire. They are afraid that time will happen again. This crisis is going on for too long for people to manage."

Paulus does not know where his ancestors came from. His family has been in Indonesia for four generations. He doesn't speak or read Chinese, because the public use of Chinese language was outlawed after the bloody communal violence of 1965 which propelled Soeharto to power.

In a nearby city a Chinese businessman says: "If you want to grab power you must step on someone, and the head of the Chinese is flat and not slippery, they say, so they use our head – the armed forces, the Muslims, everybody."

In business, he says, the price of opportunity is high.

The military, for example, demands its cut. "An officer comes in and says how nice it was that he found a brand new car waiting for him at his previous post, or that his wife and children want to go shopping in the United States – he doesn't ask directly.

"We don't dare say no. We are already traumatised about our position in this society."

In the 1950s a Chinese trader in central Java named Liem Sioe Liong became a supplier to the prestigious Diponegoro division headquarters of the armed forces in Semarang. At the time the division's chief supply and financial officer was a Lieutenant Colonel Soeharto. He evidently trusted Liem and was comfortable with the merchant's low-profile manner and undistinguished business history.

By 1990 Liem was Indonesia's richest man, presiding over a corporate empire under his Indonesian name of Salim which stretched across Asia, into Australia and the United States and pulled in billions of dollars and employed hundreds of thousands of Indonesians.

Under President Soeharto's New Order, a number of Chinese entrepreneurs have flourished and built multinational empires spanning vast interests.

According to Adam Schwarz, the author of A Nation in Waiting, the Chinese prospered under Soeharto, because they are "good at business", and had a head start in the capitalism game over the indigenous Indonesians.

"In general terms, the Chinese in Indonesia are better educated than their indigenous counterparts. Perhaps because of their political vulnerability they tend to save much of their money, distrust strangers and depend to a great extent on personal relationships and family networks – often extending into broader affiliations with overseas Chinese communities in the region."

So Chinese firms had access to well-established networks of credit, market information and domestic and overseas trading contacts, says Jamie Mackie of the Australian National University. But they also had to rely on political connections, bribes and payoffs to protect their positions.

Under Soeharto the Chinese built up a strong and mutually beneficial relationship with the Government and the armed forces.

In exchange for generating economic growth and supplying funds to their political patrons, the Chinese received a long list of favours: tax breaks, state bank funding, access to import and trading licences, introductions to foreign investors.

Eighty per cent of companies listed on the stock exchange are controlled by ethnic Chinese.

In mid-1997 the Salim group shifted some of its operations – and funds - to Singapore, unleashing a vigorous debate about economic nationalism. Indonesia's rising Islamic movement wants to redraw the lines of privilege and provide "affirmative action" for the majority Muslims.

The problem with the Chinese debate is that the fabulously wealthy conglomerate owners are the few, and the least likely to face angry Indonesian mobs. "The Chinese in the small towns cannot run away and like other middle-class people they are scared and so are hoarding rice," says Arief Budiman. "I have heard the rich Jakarta families are moving their capital to Singapore and sending their families out.

"If there are riots there will be victims. The Chinese will be the first targets."