25 March 2019
Li Ka-shing has signaled his unease over the political environment by announcing a massive restructuring of his business empire. Photo: Bloomberg
Li Ka-shing has signaled his unease over the political environment by announcing a massive restructuring of his business empire. Photo: Bloomberg

The rise and exit of local business titans

Hong Kong is still reeling from the impact of the Umbrella Movement with steep or subtle changes that can be felt virtually in all aspects of the society. 

The mindsets of Beijing and Hong Kong government and their handling of the civil disobedience protests have accelerated such changes. While local tycoons’ reactions are varied, the business restructuring and re-domiciliation strategy of Li Ka-shing will surely inspire many to follow suit.

Let’s take a brief retrospect of the rise of Hong Kong’s business titans and conglomerates, whose ascent to prominence is the centerpiece of the city’s growth story.

Chan King-cheung, Hong Kong Economic Journal’s former deputy publisher, noted in an essay commemorating HKEJ’s 40th anniversary that “the most noticeable change within the past decades is the emergence of Hong Kong’s own business community and the transfer of fortune and power from British conglomerates and trading houses to the hands of a bunch of local tycoons and magnates.

Export and realty sectors began to take flight after the 1967 riots and local entrepreneurs seized the opportunity to acquire assets from foreign firms and boost their wealth. Meanwhile, the clout of British heavyweights in Hong Kong also waned since the 1970s due to improper management. Locals gradually beat big shot Britons in doing business. This transfer of fortune subsequently changed the fate of Hong Kong.

Before that landmark shift, British capital had been ruling the roost and the most coveted job for a Chinese Hongkonger was a post in a British firm.

The monopoly was first challenged by Ronald Li Fook Shiu, founder of the Far East Exchange Ltd. who just passed away last month.

The bourse, the first of its kind established by a local businessman, together with the government’s adoption of a high land price policy to support a low tax regime, led to a boom of property market, where many local entrepreneurs struck their first fortune.

During the end 1970s British-invested firms, apparently laggards of the realty bonanza, were mulling a retreat through sale of assets as Britain’s surrender of Hong Kong to China was almost a certainty in the future. Cheung Kong Holdings’ takeover of Hutchison Whampoa and Hongkong Electric as well as Wharf’s acquisition of Wheelock all happened at that time.

At a time of change and uncertainty, the wheel of Hong Kong’s business and economy was taken by those who boldly bet on the territory’s future. In this process, Ronald Li’s Far East Exchange played a central fundraising role for these brave adventurers. Such entrepreneurial atmosphere was also the catalyst for Hong Kong’s robust economic advancement in the three decades before the 1997 handover.

During the SAR’s initial years, Chinese capital and investors, either private or state-owned, flocked to Hong Kong to learn from the experience. The city became the fundraising venue of choice for Chinese firms, with over hundreds of billions of capital raised over the years via direct listings, backdoor listings as well as mergers and acquisitions.

In his article, Chan commented that “Chinese capital made a bold entry and collaborated with the local business community in crowding out British firms and triggering the transfer of fortune in the run up to the handover”.

This was the honeymoon period when local business tycoons joined hands with Chinese capital for shared prosperity.

However, as China became more self-assertive with its economic muscle and Hongkongers lost their head in a rush to reap quick property gains, cultural and ideological differences began to widen.

The rift has grown after Beijing handed down a retrogressive ruling on the territory’s constitutional reforms.

Untouched by people’s strong grievances, Beijing’s flat refusal of room for maneuver throughout the protest, its tendency to regard Hong Kong affairs as a national security issue and the missing of balances and checks among the powers within the SAR have forced many enterprises and businessmen to reassess the situation.

The outcome is a new wave of exits by residents and listed firms. Companies will follow each other to join the trend to re-domicile to other common law jurisdictions where a clear separation of powers is still intact.

After Li Ka-shing’s announcement last Friday, Communist Party mouthpiece People’s Daily tried to figure out the logic behind the reshuffle. Indeed the logic is crystal clear: in the event of any business disputes, Li has signaled a vote of confidence in the British Supreme Court (being a British Overseas Territory, the court has the power of final adjudication over Cayman Islands – the domicile of Li’s CK Hutchison Holdings and Cheung Kong Property Holdings).

By doing so, the shrewd Li and his shareholders can be immune to mounting political uncertainties.

Some mainland netizens note that Li has lost faith in the Chinese Communist Party. Several Hong Kong businessmen investing in China can also be seen as having some doubts. The truth is that Beijing would treat you as a friend when China was poor, but once the country gets strong it will get rid of you if you are no longer useful. It’s just in the party’s blood: it will never share the benefits with anyone else (可共患難不可共富貴).

In the early years mainland officials were all humble and modest when they came to the territory, and they liked to stress that there were a lot of things that China could compare notes with Hong Kong. But the contrast is that nowadays mainland cadres and scholars are increasingly arrogant, looking askance at Hong Kong people’s opinions and the city’s core values.

Meanwhile, maintaining sound relations with local authorities is vital to any Hong Kong businessman in China. After Xi Jinping’s sweeping graft-busting campaigns nationwide, some observers believe that under such a cloak Xi can consolidate his power by purging those who refuse to obey him. In this sense, a number of businessmen may get affected, or even become victims of the political struggle.

Hong Kong investors are particularly vulnerable and may be stripped of assets and individual freedom if they get involved. No one will court such a risk.

That justifies the apparent decision if Li, and many others, to maintain a safe distance from politics. The Hong Kong or China-focused firms that find it hard to re-domicile may opt to issue higher dividends as a workaround to shore up investor confidence.

The mainland has been promoting Confucianism in recent years and one of its core beliefs is to achieve harmony by respecting and accommodating those who uphold a different set of values. I sincerely hope that top policymakers in China can spare some time pondering the teachings and thoughts of the classic book “Doctrine of the Mean” (《中庸》).

In the aftermath of the recent developments, people are feeling increasingly jittery about Hong Kong’s future. Businessmen are not the only ones that are seeking a way out.

This article appeared in the Hong Kong Economic Journal on Jan. 14.

Translation by Frank Chen

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A famous Hong Kong writer; founder of the Hong Kong Economic Journal

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