22 October 2016
Li Ka-shing has prepared huge buffer for Brexit and the immediate losses are just trivial. He has put most of his investment in UK's transport and public utilities sectors, which are relatively more immune to upheavals. Photos: Reuters, CNS
Li Ka-shing has prepared huge buffer for Brexit and the immediate losses are just trivial. He has put most of his investment in UK's transport and public utilities sectors, which are relatively more immune to upheavals. Photos: Reuters, CNS

After Brexit, Beijing mouthpieces are at it again on Li Ka-shing

Brexit has battered stock markets as well as the pound exchange rates, lending Communist Party mouthpieces fresh ammunition to renew their sneer campaign against Hong Kong billionaire Li Ka-shing, who earlier irked some people in Beijing with his move to marshal capital to Europe, particularly Britain.

Mainland newspapers say Li has paid HK$12-30 billion this time for his “silly, unpatriotic decision” to pull money out of China to fund his investment spree in the United Kingdom, as calculated by the stock market shocks following the Britain’s decision to leave the European Union. 

But I did a little back-of-the-envelope calculation myself.

Counting the losses

The Financial Times reported in early 2015 that Li had splurged 50 billion pounds, mainly through Hutchison Whampoa, for UK assets since 1995 until the European Commission’s recent snub of his 10.25 billion pound takeover of O2, Britain’s second-largest telecom carrier.

Before the 2015 overhaul and re-domiciliation of his business empire, Li owned 21 percent of Hutchison Whampoa shares through another flagship of his, Cheung Kong Holdings.

Thus, Li himself has splashed out roughly 8 billion pounds on Europe over the years.

As of the end of June, FTSE 100 has slid around 4 percent from its year-to-date high on April 20, and factoring in the pound’s 12 percent plunge following Brexit, some US$550 million have evaporated as Li’s personal loss so far.

But don’t forget that Li has prepared a huge buffer for Brexit and the substantial increment in market capitalization of his two new flagships, CK Hutchison and Cheung Kong Properties, after the restructuring.

The losses incurred are paltry, as far as Li is concerned.

Then how big is the impact of Brexit on China?

The size of Chinese capital in Britain may be smaller than Li’s exposure, yet while Li snapped up assets in telecom, railway, water supplies, electricity, gas, ports and other sectors that are relatively more immune to upheavals, Chinese investors bet on realty, energy and financial sectors that are far more susceptible to the current headwinds.

Onshore and offshore renminbi booked 0.5 to 1.5 percent dips in the forex market, after People’s Bank of China’s continued effort to sell its reserves to shore up its currency, and this time Beijing may have used between US$10-20 billion of its ammunition of foreign currency reserve assets.

Another emerging hit can be the waning demand for Chinese exports.

Europe is the western end of the Silk Road Economic Belt and Beijing sees Britain as its bridgehead to further its economic clout on the continent, as evident in Xi Jinping’s (習近平) visit to the country last year.

Now that Britain and the European Union have come to a parting of the ways, Beijing’s grand strategy may fall through.

To Beijing, it appears the implications of Brexit will trickle in over some time and may be graver than thought, but Li has emerged largely unscathed.

As they say, people who live in glass houses shouldn’t throw stones.

A union of predicaments

The EU, with its 28 member states, is just like a unique Rubik’s Cube – a sum of all the kinks among nations, big and small, over political influence, voting rights and even financial aid to debt-laden members like Greece, Spain and Italy, which like to threaten to leave the union as a tried-and-tested bargaining chip to make others foot the bill.

It’s a perfect example of moral hazard in which one person takes more risks while someone else bears the cost of those risks.

Problems have being stacking up for decades yet how come the EU still managed to develop and expand?

The answer may be Europe’s common fear of losing peace as historically two world wars all first erupted on this continent.

The EU has seven governing bodies and one proof of the complexity is that it runs one of the world’s largest teams of language professionals – almost 5,600 full-time and part-time translators and interpreters with annual expenses of 500-600 million euros (US$557-668 million) – who deal with up to 24 official languages.

But the biggest predicament of such a super-state apparatus may not be red tape but overregulation.

When multinationals benefit greatly from a single market and integrated regulation, small businesses focusing primarily on their home country or seeking expansion outside the EU may face more hurdles.

Open Europe, a British think tank that was neutral about Brexit, said the 100 most burdensome EU-derived regulations to the UK economy stands at 33.3 billion pounds a year in 2014 prices.

Pulling down market and trade barriers for economic integration should be realized by the market itself, not a superstate that lay down the rules from the top.

This article appeared in the Hong Kong Economic Journal on June 30.

Translation by Frank Chen

[Chinese version 中文版]

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Li Ka-shing is received by Queen Elizabeth II. The UK remains a favorite investment choice for the Hong Kong tycoon. Photo: AFP/VCG

Li unequivocally said he hoped Britain would not leave the European Union during an interview prior to the vote. Photo: Bloomberg

Former full-time member of the Hong Kong Government’s Central Policy Unit, former editor-in-chief of the Hong Kong Economic Journal

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