Back in May this year, Forbes ran an article titled “One Belt, One Road, Many Bribes?”, in which the author warned that corruption could pose a severe challenge to China’s “New Silk Road” strategy.
The recent arrest of former home affairs secretary Patrick Ho Chi-ping by US authorities for allegedly bribing the president of Chad and a former foreign minister of Uganda in order to gain exclusive oil drilling rights on behalf of a Chinese energy company indicates that Forbes’ warning isn’t totally unfounded.
According to media reports, Ho could have acted as an intermediary for a Hong Kong-listed company and may have delivered the bribes himself.
That begs the question: How come mainland China, with so many experts on Chinese and African affairs, has to rely on Hongkongers to do the job?
Ho’s case may just be the tip of the iceberg. It has become a common practice among big Chinese companies to carry out foreign asset acquisitions through Hong Kong – not only assets in the West, but also those in Third World countries like in Africa as well.
On the surface, one reason Chinese companies are so eagerly using Hong Kong as a platform for foreign asset acquisitions is that our city is a global financial hub that has fully integrated into the world market, and has basically zero restrictions on capital flows.
Besides, Hong Kong has a lot of legal and financial talent who can speak fluent English and provide a wide range of professional services for mainland investors, not to mention that Hong Kong people are familiar with the way Chinese companies do business.
There is another important reason: Hong Kong’s unique status compared with other Chinese cities.
Twenty years after the handover, the city’s “special characteristics” have been substantially diminished, yet under the “One Country, Two Systems” principle, we are still a bit different from other major mainland cities, at least for now.
Meanwhile, the aggressive foreign acquisition initiatives by cash-flush Chinese companies around the world have aroused widespread suspicions in the countries where those assets are located.
Not only are they rushing to tighten restrictions on China’s acquisition of assets in their strategically important sectors such as defense, high-tech, energy, natural resources and public utilities, a growing number of civilian-oriented companies have also been declared off-limits to Chinese investors.
In a bid to counter such restrictions, many Chinese investors have started forming partnerships with Hong Kong companies or even setting up their own business units in the city to facilitate their foreign acquisitions.
A buyer whose company is registered in Hong Kong rather than in China usually stands a bigger chance of getting the green light from foreign governments for their acquisition bid.
As many Chinese companies are resorting to this strategy, a lot of countries are having difficulties differentiating authentic Hong Kong companies from mainland enterprises posing as Hong Kong firms.
If such business trick is allowed to continue unchecked, it will definitely take an irreversible toll on our city’s reputation.
In recent years some Hong Kong people have acted as intermediaries to help Chinese companies buy foreign assets using their expertise in international business in order to earn juicy commissions.
There is nothing wrong with that as long as they are doing it by the book.
The problem is, government officials in most African countries are notoriously corrupt, while most Chinese companies consider it quite normal and acceptable to bribe officials to get things done.
But when these Hong Kong intermediaries are caught red-handed, it is they rather than their Chinese bosses who get into trouble.
Hong Kong, of course, should seize the business opportunities presented by the One Belt, One Road plan, but I believe Hong Kong people should rely on their own advantage to get a piece of the market rather than doing the dirty work for mainland companies.
This article appeared in the Hong Kong Economic Journal on Nov. 24
Translation by Alan Lee
[Chinese version 中文版]
– Contact us at [email protected]