BUSINESS

Debating The Future Of The Colony

TOM FENNELL August 17 1987
BUSINESS

Debating The Future Of The Colony

TOM FENNELL August 17 1987

Debating The Future Of The Colony

BUSINESS

COVER

The effusive welcome seemed out of step with China’s socialist gospel. But when Hong Kong’s billionaire shipowner Sir Yue-Kong Pao toured his home town of Ningbo in China late last year, thousands of choreographed children greeted his 30-car convoy. China’s pragmatic leadership under its leader Deng Xiaoping is not only welcoming such supercapitalists home in the name of economic advancement, it is also accepting their philanthropy— which last year funded construction of 2,000 schools and 100 hospitals in China. But in a bout of pragmatism of their own, many of Hong Kong’s corporate barons—while publicly proclaiming their belief that China will leave the colony’s economic system intact when it takes over in 1997—are quietly hedging their bets by shifting some of their assets abroad.

At the same time, Beijing is boosting its own investment in the colony, a move which many analysts say helps to ensure Hong Kong’s future as a thriving

business centre. Beijing’s investment, said W. Peter O’Rourke, executive vicepresident and director of Hong Kongbased Richardson Greenshields of Canada (Pacific) Ltd., makes it difficult for it to “kill the goose that laid the golden egg.” China’s trade with the colony has increased more than sevenfold since 1979 to $23.9 billion in 1986, and the Bank of China headquarters now under construction will be Hong Kong’s tallest building when completed in 1988.

Transition: London and Beijing reached agreement in December, 1984, on the return of Hong Kong, which became a British colony in 1842. But current economic statistics belie any underlying nervousness over the impending transition. Exports from Hong Kong soared to $4.9 billion in April, up 38 per cent from April, 1986, and the colony’s gross domestic product jumped 8.7 per cent last year to outpace much of the industrial world. The colony’s bustling harbor recently displaced New York as the world’s second-busiest container

port after Rotterdam, and its 151 banks make it the world’s third-largest financial centre. According to the Hong Kong administration’s statistics, there is very little unemployment among the population of 5.5 million.

As well, Hong Kong’s new stock exchange, which officially opened last October, is one of the most active in the world. It lists 253 companies, with a market capitalization of some $70 billion, compared with the Toronto Stock Exchange’s 1,085 companies and $609 billion. Significantly, the Hong Kong stock market’s strong performance is led by a string of companies with large real estate holdings—a sector that is particularly sensitive to negative signals from Beijing.

Expansion: Still, major players such as Hong Kong magnate Li Ka-shing and such huge conglomerates as New World Development Co. Ltd.— whose subsidiary New World Hotels International Ltd. paid an estimated $30 million for Vancouver’s Holiday Inn Harborside hotel in June—continue to invest outside of the colony. Pao, using cash raised through a large share offering on the Hong Kong exchange earlier this year, is now scouting Europe for acquisitions. And the Hongkong and Shanghai Banking Corp., which purchased the Bank of British Columbia through its Canadian subsidiary last November, is continuing its worldwide expansion.

David Robbie, a Hong Kong-based vice-president of the Canadian Imperial Bank of Commerce, said that, while some of the money leaving Hong Kong could be called “flight capital,” most of the activity stems from diversification. The major corporations, he said, have simply run out of investment opportunities in the colony and must look to China, North America and Europe. And indeed Simon Murray, Group Managing Director of the Li-controlled Hutchison Whampoa Ltd., one of Hong Kong’s largest conglomerates, said that the company has “bumped up against the ceiling” of opportunities in Hong Kong and is now looking offshore for investments.

But many close observers of Hong Kong commerce say that the drive to diversify is fuelled mainly by lack of faith in the colony’s future. Francis Ka, president and director of Richardson Greenshields of Canada (Pacific) Ltd.,

cited changes in the ownership of Hong Kong’s soaring office towers as evidence. Local owners have been selling to foreigners, particularly Australians and Japanese, he said. And that, he added, is because of a widespread belief that China would be less likely to seize properties from foreign nationals in 1997 than from Hong Kong owners.

Modernize: Fang Zheng Ping, a deputy general manager of China Everbright Holdings Co. Ltd., a major Chinese firm with operations in Hong Kong, told Maclean's that China does not intend to change Hong Kong. Instead, he said, the Chinese will use it to modernize and internationalize their own economy. And for their part, many Hong Kong businessmen say that in 10 years Hong Kong will simply exchange one set of rulers for another. Said Simon Murray: “I do not see the difference between a Chinese governor or a British one.” But—just in case there is a big difference—capital is looking for other havens.

TOM FENNELL