BUSINESS

Rich and Powerful

TOM FENNELL August 17 1987
BUSINESS

Rich and Powerful

TOM FENNELL August 17 1987

Rich and Powerful

BUSINESS

COVER

It is Saturday, but for Hong Kong billionaire Li Ka-shing it is just another working day. Dressed in his customary navy blue business suit, he has just taken five associates to the colony’s airport, and he is now on his way to a business meeting. Li and thousands of other Hong Kong businessmen operate in one of the most hotly competitive environments on earth.

But their world of freewheeling capitalism is expected to change abruptly when the British colony reverts to Chinese rule in 1997. Li’s strategy for dealing with that transition: pour millions of dollars into the Canadian real estate, banking and energy sectors, and prepare his sons—Victor, already a Canadian, and Richard, a landed immigrant—to guide his empire in Canada. Speeding from the airport to his next meeting in a maroon Rolls Royce, Li, 59, declares: “I will be retired in 1997 but both my sons, they will be in charge. They will be Canadian.”

Nervous: Thousands of other wealthy Hong Kong businessmen have adopted the same strategy, and the result has been an unprecedented avalanche of foreign investment. Major figures like Li and thousands of smaller investors are pumping Hong Kong money into Canada at the rate of $200 million a month, according to a federal official in Hong Kong. While publicly maintaining that it will be business as usual in Hong Kong, the wealthy are moving assets out in nervous anticipation of 1997 (page 30). In the process, they are building an economic base that could significantly alter Canadian business for years to come.

Last December Li, the biggest of all

the new Hong Kong investors, purchased 43 per cent of Calgary-based Husky Oil Ltd. for $473 million. He has also bought Toronto’s luxurious Harbour Castle Hilton hotel for an undisclosed sum. Now Li says that he wants to invest another $500 million in the Canadian energy sector, and he is also

considering buying a major Canadian grocery store chain. Another major investor is the Hongkong & Shanghai Banking Corp., which purchased the Bank of British Columbia through its Canadian subsidiary last November. Its officials now say that they want to expand eastward.

But the myriad of smaller investors are having a big impact, too. In the first five months of 1987 alone, 87

immigrants from Hong Kong pumped $96 million into British Columbia’s struggling economy. And last month the Ontario government announced new guidelines that will ease regulations restricting investment and encourage Asian investors—particularly wealthy East Indians from Hong

Kong—to immigrate to the province. As well, Ottawa and some provinces are smoothing immigration regulations to accommodate a demand for Canadian citizenship that officials expect will accelerate every year until 1997.

In 1979 just 11 business immigrants entered Canada from Hong Kong. But by 1984 that figure had increased to 474, and in 1986 a total of 677 arrived with $621.3 million to invest in Canadian

ventures. The federal government’s immigrant investor category encourages prosperous applicants to seek Canadian citizenship. By injecting at least $250,000 into a Canadian-based Hong Kong-financed venture fund or directly into a Canadian project, the investor can easily qualify for landed immigrant status and Canadian citizenship three years later. Said Hongkong & Shanghai Banking Corp. general manager John French of the quartermillion-dollar investment rule: “That is nothing for a Hong Kong resident to pay for the security of a Canadian passport in his back pocket.”

Revolutionary: And Canadian venture funds are attracting large sums of money. These investments allow investors to place specific amounts of money into a pool or fund, which is then invested in Canadian companies and projects by a broker who serves as the fund’s portfolio manager. Winnipeg-based brokerage firm Richardson Greenshields of Canada Ltd. says that since last November it has sold more than half of the $250,000 units of a $4-million limited partnership to renovate Edmonton’s downtown Sheraton Plaza Hotel. Cabre Exploration Ltd., a small exploration and production firm in Calgary, tapped the CalAsia Capital Corp. venture fund for $1.5 million in April. Francis Ka, a Hong Kong native who is president and director of Hong Kongbased Richardson Greenshields of Canada (Pacific) Ltd., predicted that the flood of money and people out of Hong Kong to Canada is just beginning. He said that many local businessmen still hope to wring vast profits out of Hong Kong’s booming economy, which expanded by 8.7 per cent in 1986 to a

gross domestic product of $71 billion, compared with Canada’s $505 billion. But when 1990 arrives the psychological impact of entering the decade of change will be revolutionary. Said Ka: “Chinese businessmen like to think in three-year business cycles. But once we are in the same decade, we will see a lot of movement to Canada.”

Analysts in both countries say that Canada is the second-most popular destination, after the United States, for Hong Kong investors. It is estimated that Toronto is the destination for more than one third of all the Hong Kong cash already reaching Canada,

and the results are particularly obvious in the city’s burgeoning Chinese communities. Analysts in Toronto estimate that the sale of residential and commerical real estate to Hong Kong residents jumped to nearly $2 billion in Toronto last year from $1 billion in 1985. But exact figures are almost impossible to calculate because much of the money is moving from Hong Kong families to relatives who already have Canadian citizenship.

Hong Kong immigrants, long accustomed to wheeling and dealing in the island’s explosive real estate sector, prefer to buy commercial property over almost anything else. Said Thomas Hui of Montreal, a former resident of Hong Kong who now advises investors from the colony: “The Chinese like real estate, and the rich prefer to buy hotels.” Indeed, government officials admit that some Hong Kong residents gain citizenship under the business immigration category by starting such things as a new manufacturing plant or restaurant in Canada, but then quickly sell out and move heavily into real estate.

Pressure: The new immigrants like to live near an established Chinese community. As a result the pressure to find new land and developments for Hong Kong clients is pushing up land prices in and around the Chinese areas in downtown Toronto and on the city’s fringes. A typical recent case, according to Toronto realtor Edward Hou, was a family from Hong Kong that was looking for what Hou described as a “really large home.” Hou told them that he could find them something for $4 million in central Toronto, but that they could save $2 million by moving farther out. Said Hou: “The first thing they

wanted to know was, how far is it from that house to Chinatown?” And when Hou said they could reach downtown Toronto’s Chinatown in 20 minutes by expressway they opted for the cheaper deal.

Expensive: The unidentified purchaser of another Toronto property last week sacrificed proximity to the Chinese areas for a home in one of Toronto’s most exclusive districts. A spokesmen for Royal LePage Real Estate Services Ltd. said that a Hong Kong investor paid about $5.5 million—one of the highest purchase prices ever in the city—for a 25-room house

on two acres in the north-end Bridle Path area.

Traditionally, Vancouver has been one of the most popular destinations for Hong Kong investment. In that city’s Chinatown, land prices — averaging around $1 million for 25 feet of frontage—have become prohibitively expensive. As a result, new arrivals are moving into the downtown business core and to the city’s suburbs, mainly to Richmond.

Real estate: Industry analysts say that since the early 1970s, Hong Kong immigrants and their descendants have invested nearly $2 billion, primarily in Vancouver real estate. And the size of individual investments is rising, according to University of British Columbia economist Michael Goldberg. On April -

1 New World Hotels International Ltd. of Hong Kong bought the Vancouver Holiday Inn Harborside from a local owner for an undisclosed sum.

Andrea Eng, a 31-year-old commercial realtor with Vancouver’s Colliers Macaulay Nicolls Inc., sold close to $30 million worth of commercial property to Hong Kong investors in 1986. But she says that she almost matched that sales total in the first half of this year alone. Most of Eng’s clients are smaller investors who spend between $2 million and $10 million. Such investors, she said, seek prime commercial properties—apartment buildings and retail sites. Said Eng: “They are all looking for great location and buildings that are fully tenanted.”

Aggressive: Not all immigrants

pour their money exclusively into real estate. Danny Gaw owns a quarter of a company that has $3 million worth of property, but he is known in Vancouver as the West Coast’s doughnut king. The 44-year-old father of three heads Max’s Donuts (1964) Ltd., which turns out 84,000 doughnuts a day—which he says represents 70 per cent of the B.C. market. Gaw moved to Canada from Bangkok in 1982, 10 years after fleeing Hong Kong because of the impending takeover by China and to find financial stability. His relatives in Hong Kong, said Gaw, “now have somewhere to go.”

Hong Kong investment in Montreal is less obvious than in Toronto or Vancouver. But there are signs that

Quebec’s aggressive 12-man office in the colony—one of six provincial offices there—is having an impact. In 1983 just 10 per cent of the roughly 163 Hong Kong business immigrants to Canada moved to Quebec. But last year 30 per cent of immigrant investors ar-

riving from Hong Kong landed in Quebec, and provincial officials said that the figure should increase to 35 per cent this year.

The Montreal Urban Community (MUC) has also been promoting the city. Stephen Bigsby, the MUC’s director of economic development, said that his organization has managed to attract some “major Hong Kong players.” Indeed, one of Hong Kong’s wealthiest residents, East Indian businessman Hari N. Harilela, purchased the $10-million 160-room Le Pavilion Hotel on Côte de Lièsse Road in December, 1984. Hong Kong real estate developer Patrick Tsui, who settled in Montreal in 1985, said that he is now planning to build a highrise condominium project near Montreal’s downtown Chinatown.

Montreal is an especially strong magnet for Hong Kong capital because it is a major garment and export-import trading centre—handling 69 per cent of all clothing entering Canada from Hong Kong and between 75 and 80 per cent of the toys imported from the colony. In addition, real estate prices in Montreal are still relatively low compared with those in Toronto and Vancouver, With the other cities becoming overcrowded and too competitive, Bigsby said, Montreal is marketing itself as the new frontier.

Jewelry: Thomas Hui, 36, is a typical Hong Kong immigrant to Canada in that he has maintained his business contacts in Hong Kong while bringing family members into Canada. He arrived in Montreal in 1984 and opened a local branch of Wall Street Enterprises (Holdings) Ltd., a diversified financial services firm with 250 employees worldwide—15 in Canada—that his father and brothers operate from their base in Hong Kong. Since then, he said, he has invested $2 million of his family’s assets in Montreal real estate and the costume jewelry retail business. Now he says that he is trying to buy partnerships in a Montreal-based stock brokerage firm and an insurance company. Meanwhile, a brother and a sister have also moved to Montreal with their families, and the two brothers regularly travel between Hong Kong and Montreal on business. Said Hui: “When I go there, he comes here.”

Through Wall Street Enterprises, Hui is also aiding immigrant investors from Hong Kong with everything from their visas to financial placements. Hui estimates that his clients alone have invested $20 million in Montreal in the past 18 months; much more, he says, is on the way. Indeed, in one week in late June Hui said he processed applications for eight prospective clients who separately listed assets totalling $4.1 million.

Enthusiasm: In Alberta, Hong Kong immigrant investors are welcome, not only for the size of their bank balances but also for their interest in creating jobs in such service businesses as restaurants and computer software distribution firms. John W. Kennedy, Alberta’s Agent General, Asia Pacific, based in Hong Kong, says that the province has attracted more attention in the colony since Li Ka-shing’s stunning move into Husky Oil last December. Kennedy said that, ultimately, the Hong Kong émigrés may assist in diversifying Western Canada’s economy away from its traditional resource base to a more service-oriented economy. Many immigrants attracted to the province have about $1 million to spend, he said, as well as excellent business contacts in Hong Kong and China that will generate future revenue. “And they are great citizens,” added Kennedy. “You will never find one on welfare.”

But there are limits to Hong Kong investors’ enthusiasm for Canada. One problem is taxes—federal, provincial and municipal—which are high by comparison with the colony’s. The highest income tax rate in Hong Kong is just 17 per cent. The equivalent tax in Canada can exceed 40 per cent. As a result, says Ronald Li, chairman of the Hong Kong stock exchange, many investors find it advantageous to continue to do busi-

ness in Hong Kong for as long as possible before relocating to high-tax Canada. Another concern among Hong Kong businessmen is what many of them regard as a cautious attitude on the part of Canadian businessmen. In Hong Kong, said Vancouver tour operator Menlo Cheng, a deal with a bank can be

struck with a simple handshake, whereas Canada’s conservative bankers can take months to come to a decision.

But even with those drawbacks, said Gordon Reading, chairman of the department of management studies at the University of Hong Kong, the current wave of business immigrants ultimate-

ly will inject a new vitality into the Canadian economy. Indeed, Reading says that the immigrants could grow to control far more of the Canadian economy than their population in percentage terms would suggest. Small Chinese populations already dominate the commerce of other southeast Asian countries such as Singapore, Malaysia and Indonesia. And Canada is attracting high-quality émigrés, Reading noted— a factor that could magnify their eventual impact on the nation’s economy.

Opportunities: Still, other analysts such as UBC’S Goldberg warn that too much can be made of the pre-1997 evacuation of wealth. Goldberg says that for years Canada has educated thousands of students from Hong Kong, and many who stayed in Canada are now bringing their families over. Other wealthy residents of Hong Kong simply will not move—even with the impending takeover. Said Hong Kong tailor Tony Chao: “I’m Chinese, why should I leave?” But like the billionaire Li Kashing, Chao sees an uncertain future for his family in Hong Kong. “I would like my children to go to Canada if they could,” he said. “There would be more opportunities.”

TOM FENNELL

MIRO CERNETIG

DIANE LUCKOW

JOHN HOWSE

ANN FINLAYSON

DAN BURKE