HONG
KONG - Life is indeed sweet if you're a Hong Kong
property tycoon. In what is routinely considered
the "freest" economy in the world, an oligarchy of
property developers sets supply and pricing (see
part 1 of this report). This applies not only to
residential apartments but also to shopping malls,
hotels, luxury serviced apartments and industrial
and office space.
Top financial muscle
rules. It gobbles up Hong Kong's best locations -
near mass transit systems or by the spectacular
waterfront. Behind the façade of all those glitzy
malls though, life is very hard. Retail tenants
pay not only a base rent but also a
surplus rent when
business turnover reaches a certain level. You
can't go wrong - if you're the owner, not the
tenant.
Now let's meet the six families
who essentially run the Hong Kong show.
The Li family - Li
Ka-shing's family controls, among others, Cheung
Kong Holdings, Hutchison Whampoa, Hong Kong
Electric, Cheung Kong Infrastructure, CK Life
Sciences, the popular website Tom.com and PCCW.
The market capitalization of these companies -
everything from property development to ports,
energy, telecom, hotels, retail, manufacturing and
infrastructure - is (excluding PCCW) about HK$852
billion (US$110 billion), accounting for nearly 5%
of the total capitalization of HK$18.5 trillion of
the Hong Kong stock exchange (as of mid-July).
It's always important to remember that mainland
Chinese enterprises listed in Hong Kong account
for more than half of the total capitalization of
the Hong Kong stock exchange.
Li Ka-shing,
born in 1928 in Guangdong province, charismatic, a
flawless negotiator and a renowned philanthropist,
is a larger-than-life character. He's the world's
16th wealthiest individual, according to Forbes,
with a net worth of US$21.3 billion. His companies
are active in over 50 countries. Li's two sons,
Victor and Richard, got the requisite US
education. Li is the chairman of Cheung Kong
Holdings and Hutchison Whampoa. Victor is the
chairman of Cheung Kong Infrastructure and CK Life
Sciences. Richard is the chairman of PCCW.
Cheung Kong Holdings has been a top
developer in the city since the 1960s. Victor
keeps a low profile, unlike Richard, who at 27
became a superstar in 1993, when he sold Star TV -
very popular across Asia - to Rupert Murdoch's
News Corporation for US$390 million. Needless to
say, Star TV - where he previously worked - was
established by Li Ka-shing.
Richard used
some of his profits to set up the Pacific Century
Group and later PCCW. In 1999 - backed by the Hong
Kong government - his group set out to build a
much-ballyhooed "cyberport" for US$1.7 billion.
But what was really juicy was a monster US$28.4
billion merger with Hong Kong Telecom in 2000 -
widely promoted in Hong Kong as a "deal of the
century". Beijing totally encouraged it; after
all, the competition for the deal was Singapore
Telecom. Yet after the PCCW-HKT mega-merger the
high-tech bubble burst - and the famous cyberport
project came down to nothing.
The
Kwok family - Sun Hung Kai Properties was
founded by Kwok Tak-seng, another high-profile
Cantonese from Guangdong province who started in
business as a trader in the early 1950s and got
into property development in 1958. A legendary
workaholic, he died in 1990 and left three sons -
Walter, Thomas and Raymond; the first two were
educated in Britain, and Raymond in the UK and the
United States.
The Kwok family controls
Sun Hung Kai Properties, Transport International
Holdings and Smartone Communications (the city's
third-largest mobile phone company). These
companies have a market capitalization of HK$266
billion as of July 26.
Sun Hung Kai is the
largest property developer in Hong Kong -
controlling over 100 companies involved in
construction, property management, electrical and
fire services, architecture, mechanical
engineering, cement manufacturing, finance and
insurance.
They're into everything from
flatted factories to mega-malls and
larger-than-life office towers such as the
International Finance Center (IFC) at the Airport
Railway Hong Kong station. Sun Hung Kai has 47.5%
of IFC towers 1 and 2; Henderson Land also has
47.5%. On top of it, Sun Hung Kai holds a 100%
interest in the development of Kowloon Station.
Attached to it is the new International Commerce
Center (ICC), another post-modern Hong Kong
landmark with a Ritz Carlton on top ("the highest
hotel in the world").
The three
billionaire Kwok brothers used to be regarded as
an iron triangle. Now a bitter family feud plus
corruption charges have dissolved the dream.
Brothers Thomas and Raymond have recently been
charged with bribery and public misconduct - one
of the highest-level corruption cases in Hong
Kong's history, and a graphic illustration of
what's wrong with the tycoon/government collusion
model.
And yet, instead of hiring top
professional managers to contain the damage, the
family appointed two of the Kwoks' sons - ages 29
and 31 - as alternate directors. Their business
record is virtually non-existent. Back to that
Chinese maxim; it all stays in the family.
The Lee family - Lee
Shau-Kee, yet again from Guangdong province,
started in the footsteps of his father, a gold
trader and money exchanger, until getting into
property development in 1958 with Kwok Tak-seng
and Fung King-hey - very popular locally as "the
three musketeers" (until they split in 1972).
Lee then established Wing Tai Development
- whose flagship company was Henderson Land. Today
his key companies are Henderson Land, Henderson
Investment and The Hong Kong and China Gas
Company, which have a market capitalization of
HK$257 billion (as of July 26). Lee is the
chairman of all three. He's the second-wealthiest
of the Hong Kong tycoons, behind only Li Ka-shing,
with a net worth of US$19 billion according to
Forbes.
Henderson Land attacks with gusto
the small and medium-sized residential apartment
market. Their preferred strategy is to buy out
apartments one by one in targeted old residential
buildings in some of Hong Kong's top areas - such
as Wan Chai, Causeway Bay and the Mid-levels.
Once again it's all in the family. Elder
son Lee Ka-kit - educated in the UK - is vice
chairman of two of the companies, and chairman and
president of the other. He's in charge of an
absolutely crucial division - the group's property
development interests in mainland China, mostly in
Beijing, Shanghai, Guangzhou and the Pearl River
Delta. Meanwhile, younger son Lee Ka-shing and
daughter Margaret are climbing their way up inside
the group.
The Cheng family
- The New World Development group of companies
includes NWS Holdings, New World China Land and
Mongolia Energy Corporation. They are controlled
by Cheng Yu-tung, also from Guangdong province.
The companies are involved in property,
infrastructure, public services (bus and ferry
services) and telecom. New World Development has a
market capitalization of HK$59 billion (as of July
26).
Cheng has taken a back seat since
1989. His elder son, Henry, educated in Canada, is
the managing director of New World Development and
chairman of New World China Land and NWS Holdings;
younger son Peter is executive director of these
two. Crucially, New World China Land owns a vast
land bank in - where else - mainland China.
Cheng used to be known as the "King of
Jewelry" since the 1960s, when he was controlling
no less than 30% of all Hong Kong diamond imports.
He's always been associated with the very popular
Chow Tai Fook jewelry company - until he entered
the property market in the late 1960s. Some of
Hong Kong's top landmarks were built by New World,
such as the Regent Hotel (now Intercontinental)
and the Hong Kong Exhibition and Convention
Center, where the 1997 handover took place.
Y K Pao and Peter Woo - The
Wharf/Wheelock Group was founded by Y K Pao - a
shipping magnate born in Zhejiang province who
started his career as a banker in Shanghai and
moved to Hong Kong in 1949. He died in 1991. Since
1986, the chairman of both Wharf and Wheelock is
Peter Woo, Pao's son-in-law, born in Shanghai and
married to Pao's second daughter, Betty.
Wharf (Holdings), Wheelock and Company and
i-Cable Communications have a market
capitalization of HK$190 billion. They are
involved in property investment, telecom, media,
entertainment and container terminals.
By
1973, before the oil shock, Pao had more ships
than legendary Aristoteles Onassis. When he
diversified from the shipping industry and took
over Wharf in 1980, with great help from HSBC, he
landed some of the most valuable properties in the
tourist Mecca of Tsim Sha Tsui, in Kowloon;
nowadays they are occupied by Ocean City, Ocean
Centre, Harbour City, the Marco Polo hotel and The
Getaway. Wharf is arguably Hong Kong's king of
commercial landlords.
Pao also got control
of the famous Star Ferry - the most spectacular
short cruise in the world, for only HK$2.30
one-way across the harbor - as well as the Island
tram franchise and a lot of container terminals.
The companies also own Time Square, two office
towers-cum-megamalls in Causeway Bay, as well as
the upscale department store Lane Crawford.
Woo tried to go straight to the point and
become Hong Kong's first chief executive in 1997.
But he lost to Tung Chee-hwa, who got 320 out of
400 votes.
The Kadoorie
family - Elly Kadoorie founded the CLP
group in 1901. He's the late grandfather of the
current chairman Michael Kadoorie. The family is
the largest shareholder of CLP Holdings and the
Hong Kong and Shanghai Hotels group - who own the
luxury Peninsula chain. These two companies have a
market capitalization of HK$172 billion (as of
July 26). The CLP group is essentially a local
electricity monopoly that then diversified to own
power stations in Beijing, Tianjin and Heibei and
an energy corporation in Gujarat, western India;
92% of another one in Victoria, Australia; and 50%
of another one in Thailand.
They got into
telecom connecting Hong Kong to China with a fiber
optic cable. They also got into property -
following the trail of Li Ka-shing and the Kwoks.
They could only make it into this cartel because
they had lots of capital and lots of cheap land in
the form of power stations (some of them no longer
in use); most of all, they were savvy enough to
get into a joint venture with Cheung Kong
Holdings.
Competition or
bust This short presentation may offer a
measure of how a few monopolies and oligopolies
control most of the daily life of an average
Hongkonger. It suggests Hong Kong, rather than
being a "free" society, is actually the domain of
captive markets.
By any definition, a
captive market is a market where very few actors
exercise a monopoly. Captive markets - which imply
scarce competition - yield immense profits,
without relation to costs of production.
A
way out for Hong Kong would be, of course, more
competition. For two years now, the Hong Kong
government has introduced a Competition Bill to
the Legislative Council (Legco) - after a
discussion that started in 2006. The bill went
through quite a few amendments. This is more or
less what it will look like. [1]
But is it
what Hongkongers really want - and need?
Ronny Tong of the Civic Party, a barrister
and vice-chairman of the Competition Bill panel of
Legco, has been pushing for an anti-monopoly law
in Hong Kong for years. The law was finally passed
in mid-July, a few days before the current term of
the council terminated. "After the bill is passed,
if there is any evidence of price-rigging by the
two major supermarket chains, the complaints will
be forwarded to the competition affairs committee
for investigation," Mr Tong said in a phone
interview with Asia Times Online.
He
expects the law will facilitate a "competition
culture" in Hong Kong. Other legislators, however,
are not so optimistic.
Albert Chan,
legislative councilor (People Power), called the
bill "toothless". When asked why he cast an
abstain vote during the legislation of the bill,
Chan explained to Asia Times Online, "The scope of
exemption of the bill is too large to be
effective. First of all, the government or
statutory bodies are granted full exemption of the
law. More seriously, there is no legal limitation
of market share to prohibit monopolistic control
of the market. On the other hand, it will be very
hard to collect evidence of price-rigging between
oligarchic coalitions, which frequently happens in
Hong Kong now."
Chan stressed the most
serious monopolistic control and oligarchic
coalitions can be found in sectors such as the
property market, petroleum and the telecom
businesses. The current competition law, he
insists, is unable to deal with these problems
effectively.
It may be ironic that Hong
Kong, long hailed as the "freest economy" in the
world, has waited for such a long time to get the
law passed; and even when it is passed, it is much
less effective than expected. Perhaps the answer
to this question may not be found in the economic,
but rather the political structure of Hong Kong
itself.
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