How new cor­po­rate gi­ants can be made in Hong Kong

China Daily (Hong Kong) - - COMMENT -

Cheung Kong Prop­erty Hold­ings on July 14 an­nounced that its board of direc­tors pro­posed the com­pany re­name it­self CK As­set Hold­ings to bet­ter re­flect its achievements in busi­ness di­ver­si­fi­ca­tion, which it will con­tinue to pur­sue in the fu­ture. The com­pany, which was a lead­ing prop­erty de­vel­oper for decades, now also op­er­ates fixed-in­come busi­nesses such as in­fra­struc­ture in­vest­ment, prop­er­ties as in­vest­ment ve­hi­cles and air­craft leasing to en­hance long-term devel­op­ment and bet­ter value for share­hold­ers. The move is an­other sig­nif­i­cant step in Cheung Kong Chair­man Li Ka-shing’s strat­egy to fur­ther di­ver­sify his busi­ness port­fo­lio af­ter suc­cess­fully turn­ing Hutchi­son Wham­poa from a prop­erty de­vel­oper into a multi-in­dus­try con­glom­er­ate.

Hong Kong’s cor­po­rate mix, which has long been dom­i­nated by small and medium-sized en­ter­prises (SMEs), is the cre­ation of history and cir­cum­stances. When in­dus­trial pro­duc­tion was mostly la­bor-in­ten­sive in the 1950s through the 1970s Hong Kong’s SMEs en­joyed the rel­a­tive ad­van­tage of be­ing “eas­ier to ma­neu­ver”. Since the 1980s, how­ever, Hong Kong’s man­u­fac­tur­ing in­dus­try — faced with grow­ing com­pe­ti­tion from the out­side world and in­creas­ing pro­duc­tion costs — did not take the op­por­tu­nity to pur­sue struc­tural trans­for­ma­tion and turn to high-tech-ori­ented knowl­edge-driven pro­duc­tion, as South Korea did to cre­ate sev­eral non-real-es­ta­te­ori­ented cor­po­rate gi­ants. At that time the Chi­nese main­land’s re­form and open­ing-up drive of­fered Hong Kong-based man­u­fac­tur­ers a golden op­por­tu­nity to move their fac­to­ries to the Pearl River Delta re­gion in neigh­bor­ing Guang­dong prov­ince. As a re­sult Hong Kong never had the in­cen­tive to de­velop its own high-tech man­u­fac­tur­ing in­dus­try while al­most all ma­jor real-es­tate de­vel­op­ers ex­cept Hutchi­son ig­nored busi­ness di­ver­si­fi­ca­tion.

Be­tween 1984 and 1994 Hong Kong’s man­u­fac­tur­ing in­dus­try em­ployee head-count shrank from 840,000 to 430,000, while the num­ber of work­ers it hired in the delta re­gion surged to 5 mil­lion. By Hong Kong stan­dards, which re­gard com­pa­nies with 100 or more em­ploy­ees as big, most if not all Hong Kong fac­to­ries that moved to Guang­dong have since be­come big com­pa­nies. By in­ter­na­tional stan­dards, how­ever, few of them are re­ally big, but they did not care so much as to aim higher.

Time flies when peo­ple are care­free. While Hong Kong man­u­fac­tur­ers en­joyed low pro­duc­tion costs on the main­land and in­ter­na­tional mar­ket share, the city’s own in­dus­trial struc­ture saw a steady rise in the mostly la­bor-in­ten­sive and low value-added con­sumer ser­vices sec­tor. Else­where in the world science and tech­nol­ogy have de­vel­oped by leaps and bounds dur­ing th­ese years. Amid the so-called fourth science and in­dus­trial rev­o­lu­tion, a num­ber of emerg­ing economies — in­clud­ing the main­land The au­thor is a se­nior re­search fel­low of China Ever­bright Hold­ings.

and In­dia — have grown sig­nif­i­cantly in na­tional strength while the in­ter­net has made the “world econ­omy” true to its name. So far Hong Kong has missed mul­ti­ple op­por­tu­ni­ties to pur­sue struc­tural trans­for­ma­tion of its econ­omy while the world ex­pe­ri­enced great leaps for­ward in science and tech­nol­ogy devel­op­ment.

What has pre­vented Hong Kong from devel­op­ing its own high-tech in­dus­try also stopped most ma­jor com­pa­nies from be­com­ing in­ter­na­tional cor­po­rate gi­ants. How­ever, there is an­other im­por­tant rea­son why Hong Kong has so few in­ter­na­tional cor­po­rate gi­ants: the dom­i­nance of fam­ily busi­ness tra­di­tions.

Al­most all ma­jor busi­nesses in Hong Kong are fam­ily af­fairs, pub­licly listed or not, be­cause they are al­ways con­trolled and run by the found­ing fam­i­lies. The suc­ces­sion of for­tune tends to re­sult in a fam­ily feud, while in­dus­tri­ous­ness and ragsto-riches fight­ing spirit are hard to main­tain from gen­er­a­tion to gen­er­a­tion. An old Chi­nese say­ing has it that fam­ily for­tunes only last three gen­er­a­tions. It’s sad that this is still the case in Hong Kong some­times. And in many cases the fam­ily busi­nesses failed be­cause of in-house feuds over the dis­tri­bu­tion of fam­ily for­tunes. For Hong Kong this sorry sit­u­a­tion is the main rea­son why so few, if any, com­pa­nies have de­vel­oped into world-class cor­po­rate gi­ants. That means ma­jor fam­ily busi­nesses must break free of their house­hold “bind”.

Some West­ern multi­na­tional cor­po­ra­tions have es­tab­lished footholds in Hong Kong since the 1970s and now dom­i­nate such sec­tors as le­gal coun­sel and ac­count­ing. Since the 1980s some main­land cor­po­rate gi­ants have come to Hong Kong and be­come in­dus­try lead­ers. Their pres­ence changed the lo­cal cor­po­rate land­scape some­what but the dif­fi­culty in pur­su­ing the knowl­edge­cen­tered econ­omy re­mains very much in ef­fect. To break the stag­nant mode Hong Kong needs more cor­po­rate gi­ants that can spear­head eco­nomic struc­tural trans­for­ma­tion. Ma­jor real-es­tate de­vel­op­ers should be the first to try and ex­pand their busi­ness port­fo­lio. The SMEs, in the mean­time, should be en­cour­aged to join forces through merg­ers and ac­qui­si­tions. They should aim higher and far­ther be­yond Hong Kong’s bound­aries. The Guang­dong-Hong Kong-Ma­cao Greater Bay Area is beck­on­ing and so are Belt and Road mar­kets.

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