How new corporate giants can be made in Hong Kong

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.