Foreign investment in key infrastructure always a touchy subject
- American action on Tung firm mirrors the exclusion of foreign ownership from strategic sectors of China’s economy like telecoms and ports
For more than three decades a Hong Kong-based shipping and logistics company, Orient Overseas (International), has owned and operated a Californian container port that is now the second biggest in the United States by volume. China’s resumption of sovereignty over the city in 1997 made no difference to the investment. On the contrary, it has thrived. OOIL’s co-chief executive, Andy Tung Lieh-cheung, says that over the years “we have developed Long Beach Container Terminal into the safest, most efficient and lowest-emission terminal in the US”.
The long-standing Hong Kong link to such a strategically sensitive asset through the family of the well-connected former chief executive, Tung Chee-hwa, did not raise any concerns. So long as the Tungs remained in control of a company they founded 50 years ago that was unlikely to change. But a decision to cash in their interest and a change of ownership was bound to attract close scrutiny.
The sale in July 2017 to Cosco Shipping Holdings raised a red flag with US security agencies, who took issue with the prospect of a Chinese state-owned firm taking indirect ownership of a major port, even if the same US unit continued running it.
To cut a long story short, OOIL and Cosco agreed with US security officials that they would sell the terminal to an unrelated third party deemed acceptable to the US, which has turned out to be an infrastructure fund of an asset manager for the Sydney-based financial conglomerate Macquarie Group. OOIL sold its entire interest on the terminal for US$1.78 billion in cash, which the company says is expected to yield a net profit of US$1.29 billion. That may be a spectacular windfall for OOIL owners, Tung Chee-hwa – who has played no role in the company since he became the city’s first chief executive – and his brother Tung Chee-chen. But the irony will not be lost on them among others – that the US action mirrors the exclusion of foreign ownership from strategic sectors of China’s economy like telecoms and ports. It is a reminder to Chinese companies that in the heightened security awareness of a trade war and its aftermath, they can expect to continue to have to come to terms with close scrutiny of and intervention in deals involving major infrastructure projects or sectors seen as sensitive.
