Swire's China courtship
SWIRE Properties surprised the market when it linked arms with CITIC Pacific in a $2.85 billion Kowloon property bid. But the move was merely the latest step in the British hong's strategy to woo China.
''We are not rushing in. We are taking a long-term view. It could be the end of this decade before we see substantial business in China, but we are taking positive steps forward,'' Swire Group chairman Mr Peter Sutch said recently.
Analysts believe that, in marked contrast to rival hong Jardines, the quintessentially British Swire Group has mapped out a clear strategy for the future.
When he took over as chairman last year Mr Sutch also took over as chairman of the China Action Group, comprising all senior managers of Swire Pacific companies with the aim of co-ordinating the group's overall China strategy.
It has been Swire Pacific's long-stated aim to concentrate its business activities within the Hongkong-China-Taiwan triangle.
As one market analyst pointed out: ''Every move Swire makes is carefully thought out and executed. The big difference between Jardines and Swire is that the Swire Group is seen to be making a commitment to China.'' Last week's joint venture between Swire Properties and CITIC Pacific came as something of a surprise to some analysts, particularly in the light of the continuing Sino-British row over proposed political reforms for Hongkong.
What was even more surprising, for some, was the fact that the deal even came about in the first place, considering China's attitude towards Jardines.
The name Jardine Matheson is synonymous with Hongkong and the opium trade in the early 1880s . . . something the Chinese have never forgiven the company for.
The Swire Group's involvement in China dates from 1867 when Butterfield and Swire opened an office in Shanghai. Like most foreign companies operating in China at the time, Butterfield and Swire flourished until 1949 when the communists gained power. Fouryears later the company had joined the foreign exodus from China and relocated its regional headquarters to Hongkong.
''Historically, the name Jardines still sticks in the gut of the Chinese because of its part in what is considered to be China's great shame,'' said Mr Nick Peacock, an analyst with Schroder Securities.
''What is becoming more and more apparent is the growing discrepancy between the two hongs.
''We won't be seeing any tremendous growth in Cathay Pacific for a few years and I think Swire's property business has just about peaked so it makes good commercial sense to look at developing business opportunities in China.
''Swire has been very careful in its business dealings with China and I believe the group is regarded by the Chinese as the pre-eminent hong.'' Another analyst, who did not want to be named, said: ''Swire has simply played the game a lot better than Jardines. It has better management and management that understands China and the Chinese. Swire management has a certain degree of sensitivity when dealing with the Chinese that other hongs lack, and that has paid handsome dividends for the group in terms of how it is perceived in China.'' Mr Peacock said: ''Painting over the Union Jack on the tail of Cathay Pacific aircraft probably didn't mean all that much to Westerners, but to China it mattered a lot. It goes with the Swire management style.'' That management style is said to combine fundamental conservative values with dedication towards innovation and growth.
Indirectly, the group already has substantial investments in China.
Cathay Pacific, one of the world's most profitable airlines, is 52 per cent owned by Swire Pacific, with a further 12.5 per cent owned by CITIC and another 10 per cent split between China National Aviation Corporation and China Travel Service. All three mainland companies have representatives on the Cathay board.
Last year the airline announced that it would relocate its back-room accountancy work, normally done in Hongkong, to Guangzhou.
The Hongkong Aircraft and Engineering Company (HAECO), which is a subsidiary of Swire Pacific, last month announced a US$63 million joint venture in Xiamen, Fujian province, to build and run an aircraft maintenance facility.
Swire Pacific, along with Cathay, has a 43 per cent stake in Dragonair with CITIC holding 46 per cent.
Mr Sutch was quoted recently as saying: ''Swire Pacific's philosophy of developing its core businesses will remain the overall thrust of the group.
''It is a theme that has stood the group in good stead and will continue to be the underlying foundation of progress.
''However, the opportunity to develop and invest in China may well in coming years give us opportunity to develop other businesses into core businesses.'' The group's core businesses include aviation, property, shipping, industries, trading, insurance and, to a lesser extent, hotels.
Group companies are encouraged to develop a greater depth of knowledge of China among both Hongkong and expatriate staff which includes sending a greater number of junior and middle managers to positions in China. It is rumoured that Mr Sutch himself is studying Mandarin in his office with a private tutor.
The Swire Group now has a resident office in Beijing, which undertakes liaison, co-ordination, negotiations and research on behalf of the Swire Group companies.
In addition, Swire Pacific has a China office in Hongkong and representative offices in Guangzhou and Shanghai.
When asked about last week's move with CITIC Hongkong, Mr Keith Kerr, Swire Properties managing director, said: ''I can't see how that was a surprise. We have a constant dialogue with CITIC and we are always on the lookout for opportunities and to consolidate existing relationships.
''We see them at Cathay board meetings and at Dragonair,'' he said.
''This is just the evolution of a dialogue we regularly have with CITIC. We are happy to have them as a partner and to extend the relationship into another area of mutual interest.'' Mr Mark Hodge, an analyst with G.K. Goh Securities, said: ''The secret of Swire's success in China has been its low profile, which has been due partly to historic reasons. But because of its conservative nature one wouldn't expect the company to do otherwise.
''In the long-term CITIC will benefit from its relationship with Swire especially as the mainland develops.'' One analyst said: ''CITIC has so much to gain from Swire's expertise in retailing, engineering, aviation, shipping and property management.'' While Cathay and HAECO are among the group's high profile companies, over a dozen subsidiaries are actively involved in joint ventures within China.
When anyone drinks a can of soft drink in China, there is a good chance it comes from a company affiliated with the Swire Group. It is estimated that one-fifth of all cans made in China today are produced at the Foshan Continental Can Company, which is a50/50 partnership involving the Foshan Can Company and Continental Can Hongkong Ltd in which Swire Pacific has a 40 per cent stake.
Through Coca-Cola Swire Beverages Limited, Swire Pacific has a 30 per cent interest in BC Development Company Limited (BCD), a joint venture with CITIC.
BCD holds a controlling interest in two Coca-Cola bottling at Nanjing and Hangzhou and a glass bottling manufacturing factory in Yantai.
ICI Swire Paints (China) Limited is in the process of constructing a major paint manufacturing plant in Guangzhou.
Swire Engineering, Swire Shipping and Hongkong United Dockyards Limited are all actively engaged in business in China.
Even Swire Loxley has started to push its Fibre Trim dieting products to China.
As one analyst put it: ''Perhaps that is the height of irony . . . the Chinese having to cope with one of the excesses of capitalism - being overweight.'' The China Connection: Cathay Pacific HAECO Dragonair BC Development Co Ltd Guangmei Foods Co Ltd Foshan Continental Can Co Ltd ICI Swire Paints (China) Ltd Swire Duro Ltd Swire Engineering Group Swire Magnetics Holdings Ltd Tai-Koo Surgar Ltd Hongkong United Dockyards Ltd Swire Shipping (Agencies) Ltd Oceanroutes Inc Swire Travel Ltd Swire Loxley Ltd Swire Resources Ltd