WITH HONG KONG'S economy languishing, the merits of closer economic integration with the Pearl River Delta region have received plenty of attention. Proponents of integration believe it can allow the SAR to tap more fully the vast, growing mainland market and reduce the risks of over-reliance on existing export markets and a small domestic economy. If the two sides do become more intertwined, one of the likely beneficiaries is Shenzhen Investment Holdings, a Hong Kong-listed window company of the municipal government. Speaking in his office in Tsim Sha Tsui with the Hong Kong skyline behind him, Shenzhen Investment chairman Song Zhiwang praised the benefits of closer cross-border ties. 'I expect the property markets of Hong Kong, Shenzhen and elsewhere in the delta region to benefit from economic integration,' he said. 'Economic integration will change the flow of population in the region . . . it will be a two-way flow of flat buyers between Hong Kong and the mainland, rather than the one-way flow from Hong Kong to the mainland at present.' Classed as a red chip because of its mainland government background, Shenzhen Investment runs a portfolio of businesses that have a direct bearing on the delta's economic integration: property, transport, logistics, power plant operation and infrastructure for electronic commerce, mainly in Shenzhen. Formerly known as Shum Yip Investment, the company recently changed its name to 'better reflect its special relationship with the Shenzhen government', said Mr Song, a former secretary-general of the Shenzhen government. The company's attempt to capitalise on the delta region's anticipated economic integration dates back to 1999, when it joined a consortium to bid for the construction and operation rights of a cross-border bridge that links Hong Kong and Shenzhen. However, the consortium dropped out of the HK$2.8 billion project after the Hong Kong Government last year made the proposed bridge toll free. Undaunted by this setback, Mr Song remains enthusiastic about investment opportunities near the border. 'We will develop property in areas around the bridge's connection to Shenzhen . . . this will be a focus of our future growth,' Mr Song said. He was referring to the Bao'an and Nanshan districts, where the firm bought land some years ago. Overall, Shenzhen land values have risen about 50 per cent since then. Property investment and development contributed 53 per cent of the company's consolidated net profit of HK$288.74 million in 2000. Mr Song said economic integration would call for a free flow of talent and faster urbanisation in the delta. 'In the course [of economic integration], mainland professionals and businessmen will increasingly move to Hong Kong, and their Hong Kong counterparts to the mainland,' he said. Mr Song dismissed concerns that the trend of Hong Kong people buying cheaper and larger flats across the border posed a potential threat to the SAR property market. 'The urbanisation and abolishment of restrictions on the movement of population from the rural to urban areas in Guangdong will also generate demand for flats,' he said. There are about 4.8 million registered or permanent residents in Shenzhen and a mobile population of four million, mainly migrant, workers. Shenzhen Investment has most of its property investments, projects and 2.42 million square metre land bank on prime sites. In 2000, the firm and its partners sold 400,000 sq metres of gross floor area, of which 190,000 sq metres was attributable to the company. The HK$190 million net profit booked from property sales was a healthy 19 per cent growth against the previous year. Shenzhen Investment also has a key role in the city's modernisation, entering businesses that the Government has targeted for development. The Shenzhen government plans to turn the city into a sophisticated logistics and information technology hub within about a decade. It has undertaken to modernise the municipal and inter-city goods distribution system, passenger transport and to ensure sufficient electricity supply. This move involves restructuring its old-fashioned warehousing operation into a 'modern logistics firm'. Shum Yip Modern Logistics is developing online shopping and distribution services together with Shenzhen Investment's cargo transport fleet. The logistics firm develops and operates warehouses in Luohu district, the hub of Shenzhen, and has 100,000 sq metres of land. It has recently developed 50,000 sq metres of land in rapidly growing Yantian Port for new warehouses. Shenzhen Investment's efforts have paid off, with its logistics arm yielding an annual profit of between 30 million yuan (about HK$28.11 million) and 50 million yuan for the past few years. Shenzhen Investment deputy managing director Verdi Sun Juyi said the logistics firm was expected to list on the mainland's A-share market in the second half of the year to raise funds for future development. It could expect to book a 100 million yuan gain from the listing if the price was 20 times its earnings. The red chip also has invested in the city's cable television operator, Shenzhen Topway Video Communication, and an electronic commerce project, in which people make online bookings and payments at public machines. Topway, which has a capacity to enable 890,000 households to access information, carry out securities trading and shop online through a fibre-optic network, has signed up 500,000 subscribers. It acquired 21.1 per cent of Topway in 2000, but a plan to raise its stake to 49 per cent was stalled by government restrictions on foreign ownership. It scaled down its ambitions and is seeking to acquire a further 15 per cent stake in Topway. To bolster its war chest for a stake in a power plant in Guangdong, the company raised about HK$100 million from a share placement last December. 'We want to tap the potential in the Guangdong market where rapid economic development has caused power shortages,' Mr Song said. The company owns 19 per cent of two power plants in Shenzhen and 70 per cent of a hydroelectricity station in Sichuan. Power generation businesses contributed 36 per cent of the red chip's net profit in 2000. The Shenzhen power plants sold 22 per cent more electricity in 2000 than in the previous year and their profits doubled. However, the Sichuan venture has proven a flop and Mr Song said the company planned to sell its stake to focus its future power plant investment in Guangdong. In passenger transport, the red chip formed two joint ventures to run municipal and inter-city bus services last year. The firm and Guangzhou Communications Group pooled their 32 long-distance bus routes and 154 coaches in a 50:50 joint venture, which will serve the delta region. The red chip also formed the city's second bus firm with Shenzhen Metro and other investors. Mr Song expected this sector to account for 20 per cent of its net profit by the end of this year, up from about 8 per cent last year. Graphic: shen01gbz
