LOCAL property developers have been moving cautiously in China in any case. So far the projects they have become involved with have tended to bring strategic rather than financial gain. Most of Hong Kong's blue-chip property firms are not anticipating real earnings flow from mainland projects until well into 1995 and 1996. A lot of their land holdings are on their books at nil value, so mainland assets have made little impression on net asset values. Baring Securities bears this out in its latest quarterly Hong Kong stock market review. It showed that the top 58 companies followed by the brokerage had a combined exposure to China amounting to only two per cent of net asset value. The highest penetration of China assets was at Kumagai Gumi (88 per cent), Shangri-La Asia (62 per cent), Yue Yuen (41 per cent), Johnson Electric (17 per cent), CITIC Pacific (12 per cent) and Hopewell (12 per cent). Companies that have made a big deal of going into China, such as World International and Wharf, have a net asset value and earnings exposure for the next two years of less than two per cent. Baring's measured exposure by money committed. New World Development, which has the largest foreign-owned land bank in China, has been concentrating on low-risk infrastructure projects initially. This is intended to build up experience and alliances when working in China while limiting the downside. In addition, big developers, particularly Li Ka-shing at Cheung Kong, have been concentrating on forging and reinforcing strong alliances with strategically important and influential entities in China. Mr Li's deep involvement with some of the most important back-door listings in Hong Kong are not only down his street because they seem to satisfy his appetite for corporate finance and deal-making, but they are likely to pay dividends in the future in projects for Cheung Kong and Hutchison Whampoa to gorge on. Another means of reducing risk is to combine corporate participation in major projects, so that, for instance, Sun Hung Kai Properties might be involved with several major parties from Hong Kong and around the region. In this way developers avoid carrying the can should things go desperately wrong.
