End of an era: Hong Kong steps down as the face of Chinese capitalism
- Peter Guy says the exit of a generation of major business figures in Hong Kong – its original property tycoons – coincides with the arrival of China’s model of state capitalism on the global stage. The archetypal Hong Kong tycoon may never return
Sooner or later, everybody’s kingdom must end. And Hong Kong witnessed that in 2018 with the passing of a generation of major business and cultural figures. At their peak, they made Hong Kong the centre of Chinese capitalism – until mainland China emerged. Their passing and what they’ve left behind will determine Hong Kong’s future.
The passing of Walter Kwok Ping-sheung, former chairman of Sun Hung Kai Properties, marked the end of an era for Hong Kong’s original property tycoons. It started with Cheng Yu-tung, who founded New World Development in 1970, and died in 2016 as Hong Kong’s third-richest tycoon. And last year, Li Ka-shing officially retired and relinquished managerial control of CK Hutchison, a conglomerate that had its roots in plastic flowers 50 years ago.
This generation of tycoons practised predatory capitalism over communitarian capitalism, and it is evident in the city’s distorted property market, where the government allows developers to sell private flats the size of parking spaces. The property tycoon class has evolved into a threat to the city’s stability.
The government is only becoming aware that the consequences of laissez-faire policies mean that property is not treated as a strategic public resource for social and economic development, but raw material for private profit.
But, that generation was also represented by international media and cultural entrepreneurs. Louis Cha Leung-yung, aka Jin Yong, the world’s most popular Chinese writer, was widely regarded as the most influential Chinese martial arts novelist of the 20th century.
Hong Kong film producer Raymond Chow Man-wai, founded Golden Harvest studios in 1970 and introduced Bruce Lee and Jackie Chan to the world. I knew the local banker with Chase Manhattan Bank who convinced his head office to lend Chow money to make his first Bruce Lee movie. Chow took a mortgage on his flat to secure the loan. Hong Kong culture may never recover its historical level of influence.
Today, Hong Kong’s young entrepreneurs cannot even afford a flat to pledge for a business. Probably the best business advice of the year came from Canning Fok Kin-ning, group co-managing director of CK Hutchison Holdings, who advised young people to avoid buying overpriced Hong Kong micro flats and invest in their future by moving to and working on the mainland.
Hong Kong remains crippled by a cartelised economy in property, retail, utilities and finance. In particular, the Hong Kong property market was like one long mahjong session where, at the end of the game, only several winners surfaced holding all the money. As one tycoon said: “The most important skill needed to succeed in local property is the ability to navigate rapid asset inflation and deflation.” And that seems to be the only speculative skills that Hong Kong business culture has inherited.
Hong Kong’s biggest problem in capital flow and formation is that, after a prolonged property boom, most of the city’s capital resides in the hands of a property class, who are disinterested in other asset classes outside property. In fact, the wealthiest are exiting China and investing abroad.
In Silicon Valley, successful tech money tends to reinvest in technology because they are comfortable with those kinds of businesses. Start-up capital for new-economy enterprises continues to be scarce in Hong Kong. It’s more plentiful on the mainland, from where, coincidentally, all the intellectual capital and successful new enterprises are currently flowing.
A more central issue confronts Hong Kong’s traditional owners of capital as China struggles for influence as a superpower. It reaches beyond the shifting tariffs and economics of the current trade war. It lies in Karl Marx’s description of the central struggle between communism and capitalism: who owns capital? Capitalists believe capital is owned by individuals. Communists believe it must be exclusively possessed by the state. And today, capital includes financial, real and intellectual property.
China’s form of state capitalism, as the world’s second-largest economy, is incompatible with rules-based, Western capitalism. But nowhere is that ideological divide more clear than in Hong Kong, where the tycoons hold most of the city’s capital. It poses a problem for them and their heirs, as they feel all their money belongs to their families and not the state.
Trying to cling on to its past and freeze policies the way they were has been Hong Kong’s fatal delusion since 1997. The archetypal Hong Kong tycoon may never return, because 2018 showed that Beijing may have found a new form of state capitalism that might outperform or survive liberal democracies.
Peter Guy is a financial writer and a former international banker