Caixin
Apr 11, 2018 07:21 PM
OPINION

Opinion: Li Ka-shing’s Singular Success

It’s not the “end of an era,” as other pundits have observed. Li Ka-shing announced he will be stepping down as the company’s chairman and executive director in May. After 68 years since founding Cheung Kong he will continue as an advisor to the group. It is hard to imagine that any founder will easily relinquish his or her influence of such a vast business group. Especially, since part of his success was due to being unencumbered and unrestrained by a large family network.

But, it is unlikely Hong Kong will see the likes of such a maverick independent businessperson — a one man hedge fund, not beholden to government forces and communitarian capitalism. Understanding him and his formative environment not only shows how Hong Kong has changed, but how it hasn’t changed.

Li was a lone, single entrepreneur unencumbered by the narrow intellect and distrustful culture of a typical Hong Kong Chinese family business during the 1970s, 1980s and 1990s. Why he rose above other wealthier families can readily be explained during the three decades when Hong Kong was the center of Chinese capitalism. Britain was a benign colonialist and China was not a major economic and financial factor in Hong Kong’s local business scene.

Unlike the other families, Li never had to seek approval from in-laws, uncles, cousins and other disagreeable partners. Only his two sons were direct relatives in line for ownership and management. Decisions were centered on Li so swift moves could be executed — critical in high-wire deal-making where deals are closed on a handshake and board minutes come later.

The Hong Kong Chinese family business structure should be referred to separately from Chinese mainland organizations. Today’s Hong Kong is a narrow business environment springing from trading, finance and property-related development. The mainland’s vast industrial and economic size and scope require multiple organizational structures from private to state-owned to accommodate operational requirements. Few families could run and fund something as vast and complex as an iron and steel complex.

Yet, the mainland’s leading, self-made business people share similar traits with Li Ka-Shing. Like Li, e-commerce giant Alibaba’s Jack Ma and tech giant Tencent’s Pony Ma were outsiders to the establishment. In Li’s case, he monetized his vision of private sector demand for Hong Kong residential property. And Jack Ma and Pony Ma believed in and sold to Chinese people the importance of the internet in their lives.

It’s not uncommon for other families bickered amongst each other about how to redevelop or whether to join together to bid on a property. Li was a first generation entrepreneur who didn’t have to suffer a retinue of relatives who wanted their share of the wealth distribution.

So Li, unencumbered by Chinese family drama, moved through the Hong Kong corporate scene in a way that few could match. It’s easy to forget that in Hong Kong of the 1970s and 1980s, many Chinese families only did business with each other, relatives and friends. Hiring westerners in senior positions was unheard of as familial trust was more important than skill.

The only local dealmaker at that time who could match Li’s boldness and international scope was Fung King Hey, the founder of Sun Hung Kai. In the summer of 1982, the 63-year-old broker and developer persuaded Merrill Lunch to buy a stake for $82 million. It made Fung the largest individual shareholder in Merrill, quite a feat for someone from Hong Kong.

My favorite Li deal that set him apart from other tycoons took place in 1986, a prosperous time when the local economy expanded by 9%. Besides completing a number of property developments, its Hutchison Whampoa associate acquired Hong Kong Electric in 1985.

Then, Cheung Kong reorganized Hong Kong Electric Company’s utility and nonutility businesses. The nonutility holdings — including the Hong Kong Hilton Hotel and a 43% stake in Husky Oil of Canada — were to become part of a new firm, Cavendish International Holdings. But, probably the most lucrative move was the redevelopment of Cavendish Heights, which was Hong Kong Electric’s former senior staff quarters at Jardine’s Lookout.

The profits unlocked from that massive group of luxury towers that stand above the low-rise homes on Jardine’s Lookout paid for the entire acquisition cost of Hong Kong Electric. The significant plot ratio boost effectively gave Li a free utility company, which today is a cornerstone of Cheung Kong’s infrastructure investments.

But, Li’s strong suit was his ability to diversify beyond property — not just for the sake of diversification, but to offset the volatility of Hong Kong’s property market. Before we ended up with today’s oligarchic, rent seeking property cartel, many smaller developers went broke when the market cycle moved against them. As one property tycoon told me, “Success in HK property trading depends on your ability to survive and prosper from sudden and massive property appreciation and depreciation.”

A famous, successful tycoon’s best deal was to walk away and retire rather than becoming a prisoner of his own legend, trapped by a mythology he created. Nonetheless, his retirement sounds like an eerie trumpet call over a lost battlefield in Hong Kong’s winner-take-all economy.

Peter Guy is an award-winning business and financial columnist. His previous experience includes investment management and developmental banking.

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