HONG KONG • What a difference 20 years makes. When Hong Kong reverted to Chinese sovereignty in 1997, the British colony’s economy was dominated by homegrown tycoons like Li Ka Shing and colonial- era conglomerates such as Jardine Matheson, whose influence dates back to the Opium Wars.
Now, in 2017, a new sheriff is coming to town, so to speak. While Mr Li and his peers are still big, the influence of local tycoons in parts of Hong Kong’s economy is waning while that of mainland Chinese firms is surging – especially in finance and real estate.
Hong Kong has long acted as the gateway into and out of China. In the 1990s, Chinese state-owned firms, known as red chips, raised capital from Hong Kong to develop China’s economy. Now, as China’s political influence in Hong Kong grows, cash-rich Chinese companies are gaining more influence in the economy as well.
In a city where financial services make up almost 18 per cent of the economy, Chinese companies are now everywhere.
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From not even being on the list of top 10 arrangers of initial public offerings (IPOs) back in 1997, the likes of China Construction Bank and Haitong Securities now dominate as sponsors in Hong Kong’s market, one of the world’s biggest. About US$5 billion (S$6.9 billion) of funds were raised from IPOs in the city so far this year, compared with US$3.4 billion in all of 1997.
China developers, including HNA and Logan Property, have outbid local contenders for expensive land, snapping up all HK$37 billion (S$6.6 billion) worth of government land sold for residential development this year.
Local developers? Zero. Hong Kong developers, like Henderson Land, have stuck to bidding for commercial real estate instead.
The Chinese are also increasingly seen in the phone market, with a unit of China Telecom planning to launch mobile services this month.
“What the Chinese Communist Party is interested in is the fundamental change of Hong Kong people’s mindset and mentality, who are basically not receptive to such an ideology and practice,” said Professor Ting Wai of Hong Kong Baptist University.
“The local tycoons, long occupying a dominant position in Hong Kong’s economy, will gradually lose their primary position in the local economy unless they collaborate with mainland enterprises.”
In 1997, Morgan Stanley, HSBC and Merrill Lynch were the leading underwriters of IPOs in Hong Kong on a top 10 list made up of only local and global firms, according to data compiled by Bloomberg.
Now, nine out of 10 are mainland Chinese, with China Construction Bank, Haitong Securities and Agricultural Bank of China atop the list.
To win market share, Chinese investment bankers have driven down fees. For some IPOs, advisers are paid half of what they used to get five years ago – just 1 per cent of the value of the deal.
The shift coincides with more and more Chinese companies vying to go public in Hong Kong as a cornerstone for global expansion.
Now, virtually all new listings on the Hong Kong exchange are of China-origin companies, a change from six years ago when the exchange lured global companies such as Prada and Samsonite.
Hong Kong’s de facto central bank has now weighed in and placed restrictions on bank borrowing for construction and land purchases. That will affect many mainland Chinese developers who take on more debt than local firms to buy land, but it is unlikely to stop the trend of local developers losing out to Chinese firms.
As Chinese firms move in, local companies are increasingly looking out. While Mr Li’s Hutchison Whampoa generated 69 per cent of its earnings from Hong Kong businesses back in 1997, his flagship firm today – CK Hutchison – garnered just 3 per cent of earnings from Hong Kong last year after investments in Europe and Australia. Those moves have drawn criticism that he is abandoning the city that made him its wealthiest man – a charge he has denied.