Hong Kong Develops American Flavor as British Power Wanes

Times Staff Writer

Throughout the early 1980s, Steven R. Hendryx toiled as an American businessman in China, learning firsthand the frustrations of dealing with the nation's legendary red tape, high costs and weak infrastructure.

A few months ago, he launched his own office in Hong Kong, offering his services as a consultant to companies brave enough to try entering the China market.

Sitting in his one-room office on the 10th floor of an office building in Hong Kong's affluent central district, Hendryx admitted that his new firm, Hendryx & Associates, is so far "a one-man show. . . . The '& Associates' involves a certain amount of optimism about the future."

So Hendryx has become yet one more of the legions of Americans who have come to work in Hong Kong, a city now in the midst of a startling series of demographic, economic and political transformations.

Under an agreement signed in 1984, the British crown colony will revert to China 10 years from now. Despite China's assurances that it will not tinker with Hong Kong's freewheeling capitalism, the prospect of Communist rule has sparked a wave of fear and predictions of doom here. One popular guessing game is to try to pinpoint when in the early 1990s the economy might sour, and people and capital will flow out. Could it be in 1994? Or 1992?

For now, however, despite these jitters, the Hong Kong of the late 1980s is a thriving place. Its proximity to China and its reputation as the most unfettered economy in East Asia are still attracting new people and companies from abroad.

Last year, for the first time within anyone's memory--probably for the first time since China ceded Hong Kong to Britain after the Opium War in 1842--the number of Americans living in Hong Kong surpassed the number of British residents of the colony.

New figures show that the British temporarily caught up again in January, but time and demographic trends are on the side of the Americans. During the past eight years, the British population has been falling while the American community has grown by more than 30%.

Companies from the United States are streaming into Hong Kong--aiming to use the city as a base from which to do business with China, as a headquarters for East Asian operations, or both.

Hong Kong is becoming not only more American, but more Japanese, more European and more Australian. And these changes are being felt in the colony's power structure.

In one symbolic shift, a few days ago an Australian lawyer representing media tycoon Rupert Murdoch's News Corp. took over as chairman of the South China Morning Post, the colony's leading English-language daily, from a British representative of the Hongkong & Shanghai Bank. The newspaper has served throughout this century as the voice of Hong Kong's Establishment.

China in Third Place

At the same time, Hong Kong is being influenced more and more by emissaries from Beijing, representatives of the People's Republic of China.

The world's two leading economic powers, the United States and Japan, long ago passed Britain as the leading sources of foreign investment in Hong Kong. In the industrial investment sector, Britain even lost its third-place position to China this year. China was not even in the top ranks a few years ago but has been pouring money into the colony during the past two years.

In January, the Chinese government's investment arm, China International Trust & Investment Corp., stunned the local business community by acquiring a 12.5% share in Cathay Pacific Airways, an old-line British institution and a leading airline in the Far East.

In short, while Hong Kong will remain a British colony for the next 10 years, Britain's once-dominant role here is fast fading. At the rate things are going, by the time 1997 rolls around, Britain may not have much left here but the Union Jack.

The British influence has not vanished, though. Hong Kong harbor is still spelled harbour here, and the cars are still driven on the left side of the road, if they can get through the seemingly perpetual traffic jams.

"The British still run the place, after all, and the Hongkong & Shanghai Bank is doing just fine, thank you," an American diplomat here observed recently.

In some sections of the colony, British life goes on much as it did before. "Who are all these Americans that show up in the statistics?" asked the British owner of a small bookstore in the still relatively rural area called the New Territories. "We don't really see them around here. I think they must be Hong Kong Chinese with American passports."

U.S. officials believe that about 30% of the U.S. passport holders in Hong Kong are indeed ethnic Chinese. But this figure remains constant while the overall number of Americans keeps climbing.

The British presence in Hong Kong peaked in 1979, when there were nearly 23,000 British residents, more than twice the number of Americans. Now, while the numbers fluctuate from month to month, there are roughly 15,000 expatriates from each of the two countries here.

The number of Britons has been dropping as British civil servants have been retiring or returning home and their jobs have been taken over by Hong Kong Chinese. And the ranks of the Americans have been growing because of the U.S. business interest in China and East Asia in general.

'Four Tigers'

Those who want an East Asian headquarters say they choose Hong Kong because of its banking, shipping and communications facilities, its pro-business climate and central location.

"Before coming here, we looked at all of the 'four tigers' (Hong Kong, Taiwan, South Korea and Singapore, which have been, besides Japan, the four fastest-growing economies in Asia,)" said John P. Hertsgaard, director of Far East operations for Amphenol Products. Based in Lisle, Ill., Amphenol, a subsidiary of Allied-Signal, began manufacturing electrical components in Hong Kong two years ago, and now has a factory with 200 employees.

Amphenol also decided to expand its operations in Taiwan and South Korea and is still exploring the possibilities in China. But Hertsgaard said the firm concluded that "Hong Kong will be our hub."

"Hong Kong offers so many American businessmen the opportunity to do so many things that they cannot do in Tokyo or Singapore or Manila," an American diplomat said. "It's hard for an American lawyer to get a permit to work in Japan. It's hard to operate without a joint venture in Malaysia. Here you can do all those things, you can set yourself up as a consultant, you can franchise your McDonald's or your Mrs. Fields' Cookies."

Meanwhile, Americans who want to do business with China are finding that it is easier, and even less expensive, to do so from Hong Kong than from Beijing, where rent can run to $7,000 a month, new cars cost well over $30,000 with customs duty, where the night life is bleak and English-language high schools are non-existent.

"Some companies originally started here in Hong Kong, moved into China and are now moving back here, keeping a small presence in Beijing," U.S. Consul General Donald Anderson said in an interview. "Hong Kong has become arguably cheaper to do business in than Beijing."

Major Trading Partner

The American Chamber of Commerce counts 907 U.S. firms in Hong Kong. The 142 manufacturing companies alone employ more than 39,000 workers and represent $810 million in investment. So strong is the American presence here that there has even been some discussion of creating an American seat on Hong Kong's Legislative Council, a partly elected, partly appointed body that has limited legislative powers.

Hong Kong, which has 5.5 million people, is also the United States' 10th-largest trading partner in the world.

All this is a far cry from the era two decades ago when Hong Kong was a quintessentially British colony and Americans made their presence known mostly through the ships of the U.S. 7th Fleet and troops on rest-and-recreation excursions from Vietnam into the bars of Hong Kong's Wanchai district.

Ray Stark, the American producer who made the 1960 movie "The World of Suzie Wong" around a Hong Kong prostitute, returned here last year for the first time since making the movie and was amazed by the city's transformation. "The place looks like San Diego," he said.

Alex A. Blum, the American president of a Hong Kong textile firm, recalled: "When I came to Hong Kong 25 years ago, we Americans were definitely second-class citizens and, back then, those foreigners such as myself who were doing business with China were few and were treated with a great deal of distance."

These days, by contrast, it seems as though there are even more people in Hong Kong working on business deals with China than there are residents of Los Angeles writing screenplays.

"Someone told me that there are more than 5 million consultants for me to compete with in Hong Kong, because everyone here has a brother-in-law working in some important position in China," Hendryx said.

The opening of China to Western business has helped to fuel a dramatic change in the Hong Kong economy.

While manufacturing produced Hong Kong's spectacular growth of the past quarter of a century, the service sector--transportation, communications, law, banking, insurance, retail trade, tourism--is now taking up an ever-increasing share of the economy.

Two years ago, for the first time, total employment in Hong Kong's service sector, 877,000 people, surpassed that in manufacturing (848,000).

Alongside the economic boom is growing unease about what may happen to Hong Kong once Britain leaves and China takes over on July 1, 1997.

Every political development in Beijing these days sets off tremors in Hong Kong. In January, for example, Hong Kong's stock market suffered its biggest one-day drop in nearly two years after Chinese Communist Party General Secretary Hu Yaobang was forced to resign.

The market recovered within a few days--after Xu Jiatun, the head of the Hong Kong office of the New China News Agency and China's senior official here, announced that the leadership changes would not affect China's commitment to allow Hong Kong's capitalist system to continue until 2047. His utterances are now followed here at least as closely as those of the British governor.

Pressing Issues

The British government is conducting a review of Hong Kong's political structure. The main issue is whether, or to what extent, it should open the way for direct elections to the colony's legislature. Chinese officials have made clear that they want as little change as possible between now and 1997.

For Hong Kong residents, particularly for increasingly active middle class, these political issues are of pressing importance. But for the foreigners who have moved to Hong Kong in the current economic boom, the question of what happens after China takes over seems much more remote.

"1997 is a long way away," Hertsgaard of Amphenol said. "At the time we decided to move here, it was 12 years in the future."

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