Citicorp Bullish on Hong Kong Project : Development: The company goes against the grain as China’s takeover nears. Other U.S firms are also optimistic about Hong Kong’s future.
Despite Hong Kong’s uncertain future, Citicorp is financing one of the largest commercial projects in the British colony and also plans to open a new regional headquarters in the building.
Dubbed Citicorp Plaza, the project’s 35- and 50-story towers will overlook Hong Kong’s central business district. Citicorp plans to spend at least $159 million to acquire the upper floors of the tallest structure, where it plans to consolidate employees from two other Hong Kong offices.
“It is a signature building,” said Steven K. Baker, Citicorp’s division executive for North Asia. “It will give us a higher profile” and put Citicorp in the thick of Hong Kong’s financial district.
Although several other U.S. companies are expanding operations in Hong Kong, Citicorp’s move nonetheless runs against the general trend. Anxiety over China’s takeover in 1997 coupled with the bloody repression of pro-democracy demonstrations in Beijing last June is fueling an exodus among residents. According to the Hong Kong government, 55,000 people are expected to leave Hong Kong this year, well more than double the annual number in the early 1980s. At the same time, the heady days of a double-digit growth rate are over, at least for the time being. Hong Kong’s gross domestic product grew 2.5% last year, a pittance next to the 14% in 1987.
“There’s no question that subsequent to June 4 the overall economy in Hong Kong has been in a slow slide,” said S. Lachlan Hough, Security Pacific Corp.’s senior officer in Asia.
For Citicorp, apprehension about the future is tempered by experience. The corporation has been in Hong Kong since 1902 and has seen its share of turmoil, including Japanese occupation from 1942 to 1945.
“We have been through some tough experiences in the 88 years,” Baker said. “Clearly we believe there are some bumps in the road on this path in the ‘90s, but we expect to weather those as well.”
With 2,200 employees, Citicorp has the largest presence of any U.S. bank holding company in Hong Kong. All told, the company operates 25 divisions, from a brokerage and credit cards to insurance and corporate finance. But the largest share of Citicorp’s business is in consumer banking, the only division that Baker said will stay in Hong Kong no matter what happens after 1997.
“We believe we’re the only bank in the world that is really trying to build a big consumer business in every major market in the world,” Baker said, “and Hong Kong is no exception to that.”
To that end, Citicorp plans to move consumer and other operations now in two other Hong Kong buildings to the new headquarters, which it expects to occupy by March, 1992.
The $650-million project, which is being worked on round the clock, is being built by Hong Kong developer Great Eagle, with Citicorp leading the financing. The bank also owns a 5% equity share in the 1.4-million-square-foot project. Baker said Citicorp plans to purchase up to 400,000 square feet and lease as much as 200,000 square feet.
Citicorp is not the only U.S. firm bullish on Hong Kong. For instance, Security Pacific Asian Bank plans to add two branches to its existing 16. Waste Management Inc. is bidding on contracts to build and operate two waste treatment plants. Molex Inc., in partnership with a Hong Kong firm, opened an electronics factory in November.
Optimism about Hong Kong’s future is based on experience as well as some educated soothsaying about how China will rule this island of 5.7 million people. With 398 square miles, Hong Kong is roughly the geographic size of San Diego but with more than five times the population.
Investors said Hong Kong will remain a key player in Asian development if for no other reason than its strategic location midway between Japan and Southeast Asia and its well established reputation as a major manufacturing, finance and trade center.
In addition, China’s success with “one country two systems” in Hong Kong is key to any attempt by China to reunite with Taiwan.
“It’s the best country to be located in in Asia,” said Hough of Security Pacific. “And it’s the gateway to China. Clearly they (Chinese officials) recognize that they can’t pull the noose too tight.”
Still, several U.S. companies said they would not hesitate to get out of Hong Kong if the Chinese government becomes hostile to foreign investment. According to the American Chamber of Commerce in Hong Kong, no major U.S. companies have left Hong Kong since the June uprising.
“We can pick up and move . . . anywhere in the world if there’s trouble in 1997,” said Michael H. List, vice president of corporate development for International Semi-Tech Microelectronics Inc. of Toronto. The firm is the parent company of Semi-Tech Microelectronics (Far East) Ltd. of Hong Kong, which bought SSMC Inc., a sewing machine maker, last year.
Like a number of foreign investors, Citicorp plans to use Hong Kong as a springboard to China, if politics allows.
Before the communist takeover of China in 1949, Citicorp had 14 branches in nine cities on the Chinese mainland, but closed its last branch in Shanghai in 1950. The bank returned to the mainland in 1983 when it opened an office in the city of Shenzhen, a special economic zone near Hong Kong. It now has offices in three other cities as well.
But Baker said Citicorp’s initial investments in China would be limited primarily to corporate finance.
“Western investors have not been reaping a lot of profits in China investments in the ‘80s,” Baker said. “When you couple that with June 4 and the current rhetoric, they’re going to be more cautious going back in.”
