Hong Kong Reversion Doesn’t Worry Locals : China: However, some businessmen are hedging their bets on what will happen when the former British colony comes under Beijing’s control in 1997.

“The Japanese are confident about Hong Kong’s investment climate. The Americans are not, and the British are very scared.”

That’s how David K. P. Li, chief executive of the Bank of East Asia, sums up foreign views of Hong Kong after the British colony reverts to Chinese sovereignty in 1997.

It’s an issue assuming greater importance as Guangdong province across the border--the world’s fastest-growing region--and Hong Kong forge a burgeoning “Cantonese enclave” that is emerging as a major business force in Asia.

Li is unabashedly bullish. ‘Between now and 1997, there will be ups and downs in our economy. . . . But after 1997, when people see a more settled and stable Hong Kong objectively, rather than emotionally, Hong Kong will start to grow and Guangdong will continue to grow,” Li said.

Unqualified faith in China’s promise that Hong Kong can maintain its civil liberties and capitalist system for at least 50 years, however, is hard to find. Some businesses are hedging their bets.

Jardine Matheson, the giant British hong, or trading and investment company, that has played a prominent role in Hong Kong’s economy since 1832 says its “change of domicile” to Bermuda is to ensure that the firm remains subject to a “familiar British-based legal system.”

“It’s not a matter of confidence. It’s a matter of minimizing uncertainty,” said Martin G. Barrow, a director of the firm, whose 49,000 workers make it the second-largest employer in the colony.

The Hong Kong and Shanghai Bank, one of two that prints Hong Kong’s currency, has set up a London-based holding company to ease stockholder concerns, said Vincent H. C. Cheng, senior manager of research.

“People living outside Hong Kong are concerned. We can’t expect them to look at Hong Kong as closely as we do. There is no reason to expect them to share our optimism,” he said.

Across the spectrum of nationalities is a common conflict between home-office fears and relative optimism from on-the-scene executives, as well as a hope that Beijing will realize that it would threaten its own future if it hurts Hong Kong’s.

“There is a downside,” said Frank Martin, executive director of the American Chamber of Commerce in Hong Kong. “I wouldn’t advise anyone to put 100% of his assets here. But there is a great deal more upside. All you have to do is walk outside and see the beehive of activity.”

Burton Levin, Hong Kong director of the Asia Society and a former U.S. consul general here, noted that “if China screws up Hong Kong, it will screw up investment in China because people will assume that China is returning to irrational policies.”

In a survey conducted by the American Chamber in April, 93% of U.S. firms in Hong Kong said they intended to stay or increase their investments in the colony over the next three years. Six percent planned a gradual reduction, while only 1% reported plans to leave Hong Kong.

“We were very surprised how positive the result was,” Martin said, noting that the poll was taken in the middle of a deadlock between China and Hong Hong over the colony’s plans to build a new airport and port at a cost of $16 billion. The project is proceeding with Chinese approval.

China’s agreement on the new airport “means that Beijing approves the Guangdong region growing faster than elsewhere in China. That project will generate all kinds of (other) things,” said Kenneth S. Courtis, senior economist of Deutsche Bank Capital Markets in Tokyo.

The Japanese business community reports mixed emotions.

“We have faith in Hong Kong, but we are not 100% confident,” said one Japanese bank manager in Hong Kong who asked not to be named. His bank, as a result, gives loans scheduled for repayment after 1997 mainly to Japanese companies, to infrastructure investments and to “projects we consider safe.” For others, repayment before reversion is a prerequisite, he said.

Toshikuni Hirai, general manager of the Mitsubishi Bank in Hong Kong, said his bank still approves big loans to Hong Kong firms with post-1997 maturation dates.

Like most businessmen here, Hirai said his home office “is more worried than those of us who live here.”

Fusapo Suzuki, general manager of the Fuji Bank in Hong Kong, said many are encouraged by China’s $10 billion in investments in Hong Kong. “It is proof that China expects the Hong Kong economy to continue to grow. It does reduce fears,” he said.

“If they weren’t investing, I’d be worried,” said John T. Kamm, former president of the American Chamber of Commerce here and vice president of Occidental Chemical Far East. “Chinese people do not invest in assets they expect to depreciate.”

Courtis described the Mainland investment as “a sign that the Chinese are trying to anchor capital in Hong Kong so it won’t fly offshore in 1997. . . . That tells me that China has a sense of economics, unlike the Soviet Union.”

The Bank of China, Barrow noted, has made Hong Kong its classroom for capitalism by basing 14,000 of its 20,000 employees here. With its 13 affiliated banks, China’s central bank now makes up the second-largest banking group in the colony, he said.

Courtis predicted that economic expansion in Guangdong and Fujian provinces that is being built upon a Hong Kong axis will mitigate against any politically inspired clampdown on Hong Kong or South China.

“If they (Beijing leaders) precipitate a collapse of Hong Kong, it won’t be like dealing with a few thousand intellectuals in the streets of Beijing” at Tian An Men Square in June, 1989, he said. “They would be precipitating tremendous unrest in all of South China.”

Hiroshi Ogami, Hong Kong director of the Japan External Trade Organization, said the stakes that Britain, the United States, Japan and other major industrial nations have in Hong Kong will exert pressure on China to uphold its promises.

More difficult to assess are concerns that reversion to China will harm the quality of life and increase corruption and nepotism, he said.

The threat that corruption--rampant in China “from top to bottom”--will spread into Hong Kong is “a much bigger danger than the spread of hard-line Marxist-Leninism,” commented a businessman who asked not to be named.

A more serious worry for Hong Kong businesses may be continuing trade friction between the United States and China.

“China has no 1997 problem, but it will have a 1992 problem”--when the United States once again debates whether to continue giving China “most-favored nation” tariff privileges, said Stan T. K. Cheung, managing director of Herald Hong Kong Co.

Opinion in Hong Kong is virtually unanimous that U.S. removal of tariff privileges would deal what Kamm called a “mega-hit” to Hong Kong’s China-based manufacturing.

Nonetheless, businessmen are putting their pocketbooks where their convictions are.

Both Kamm and Martin have invested personal funds in Hong Kong. Kamm said he owns apartments and keeps about half of his personal assets here.

Martin, who was an executive with Security Pacific Bank before taking his chamber post, said he recently sold a condominium and bought another. “We could have paid the mortgage on our Los Angeles home with the down payment we made on the flat here,” he said, adding that he, nevertheless, has the option of selling the condominium before 1997.