What Hong Kong’s Future Portends for O.C. Business
Three Cokes in Hong Kong cost about $17 in U.S. currency at the Mandarin Oriental, just across from the Star Ferry in central Hong Kong. A quite nice, but not grandiose, apartment in the “mid levels” goes for $9,750 a month U.S.
These are but two examples of the high-velocity economic life in Hong Kong, accentuated by an officially acknowledged inflation rate of 8.7%. Unofficially, the business community believes the true inflation rate to be 12% to 15%.
Whether 8.7% or 12% inflation, American business has its sights set on Hong Kong. Chapman University’s 1996 economic forecast shows that Hong Kong has been the fastest-growing recipient of Orange County exports over the past eight years, expanding at a 123% rate. Taiwan was next at 107% and South Korea followed with 102%.
The Chapman University forecast, as well as the 1996 UC Irvine Graduate School of Management survey of top Orange County executives, predict that international trade will be the county’s fastest growing economic booster over the next five years. Chapman says the county’s overall exports will increase 10.2% annually through 2000, and UC Irvine projects the Far East/Asia region will record the strongest trade growth over the next five years for county business.
Hong Kong will play a central role in that growth. Or will it?
There is understandably much concern worldwide about the effects of the People’s Republic of China taking over Hong Kong from the British as of June 30, 1997. On the surface, it would seem that Beijing’s takeover of one of the world’s most dynamic centers of capitalism is a recipe for upheaval, if not downright destruction.
However, my recent business trip to Hong Kong and discussions with more than 30 corporate opinion leaders belie the sense of impending doom that an outsider might expect.
To understand native Hong Kong residents’ seemingly lackadaisical attitude toward the takeover by the People’s Republic of China in 15 months, one must understand and appreciate the character and nature of the Hong Kong people.
Most of the extraordinary wealth in Hong Kong owes its roots to land and development, a constant in all of Chinese culture. Many of the major companies, and the families that own and control them, have their sole or primary activities centered in real estate.
That’s not to say Hong Kong residents with money have been sitting on their hands waiting for the PRC to arrive. Since the takeover process is now in Year 13, it is a reasonable assumption that the strategies for risk diversification available to Hong Kong residents and corporations have been substantially implemented.
Inflation or not, the Hong Kong Chinese love business and are on par with the world’s greatest centers of commerce. Hong Kong has provided the unfettered environment for enterprising Chinese businessmen and women to hone their skills on an international scale, and they compete with the best.
Because they are so good at what they do, they don’t believe the PRC government will dismantle the system or hinder them in any way--at least initially. What they are saying is: We don’t care who runs the government as long as we can conduct business and turn a profit.
If for no other reason than maintaining good relationships with 65 million Chinese around the globe, the PRC will keep a moderate posture as it takes over Hong Kong. The overseas members of the greater China family have contributed much of the $220 billion U.S. committed to the mainland between 1979 and 1993. If China were to kill or strangle Hong Kong, it would wreck its connection to the overseas Chinese and the rest of the capitalistic world.
So what does American business have to worry about when the PRC takes over? “Guanxi”--the rule of “connections,” rather than a code of laws, which impacts the surety of the financial, social and legal systems that dominate Chinese life and business. It’s based loosely on “it’s who you know, not what you know, that’s important.”
But the general consensus is to expect business as usual for the time being, guided by an inherently conservative approach by Beijing in the short run, and increasing uncertainty after 2000 to 2005.
So what does this portend for U.S., and especially California, interests? The sun is setting on British influence and British guanxi. This may level the playing surface for other Western companies previously foreclosed upon by the Taipans.
Americans are admired by the Chinese for their technological achievements, management and organizational abilities. Am Cham, the American Chapter of Commerce, is widely regarded. American university degrees are highly desired. Some of our lesser desired traits in Hong Kong business circles are impetuousness and the lack of long-range commitment to the region as underscored by cadres of investment bankers coming and going at whim. Nevertheless, American companies and American capital are more than welcome. Entertainment, cosmetics, aircraft, food franchises, service and high-visibility consumer product companies, along with technology companies, are expected to do best.
California, including Orange County, is the source for many of these products, and thus this state and our country should find increasing opportunities for exports to Hong Kong and surrounding countries.
