Business Starts to Vote With Its Feet in Hong Kong

Two days before Hong Kong’s June 12 mass demonstrations against the tabling of a bill to enable extradition of suspects to the mainland, a major Hong Kong-listed mainland conglomerate decided to withdraw from a contract to pay the government HK$11.1 billion (US$1.42 billion) for a parcel of prime land at Kai Tak, the former location of the city’s international airport.

The withdrawal speaks volumes about what leading business groups both local and mainland think about the impact of the extradition bill. And it raises ominous questions for the future of what historically has been the greatest trading city in Asia. The reason given by Goldin Financial for backing off a deal won at tender in May was Hong Kong’s “social contradictions and economic instability.”

Adding to the interest in this dramatic loss of confidence is the fact the board meeting to decide to pull out was at the request of a non-executive director, Abraham Shek (also known as Abraham Razack). He is likely to have been prompted by other directors but Shek also has another, more significant, role.

He is a member of the Legislative Council (Legco) where he represents the interests of the territory’s most powerful interest group —property developers. He was made chairman of the legislature’s committee which was supposed to review the extradition bill. He was put in this position last month following the dubiously legal ouster of its pro-democracy former chairman who was obstructing progress of the bill. But then in an effort to ram the legislation through as fast as possible, Chief Executive Carrie lam demanded that her rubber stamps in Legco agree to bypass the committee entirely and table the bill directly on June 12.

The message that Shek sent in his capacity as a Goldin director clearly shows how worried the business sector is about the consequences of the extradition measure, whether as direct disincentive to investment in Hong Kong, or indirectly through stirring up the “social contradictions” evidence by the June 12 use of brutal force to clear street of peaceful demonstrators.

Goldin was able to get out of the land deal at a cost of only HK$25 million, or just 0.22% of the price it had bid. It was using a special purpose vehicle with a capital of HK$1. In effect, an incompetent government had handed Goldin an extraordinary cheap option. It was due to have paid all the balance by June 12.

Unfortunately for the kind of business interests Shek represents, their inordinate influence over the Hong Kong government on most land issues has on this occasion been trumped by Beijing’s demand to its agent, Lam, not to lose face and press ahead with the bill regardless of the fallout.

The Goldin case meanwhile tells how mainland enterprises are changing their outlook on Hong Kong because of both the contents and social consequences of the extradition bill. That will hurt at least as much as anything western countries might do in future to treat it as part of China rather than an autonomous legal and economic entity.