China's Love Affair with a Hong Kong Tycoon

Symbolism matters, perhaps more in China than elsewhere. So what message was China's President Hu Jintao sending when he gave Hong Kong's richest man, Li Ka-shing, an extraordinarily privileged role at a ceremony to mark the 30th anniversary of the Shenzhen Special Economic Zone, whose growth from paddy fields across the border from Hong Kong to a population of 12 million is symbol of China's transformation from Mao to modernity?

Li, 81, had a high-profile one on one meeting with the president and spoke at the September 6 ceremony at which Hong Kong chief executive Donald Tsang and other dignitaries were merely observers.

It matters because there are different ways of viewing Li and the significance to China of this man, who currently ranks second among Asians in the Forbes list of global billionaires. Hu singled him out for his contribution to Shenzhen's extraordinary growth and to China's modernization. But although Li's companies have big investments on the mainland, including Shenzhen, he was never in the forefront of the push into China.

Nor does he have any significant interest in export manufacturing, the business which for two decades made Shenzhen the spearhead of China's growth. For that, Hu would need to thank hundreds if not thousands of manufacturers and traders from Hong Kong and Taiwan – and scores of foreign companies such as Walmart as well.

Maybe Hu was simply signaling his respect for a successful Chinese businessman whose empire of power stations, ports, telecommunications and oil as well as real estate spans the globe. But Li's world scope could equally well be a reminder that much of it has been paid for from the quite extraordinary profits which have been available to a privileged few property developers in Hong Kong – three of them in the Forbes top 50 global billionaires – and from a power monopoly and port and retailing dominance in a territory with no competition or anti-trust legislation. Profits have often been reinvested in lower-yielding but safe infrastructure sectors in developed countries such as Australia and the UK where he recently made a US$9 billion offer for a power distributor.

Li's primary skill has been not as an innovator or pioneer but as an asset trader, always willing to buy or sell a business at the right price and right time. This is a valuable skill which has rewarded investors in his companies. He is also an active trader in his own companies' shares. But such talents are not what Chinese leaders usually think the nation needs as it seeks to build national champions in technologically advanced sectors.

Mr Hu could have been sending signal to the Hong Kong business elite that Beijing admires them, wants them to oppose democratization in Hong Kong and help speed up interaction with the mainland. But that is so obvious that it scarcely needs emphasizing. Indeed it could now be counterproductive in Hong Kong where Li and fellow property tycoons are no longer quite the admired symbols of achievement that they once were.

For sure, Mr Li is the most respected as well as richest and his successful diversification widely admired. But the shine has gone off as the tycoons have been seen to influence a weak Hong Kong government into reenforcing their dominance of a property market which is at the root of an ever-widening wealth gap. Beijing's identification with the Hong Kong tycoons suggests it believes that to get rich is glorious regardless of the social consequences of oligopolies enjoying cosy relations with officials.

The praise of mega rich developers points to a dilemma that Hu and his colleagues now face on the mainland. The government has taken some steps to dampen land speculation and promised a crackdown on land hoarding. But in China real estate billionaires are being created at a fast pace not just because the economy is growing but because those with access to bank finance can speculate freely – and walk away if their bets fail. Local party chiefs may have little more interests in seeing prices decline to levels which would improve affordability for ordinary households than the tight group of Hong Kong developers who supplies 90 percent of Hong Kong's new housing and hoards huge land banks which enable it to maximize profits by limiting production.

So if there is an overall message from Hu it is that capitalism with Chinese communist characteristics prefers fat profit margins cushioned by good relations with government to vigorous competition.