Monopoly Takes Hong Kong’s Economic Heights

Monopoly marches on in supposedly competitive Hong Kong as a few families entrench themselves ever deeper into the sinews of the economy.

The telecoms sector, once a beacon of competition, is about to become increasingly dominated by the family of Asia’s richest man, Li Ka-shing, which already controls a large chunk of the property development business, one of two monopoly power suppliers and one of the two supermarket chains that have conspired to keep out competition. PCCW, the telecoms company controlled by Li Ka-shing’s younger son, Richard Li Tzar-kai, has agreed to spend HK$19 billion to buy Hong Kong’s largest telecom operator, CSL New World Mobility. This currently controlled by Australia’s Telstra, with another local tycoon family, the Cheng family of New World Development, having a minority interest of 23.6 percent. As PCCW already owns another mobile operator, HKT, it will have an approximate 39 percent of the local market. Meanwhile Li Ka-shing’s Hutchison Telecom has a further 17 percent of the mobile market, bringing the Li family total to well over 50 percent. At the same time, PCCW controls 60-70 percent of the fixed line telecom market. This concentration of economic power is clearly contrary to the public interest. It could be ruled out of order by the regulatory body, the Office of the Communications Authority, or subject to scrutiny under Hong Kong’s long-delayed (thanks to the influence of tycoon families over government officials) competition law. The latter was passed more than a year ago but implementing regulations have been delayed by a bureaucracy anxious not to offend monopolists. The exercise increasingly looks a sham. Relief from either quarter looks unlikely given both the clout of the Li family and the professional influence of PCCW’s chief executive, Alex Arena, himself once in charge of telecom regulation. The PCCW bid for telecoms dominance came just a day after Hong Kong’s Consumer Council issued a damning report on the monopolistic practices of Hong Kong’s two dominant supermarket chains, one of which, Park ‘N Shop, is owned by Li’s Hutchison group. This is not the first time that the Consumer Council has drawn attention to what most citizens know by instinct – the abusive, anti-competitive use of the duopoly’s position – but nothing has been done to change the situation because of the interests of the bureaucrats and pro-government legislators in sustaining it. Among other things, the latest report attacks:

  • The use of “uneven, opaque conditions” on contracts with suppliers

  • The enforcement of exclusivity by retailers, limiting consumer choice and price competition.

  • While no formal resale price maintenance exists, there is evidence of attempts to fix minimum prices.

  • The continuous decline in the market share of small supermarket operators, who now have only a tiny fraction of floor space.

  • The relationship of the duopoly to the Link REIT. The latter is the privatized (mainly for the benefit of investment bankers) commercial sector of what was once part of the public housing system. The bundling of rental contracts has enabled the duopoly to squeeze out smaller operators.

  • Housing estate floor and pedestrian flow plans which have an inbuilt bias against small shops.

The above comments from the Consumer Council are all in addition to the continuing steady reduction in the number and size of Hong Kong’s wet markets, long a favored and cheaper source of supply of fresh vegetables, meat and fish. This is the result not so much of a decline in public demand but the interests of property developers, helped by their friends in relevant government departments, to acquire development sites in the name of spurious claims of modernity, hygiene etc. Nor does duopoly power only militate against small retailers and wet market stallholders. A few years ago the giant French hypermarket group Carrefour attempted to enter the Hong Kong market. It was squeezed out not by competition but by a blatant conspiracy by Li Ka-shing and other major mall owners to deny it space. The government is not merely complicit in these anti-competitive conspiracies but is also the source of some. One such example is the Hong Kong Stock and Futures Exchange, publicly listed but controlled by the government through its right to appoint the chairman and half its of directors. It has a monopoly of stock trading which enables it to make super profits for itself and the band of local brokers enjoying fixed commissions. While a stock exchange may seem a natural monopoly – even though Hong Kong once had four exchanges – there should be scope for other trading platforms but within one regulatory framework. But when HSBC attempted to provide a service to its clients by offering to match trades internally if it could do so at a better price than available on the formal exchange, the service was effectively shut down by the Securities & Futures Commission. The SFC itself is a vast bureaucracy given to laying down all kinds of silly rules which infuriate brokers and clients alike while conspicuously failing to take action in cases of apparent criminal activity by some major players, especially those with prominent mainland connections. That Hong Kong as a whole – though a minority of its citizens – continues to prosper owes everything to the hard work of its people, the dynamism of its small business enterprises and the appeal of its laws and freedoms to foreign and mainland businesses. These (inherited) characteristics bear all the weight of the land, utility and retail monopolies and oligopolies fostered by a government which is not openly corrupt but always seeks to please entrenched interests.