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Hong Kong old school tycoons lose to China’s moguls

(Bloomberg) – The prediction was Vintage Jack Ma, provocative as well as prescient. “This is the era of the Internet,” proclaimed the Chinese billionaire in October 2013, just a few weeks after his plan to acquire Alibaba Group Holding Ltd. Go public in Hong Kong had been sunk by regulators. “It doesn’t belong to Li Ka-shing anymore.” Ma’s dig on the famous Hong Kong tycoon raised many eyebrows at the time, but few would disagree with him now. In recent years, wealth has changed remarkably between China’s tech-savvy moguls and their old-school Hong Kong counterparts – a trend that shows little sign of fading anytime soon. Even as Xi Jinping’s government tries to curb the clout, the wealth of China’s 10 richest people has tripled to $ 425 billion since 2016, according to the Bloomberg Billionaires Index. For Hong Kong, it doubled to $ 218 billion over the same period. Once Asia’s richest person, Li now ranks 13th, a few places below Ma, which Alibaba finally listed in New York in 2014. The changes underscore the dwindling relevance of Hong Kong business people who built their empire on real estate, ports and infrastructure. When the former British colony was the indispensable gateway to a rapidly developing mainland China, Li and his colleagues were drawn to Beijing for their business acumen and wooed their access to foreign capital. Today their political clout is waning and their businesses are increasingly viewed by investors as stale. In addition, Hong Kong’s future as a financial center is under existential threat as China’s Communist Party overturns the “one country, two systems” framework has underpinned the city’s success for decades. One consequence was a dramatic decline in stock market valuations for Hong Kong’s largest conglomerates. Over the past five years, five of the city’s top groups – CK Hutchison Holdings Ltd., New World Development Co., Henderson Land Development Co., Sun Hung Kai Properties Ltd. and Wharf Holdings Ltd. – Constantly low traded discounts on their net worth. Their stocks now averaged 0.5 times book value, up from 10 for the five companies controlled by some of China’s richest tycoons. Data compiled by Bloomberg shows, “The main businesses of the big Hong Kong corporations don’t.” I don’t have a lot of growth, “said Andy Wong, founding partner of LW Asset Management in the city. “Investors would rather focus on growth than company value,” he said. Technology-driven sectors are attractive, especially after the pandemic. While some of the city’s tycoons’ private family offices are geared towards high-growth investments, their publicly traded companies have been slow to catch up. On the other hand, their counterparts across the border have used technology to deliver a range of consumer services and create wealth. Chinese tycoons have also benefited from the rapid economic recovery from Covid worth $ 14.3 trillion. China was the only major economy to expand last year, while Hong Kong saw consecutive contractions in 2019 and 2020. Most of China’s richest billionaires are from the tech industry, including Pony Ma, Bytedance Ltd. by Tencent Holdings Ltd. Founders Zhang Yiming and William Ding of NetEase Inc. The wealth of Zhong Shanshan, currently China’s richest person and founder of bottled water giant Nongfu Spring Co., is nearly $ 69 billion, more than double the fortune of Li. Many of the business empires in Hong Kong owes its success to government policies that only encouraged a small group of deep-pocket developers bidding on land parcel auctions, a system that made Hong Kong the most expensive real estate market in the world. The wind of soaring prices allowed the tycoons to diversify into utilities, retail, ports, and infrastructure. However, this formula has been difficult to replicate in larger markets like mainland China due to high capital requirements, local competition and regulatory barriers, said Richard Harris, founder of Hong Kong-based Port Shelter Investment Management. For example Sun Hung Kai Properties Ltd. ‘The land bank in mainland China accounts for only about 2.3% of the bank owned by Country Garden Holdings Co., a Guangdong-based developer controlled by billionaire Yang Huiyan. The result is that many of the city’s tycoons have focused on defending their current turf rather than expanding into new businesses, Harris said. “Many of them are very happy not to lose,” he said. But even that has proven difficult in recent years as Hong Kong’s economy has been hit by anti-government protests and the pandemic. Sun Hung Kai Properties The developer, led by billionaire brothers Raymond and Thomas Kwok, reported the largest drop in underlying earnings since 2013 for the fiscal year ended June. Swire Pacific Ltd., one of the city’s two-century British trading companies, posted last year Year a loss, the first since listing in 1959. Its flagship model, Cathay Pacific Airways Ltd. struggles despite a government-led bailout The flagship of the diversified empire that Li established after his family fled mainland Hong Kong as a refugee in 1940 saw its first profit decline since a conglomerate remodel in 2015, given mounting tensions between China and the west, the CK Group is facing headwinds overseas. Australia prevented it from acquiring a local gas pipeline operator in 2018 due to national safety concerns. Some conglomerates in Hong Kong have started looking further for growth opportunities. New World Development Co., which deals with infrastructure buildings, hotels and shopping malls, is accelerating its expansion into insurance, healthcare and education in mainland China. Board chairman Adrian Cheng said he wanted to expand the non-real estate services business. Much of the effort “revolves around non-traditional businesses,” a spokeswoman said. Swire Pacific invests in health groups in mainland China. Jardine Matheson Holdings Ltd., owner of the luxury hotel group Mandarin Oriental International Ltd., works with the private equity company Hillhouse Capital Management Ltd. together to search for investment opportunities in Greater China and Southeast Asia. Sun Hung Kai officials declined to comment. while CK Group and Wharf did not respond to requests for comment. Swire said the group’s financial strength and ability to invest remain strong and that new sectors are being considered. Henderson Land said it has diversified from real estate with a strong presence in Hong Kong and China and integrated sustainable technologies. Li’s personal investment vehicle, Horizons Ventures, has invested in plant-based foods, renewable energies and digital services. The company’s early bet on Zoom Video Communications Inc. rose to $ 11 billion, or a third of Li’s net worth, during the pandemic last year. He was also an early supporter of Facebook Inc., Spotify Technology SA, and Siri. The post-pandemic recovery will be vital for Hong Kong tycoons to consider similar bets on emerging industries, said Falcon Chan, partner at Deloitte China It is important to think about what the next big bet is, ” said Chan. “What some of these great people are doing over the next year or two is going to have a huge impact if they want to spin.” For more stories like this, visit bloomberg.com. Sign up now to stay one step ahead with the most trusted business news source. © 2021 Bloomberg LP

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