Li Ka-shing, Hong Kong entrepreneur, founder of Cheung Kong and chairman of Hutchison Whampoa
Li Ka-shing
(Pronounced: Lee Ka-shing)
Hong Kong entrepreneur, founder of Cheung Kong and chairman of Hutchison Whampoa
Li Ka-shing is popularly dubbed "Superman Li" for his talent in unearthing underpriced assets, adding value to them through clever partnerships and then reselling them at a premium in record time.
He is a quintessential Asian tycoon who used his connections to gain fortune through savvy real estate deals in Hong Kong in the 1950s and 1960s, gained fame and popularity as the first ethnic Chinese to purchase a British trading house (Hutchison Whampoa) in 1979, and garnered the respect of the digital generation by quickly adapting to the world of telecommunication and the Internet.
In 2000 Forbes proclaimed Li to be the 20th richest man in the world with a personal net worth of US$11.3 billion, although he is down from No. 10 in 1999 at US$12.7 billion. His success is attributed to his shrewd investment judgment, uncanny sense of timing, big business vision, ability to acquire and manipulate high-powered connections, skill for finding and retaining talented managers for his establishments, conservative accounting and stringent work ethic.
By all accounts, Li is a traditional man who values principles, respect, personal trust, loyalty and good manners. Yet while he wants elder son, Victor, to take over and expand his empire, he is himself a self-made man who believes in the importance of earning one’s own way in the world.
In fact, he is not averse to competing with younger son, Richard, who is busy building his own empire. After all, business is business.
Too much power?
Some observers look at the combined assets of the Lis and worry about their influence on the local economy and politics. Li’s Cheung Kong empire alone controls four of the 33 blue chips composing the Hong Kong Hang Seng Index.
In the first half of 2000, AsiaWeek dubbed Li’s Hutchison Whampoa as the most profitable company in the world, with more cash on hand for gigantic-scale investments than Microsoft or Intel. Li’s port operations handle 30 percent of Hong Kong’s trade. He is linked with critical Hong Kong utilities, properties, retail chains and telecom networks.
In March 2000 The Associated Press reported that if Richard Li’s Pacific Century CyberWorks (PCCW) took over Hong Kong Telecom (HKT), the family’s holdings would take up one-quarter of the stock market’s capitalization of US$631 billion.
It is also widely believed that Li Ka-shing has certain politicians in his back pocket. Hong Kong’s Chief Executive Tung Chee-hwa, formerly the chairman of Orient Overseas International, is an old business partner of Li.
As a member of the Hong Kong SAR Preparatory Committee, which was hand-picked to advise the Chinese government on promising candidates for Chief Executive after the handover, Li was a key factor in Tung’s election in 1996, according to the Aug. 22, 1997, AsiaWeek, and Tung has opposed an antitrust law.
Li also enjoys a friendly relationship with Chinese leaders. Aside from sitting on the Preparatory Committee, Li advised the late Deng Xiaoping during the Sino-British talks, which led to the 1984 Joint Declaration on Hong Kong’s future. He was also a member of the Basic Law Committee drafting the Hong Kong constitution.
Li currently sits on the board of China International Trust and Investment Corp. as well as the Hong Kong & Shanghai Banking Corp. (HSBC).
He has poured US$1 billion into southern Chinese ports and infrastructure projects, and has invested US$2 billion in a real estate development complex in downtown Beijing. He has also donated US$150 million to build the Shantou University near his hometown in Guangdong, and supervised construction of the Chinese Foreign Ministry building in Hong Kong for free.
But Li insists that there is nothing shady about being on good terms with government officials and that he has never used his personal reputation or relationships to make money that he was not supposed to make.
Meanwhile, insiders pointed out that big businessmen have less influence over Hong Kong politics than they did under the British colonial rule, and that neither Li nor any other big businessman is on the Executive Council. These insiders also added that Li is not the only big businessman in Hong Kong with the ear of top leaders, and that he is more interested in business than politics, AsiaWeek noted.
Since Li and his son Richard either compete or run unrelated businesses, they do not represent a unified threat. In any case, said Lau Siu-kai of Chinese University, they could never dominate an open market like Hong Kong.
Ruthless business practices?
Li has faced criticism for benefiting unduly from government intervention and the deregulation of many sectors in which his companies operate. Others attack him for being ambivalent towards Hong Kong’s increasingly populist democracy.
He was one of a group of property developers in Hong Kong who grew fat from the colonial government’s policies to restrict property sales and keep land and rental prices high. He bought government land at sweetheart prices, although he argued that he paid more than other bidders. He was also accused of helping create the real estate bubble and contributing to unemployment during the recession following the Asian financial crisis.
In 1997, when prices were high, Li sold units in a residential complex under construction. The mid-1997 crisis burst the real estate bubble and prices plunged. By the time the apartments were finished in mid-1998, buyers owed more than the market value.
Some 20 percent of buyers defaulted on their contracts because they couldn’t get mortgages and marched to Li’s office demanding relief. Li believed such action would set a bad precedent, however, and sued 10 percent of the protestors whom he judged as merely speculators who got burned.
People were outraged by this apparent lack of sympathy for those in distress. As he defended his actions on the grounds of liberal economic principles and contracts, Li’s companies benefited from further government intervention to prop up stock and property prices.
In June 1998 land sales were frozen again; in August, the government spent US$15 billion on corporate shares to deter currency speculation. The March 29, 1999, Fortune reported that US$3 billion went to shares in Li’s companies. Li argued that under the circumstances, the government’s action was necessary.
While Li has not specifically criticized democracy or deregulation, he has warned, according to the Jan. 28, 1999, Far Eastern Economic Review, that the government must preserve order and harmony to prevent a tyranny of the majority, must look after the interests of businessmen better, and must bolster the confidence of foreign and domestic investors. But Li is not alone among businessmen in voicing these views.
Personal attacks
Li has been attacked for undermining Hong Kong’s autonomy. He did not bring in the Hong Kong police in 1996 when his son Victor was kidnapped, but rather to pay the ransom and keep quiet.
Many Hong Kong residents heard about it for the first time when mainland authorities arrested, tried and executed gangster Cheung Tze-keung for the crime in late 1998. Fortune reported that they further assumed that Li had preferred to seek help from China rather than Hong Kong police because he lacked confidence in the local administration. But Li denies this.
Criticism of Li for these actions from local Democratic Party politicians and citizens prompted him to announce in late 1998 that he was suspending a US$1.3 billion project in Hong Kong because "in the current political environment, I’d rather do a bit less."
In response to this apparent slander of democratic politics and the investment environment, Hong Kong stock markets reeled, and it was feared that his statements would dry up foreign investment in Hong Kong. Protests were held outside his office. But the Far Eastern Economic Review reported that his decision may have been motivated as much by business concerns.
Angered by these attacks that threatened his image, Li accused people of seeking fame by attacking his companies and sued a leader in the Democratic Party for criticizing his company’s business practices, saying that democracy doesn’t mean people can criticize whoever they want.
II. Career
1. Transforming Hutchison Whampoa
Li, already a millionaire through shrewd real estate and property management investments, vastly expanded his empire and his fame in 1979 by acquiring Hutchison Whampoa from what is now the HSBC. The latter had rescued Hutchison Whampoa from bankruptcy and sold it to Li’s Cheung Kong on easy terms (Cheung Kong now holds a 49.9 percent stake).
Li promptly turned Hutchison Whampoa over to a crack team of managers who sold off some low-margin distribution and trading businesses and used the money to expand the conglomerate’s port business and infrastructure division, as well as diversify into other fields such as mobile phones. A growing team of former investment bankers began to identify golden investment opportunities.
Hutchison Whampoa invested in Hong Kong retail chains such as Park ‘n Shop grocery stores, Watson’s drugstores and the Fortress electronics chain, many of which are housed in Cheung Kong buildings and enjoy an oligopoly with rivals owned by Jardine Matheson, another trading house.
2. Expanding and diversifying
Li moved into the utility and energy fields in 1985 by acquiring a 33 percent interest in Hong Kong Electric Holdings. Investing abroad, Li acquired a huge stake in the Canadian Imperial Bank of Commerce. He took 43 percent of Canada’s Husky Oil in 1987 to hedge against economic risks in Asia, and stood by the oil and gas company even when low oil prices cut into profits.
He made many short-term, well-timed investments in firms such as Britain’s Pearson and Cable & Wireless that he parlayed into sizeable profits. He managed to thrive even after the October 1987 market crash.
His success won him partnerships with foreign multinationals eager to invest in Hong Kong and China, such as U.S.-based Proctor & Gamble and Australia’s News Corp.
Not all of his ventures succeeded, however. In 1987 he joined a group that tried to take over Hongkong Land, a major Hong Kong landlord, from Jardine, but ultimately had to pledge not to attack another Jardine firm for seven years, according to AsiaWeek.
He lost a bidding war over Hong Kong’s Miramar Hotel and Investment Co. in 1993 to Lee Shau-kee, who was his partner in other joint ventures. An early venture into the British telecom market with Rabbit, a cordless phone network, also failed miserably. But Li learned from his mistakes and persevered.
Recognizing that China was a potential goldmine of opportunities and possessing the connections he needed to exploit them, Li entered into property development joint ventures with the Chinese government and set up Cheung Kong Infrastructure to pursue projects in China in construction materials, energy, and transportation.
In 1996, Hutchison Whampoa’s subsidiary Hutchison Port Holdings, which handles 10 percent of global container traffic, won a bid to manage the terminal concessions at both ends of the Panama Canal. This led to exaggerated fears among some Americans that Li would be able to control traffic through the canal as an agent of China, or worse. Li was offended.
In March 1997 Li restructured his empire to improve operational efficiency and refocus the infrastructure businesses. Just two months after the Hong Kong handover, Li’s Cheung Kong purchased 3 percent stakes in both Jardine and Hongkong Land, whose worth quickly appreciated, although a takeover of Jardine seemed unlikely given its size and that it was well-protected against raiders, AsiaWeek noted. Insiders at the time suspected that Li simply wanted seats on the boards of the two companies, or joint ventures to develop Hongkong Land properties.
3. Investing outside Hong Kong
While Li’s Hong Kong investments suffered from the recession following the Asian financial crisis, 30 percent of his corporate assets were deployed outside Hong Kong and were beginning to pay off after 10 years of incubation.
He decided to step up investments in the West while waiting for Hong Kong to recover. He acquired a 35 percent stake in Europe’s largest container handler, Europe Combined Terminals in Rotterdam. He purchased electricity distribution and retail assets in South Australia, and invested in the Bangkok Transit Systems Co.’s Skytrain project.
Li’s firms had managed to acquire cellular operations around the world. In the United States, for example, he had invested in Western Wireless and Voicestream. Hutchison Whampoa’s strategy was to build up telecom operations and sell them at a premium as the global industry consolidated, according to the Nov. 1, 1999, Business Week Online. This strategy now extends to buying up and then selling third-generation (3G) wireless telephone licenses in Europe and, most recently, Hong Kong.
For example, in 1994, Li had invested in Orange PLC, a British cellphone operator, and took it public in 1996. Hutchison Whampoa sold its stake to Germany’s Mannesmann in October 1999 in exchange for cash and stock. Now Mannesmann’s largest shareholder, Hutchison Whampoa profited hugely when the German company merged with Vodafone-Airtouch in early 2000 and gained a 5 percent stake in the latter, although Vodafone’s stock price later fell.
In early 2000 Hutchison Whampoa teamed up with U.S. telecom company Global Crossing to form a joint venture to link Hong Kong to the United States via submarine fiber-optic cable to offer high-speed trans-Pacific network service for corporations. Li has also said that he is interested in investing in Chinese telecom companies once China joins the WTO and the sector opens up to foreign investment.
4. Internet ventures and family ties
Li, his companies and son Richard have shown remarkable versatility in adapting to the New Economy by diving into the Internet and e-commerce businesses. Hutchison Whampoa’s flagship Internet company, Tom.com, in which Richard’s PCCW also has a 5 percent stake, went public in March 2000 on the Hong Kong GEM. It caused an investor frenzy even though it did not at the time have a clear focus or much content; the goodwill of its owners was enough.
Also in March, Li formed a joint venture with Donaldson, Lufkin and Jenrette (DLJdirect) to launch an online investment service. He has a joint venture with Compaq Computer Corp. to set up an e-government site that would allow Hong Kong residents to register for services like birth certificates online. In January 2000 Li partnered with Priceline.com for an Asian version of the U.S. online travel discounter. Hutchison Whampoa also has a PortsnPortal business-to-business Internet venture.
Richard has been building his own high-tech empire that many believe has been helped along with the connections, deal-making prowess and financial resources of the senior Li. Biographer Anthony Chan believes that Li Ka-shing masterminded the move in early 2000 by Richard Li’s PCCW to beat out Singapore Telecom for a stake in HKT. But Li Ka-shing denied involvement.
III. Background
Li was born in 1928 into an impoverished family in Chaozhou, Guangdong. The family fled to Hong Kong in 1940 to escape the advancing Japanese. Three years later, at the age of 15, Li promised his dying father that he would become a wealthy businessman one day, according to AsiaWeek. He dropped out of school to sell plastic watches and belts.
By the age of 22 in 1950, he had saved enough money to start a small factory, Cheung Kong, to produce plastic flowers for export. In 1958 he found him sitting on assets of HK$1 million (US$129,000), so he began to dabble in Hong Kong’s real estate sector.
Finding how profitable that could be, Li reinvented Cheung Kong as a property development company. In 1972 he took the company public, which was oversubscribed 65 times. By 1979 Li had become the biggest private landlord in Hong Kong.
Li is widowed, and has been gradually turning over his business to his eldest son, Victor, to devote himself to social work.
UPDATED: Dec. 12, 2000 |
