China has torpedoed the sale of U.S. consulate property in Hong Kong, citing political differences for terminating the commercial transaction of a site in one of the city's most-prestigious neighborhoods.
Hang Lung Properties (HNLGF) , a Hong Kong-headquartered developer that's very active in China, said on Wednesday that it has been unable to complete its prospective purchase. In a surprise move, Hang Lung agreed in September to pay HK$2.57 billion (US$327 million) for the residential complex in Shouson Hill, where many of the city's political movers and shakers live.
Hang Lung was supposed to complete the deal on December 30, and had put through the proper paperwork. But in a stock exchange filing today, it says that it received a letter on December 21 from the Hong Kong Land Registry saying it had been unable to register the purchase, normally a simple formality.
The registry said the Chinese government had stepped in to block the purchase. The mainland central government in Beijing, which is not supposed to interfere in Hong Kong's legal system, has told the Hong Kong government that the sale is a matter of foreign affairs, not a commercial transaction. As such, it requires political clearance after the U.S. government requests in writing to dispose of any of its property in Hong Kong.
It's never happened before in Hong Kong, where many governments buy or rent space in which to operate. No questions asked. The compound in question is not the consulate itself, which is technically U.S. soil, but simply somewhere for the people who work there to rest their heads.
China's Ministry of Foreign Affairs says it wants a written application at least 60 days before the transaction if it is to clear it to happen, however. The U.S. Consulate General "is not a commercial entity," the mainland government told the registry, and the property in question "is not an ordinary real estate property as such."
I go past there from time to time. Sure looks like a residential property to me.
The U.S. Consulate General is attempting to offload staff quarters for senior diplomats as what it says is a normal reshuffling of its real-estate portfolio. But it's hard to ignore the tensions between China and the United States, with the U.S. government having sanctioned Hong Kong officials including the city's leader, Chief Executive Carrie Lam, for violating the human and political rights of citizens. There's a political message behind the sale.
Obviously, there's a political message in Beijing's reply. Not so fast... and we don't want you running off with one-third of a billion U.S. dollars, just as many regular Hong Kongers are pulling their funds out of local banks and fleeing abroad.
China is still trying to figure out how to prevent the drain of people and money from Hong Kong. It can stop mainland Chinese citizens from leaving mainland China, but doesn't have the same ability to prevent people with Hong Kong passports from traveling freely.
Britain has offered what's effectively political asylum to holders of British National (Overseas) passports, or BNO holders, a legacy passport issued by the colonial British government to Hong Kongers born before 1997. BNO holders weren't previously able to live in Britain, but as of the New Year they will be able to live and work there for five years before applying for permanent residence, and ultimately British citizenship.
If there's one thing the Beijing government is worried about, it's money. Ironic, in a supposedly Communist culture. But the mainland leaders were most keen on getting their hands on Hong Kong as Asia's pre-eminent financial center, a place many Communist leaders have invested their secret wealth. Now that the distinction between Hong Kong and mainland China is minimal, many Hong Kongers want to leave the city, and take their money with them. Beijing doesn't want that to happen, and doesn't want the U.S. government to take its money and run.
The situation in Hong Kong keeps getting more and more oppressive. We're hearing today that China has sentenced a group of 12 Hong Kongers to prison sentences of up to four years, 10 serving time in a Chinese prison and with two minors sent back to the city. The pro-democracy activists were attempting to flee the tyranny in Hong Kong to Taiwan by speedboat but were intercepted by mainland Chinese forces, likely on a tipoff. It's highly unusual for such strict sentences to be laid down for a simple violation of crossing the border unofficially.
The U.S. consulate in Hong Kong had accepted a knock-down price on its property. The site sold at a 23.6% discount from the value estimated by commercial property brokers. It's also substantially less than the neighboring property, which sold in July 2018 to the Chinese state-owned conglomerate China Resources (CRBJY) for HK$5.93 billion (US$756 million).
The U.S. Consulate General bought the 94,796-square-foot site at 37 Shouson Hill Road in 1948 from the British colonial government. It had built and occupied six low-rise apartment blocks currently there by 1983. They have ocean views looking out toward the Ocean Park theme park, Deep Water Bay and the South China Sea.
Hang Lung was sticking its corporate neck out by making the purchase. The developer is headed by the outspoken tycoon Ronnie Chan, best-known in the United States for having served on the board of Enron when the energy company spectacularly blew up. But he is also known for his charitable work forging political links between the United States and China.
Chan has recently concentrated Hang Lung's efforts in mainland China, where it now gets 53% of its property-rental revenue. For the most part it develops retail and commercial space rather than residential real estate, and hadn't touched residential property in Hong Kong for five years. Clearly, the price was too attractive, and Chan was willing to risk a little ire from Beijing.
CK Asset Holdings, the property arm of Hong Kong's richest man, Li Ka-shing, put in a bid on the U.S. consulate lot. But many Hong Kong developers said they had not participated in the deal, attempting to distance themselves from the U.S. government. Mainland Chinese companies boycotted the sale altogether, for sure under directions from Beijing. Many big Chinese developers are at least partly state-owned.
Hang Lung says it's still willing to go through with the purchase if the U.S. government can meet the requirements put on it by Beijing. The U.S. consulate also says it's looking for additional time for the buyer and seller to go through the administrative process, and close on the sale.
For now, there's minimal chance that will happen.