In a double-pronged pincer attack that should worry investors, the Chinese government is punching Hong Kong property developers where it hurts. It is also assisting state-owned companies from almost every industry in competing with or controlling Hong Kong corporations.
It's a move I anticipated this time last month as the bigwigs in Beijing figure out ways to exert their influence in Hong Kong, a city they are struggling to understand or control. Essentially, they're calling on state-controlled China Inc. to win the war for a city that is regularly voted the world's freest economy.
The Chinese government is leaning on its biggest state-owned enterprises to extend their reach into Hong Kong. This involves investing in their own Hong Kong operations, which would compete with existing Hong Kong companies. They are also attempting to exert control over the Hong Kongers by taking stakes in Hong Kong's public companies and electing board members.
Many of China's state-owned enterprises now have charters establishing the Chinese Communist Party as superior to shareholders. They also have Communist units within the company, and the charter sometimes demands that the board get approval from that unit for influential decisions.
The top management teams of around 30 state-owned companies in the last couple days have had private meetings with the Hong Kong leader, Chief Executive Carrie Lam, according to Apple Daily. The Chinese-language tabloid, the most-read publication in the city, is flush with covert photos of the CEOs arriving in the Toyota Alphards that serve as limos on Hong Kong's narrow streets.
Apple Daily is a pro-democracy rag. The neutral news agency Reuters backs this news up, however, with its own story that the top management of almost 100 of China's largest state-owned enterprises met this week in Shenzhen, the mainland city just across the border from Hong Kong. At that meeting, they were told to insert themselves into the city's corporate lifeblood.
"The business elites in Hong Kong are certainly not doing enough. Most of them are just not one of us," one executive who was at the meeting told Reuters.
The mainland Chinese companies are involved in almost every walk of life. The meeting was organized by the body that oversees the powerful state-controlled Assets Supervision and Administration Commission. Hao Peng, the Communist Party chief of that commission, then spoke at a forum in Hong Kong for China's Belt and Road infrastructure initiative, which has been criticized for using Chinese money to extend the country's reach in underdeveloped nations.
Big, powerful names abound
At Government House, Hong Kong's White House, the callers include gas station operator and oil extractor Sinopec (SNP) , phone carrier China Mobile (CHL) (both of which are listed on the New York Stock Exchange), the bank-and-ports conglomerate China Merchants Group (CIHKY) , the supermarket-property-power conglomerate China Resources (multiple listings), the unlisted electricity utility China Southern Power Grid, and the transportation company China Cosco Shipping (CICOY) .
The state-owned property developer China Poly HK:0119 and the construction contractor China Railway Group (CRWOY) , which despite the name is one of the world's largest construction companies, are also being called into service.
China State Construction International (CCOHY) is also part of the secret tour to Shenzhen and Hong Kong. It's already the largest construction contractor in Hong Kong, largely thanks to government contracts. It is a subsidiary of the housing developer China Overseas Land and Investment (CAOVY) , which has also started building apartments in Hong Kong.
The NYSE-listed airlines China Southern (ZNH) and China Eastern (CEA) have also arrived at Government House. One of the first Hong Kong targets of Beijing's wrath has been its flagship carrier, Cathay Pacific Airways (CPCAY) , which was taken to task for allowing protest-supporting employees to continue to work.
Cathay Pacific is an early example of how the creep of mainland influence occurs. It is a subsidiary of Swire Pacific (SWRAY) , which carries the name of the Swire family, Brits who have been in Hong Kong basically since the city started. But it also has sold a 23% minority stake to China's flagship carrier, state-owned Air China (AIRYY) .
Another 7% of Cathay is held by Air China's parent, China National Aviation Co. China National is the successor to the former national carrier, China Airways. That was once 45% owned by Pan American Airways until the Communists seized the airline in 1949. Taiwan's national carrier is now pointedly called China Airlines TW:2610.
Locking in on land
Hong Kong's developers are the biggest and most-profitable businesses in Hong Kong, alongside its banks. They are troublesomely free of Beijing's influence. And the richest man in the city, the developer Li Ka-shing, has shown signs of supporting the protesters.
Li is the founder of the apartment-and-office builder Cheung Kong, now part of CK Asset Holdings (CHKGF) . In his first public comments on the crisis, he told an audience of Buddhists on Sunday that Hong Kong's young people are "masters of our future" and said those in power should offer them "a way out."
In a barely veiled attack, Chinese state media has now demanded that the Hong Kong government seize back land that the developers hold but have yet to use. Housing is an "important root cause" of the protests that have wracked the city for more than three months, according to the editorial in the People's Daily government mouthpiece.
A local pro-Beijing political party in Hong Kong the day before ran a front-page newspaper advertisement and held a press conference urging Hong Kong's leader, Carrie Lam, to take back this idle rural land.
The editorial used Li Ka-shing's words against him.
"For the sake of public interest, and for the sake of people's livelihoods, it is time developers show their utmost sincerity instead of minding their own business, hoarding land for profit and earning the last penny," it reads, as the South China Morning Post explains.
"What is being responsible to Hong Kong's future? What is showing humanity and providing a way out to the young people? This is the way," it says.
All Hong Kong land is owned by the government and leased from it. The system is based on British Crown leases. The government could claim back undeveloped land, paying a market rate for empty but not developed land, but it would undermine all ownership rights in the city. Lam, the city's leader, said last year this "imperial sword" could not be used lightly for fear of inviting legal challenges and risking violating private-property rights.
The Communists have no qualms about seizing land. Now, at the same time that China is attempting to get Communist-directed companies to make more money in Hong Kong, it is also attacking the private companies that do the same. Communist dogma insists that centrally planned government policy is always right and all-knowing, while free-market structures such as those in Hong Kong are viewed with great suspicion.
The People's Daily article insists that the pro-democracy demonstrators "did not care about politics," but felt helpless about their future mainly due to housing problems. The editorial said government housing policies had been compromised or shelved due to pro-democracy lawmakers and people who distrust the government, as well as "developers who care for their vested interests and keep threatening the government and bundling public opinion."
Those developers have "plunged Hong Kong into a swamp where housing is unaffordable and inadequate," the Communist Party newspaper says.
