The International Finance Centre and other commercial buildings are seen in the central district of Hong Kong. Chinese firms now account for over 50% of new leases signed for offices in Hong Kong’s financial centre.
When Xi Jinping wanted to deliver a political message to Hong Kong as protesters demanding free elections were threatening to take to the streets, he summoned the tycoons who dominate the city’s economy. The words from the Chinese leader at the September 22 meeting in Beijing were uncompromising but not surprising. He would not entertain any demand for full universal suffrage in Hong Kong, according to two people who attended.
Just six days later, pro-democracy activists made good on their threat, unleashing more than two months of street demonstrations. But while Xi’s message that day in the Great Hall of the People failed to deter the protesters, in speaking directly to the city’s business and professional elite he was showing where Beijing believes real power in Hong Kong resides.
And it is here, in the city’s business sector, that China is inexorably tightening its grip on the former British colony. Even as Beijing struggles to tame Hong Kong politically, Chinese companies are consuming ever bigger chunks of the city’s key sectors including real estate, finance, power, construction and the stock market.
Many of these industries have for decades been dominated by the business titans who attended the meeting with Xi. Men like Li Ka-shing, Asia’s richest man, casino and hospitality billionaire Lui Che-woo and palm oil magnate Robert Kuok. Now they are witnessing a mainland business invasion of the city.
One of the most telling signs of change is the space mainland Chinese companies’ lease in central district, the heart of Hong Kong’s financial centre. These firms now account for over 50% of new leases signed for offices there, according to a September report from Hong Kong-based brokerage CLSA. That’s up from 20% in 2012, the report said.
The trend is the same in all major business districts. Mainland occupancy of 25 key Grade A office buildings, or prime office space, in the districts of Central, Admiralty, Sheung Wan and Wan Chai increased from 13% in 2008 to 21% earlier this year, according to commercial real estate services firm CBRE.
“We do expect more mainland financial firms moving into Hong Kong,” said Simon Smith, senior director of research and consultancy at real estate services provider Savills Plc in Hong Kong. “They like landmark properties, high-profile buildings. They often like naming rights if it’s available.”
The office directory at Hong Kong’s 88-floor International Finance Centre has a growing number of mainland companies on the list. Among them is China Development Bank International Holdings, which held its opening ceremony in 2011 and serves as the offshore investment firm of China Development Bank, the country’s biggest policy lender.
“If you go to the International Finance Centre now and compare it to five years ago, it’s very easy to see that there are many more Chinese enterprises represented,” property analyst Nicole Wong, an author of the CLSA report, told Reuters.
In a market accustomed to stratospheric land prices, state-owned Chinese developers this year stunned long-established local property giants with winning bids exceeding auction forecasts by up to 20%. Of the six available plots sold since the middle of last year in Kai Tak district, one of Hong Kong’s largest developments of residential and commercial complexes, two went to China Overseas Land & Investment (COLI) and one to Poly Property Group .
“Price is not an issue for them,” said a former senior executive of a Hong Kong-listed developer who was responsible for bidding at land auctions before he left the company in June. “That’s why they offered prices that surprised everyone.”
A spokesperson for Poly said the company had no comment. COLI did not respond to questions sent by e-mail. While it was predictable business ties would expand after the 1997 handover, Beijing has made it clear that economic integration is central to reinforcing its sovereignty over Hong Kong, which is ruled under the one country, two systems model that affords the city’s 7.2mn residents broad personal freedoms. Part of Beijing’s vision is to draw Hong Kong into a Pearl River Delta mega-economy that would also include the giant southern Chinese cities of Shenzhen and Guangzhou just across the border.
In 2011, a chapter was dedicated to Hong Kong for the first time in China’s five-year blueprint for national economic development. The 12th Five-Year plan, covering the years from 2011 to 2015, lays out how Beijing wants to connect Hong Kong with the Pearl River Delta’s increasingly prosperous middle class consumers.
Under the plan, Hong Kong would be a leader for the region in shipping, trade, services and distribution. In finance, Hong Kong would serve as an offshore market for the mainland currency, the renminbi.
New transport links from Hong Kong now under construction, including a high speed rail to Guangzhou and a bridge across the Pearl River Delta to the mainland city of Zhuhai near Macau, would allow the rapid movement of commuters and visitors.
“It will be like New York where you have people working in Manhattan and living on Long Island or in New Jersey and commuting in to work every day,” said Hong Kong entrepreneur Allan Zeman, who developed the Lan Kwai Fong pub and restaurant area popular with expatriates. “People who can’t have a home here (in Hong Kong) will live in Shenzhen and be able to come here in 10 minutes.” The mainland’s construction behemoths, including state-owned China State Construction International Holdings, are also grabbing market share. Hong Kong’s permanent secretary for Development (Works), Wai Chi-sing, said in an interview that while mainland firms accounted for less than 15% of public works contracts by value in the mid-1990s, they now accounted for more than a third.
While mainland Chinese companies are rapidly expanding into Hong Kong, Western banking and financial institutions still have a strong presence in the city. Global bank HSBC Holdings, for instance, employed more than 28,000 people in Hong Kong at the end of 2013.
For Beijing, growing economic clout has not been mirrored by increased popular support. Frustrated by Hong Kong residents’ lack of identification with the mainland 17 years after the handover, China has at times resorted to covert means to bolster its control. Earlier this month, for instance, Reuters reported that retired Hong Kong policemen were part of a mainland-led surveillance operation to tail leading pro-democracy figures in the city.
Although the street protests ultimately petered out, at their height they drew tens of thousands, presenting Xi Jinping with his most serious popular challenge since he took power two years ago. While the protesters have demanded full universal suffrage, the mainland authorities insist that only a handful of Beijing-vetted candidates can stand in the next elections for the city’s political leader in 2017. Hong Kong’s current chief executive, Leung Chun-ying, got the backing of Xi and Premier Li Keqiang during a visit to Beijing last Friday, according to reports in China’s state-run media.
A Hong Kong government spokesman said in an email response that economic integration with the mainland has been mutually beneficial, citing the growing number of mainland companies listed on the Hong Kong stock exchange and the city’s role as the largest offshore renminbi centre. The Hong Kong and Macau Affairs Office in Beijing did not respond to questions from Reuters.
Rather than foster understanding, growing economic integration has at times raised tensions. One source of friction is the real estate market where wealthy mainland Chinese have bought up property in Hong Kong, helping to push up home prices that are already out of reach for many of the city’s residents.
“One might have assumed that the inflow of mainland money and companies and people here, and the favorable economic policies of the mainland should have increased emotional integration rather than just economic integration but it hasn’t,” said David Zweig, chair professor of social science at Hong Kong University of Science and Technology. “For the rich people here, the heart has followed the dollar but for the middle class and for students it hasn’t.”
That’s been evident, at times, on the streets of Hong Kong. While the growing influx of mainland tourists has been good news for the city’s retailers – the number of Chinese visitors catapulted from 28mn in 2011 to 40.7mn last year – interactions between mainlanders and Hong Kong residents are not always amicable. In one incident that made headlines earlier this year, locals got into a scuffle with a mainland couple who had allowed their toddler to urinate in the street.
Before commenting on Hong Kong, Xi gave some of the richest men on earth a tour of China’s foreign policy challenges. He told the tycoons that China was now a major force in the world and most of his attention would be focused on ties with bigger nations including the US and Russia, the delegate said.
