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It is days before Hong Kong's return to China, and Henry K.S. Cheng's construction company is finishing up the Hong Kong Convention & Exhibition Center extension, a soaring glass-and-metal jewel that is the site of the handover ceremonies. As uniformed guards salute, the slightly built, 51-year-old Cheng strides through the building, a smile on his face. He has a lot to be happy about. The center is just one of dozens of projects that should soon reap record sales and profits for his family's property firm, New World Development Co.

The market value for New World has jumped more than 40% in the past 12 months, to $12 billion, as investors rewarded the company for its bold forays in both Hong Kong and the tricky China market. ''They are very close to the harvest phase in China,'' says Credit Lyonnais Securities (Asia) Ltd. analyst Trevor Cheung. Analysts expect New World profits, now at $537 million on sales of $2.2 billion, to pass $1 billion by 1999 as the China play pays off. And Henry Cheng, now executive director, is winning over the doubters who questioned whether he had the right stuff to take over from his father, the founder and chairman of the company.

New World's investments in China already far exceed those of its Hong Kong rivals. To date, the company has poured $2.6 billion into the mainland, nearly one quarter of its total assets. In the central Chinese city of Wuhan, New World has pumped $775 million into everything from low-cost, government-subsidized housing to bridges, a toll road, industrial parks, and high-end commercial and office space.

New World aims to replicate this blanket approach in such major cities' as Tianjin, a port near Beijing, and Chengdu, in China's heartland. It also has projects in the key cities of Beijing, Shanghai, and Guangzhou. It's a risky strategy that depends on the ability of local officials to steer tenants into New World housing and protect the company's investments. But the Chengs are unfazed. ''We have confidence in China's economic reforms,'' says Henry. ''They won't turn back to the old days.''

94 MILLION DOLLAR HOUSE. Cheng also is trying to shore up his home base, where New World is still a smaller player than developers Cheung Kong, Sun Hung Kai, and Henderson Land. It hopes to catch up by converting Hong Kong agricultural property it owns to residential use. As befits one of the first investors in China, Cheng sees nothing but a rosy future for Hong Kong. He's one of the founders of the relentlessly upbeat Better Hong Kong Foundation, a group funded by local businessmen to promote a positive view of the city and push pro-China views.

Even though New World is trading near its 12-month high, the stock, like others in the property sector, has gyrated wildly, a reflection of the anxiety many investors feel about real estate prices. Yet Cheng keeps backing up his boosterish talk with real money. New World just paid a stunning--and world-record--$94 million for one single-family house on Hong Kong Island. And, yes, that's U.S. dollars. Cheng intends to redevelop the property. ''It's one of the best locations in Hong Kong,'' enthuses the low-key Cheng about the 65,000-square-foot site, with its drop-dead view of the lush south side of the island and the South China Sea.

New World now concentrates on China and Hong Kong, but not America. One of Henry's first big moves was to buy the Ramada hotel chain in the U.S. in 1990. When the U.S. commercial real estate market plunged in the early '90s, he was pummeled by critics. But in 1995, he made a partial public offering of stock in the Ramada division, then sold out New World's remaining shares to J.W. Marriott for $970 million in cash this year. Although New World as a company now avoids the U.S., the Cheng family still invests its own money there as a bit of insurance should Hong Kong or China go sour. The Chengs are the lead investors, for example, in Donald Trump's $3 billion Riverside South project in New York. Whether it's Hong Kong, Beijing, or Manhattan, this clan thinks big.

By Mark L. Clifford in Hong Kong

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Updated June 27, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.
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