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It's Only 1991, But It Already Feels Like 1997


International Business

IT'S ONLY 1991, BUT IT ALREADY FEELS LIKE 1997

A wave of euphoria swept through Hong Kong's business world on July 4. That was when a beaming Sir David C. Wilson, the colony's governor, told Hong Kong's assembled press corps that China had dropped its objections to a much-debated $10 billion airport project. The Hang Sang stock index responded by shooting up to a near-record high. "This is a ray of sunshine," said Howard Gorges, a director of South China Brokerage Co., over the din of the firm's frantic trading room.

You would have hardly known that the big winner in the airport pact was Hong Kong's future landlord. China never denied that a replacement for congested Kai Tak airport was a must. Instead, it used the difficult negotiations to gain more influence over the current management of the colony. Not only did the Chinese authorities secure a seat on the enclave's airport authority, but they also won a strong voice in the planning and awarding of contracts for $16 billion in future projects, ranging from a new subway line to the world's longest suspension bridge. China had feared that British authorities might be gearing up a last-minute construction boom to strip the enclave's treasury of its estimated $9.4 billion in cash before Hong Kong comes under mainland control in 1997.

Critics, such as liberal Hong Kong legislator Martin Lee, were quick to assail the new pact as another British sell-out of the enclave's autonomy. But to most citizens, it was a grudging admission of the obvious. Although full transfer of authority is six years away, China is rapidly gaining influence over Hong Kong's affairs. Without China's endorsement, for instance, banks were not willing to pony up for the airport project.

BIG STAKES. As the countdown to 1997 proceeds, China has been quietly increasing its clout by purchasing big stakes in many of the colony's leading businesses. In the past two years alone, Beijing-controlled companies bought their way onto the boards of Dragon Airlines Ltd., Hongkong Telecommunications Ltd., and Asia Satellite Telecommunications Co. China International Trust & Investment Corp. (CITIC), China's primary foreign-investment vehicle, recently announced that it has raised a $240 million war chest from private investors. So, additional acquisitions are likely.

The mainland's growing economic presence has raised surprisingly little protest. The business community says China will hesitate to crimp the enclave's freewheeling capitalism if it has a stake in the action. Hong Kong companies are also betting that by sidling up to China, they will be better able to protect their interests after 1997. By selling 12.5% of Cathay Pacific to CITIC in 1985, Britain's Swire family eased fears that China would transfer critical landing rights to a mainland carrier. Says Hongkong & Shanghai Banking Corp. economist Alan McLean: "There can be a distinct commercial advantage in having China on your team."

Hong Kong executives say that so far, their Chinese investors are keeping politics out of business. But not everyone is confident that China will exercise similar restraint in the future. Lee, leader of the United Democrats of Hong Kong party, calls the airport pact "a dangerous precedent that poses a very severe threat to the future autonomy of Hong Kong"--which China promised in 1984, when it secured the eventual right to control of the colony. Lee also fears that party cadres will now demand influence over franchises for everything from bus service to utilities, as well as control over Hong Kong's courts and media licenses.

But many executives argue that no law will prevent China from cracking down on Hong Kong if it feels like it. So, why not try to co-opt the cadres into capitalism before 1997?Pete Engardio in Hong Kong


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