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| Hong Kong & China: it’s a family affair |
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| Thursday, 09 September 2004 | |
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09 September, 2004: Weeks of negotiations regarding the ownership of key telecom assets in China and its territory, Hong Kong, have amounted to nothing. The dam needs to break… There is no surprise that interest in China, the world's fastest growing major telecom market, has never been higher. It is disturbing, therefore, to note the problems surrounding the buying and selling ambitions of state-owned portions of the industry in the largest market on earth. Despite a lot of talk, the result to date is impasse. At stake is the credibility with which China's emerging telecom powerhouses strut the world's equity markets. For historical reasons, this has been a slow transformation over the last few years, but operators like China Telecom, China Mobile and China Unicom (all listed on the Hang Seng and members of the Redux Global ICT 100 Index) are showing what can be done, as are HK-based companies such as conglomerate Hutchison-Whampoa and PCCW. Key Chinese manufacturers such as ZTE and Huawei have also exposed themselves to a degree of shareholder involvement. To many, these are the most exciting stocks around. The latest imbroglio, however, is twofold in origin. On the one hand, PCCW wants to sell most or all of its interest in HongKong Telecom (HKT) to China Netcom, the last remaining major network operator in China to be under full state ownership. Almost simultaneously, Hutchison has suggested its desire to buy a major stake in China Netcom as part of the latter's IPO, which is due sometime before the end of this year (given a fair wind). Dad, can I borrow the telephone company? Where this begins to look odd is when the leadership of PCCW and Hutchison is taken into account. Hutchison-Whampoa is run by Li Ka-shing, Hong Kong's most totemic entrepreneur. PCCW is run by… er… his son, Richard Li – who being younger is slightly less totemic. Li Ka-shing spent much of the 1980s and 1990s pursuing HKT, both as an active competitor and through regulation and through financial predation. With his father having met with no ultimate success, his son, Richard Li, effected the purchase via PCCW in 2001, at a time which allowed Cable & Wireless to bank the resulting cash despite a subsequent decline in PCCW's share price. The latest moves might see PCCW cede control of HKT to China Netcom, in time for it to be included in Netcom's balance sheet ahead of an IPO effectively underwritten by Hutchison. All of this is in doubt as both the PCCW deal with Netcom and the Hutchison deal with China Netcom are currently in abeyance. The Chinese telecom sector needs the selective influx of responsible investment in its shareholder structures. The fear, when it comes to the totemic generations of the Li family and their flailing bids for control, is that inward investors may not share this thought. This might leave China Netcom and HKT moribund. You perhaps have to marvel at how a telephone leader in modern China can arrive at this position. Jim Chalmers |
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