Remarks by Ronnie Chan

Ronnie Chan

Asia Society
Hong Kong One Year After Transition:
Business Opportunities and Policy Challenges
Asia Society Policy and Business Conference
Seattle, June15–16, 1998

It’s good to be back in Seattle. I was here six days ago speaking over dinner. As one who speaks a lot, I understand that speeches after meals are very bad for digestion, and I figure that tonight we’ll have a very good speaker in the person of Mrs. Anson Chan. For all of you one after-meal speech is good enough. Oh, by the way, Anson last Thursday gave an excellent speech at the Asian Society in Washington, D.C. and particularly the last one-third of it is definitely worth your while listening to. I hope that Anson will give an encore tonight.

With that I thought I would provide a little bit after-lunch entertainment. That seems to be my job these days. Combined with the fact that I’m always blunt and frank and always speak my mind, I better say this first. My views do not represent that of the Asian Society nor that of the Better Hong Kong Foundation, which is the host of the lunch today. What I will do is simply to present to you some observations. Three or four, depending on the time, as a Hong Kong businessman regarding the transition.

The three or four are 1) Hong Kong’s relationship with the West. Or put it another way, how does the West look at us in Hong Kong. 2) If time permits, I may say a few words about civil servants in Hong Kong and if time does not, I’ll skip that. The more important parts are the last two: Hong Kong’s economy, which I think is of interest to many of you. Finally, maybe even a word on the political development. I see that Mr. Tsang Yok-sing and Christine Loh, some of the leaders of Hong Kong’s various political parties are sitting here, so I am in fear intrepidation. But for those of you who know me, that is an oxymoron.

First, how does the West look at Hong Kong? Well, we all see things from far off through prisms. Whether the prism has distortion determines a lot how we understand what we are supposed to be seeing. Prism doesn’t have just one problem. It doesn’t just distort. Sometimes prisms have colors. For example, if I wear a red glass then everything I see is red. If I wear a blue glass, everything is blue. Today, all of us look at the world and for many of you looking at Hong Kong, through a prism of the media. Like it or not that is the way we get our information and only to an extent that the prism is correct will we be able to judge correctly what we are supposed to be seeing.

So let’s look at how the media look at Hong Kong. Before 1997, July 1st, the media was totally wrong. At least the western media. Why is that the case? I present two reasons. One, they don’t understand China. They are against Hong Kong not because they are against Hong Kong per se. They are against Hong Kong because they don’t understand China and they are afraid of China. Most of them didn’t follow Hong Kong until after maybe 1996, the summer of 1996. They don’t know anything about Hong Kong or China’s history, our tradition, our civilization, our culture. And when you don’t understand China, I submit to you that you will not be able to understand Hong Kong after July 1, 1997.

The second reason is that much of the western press is ideologically biased. They still have a cold war mentality. They look at China as the last bastion of communism, forgetting or not knowing that by the way China today it’s more market oriented than 90% of all of western Europe. I don’t know if you know this but the public sector in China as a percentage of total GDP, that for China is smaller than all but two western European countries. The two being Switzerland and Britain. Apart from that, China is actually today more market-oriented than France, Germany, Belgium, you name it. Because of the ideological nature of the way the western media looks at things, they are bias. They are blinded. And that always leads to ignorance.

You know, I always say that as a businessman I wish I had a recipe to make money. Unfortunately, I don’t but I do have one recipe to lose money. The recipe—at least before July 1, 1997—is to read the New York Times or the Washington Post about China or Hong Kong and do accordingly. Let me show some examples. With all the reporting before 1997, July lst, there is hardly any mention that Britain actually took Hong Kong by force. By gunboat diplomacy. It seems they have forgotten it. Rather, they say the following. They say, hey, wait a second. Why are you complaining? Look what Britain has built for you in the last 150 years? To whoever says that, I question his or her moral standings. Pardon the following example. After raping a girl, will my giving her ten million dollars right the wrong that was done initially? Moral judgment can be marred by ideology.

Consider another fact. You look at the newspaper of the west on July 1st or 2nd about how the People’s Liberation Army rolled into Hong Kong. It’s obvious that what they mean is that god damn it, Hong Kong is over. The communists are taking over Hong Kong. Look at the army, the PLA, rolling in. What they did not know is that many of us Hong Kong people are indeed very proud that Hong Kong is finally part of the motherland. They did not report that 40,000 of our citizens were waving flags, the national flag, welcoming the PLA. And I don’t believe they’re all communists. They are Chinese and there is a pride that is associated with being Chinese.

But the rest of the media are not the only ones who have got it wrong. Sorry to say, some in Hong Kong—in particular the so-called Democrats, with a big D. They too were wrong. They went to Washington, D.C. They told your congressmen and senators. They told Bill Clinton that he or she is ready to be martyred. He or she will be in prison after 1997, that if they were to leave Hong Kong after 1997, July 1st, they may not be allowed to be brought back in. If they stay in, they become martyrs. They wept in Canada. They told Bill Clinton things that were wrong and this is why I was a little surprised that Bill Clinton still wants to see them later this month, or rather next month, in Hong Kong. They have been wrong once; I suspect they may be wrong again.

Allow me to be a little boastful for a second. Who got it right? Who got it right? One group of people got it right. The Hong Kong businessmen. Why were they right? Two reasons. One, our money is on the line. The media if they got it wrong they have a reputation to protect. Nobody remembers it anyway, and they just go into the next story. As sensational as ever. But if we get it wrong, our pocketbook gets hit. Don’t forget, Hong Kong management and ownership is still basically one. That means, when I manage a company, I’m not managing other people’s money. It’s my money and if I’m wrong, my pocketbook gets hurt. It causes us to be extremely careful. Look at history. We got it right in 1949. We got it right in 1966 or 76 period. But those are easy to get right. What about the early 1980’s? When America, for example, was rushing into China to do business there. You remember those days when a shoe company would say if all I need to do is sell, not a pair, but just one shoe to every other Chinese, they take turn wearing it or whatever, my company will be a Fortune 500 company.

What did we the Hong Kong businessmen do? Basically, very little if anything at all. Some tipped their toe quickly to get back up and we basically set it up. Yes, there’s some smaller businessmen that go in there using the cheap facilities, sending the old machinery. They make a lot of money. That’s good, but for the major players in Hong Kong, we did nothing. We watched. Until when did we go in? Until the rest of the foreigners that were not out by the late ‘80’s that were out after 1989 that was the time that we begin to think twice.

So when Americans were rushing in we did nothing. When they leave, we begin to say, ha, maybe it’s time to get in. Draw no direct conclusions between Americans and Hong Kong businessmen. Nevertheless, it does mean that we do read China very differently. In the spring of 1992, Deng Xiaoping made a trip to the south. I made a decision at the time after spending about 18 months traveling around the country, that China’s reform is basically irreversible. Unbeknown to me at the time, all my other fellow major players in Hong Kong had independently made the same decision. In hindsight, I believe we’ve been proven correct. And so is our assessment of 1997, the transition.

We’ve been observing China for the last 40 years. Allow me to say a word about my own personal experience. My late father went to Hong Kong in 1949, scared to death of communism. Ready to move out at a blink of the eye. Thank god he stuck in there. By the mid-1980’s we knew that Hong Kong would be part of China. Again, at that time he was unfortunately very sick, terminally in fact. We had long discussions. What are we going to do with our family wealth? Should we stay in? Should we get out? We didn’t start thinking in 1996 in the summer, like many foreign journalists. We’ve been thinking about it for 50 years. Eventually, we concluded that 1997 would be okay.

What about the western media after July lst? In the past eleven months how do they fare? Have they been correct? Well, slightly better by virtue of the fact that political transition has been very smooth, but I must say that the ignorance and the ideological bias remains. They’re still hunting for signs of Hong Kong’s deterioration. Let me tell you what they’re doing. They’re looking for ghosts. Every time the wind blows they see that Hong Kong is going down the tube. Every time a cat walks through a windowsill, ah, Hong Kong is going down the tube. For example, education by the mother tongue. That is an issue that many of the western press says, hey, you guys are deserting Hong Kong as an international city. You’re now going back to Chinese as a teaching medium. By the way, for the record I went to Chinese high school. I think my English is okay. I think you understand what I’m talking about.

Anyway, the fact of the matter is it started in mid 1980’s. It was started a long time ago to decide to teach most of our students in Chinese because it would be easier to learn that way. I’m not saying whether it’s the right decision or wrong decision; all I’m saying is the west were looking for ghosts. They are also ideological. Allow me to say one example. Imagine if a PLA, People’s Liberation Army individual, were to get in a fight in Hong Kong I tell you it would be plastered all over Hong Kong. PLA beating up local people. Do you know that in the spring of 1997 before the Brits left, a British soldier killed somebody in a bar in Tsim Sha Tsui, I believe, and the soldier was allowed to leave Hong Kong. Now how on earth did he leave Hong Kong? I don’t know but certainly with the consent of some power that be higher up at that time. And yet, the media today nobody writes about it. I wrote to one editor of a local newspaper and said, hey, why don’t you report about it? He said there’s no interest. So the British can get away with murder, literally. Such is the ideological bias.

However, I think it is also true that Hong Kong does look pretty grim in the last 11 months. Why is that the case? Again, I submit to you two reasons. First, well, in the old days Hong Kong was not under any microscope. The then government can basically do anything they want. Now, unlike them, Hong Kong is under a big microscope from the media, locally to that overseas. Number two, we are just plain bad luck. Chicken flu, it could happen anywhere. I don’t know if you know a couple of years ago, it happened in the state of Pennsylvania. Two million chickens were killed and nobody would know about it. But now Hong Kong has a million killed and why. As if chicken flu is going to bring down Hong Kong. The red tide disease, we have it every couple of years. It’s nature. Disease hits the fish and yet, again, it becomes a big issue. Of course, Hong Kong is very lucky that the Asia crisis should hit this time and we unwittingly were being dragged down with it.

So how should we treat the western media? Nothing. As before. The media is a necessary evil and let them be. However, there is something that we can do. We can educate them, hopefully, and we can better communicate with them. That’s something we need to do but also I hope that on their part they will learn about what is a real situation in China and Hong Kong and be responsible media.

For the second time I won’t say much about a civil servant. Suffice it to mention one thing. A lot of people are worrying that Hong Kong service has deteriorated in quality. I don’t believe so. Look at the way they have handled the financial crisis. I give Donald Tsang and Joseph Yam triple A. A++. Those guys have done a fantastic job in preserving the currency and hence the stability of Hong Kong’s economy. Yes, they have an adjustment period to go through. Yes, they need some leadership, no doubt about it. But nonetheless overall I think they’re doing a good job.

Let me quickly turn to the economy which may be of more interest to many of you. Whenever we talk about Hong Kong’s economy it is impossible to separate it from the real estate sector, which I like to think I have a little bit of knowledge being in that business myself. You know that Hong Kong’s stock market is said to be 60% related to real estate. It is the most important industry in Hong Kong arguably. Here, I think we have to go back a little bit. The policy on property in Hong Kong for many, many years prior to the 1997 has been plain wrong. They have a high land price policy. I’m not saying a high land policy in itself is necessarily a bad thing, no. Of all people I shouldn’t complain being a big beneficiary thereof. However, it is also true that the Hong Kong government since 1991 has gotten it really wrong. There is a report out that says that we’ve basically solved the property problem. We have enough housing already, we don’t need to do anything special. That turned out to be a wrong assessment. As a result there has been a pitiful shortage of land supply, in particular for residential housing. So what do you do to cover up one mistake? By committing a second. Instead of managing the supply by giving up more land the government decided to use an administrative measure to manage the demand side. It jerks the economy around, jerks the land prices around. So when C.H. Tung came in as Chief Executive on July 1, 1997, he made housing along with education his two top priorities. He announced that he would build 85,000 units but don’t get stuck with this number. What he is saying is that he will give enough land to build housing so that they will be affordable to the average people.

Let me say one thing in my self-defense. Many people know that real estate people in Hong Kong didn’t like that policy but years before Mr. Tung started this policy, I have been writing in the chairman’s statement of my public company, that I run, that the Hong Kong government should release massive amount of land for development. That I have in fact sent to government officials. They did not take any notice of it. I did not talk to C.H. Tung, he came to the same conclusion that we need a more transparent real estate market and sufficient amount of land to do it.

This is a policy change that changes the very structural nature of the industry. So I argue that even with the Asian crisis, the Hong Kong crisis is due for a correction, and not only a cyclical correction but a systemic correction. One that will gradually manage real estate prices down. I support it because it is good for Hong Kong’s competitiveness. Of course, the unfortunate thing is that as Mr. Tung was trying to implement this program of gradually bringing down real estate prices, the Asian crisis hit. What happened? What happened is that suddenly the stock market went to hell. In a normal circumstance how I foresee this policy of Mr. Tung’s will work itself out is as follows: more supply of land leading to lower real estate prices or at least much lower growth if not stagnating, stagnating real estate growth for a number of years. That in turn will be translated into the stock market because it is so dependent on the real estate sector. The stock market will then adjust. That will be the natural progression of things. Unbeknown to any of us, and certainly Mr. C. H. Tung, the Asian crisis hit and we suddenly saw the stock market go to hell. That compounded the problem and we are now seeing a severe deflation.

Let no one be mistaken it is extremely serious. Having said that I do believe that we will come out unscathed. This is no longer a stock market problem or a real estate problem. It has become an economic problem for all of Hong Kong. It will take I believe at least a year or two to work its way out, if not two to three years. Let it be. Of course a lot of people accuse me and say, Ronnie, you’re one of those lucky guys. You didn’t buy anything expensive the last couple of years. Rather you sold everything before the market went down and you raised a lot of capital and raised a lot of long term debt at very cheap rates, so of course you can say this. That is right. I admit I’m one of those fortunate guys but it doesn’t take away from the fact that what I’m saying I believe is still correct. This has to be so in order to maintain Hong Kong’s competitiveness. It so happens that Hong Kong is unlucky. It will take longer for it to recover because of the Asian crisis, but it will recover in time.

Right now bank credit is extremely tight and that I believe will take some time to work it over. Once that is done I believe the Hong Kong real estate market will gradually recover. That doesn’t mean we will see the hikes in prices as before but it does mean that there will hopefully be some stability in the pricing and the stoppage of further deterioration in price.

Finally, my last point is on political development. If I were to summarize Hong Kong’s post 1997 July lst experience in one sentence it would be politically successful, economically difficult. So on economic difficulty I admit it but I have sounded a word of optimism. Rather on the political side, yes, we’ve been successful in our political transition but here allow me to bring up two problems. Number one is Mr. C. H. Tung’s position. Consider him — he’s called chief executive as I’m called a chief executive of my own company. My company takes over many companies over the years. In my public company and my private company, I don’t know how many companies I have taken over in the last 10, 15 years. Maybe 30, 40? Imagine, I take over a company. I step into the place as the new chairman however I’m not allowed to do two things. Number one I’m not allowed to put in my own CFO. I’m not allowed to change the president. I’m not allowed to change any of the officers. I’m not for one second suggesting that we should change anyone but nonetheless to show you that Mr. Tung’s hand is very much tied.

Number two, by virtue of the structure of a political apparatus Mr. Tung has no support whatsoever necessarily in the legislature of which several members are sitting here. Mr. Tung does not have any constituent of his own. Although the democrats today, Bill Clinton doesn’t have the House, nonetheless he has eleven — as Jim McDermott said this morning, only eleven seats short in a body of 435 people. It’s not that difficult. In a parliamentary system, Tony Blair is assured by definition to have the majority. Not only does C. H. Tung not have a majority or anywhere close to it. He cannot be guaranteed one vote.

So back to my analogy. I as a chairman brought into a company, I’m not allowed to change anything and I have no vote whatsoever that I can command. Pretty tough job. That’s problem number one. Problem number two. We have a legislative council that is structurally problematic. Why do I say that? Because they have a lot of rights. They can say anything they want but they can hardly ever become a ruling party so they have no responsibility in that regard so they can say anything they want. Indeed, I have had Hong Kong politicians, legislative council members, coming to my office talking about real estate. “You know Mr. Chan I fully agree with you. What you said is absolutely correct.” The next second he walked out, the media is there, the camera crew is there. They say exactly the opposite thing. Well, shouldn’t be surprised. If I were surprised then I’m naive. That is called democracy.

Obviously, Mr. Tung, Christine, you can disagree with me later today or tomorrow morning, but that is a fact. Why is that the case? Because Hong Kong is supposed to be an executive led place. The legislative council is meant to take the oversight of the government and not to become the ruling party and when people vote for them, that is the understanding.

So what is the way forward? The way forward is very simple. Already there is a path toward more democracy that is already laid out in the Basic Law. As to those structural problems I don’t think we can change it easily. I’m not sure if we need to change them but I hope, and I will end with this note, that we will have some responsible democracy. This will require a lot of education. We’re suddenly thrust into democracy with very little preparation by the British. We need massive amount of education, just as Jim McDermott said this morning, however, I’m sorry to say, speaking here in America, your system is not exactly something that we like to emulate. You are not good teachers to us. Yes, I do understand that democracy means that we need to have give and take but it’s not to give up principles. Just consider all the examples that Congressman Jim McDermott gave this morning. I consider that as irresponsible democracy. Domestic politics begin to drive everything. I’ll never forget last year about this time I was in Washington, D.C. and one congressional staffer said to me, “Ronnie, do you know what drives the MFN debate this year?” I said, “No, I don’t.” He said, “It’s abortion.” Then he went on to prove to me why that is the case. I was convinced. Should abortion drive international relationships? That is something for all of us to ponder upon.

Consider the fact that MFN, it seems people have no conviction of anything. It depends on their party, whether they occupy the White House or not. In the old days, when there was a Republican in the White House and the Democrats in the Congress, the Democrats were the ones making or tomorrow moall the noises against MFN. Now that the Democrats are in the White House, it seems there is basically a switch. I know there are holy lines between the far right and the far left. But overall, now you have a reversal of the situation. You have the Speaker of the House who has been supporting MFN for years, this year suddenly begin to waver. Why is that the case? I will not tell you who told me this but one Washington insider told me, well, he may be looking for a presidency job. He’s got to be courting the right so he’s wavering. Of course, they say do you see China’s human rights have deteriorated. That’s a bunch of baloney. For those of us who know something about what’s going on in China, they’ve been improving, not deteriorating. So, let’s recognize that democracy, like many other things, is a form of corruption.

Americans complain that in Thailand, Philippines, you buy votes. I said that’s not bad. That’s corruption but at least it’s transparent and fair. Everybody pays 100 bahts, you get one vote. You make sure the guy doesn’t sell his vote twice, that’s all. After that you have no more responsibility to that guy. You pay for it. I tell my American foreign service friends. I say, you know, I can become a U.S. ambassador a lot easier than you can, not because I’m more qualified—if I raise enough money for somebody maybe I’ll get my ambassadorship one day. My project in Tennessee or wherever. It’s not a form of corruption. Does it mean we can go without democracy? No. We all need democracy because we don’t have a better system. But let’s make sure we don’t take other people’s system, such as yours, speaking now as a Hong Kong person. Hook, line and sinker, let’s make sure that we move to a more responsible democracy, where principle still means something, where doing better which is right still means something, where we do not speak out of the two sides of the mouth different things, where we’re consistent in what we say.

One final word. Hong Kong is no doubt undergoing difficult times mainly because of the economic situation. This is the time we need to bind ourselves together to go through this difficult time. There is a Chinese saying which means that we need to pull together in times of difficulty. This is the time for solidarity but unfortunately solidarity and democracy seem to be an oxymoron with one another. Nonetheless, that does not mean that you who have not succeeded in perfecting your democracy, it means that we in Hong Kong should not work on ours. Let’s not criticize each other too much. Let’s help each other to build a democratic society that is transparent, accountable, pluralistic but also responsible. Thank you.