Fear of the needle? The future of Hong Kong business

Business Horizons, Jan-Feb, 1996 by H.L. Chan

In 1982, when the British government announced that it would return Hong Kong to China in 1997, a wave of shock and concern rolled through the colony. The massacre in Tiananmen Square on June 4, 1989 was another blow to Hong Kong, arousing an outburst of emotion. Several huge demonstrations, with more than a million people participating, were organized to protest against China's military action against students. The fragility of the Hong Kong people's confidence was shown by the panic emigration wave after Tiananmen Square. Thousands of residents queued up at foreign consulates to apply for immigrant visas.

Developments after 1990, however, appeared to dispel some of the fears that China would revert to a closed-door policy, and fostered a belief that China has perhaps become communist in name only. The economy has grown impressively, with a general increase in the standard of living, especially along the coastal regions. Optimism in the business community has surged. A survey by Asian Business in September 1993 found that 72 percent of business executives felt positive about China's future.

Many Hong Kong investments in China have been highly profitable, with capital paid back in only two to three years. Integration with the mainland seems to provide an even greater opportunity to explore the potential of a huge market and an abundant supply of cheap labor and land. An article in Asiaweek even trumpeted that China is thought to be "the biggest reason for optimism over Hong Kong" ("Has Capitalism Won?" 1992).

A Chinese proverb says, "Before a needle touches your body, you never know how painful it can be." Hong Kong business entrepreneurs seem poised and ready to experience that needle. But is their confidence in the future a case of unrealistic expectations? Are they looking forward to an era of profitable and relatively trouble-free business with China? Or are they merely "whistling in the dark"?

The purpose of this article is to report the results of a study' exploring how Hong Kong entrepreneurs have adjusted their attitudes to cope with the possible risks associated with post-1997. Thirty-two in-depth interviews with owner-managers and top executives of Hong Kong's Chinese-owned companies--characteristics of whom are shown in Table 1--were conducted with minimum structure. Questions were carefully phrased and open-ended to avoid imposing the researcher's own frame of reference on interviewees. Raw data were checked for internal consistency; possible distortions were verified by comparing the respondents' statements with their actual plans or actions to determine whether they were in agreement with their expressed beliefs. Previous knowledge of some of the respondents' backgrounds was also useful in assessing the accuracy and sincerity of the responses. The interview notes were then content-analyzed to identify their perceived level of risk (high or low), opportunities (high or low), and the possible factors behind these perceptions.

STUDY FINDINGS

It appears there is general optimism among executives about high opportunities and low risk in post-1997 Hong Kong. A summary of respondents' views of risks and opportunities is shown in Table 2. In general, those engaged in exporting, who had good connections with foreign clients and possessed some hard-to-replace expertise in international business, appeared to be less worried about political changes. Confident of their role as a bridge between China and the West, they believed their clients would not trust the mainland Chinese and would continue to rely on them, while the Chinese government would continue to promote their exports to earn more foreign exchange.

It was found that executives of three of the larger companies in the sample, each employing more than 100 people, perceived low political risks after 1997. This might be partly attributable to "impression management," as large companies might be more conscious of maintaining their public image. In other words, as Patrikeeff (1989) put it, public statements made by tycoons professing confidence in Hong Kong may not necessarily correspond to their innermost thoughts. However, the author is inclined to believe that these executives were reflecting their genuine feelings, because they were likely to be the major beneficiaries of China's integration with Hong Kong. Huge economic opportunities would be opened to large companies with hedged risks. As Gordon Wu, managing director of Hopewell Holdings, pointed out, investments in big infrastructure projects in China will be needed and supported regardless of any changes in government ("The Word of Wu" 1993).

Large corporations stand a much better chance than small ones of involving international banks in financing their investment in China and, therefore, being effectively insured against political uncertainty. More important, large businesses are likely to be in a more advantageous position to establish good relations with senior government leaders. Such support could provide them with a short-cut to success in doing business with China.