Two Questions

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The New York Sun

The result of a bidding war for Hong Kong’s largest phone company may shed some light on two questions in coming weeks. The interesting question is: does Rupert Murdoch still carry any clout in Beijing? The important question is: is “one country, two systems” dead in Hong Kong?

A few weeks ago, two western companies — Australia’s Macquarie Bank and U.S.private equity firm Texas Pacific Group with its Asian affiliate Newbridge Capital Group — launched a bidding war for Hong Kong’s dominant fixed-line phone operator, PCCW. Macquarie is reported to have offered $7.3 billion and TPG may pay even more for PCCW’s core telecommunication and media assets, well above the company’s market capitalization and almost double its current estimated asset value. No wonder the chairman of PCCW, Richard Li, the younger son of Asia’s richest man Li Ka-shing, seems to be quite keen on cashing out from the company whose share price has plunged more than 90% since he took over six years ago. This should have been a piece of good news for many of PCCW’s long suffering shareholders.

But not so fast, Beijing said. China’s state-owned telecom giant China Netcom, which bought a 20% stake in PCCW last year, issued a statement saying, “we do not want to see any changes in PCCW, which is owned and managed by Hong Kong people,” implying that foreigners should get their hands off. This is certainly news to a free economy which imposes no restriction on foreign telecom and press owners. For example, Hong Kong’s major mobile phone operator, CSL, is wholly owned by Australia’s Telstra. A Malaysian group is also the largest shareholder of an English-language newspaper.

This has been the talk of the town, especially after it was disclosed that Mr. Murdoch’s News Corporation is joining Macquarie for the bid. Mr. Murdoch implied Macquarie could lose in the battle because of its failure to communicate properly with Beijing. “It would be an amazing achievement if Macquarie managed to turn the situation around,” he said. This is another good test of Mr. Murdoch’s bargaining power in Beijing, after Mr. Murdoch last year acknowledged that News Corp’s attempts to develop business in China had “hit a brick wall.”

Nine years after taking over Hong Kong, Beijing has been using its growing economic clout to intervene in the former British colony’s economy. When everyone is dying to get a share of the China market, it’s suicidal to go ahead with any transaction without Beijing’s blessing. “Even if the purchaser successfully bought PCCW’s entire assets, it would be difficult to establish a good relationship with China Netcom to explore the China telecom market in the future,” a local paper said.

When even the chairman of a local Beijing-friendly business political party said, “As a businessman, I think Richard Li should do what is best for shareholders. The deal isn’t contravening HK law, and we think it should be allowed,” then you know Beijing’s iron fists and invisible hands are felt everywhere in Hong Kong. It shouldn’t have been this way, however.

When the United Kingdom of Great Britain and Northern Ireland handed Hong Kong over to the People’s Republic of China on July 1, 1997, the Hong Kong Special Administrative Region was supposed to be allowed to operate under a “one country, two systems” arrangement for 50 years, during which it would enjoy a high degree of autonomy except in the area of defense and foreign affairs.

On the surface at least, Beijing has diluted Hong Kong’s democratic aspiration by vetoing elections by universal suffrage anytime soon. You could see it in display on the streets on Saturday. As in previous years, the pro-democracy camp marked the anniversary with a march for democracy. The turnout this year — 58,000 claimed by the organizers and 28,000 estimated by the police — was a far cry from half a million or more people in 2003 and 2004. And for the first time, the pro-Beijing camp managed to gather the same amount or even more people to attend a “patriotic” parade to counter the march on the same day. Fifty-thousand (police said 40,000) people watched a gala performance featuring lion-dancers, martial artists, pop singers, and a military parade by the People’s Liberation Army’s garrison stationed in Hong Kong.

Beijing sent the chairman of its People’s Political Consultative Conference, Jia Qinglin, who ranks fourth in the party hierarchy,to Hong Kong to further boost the administration of Chief Executive Donald Tsang. Hong Kong is now in its best condition since the handover, Mr. Jia said, referring to the strong economy. According to a University of Hong Kong poll, 56% of the people now view Beijing’s policy positively, up 20% from last year.

“The fact that the economy is looking up doesn’t mean that people have stopped having demands for democracy. The two support and depend on each other,” said a former number two official in Hong Kong, Anson Chan, who has recently emerged as a leading figure in the fight for more democracy in Hong Kong. Beijing is worried that she might pose a credible challenge to Mr. Tsang’s reelection bid when his term expires next year.

Beijing has always considered Hong Kong an economic city that would be ill-served by more democracy. The outcome of the PCCW bidding war will give us a sense of how much Hong Kong has been pressured to adapt Beijing’s way of conducting business — which is, in fact, bad for business.

Mr. Liu, a former chairman of the Hong Kong Journalists Association and general manager of Hong Kong’s Apple Daily, is a Washington-based columnist.

The New York Sun

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