An Interview
with Mr. Li Ka-shing
(Caixin Online)

05 March 2014
  • What is behind the rise of populism in Hong Kong in recent years? What do you think the solution is?
  • The widening wealth gap is a growing global social problem and it is a very thorny issue for governments everywhere. If government set policies through the emotive lens of populist sentiments, it might make you feel better, but not necessarily fare better – it is a dangerous sliding slope and a cause for a vicious circle. I grew up poor; I understand poverty. If you need to worry about subsistence every single day, such tough experiences leave an imprint on your mind. But dwelling in bitterness and resentment only pins you down, the focus should always be on how to resolve our challenges.Simple measures of poverty relief are not the antidote to counter the complexities of intergenerational poverty, because it will not improve competency nor bolster competitiveness. It is disheartening that many politicians play on the public sentiment to serve self-interests like getting votes or solidifying power base. When a society is mired in discord, it will dent its economic vitality; which is hardly good for anyone.Reforms in education and self-enhancement are important tools to engender social upward mobility. I believe failing to do so is akin to a crime against the future. This advancing wave of technological explosion is more than mere mechanized replacement; it entails a sweeping reorganization in the chain of manufacturing process. We need to beef up human capital and the innovation ecosystem.

    Hong Kong needs to play catch up in the race for knowledge development and innovation investment. The future is all about technology, its outlook is bright and could be a real solution to bridge the wealth gap. This is the responsibility of the government.

    The boom of the gaming industry in Macau provides many job opportunities for Hong Kong, but we should not be misled by the unemployment rate of 3.3 percent and be complacent about the urgency to compete for quality jobs. Such short-term vision will sow seeds of trouble for tomorrow.

    Just by looking at numbers, Hong Kong labor statistics show increasing optimism within the tech industry. When contrasted against international surveys, however, figures reveal that our definitions of employment and achievements within the tech industry are actually below global standards. According to the Hong Kong government, about 30,000 people, or 80 per 10,000 employed, are tech employees. And according to other leading surveys, in countries with advanced technological output, such as Israel, IT staff and engineers account for 140 per 10,000 employed; the figures are 85 in the United States, 80 in Japan, 45 in China and 32 in Singapore, yet we must wonder why Hong Kong is not on this list. In Hong Kong, how many of these employees are actually scientists and IT professionals? Are our government policy and environment conducive to technological developments? A high-quality employment environment should encourage each individual to perform in his full capacity and under a diversified industry structure.

  • How should Hong Kong encourage innovation?
  • If we compare Singapore and Hong Kong, you will find that public sentiment towards social and business environment is quite different. You don’t see Singapore screaming against foreign investors benefiting from their investments in the local economy. Singapore’s policy towards foreign labor is more proactive but its unemployment rate is more or less the same as Hong Kong’s. Unlike Hong Kong, Singapore does not enjoy the committed support of Mainland. In addition, Singapore needs to shoulder a budget for foreign policy and national defense, but the Singapore government is quite committed to attract capital and talents- innovation has brought continual success to Singapore.In 1997, Hong Kong’s GDP was similar to Singapore’s. But nowadays, Singapore’s is at least 30% higher than Hong Kong’s. Improving our competitiveness must be a priority. Attitude could be a force or a hindrance, we have a traditional saying: “a wild stallion turned loose will be hard to recapture” – fostering populist sentimentality is the same.
  • Currently in Hong Kong, minor issues are easily amplified into social problems or disputes. How can society smoothly transform into a healthy democracy?
  • To me, having the privilege to choose is a blessing.A healthy democratic society is built upon the rule of law, is inclusive, tolerant and embraces diversity. I have often wondered if a democratic system could effectively turn a closed-minded society into an open-minded society. We need to balance social responsibility and interests. Do you know how many people in Hong Kong pay taxes? You will be surprised to know, that according to the Inland Revenue Department, (in the 2011/2012 year) only 5 percent of the population shouldered 91 percent of the income tax.Recently, there is a lot of heated debate over the theory of zero marginal productivity. Proposed by economist Tyler Cowen, the theory suggests that amid our recovering economy, an asymmetric balance between people’s incomes and benefits versus their output could well be the cause for continuously high unemployment rates. Someone told me that a lot of big foreign companies interview executives with the question: “Do you have any experience with layoffs?” That speaks a lot to today’s investment strategy: enterprises prefer to invest in competitiveness through enhancing efficiency and maintaining only a high quality workforce.Therefore, I have repeatedly advocated for the government to consider increasing profit taxes, maybe a hike of 0.5 percent and earmark it for continuous education and retraining as an investment to human capital. We should always support means to increase opportunities for the younger generation. I am all for the government granting tax preferences or exemptions for small enterprises in the technology sector to encourage their development.
  • How do you view the 2017 chief executive election for Hong Kong? What potential challenges is Hong Kong facing beforehand?
  • I am 85 years old. The future as I see it is likely different from that of a 17 year old. It is precarious to assume we can define the future. Honestly, I don’t have any idea what my grandchildren will choose to do in the future.The most important essence of a democratic system is the restrain of power. I encourage a wider discussion, as there are many different kinds of democratic systems. When you think about it, in 1997, when Hong Kong returned to China, the “one country, two systems” policy was unprecedented. I have faith that the people of Hong Kong are wise enough to make the right choice.Churchill once said: “Politics is not a game. It is an earnest business.” It is quite unimaginable for a person who wants to serve Hong Kong to not to love the country and Hong Kong.Hong Kong is my home and it has always been a harmonious society. I want everyone to know that we are inclusive, warm-hearted and decent people. We all have heartfelt deep ties to our country and we have a genuine feeling towards our fellow countrymen. If you need to ask for directions in Hong Kong, you will find that most people, like me, despite of our heavy Cantonese accent, will try to be helpful. Every time there are any natural calamities, our hearts passionately go out to the victims. Maybe Hong Kong is struggling through a painful identity crisis.

    Continuous investment in education gives us a better shot to build a fair and equitable society, improving opportunities for everyone is fundamental to stability and sustainable prosperity. The people of Hong Kong are passionate about their country, and the city we call home.

  • Since 1997, Hong Kong has experienced different stages of governance, from businessmen-led, to civil servant-led and professional-led. Currently, what do you think is the key issue for governance? What do you think are the most urgent issues for Hong Kong in social, economic and political aspects? What capacities and qualities are required for people governing the city?
  • To me, the most critical measure of healthy governance is a system built on the rule of law. This embodies the discipline in conduct, including those of authoritative power.Every time we morphed through an economic transformation, shifting from manufacturing to service sector, opportunities changed and when upward mobility is throttled, the rebalance could be very disconcerting- human capital enhancement should always be the main focus of any government.The crucial issue is how Hong Kong can improve its long-term competitiveness through government policies. The commitment of the Israeli government towards their innovation industry is quite inspirational. They will not hesitate to offer support to investments, in one instance, the government has suggested that they could consider equity participation structured to mitigate our risk for borderline cases.My first reaction was: “They are totally not stressed over broad-brush allegations of collusion with businesses.”
    Their response: “Our raison d’être is creating opportunities for our citizens.” I was very touched by such conviction.

    A responsible and caring government should understand that quantifiable returns are more than monetary. Setting society on a virtuous cycle track is the true victory.

  • Some say Hong Kong belongs to business moguls. It belongs to the four property families. Political elites control society by partnering with economic and financial elites. But such a model is expected to change in 2017 when the election is held. How do you view the changes of Hong Kong’s business circle and its relationship with politics over the past decades?
  • I’m not certain what you meant by “the four families”. 99.9% percent of our businesses are in highly competitive sectors. Hong Kong Electric Holdings may be seen as a monopoly in the public utility business. It services the people on Hong Kong Island, and the same holds true for CLP Holdings in the Kowloon and New Territories. We acquired Hong Kong Electric from Hong Kong Land in 1986 and it is still under the regulations of the government.Some professions in particular—for example, barristers and doctors—have high protectionist barrier. In fact, the local government is the city’s largest employer and has many projects in construction, therefore, the government should also discuss with affected businesses to address labor shortages in certain sectors.Hong Kong remains a highly competitive market. One cannot tackle the economic problem by searing at the business sector; we need to be more expansive, creating a ‘bigger pie’ is seminal to a healthier economy.
  • Do you agree with the judgment that the golden era for Hong Kong’s tycoons is over? Will they become targets of both the rulers and the public, and be hurt during the next democratic process?
  • Companies in different industries in Hong Kong are all active at home, constantly building footholds in Mainland and always on the lookout for opportunities overseas. We enjoy a strong free flow of capital and an enterprising person could always find opportunities along his way.Businessmen should thrive under a democratic system. Hong Kong government would certainly continue its support to the business sector to maintain economic vitality. President Xi Jinping’s commitment to reform and opening-up policy will continue to rev up the economy and his promise to deepen reform for a more equitable and abundance society is reassuring. Good governance will inspire public confidence and ignite hope.
  • We’ve seen more conflicts between the mainland and Hong Kong in recent years. How should leaders in Beijing and Hong Kong resolve these conflicts?
  • I need to reiterate that one should not overreact to some independent incidents and be misled that people in Hong Kong are belligerent towards our fellow countrymen.Hong Kong is a small city and concerns over resources allocation are real. But we welcome all visitors wholeheartedly, just as we hope to be treated with respect when we ourselves are tourists. Being impertinent and discourteous is unbecoming to a civil society. Tension could be overcome by more tolerance, but the government should proactively deal with the friction arising from inadequate resources and inconveniences.
  • The recent attack on Kevin Lau, the former chief editor of the Ming Pao newspaper, triggered a protest against violence and calls for press freedom. How do you see Hong Kong’s current media environment and the change of public supervision?
  • The violent attack on Mr. Lau saddened me. We should never condone violence. The rule of law and the freedom of the press are our core values, without which will be a great loss for us.
  • The launch of the Shanghai Free Trade Zone will impact Hong Kong. With the gradual opening of the mainland, many of Hong Kong’s previous advantages will diminish. How do you evaluate the influence on Hong Kong by the opening of the mainland market? And how should Hong Kong deal with it?
  • Shanghai has been on the forefront of China’s opening-up reform. The establishment of the Shanghai Free Trade Zone is a great opportunity, many are eager to participate. The further expansion of the FTZ will push forward the improvement of the economic system.The Shanghai FTZ has limitless potential in attracting foreign capital, technological development, tourism services as well as financial and insurance businesses. There are plenty of chances for cooperation, and it is good news for Hong Kong.Its rippling effect will benefit Hong Kong undoubtedly. Moreover, it is also important for Hong Kong to deepen cooperation with Guangdong Province. Many existing predicaments can be solved on the basis of sincere cooperation.In 2001, I spoke at the 140th anniversary party for the Hong Kong General Chamber of Commerce to business and community leaders: China’s entry into the WTO presents a “gold mine” of opportunities for us. We know China, we also know the world market. The immense growth of China’s economy together with our skills in the capital and financial markets will create boundless opportunities. As you may be aware, our group, under my chairmanship, is firmly rooted in Hong Kong, but ten years ago (around the 1990s) we took a very significant step to diversify into the Mainland and overseas.

    Although this can be disconcerting, I think people in Hong Kong should increase their sense of urgency if we want to move forward. Hong Kong has been blessed with abundance, but we cannot be blinded by conceit, overlooking our need to upkeep a competitive edge. Economic globalization started nearly 20 years ago; but perhaps because Hong Kong was focused on the transition of the Handover, we have not adopted effective countermeasures for an economic transformation. Some cities in the Mainland, such as Shanghai, Guangzhou and Shenzhen, have grown rapidly; we should be adaptive, and be informed of potentials in other cities, and seize these opportunities.

    Hong Kong would benefit from attracting more talents. We should understand that recruiting Mainland and overseas talents is not a direct threat to Hong Kong people. Before the surge of the Russian-Jewish migration in the early 1990s, Israel only had 60,000 engineers, which was insufficient for the growing demand of the flourishing high tech industry. The migration brought 80,000 immigrants, among them 20,000 are engineers, resolving labor inadequacy and subsequently pushed Israel’s economy forward. This is an incident in history Hong Kong can learn from.

    These are my sentiments from 12 years ago, many of which have been proven true.

  • You were one of the first Chinese to invest globally and also one of the most successful. How do you set your strategy?
  • The group has investments and operations in 52 countries around the world. Besides Hong Kong, the mainland and Asia, we also have investments in the Middle East, Europe, North America, and even Central and South America. Core businesses of the Group include infrastructure, retail, energy, telecoms, real estate, hotels and container ports. Different Industry sectors and geographies have their respective cyclical ups and downs and the diversity of our businesses and geographical spread help balance operational risks as we go through such cycles. For example, at times the energy sector performs better than real estate or retail, and vice versa. The geographical diversity of our operations helped us weather the 2007 and 2008 financial crisis and the group managed to perform well even at those difficult times.Investment opportunities around the world are abundant. As an international conglomerate and responsible public company, we must pay attention to the political and economic changes in the countries and regions that we invest in, and remain alert to developments that may affect returns. I have every responsibility to protect the interests of our shareholders.The company began investing overseas in the 1980s because I reckoned at that time the growth of the Hong Kong market, with just a few million people, would be somewhat limiting. In retrospect, this decision has proved to be a good one. For example, we have 12,000 retail outlets around the world, only 600 are in Hong Kong. Imagine if we open up 300 more in Hong Kong, even if it might create more jobs, the thunder of criticisms would be deafening. Our operations in Hong Kong generate about 15 percent of Hutchison’s total global revenue, whereas Cheung Kong obtains about one-third of its revenue from Hong Kong.The group has been, for quite some time, the largest foreign investor in many countries, such as Canada, the UK, Australia, the Netherlands, Italy, Sweden and Austria. Many governments know very well how important it is to provide a stable political and economic environment for investors, as successful businesses can bring jobs and prosperity to the community. I constantly review my group’s strategies for investment, operation and asset distribution, taking into consideration the political and economic situations of the region or country we operate in.

    The Group is rooted in Hong Kong. This will never change. We often strive to seek investment opportunities locally, however, as the government policies often take time to digest, our pace of investment in Hong Kong has not been as fast as in other countries. The group will continue with the strategy of “advancing with stability” to ensure the success of our businesses in the fast-changing economic environment.

  • In recent years, your group has performed an acquisition spree in the energy utility industry in Europe. How do you assess the overall European business?
  • The signs of economic recovery in Europe are becoming clearer. Germany’s GDP is expected to increase by 1.7 percent in 2014. Estimated growth in the Nordic countries is also optimistic. Compared to the previous quarter, the GDP of euro zone and the European Union in the third quarter of this year rose 0.1 percent and 0.2 percent respectively. Compared with the same period last year, the European Union’s GDP increased by 1 percent. Even Greece’s “negative growth” in GDP has slowed down. Thus, I’m cautiously optimistic about the group’s business prospects in Europe.Europe itself also has a very sound legal system, so in the context of economic globalization, it is open to encouraging investment opportunities from the mainland and Hong Kong.The group’s business in Sweden, Denmark, Austria, Belgium and the Netherlands has been doing quite well. The economies of the Nordic countries are very good, even better than that of Germany and Austria. Earnings from Europe in 2013 were higher than 2012, and the contributions in 2014 are expected to be higher.Of course, some countries in Europe have economic problems. For instance, the French economy is suffering a “slow period” from welfarism. We have some business operations in France, but they are not very big.

    One day a French minister and his office came to meet with me in Hong Kong and asked why I invested so much in the United Kingdom but not so much in France. And I said, France doesn’t allow me to do what I’m doing in the UK. First, the tax rate in the UK is 20 percent while your tax rate is the highest in Europe. Second, according to British law, companies can sue the government, lose the case and return to invest tomorrow, and the British government would welcome them. Third, when the French economy is doing poorly, you cannot adjust the exchange rate of the euro but the British government can lower the exchange rate of the pound to ease economic problems.

  • The world economy is at a critical moment. China, Japan and the United States are all at a critical juncture. One problem in any of these important economies would have a worldwide impact. Investors are facing a complex reality with many interrelated uncertainties. What is your view?
  • Let me start with the United States. It’s also facing many problems. In essence, the abundance in natural resources should be beneficial to the U.S. economy. The greater availability of domestic energy resources benefits the U.S. by reducing dependence on imported energy; the U.S. is also a global leader in technology and quality education. But in the past two or three years, analysts have contrary views. Although some people believe that the added energy resources can indeed relieve the deficit problem, many people remain skeptical.As for Japan, it followed the U.S.’s footsteps in printing money, creating inflation to favor exports. But Japan faces the threats of scarce resources and an aging labor force. The average age of its manufacturing workers is 40, while in South Korea is 30,
    At the third plenary session, China’s new leadership proposed policies aimed at leading the country toward the right and glorious (bright) future. China’s reform and opening up was the biggest economic experiment. Tremendous changes happened in the past three decades. Though there were twists and turns along the way, the leaders were fearless and adhered to the road of reform and opening up. The U.S. and Japan, facing the current dilemma, can learn from this determination.It’s easier for the U.S. economy to recover compared to Europe. The U.S. dollar is still the world’s biggest currency. As for the renminbi, despite a difficult road of reform, its free convertibility can enhance national power. It’s not easy to short sell such a big country. Therefore, making the renminbi freely convertible is very important to China’s development.The U.S. has a large national debt. Its financial problems are not easy to solve as deficits continue to increase, but it can print money. Japanese citizens also endorse quantitative easing as a means to stimulate the economy, but the fundamentals of Japan’s economy are not as good as China’s. If China can achieve a freely convertible currency, the blueprint of a stronger economy will be more evident.
  • There were three big opportunities for over the past few decades. What is the next big opportunity?
  • The U.S. and the rest of the world faces the same restructuring forces stemming from the advancing wave of technology. It polarized the labor market. Marginal productivity of unskilled labor could be zero.Companies are arching to stay competitive in this revolutionized economy. Most embarked on the twin strategy of using technology and data precision to generate new revenue streams, and deep cost control measures to safeguard the bottom line. As mechanized manufacturing process and robotics converged, a lot of jobs will vanish and many will be stuck in jobs with little hope of advancement. This is a minefield that needs immediate attention. The only way out is conscientious investment in reforming education, building human capital with problem-solving and communication skills, which are abilities that cannot be replaced by computers.Traditional sectors will still exist but we must seize the new opportunities offered by technology.Take “process optimization” in manufacturing as an example. Mechanized and robotics will continue to improve and bring significant changes to future manufacturing. Take a look at this cup, it’s likely to be manufactured through a very mechanized process, adding in a layer of artificial intelligence technology will be like instilling “thoughts” into the manufacturing process, the machine will work out how to optimize themselves.

    In the past, wages and land costs are important considerations. But this is not necessarily the most critical advantage. China’s manufacturing industry will face many challenges. Recently we invested in wearable watch/phone for kids (Myfilip), which is connected to parents’ smartphones. The production process takes place in the office. An investment of 1.8 million USD was all that was needed to have the machinery in place to make 10,000 of these watches. The need to reduce labor costs by setting up production plants in China is irrelevant because it does not involve a lot of manual labor.

    Here’s another example. An Israeli company we invested in, Kaiima, is a next generation non-GMO seed and breeding agricultural technology that can increase yield by 30 percent. This is incredible! I had originally planned to negotiate a five-year IP transfer licence for development in China to help boost our agricultural production, but unfortunately without success. I remember a senior Israeli leader once shared with me these wise words: “If the land cannot nourish man, man will need to nourish the land with its intelligence.”

    Sometimes I feel I must be a fool, if not, I wouldn’t have put 30 years into building Shantou University. I will never kowtow to anyone for self gain, but will do so if it is for good causes of education, health care or our countrymen.

  • Alibaba is looking to list on the Hong Kong Stock Exchange with a unique shareholding structure, but its proposal has stirred controversy. Some say Alibaba’s proposal violates the principles of investor protection. But some support Jack Ma’s decision, saying only the founder cares about the future of the company. How do you view the relationship between the founder of a company and its investors?
  • I shall refrain from commenting on the decisions and operations of the Hong Kong Stock Exchange.Mr. Jack Ma has achieved so much at a young age. Our nation needs more brilliant entrepreneurs to invest in the community and promote social progress. I will only applaud them, just as golfers can’t help shouting out ‘good shot’ when others nail a great shot.
  • Jack Ma told reporters in Hong Kong earlier that if the IPO goes through, Alibaba’s value would be greater than the sum of Hong Kong’s four biggest property developers and the old Hong Kong approach is outdated. What is your response?
  • It is a good thing that young Chinese have new approaches in the way they build their business. The more talents we have the better! I would not be offended by a passing comment. In any case, his remarks might have been misinterpreted.
  • You have a lot of investments in new technology. How do you see the latest wave of global mergers and acquisitions of Internet companies?
  • Science and technology are driving changes across all industries. This current advancing wave of change is not the same as in 2000. In my many conversations with young entrepreneurs, it is quite evident that they dare see a future that is quite different from the past. They often ask themselves: “If the industry can start afresh today, will the modus operandi be the same?”Technology can enhance efficiency, data driven precision and offer more affordable alternatives. This oncoming change is not something any industry can afford to ignore.
  • You and a few other top Hong Kong business leaders have reined for decades. No such character has emerged after you. How do you assess the long-term development of Hong Kong’s business sector?
  • Talent rises from every generation in Hong Kong, and today they are better educated. As long as they stay focus on development and can withstand challenges, opportunities are still everywhere for them to seize. Times have changed but just as Dr. Martin Luther King put it: “We must accept finite disappointment but we must never lose infinite hope.”