-Caveat Lector- from: http://www.economist.com/business/displayStory.cfm?Story_ID=413357 Click Here: <A HREF="http://www.economist.com/business/displayStory.cfm?Story_ID=413357"> Economist.com: In a few hands</A> ----- Business in Hong Kong In a few hands Nov 2nd 2000 | HONG KONG >From The Economist print edition Li insists he’s no bullyFRIEDRICH VON HAYEK and Walter Eucken parted company over the issue of power formation in the private sector. Hayek, a leader of the Austrian school of liberalism, believed that keeping government small was enough to preserve competition. Eucken, who founded the school’s German branch, felt that anyone with excessive power, whether a government or a company, could threaten economic freedom. It is a pity that neither was alive this week to analyse the case of Hong Kong. On November 1st, the Heritage Foundation, an American think-tank, crowned Hong Kong “the world’s freest economy” for the seventh year in a row. Yet this followed a report a week earlier from the European Parliament, which declared that Hong Kong was anything but economically free. The parliament’s concern is that a few local business tycoons are powerful enough to keep new entrants at bay, by fair means or foul. Whether business in Hong Kong is fair or rigged is an old debate, but one that has grown recently as the power of one family has reached unprecedented proportions. The tycoon is Li Ka-shing, who started by selling plastic flowers in the 1950s. Today he is one of Hong Kong’s largest property developers. He also controls its port (the busiest in the world), one of its two large supermarket groups, its biggest pharmacy chain, electronics retailer, electricity supplier, mobile-phone operator, a hotel and much else. Besides that, his second son, Richard, now runs Hong Kong’s former monopoly in fixed-line telephony, which also happens to be the elder Li’s main rival in mobile telephony. Not surprisingly, therefore, local officials are testy in the face of suggestions that the system coddles Mr Li and his kind. “I firmly believe that we have a fair system, the most open in the world,” insists Donald Tsang, Hong Kong’s financial secretary. To the charge that Hong Kong’s government favoured the Li family last year, when it gave Richard Li a property contract without an open tender, he replies that circumstances were exceptional. To the charge that regulators granted the elder Li suspect waivers when he listed a subsidiary this spring, Mr Tsang says such waivers are not uncommon. The Li camp mounts an even stronger defence. Canning Fok, managing director of Hutchison Whampoa, one of Li Ka-shing’s two holding companies, says that competition in Hong Kong is “fierce, fierce, fierce: price wars all the time!” In supermarkets, for instance, Mr Li long shared the market with the Jardine Matheson empire. Then Jimmy Lai, a maverick businessman, attacked this duopoly with an online supermarket, setting off several rounds of price-cutting. But Mr Fok has only half a point. Price wars tend not to last, and the grocery war is now over. Mr Lai’s supermarket continues to lose money. He says that he is ready to sell out to the highest bidder, even if that is Mr Li. What is alarming is not that Mr Lai failed, but how. So powerful were his opponents, he says, that they leaned on suppliers to boycott him. This claim has also been made by Carrefour, a French retailer that recently shut up shop in Hong Kong. For Mr Lai, the bullying goes back further. Mr Li once ordered companies that he controlled to stop advertising in Mr Lai’s newspapers. And Mr Lai claims that Mr Li successfully pressured the city’s brokers not to underwrite any equity for him (other rivals have claimed that Mr Li used his power with bankers to deprive them of loans). In December, Mr Lai is moving to Taiwan. Mr Lai’s experience is far from unique. In mobile telephony, for instance, until about a year ago, Mr Li’s companies, according to one firm, tried to stop rival operators from putting up radio antennae on properties he controlled. These sites add up to a large part of Hong Kong, so new entrants suffered poor signals in many areas. There is, in other words, good reason to think that Hong Kong, despite its lean public sector, lacks unfettered competition because of distortions in the private sector. Most important may be a wonky property market. In Hong Kong, only the government owns land. It used this monopoly for years to create a shortage that drove up property prices and made developers rich. Tycoons such as Mr Li then used cashflow from real estate—in effect, a government subsidy paid by consumers through higher rents—to expand into unrelated industries. As new rivals appear, the tycoons are using all means at their disposal to fend them off. This week, a group of 23 small companies (all anonymous) took out a newspaper advertisement to accuse the tycoons of rigging markets. There is now a big debate over whether Hong Kong needs a new competition authority. A local consumer group this week argued in favour, as Eucken once did. But others—including Mr Lai, an admirer of Hayek, and Mr Tsang, who deplores the litigiousness of America’s antitrust system—are against. © Copyright 2000 The Economist Newspaper Limited. All rights reserved. ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, All My Relations. Omnia Bona Bonis, Adieu, Adios, Aloha. Amen. Roads End <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! 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