Blocked Panama Port Sale Ups Hong Kong Business Risk

Beijing may force Hutchison to sell to Chinese SOE instead of BlackRock

By: Toh Han Shih

Hong Kong under pressure

The Chinese government’s veto of CK Hutchison Holding’s port sales increases the geopolitical risks of doing business in Hong Kong, analysts say. The city, formerly one of the world’s most freewheeling commercial ecosystems, has been forced closer into Beijing’s embrace, imperiling its historic role as a bridge between China and the world. Companies in the future may be forced to choose between the US and China amid frayed ties between the two superpowers and US President Donald Trump’s aggressive foreign policy.

“If China torpedoes the deal through political and/or economic pressure on CK Hutchison, this will send a very bad signal to foreign, mainland Chinese, and Hong Kong based businesses and business people about how freely they can undertake business transactions without political interference,” Jean-Marc Blanchard, founding executive director of the Mr. and Mrs. S.H. Wong Center for the Study of Multinational Corporations, told Asia Sentinel.

CK Hutchison, a Hong Kong-listed firm controlled by Li Ka-shing, Hong Kong’s richest tycoon, is being prevented from signing an agreement to sell 40-odd ports including not only the Panama facilities but on the strategically important Suez Canal as well, to a consortium led by BlackRock, a US financial giant, by April 2 as it earlier expected, according to media reports on March 28. On March 4, CK Hutchison announced it would sign the agreement by April 2 to sell its ports around the world, including those at both ends of the Panama Canal. That confirms a March 22 Asia Sentinel column forecasting Beijing would prevent the sale.

On March 28, China’s State Administration for Market Regulation (SAMR) announced it was investigating the transaction for potential violations of China’s anti-monopoly laws. The suspension comes after the mainland’s Liaison Office and the Hong Kong and Macao Affairs Office posted at least seven articles and statements criticizing the deal and accusing CK Hutchison of betraying the national interest, the latest article posted on March 29.

At a US State Department briefing in Washington, DC, on March 28, a State Department spokeswoman, Tammy Bruce, said, “It’s also no surprise that the CCP (Chinese Communist Party) is upset at this acquisition, which will reduce their control over the Panama Canal area. We are also glad to see US investors acquire a controlling stake in the Panama Ports Company, which owns and operates the ports at Balboa and Cristóbal at either end of the Panama Canal.”

The state-owned Cosco Shipping Ports may emerge as a buyer of some of the ports which CK Hutchison was supposed to sell to BlackRock. At a March 21 press conference, a reporter asked Zhu Tao, chairman of Cosco Shipping Ports, if his Hong Kong-listed firm was interested in acquiring such ports, reported the trade publication Navigation. Zhu replied that Cosco is interested in acquiring assets that fit the company’s strategy and improve services for clients. Zhu added that his firm has plans to acquire or invest in ports in Latin America, Africa and Southeast Asia. Many of the ports which CK Hutchison agreed to sell to the BlackRock consortium are located in these regions.

Companies may be less receptive to Chinese port operators given US pressure, the Wong Center’s Blanchard warned.

With Beijing preventing BlackRock from gaining the Panama Canal facilities, President Trump could declare that China has violated the Treaty Concerning the Permanent Neutrality & Operation of the Panama Canal, tweeted Solomon Yue, a US Republican National Committeeman, on March 28. “He could use US military to defend the Panama Canal against any threat to its neutrality, thus allowing perpetual U.S. usage of the Canal.”

Trump has repeatedly called for the US to regain control of the canal in addition to annexing Canada and Greenland, which now belongs to Denmark.

Businesses face geopolitical risks

“For a long time, China has been trying to send a signal to foreign investors that it welcomes them. Blocking the deal would send a contrary signal,” said Blanchard.

In an ironic timing coincidence, on March 28 when the suspension of the sale was first reported, Chinese President Xi Jinping met in Beijing about 40 foreign chief executive officers, senior business executives, and financiers.

“In the past, present, and future, China is an ideal, safe, and promising investment destination,” Xi told the foreign executives. “Foreign firms should dispel their suspicion, strengthen their confidence and have peace of mind in coming to China.”

“The temptation for directors in smaller companies, or those in less sensitive sectors, may be to dismiss the Panama case as sui generis,” Steve Vickers, CEO of Steve Vickers Associates, a Hong Kong-based risk consultancy, said in a report sent to Asia Sentinel.

“To do so, though, would be a mistake. After all, this case makes clear not only that the political risks affecting those doing business in the greater China region are at their highest level in decades, but also that such risks show every sign of deteriorating,” Vickers said.

“In particular, the Panama ports issue seems likely to cause damage to the regional business climate. One immediate, and obvious, casualty could be to Hong Kong’s reputation, as this case makes clear to the outside world, and to the USA in particular, that the city’s ostensibly semi-autonomous status is no longer intact,” Vickers warned.

Of further note is that the targeting of Li Ka-shing could raise wider questions about the outlook for Hong Kong’s other big businesses, such as HSBC, China Light & Power (“CLP”), Swire, and Jardine Matheson, said Vickers in the report.

“These conglomerates had long thrived as intermediaries between China and western markets – defining themselves as Hong Kong companies, and enjoying wide freedom of action. Now, though, that separate identity may prove hard to maintain. These businesses may soon find themselves forced to choose sides, given their deep systemic importance,” Vickers warned.

The Chinese government is explicit in asking Hong Kong firms to choose between the US and China. A commentary posted on the website of the Hong Kong and Macao Affairs Office on March 15, which criticised the port sale, said, “In the face of American bullying, only companies which resolutely stand on the side of the nation and bravely fight can defend the country, gain honor and uphold their reputation.”

Conversely, companies which do not realize US politicians “want your money but even more your life” and “dance with the US” “will ultimately have no future and bear the curses of history,” warned the commentary.

Toh Han Shih is a Singaporean writer in Hong Kong and a regular contributor to Asia Sentinel