Canada Markets open in 5 hrs 3 mins

Hong Kong Protesters Rage Against Corporate China's Growing Control

Bruce Einhorn and Shirley Zhao

(Bloomberg) -- The black-clad protesters pushing back against China’s influence in Hong Kong aren’t just focusing on Carrie Lam and the police. They’re also targeting mainland-based brands such as Bank of China Ltd., China Mobile Ltd. and Huawei Technologies Co. with fire bombs, metal bars and spray paint.

A walk down the primary route used by Hong Kong’s anti-government marchers shows how big a chunk of the city China owns. Mainland-affiliated supermarkets, drugstores, hotels, Pacific Coffee stores and McDonald’s outlets -- both franchises are operated by state-owned firms -- pepper the vicinity of skyscraper-lined Hennessy Road, the downtown artery connecting the Causeway Bay shopping district with government headquarters in Admiralty. Some of the businesses also occupy property owned by Chinese developers.

These perceived outposts of President Xi Jinping’s government expanded their operations after the former British colony returned to Chinese rule in 1997, adding heft to Beijing’s political goal of integrating the semi-autonomous territory with the motherland. Their deepening presence stokes fears among protesters that Hong Kong soon will become just another Chinese city, deprived of the autonomy former Chinese leader Deng Xiaoping guaranteed until 2047.

“Mainland Chinese companies are forming a group of entities which can be both economically and politically influential,” said Heidi Wang-Kaeding, who’s done research on mainland investment in Hong Kong and now teaches international relations at Keele University in Staffordshire, England. “That’s why this is shaking the local interest very much.”

Hong Kong police said Monday a radio-controlled improvised explosive device was detonated near a police car on Sunday evening, the first time the use of such a device has been reported during months of unrest.

The use of explosives marks a significant escalation in pro-democracy protests that started out peacefully in June, with hundreds of thousands of residents marching in the streets in opposition to a bill that would have allowed extraditions to mainland China.

In recent weeks, protesters have set fires near police stations, hurled makeshift petrol bombs at riot police, and bashed in glass kiosks at train stations and storefronts tied to mainland Chinese businesses.

As Chinese Communist Party leaders focus on solidifying control over the rebellious city, companies taking direction from the state likely will play an even bigger role in Hong Kong’s $363 billion economy. The city is sinking into a recession amid the riots, and Lam, the chief executive, may propose remedies during her annual policy address on Wednesday.

In the past decade, the total amount of loans given by the Hong Kong-based unit of state-owned Bank of China in the special administrative region has more than doubled to $175 billion, and so have deposits to $257 billion.

China Mobile, the world’s largest wireless carrier by subscribers, is among the four operators in the city, having cemented its position since buying a local provider more than a decade ago to gain entry into the market.

Mainland-based developers such as Poly Property Group Co. and China Overseas Land and Investment Ltd. successfully bid for 11% of the land for sale last year in the world’s most-expensive real estate market, compared with about 5% in 2013. They bought almost 60% of residential land sold by the local government in the first six months of this year.

In one high-profile deal, state-owned Poly Property and China Resources Land Ltd. successfully bid HK$12.9 billion ($1.6 billion) in June for a 9,500-square-meter parcel at Kai Tak, the former airport in the Kowloon district.

Beijing-based Citic Ltd., a state-owned conglomerate, is part of a consortium that runs McDonald’s outlets in the city, and unit Dah Chong Hong Holdings operates car dealerships and Food Mart stores.

With forays into retail, telecommunications and property development, mainland-based companies are also altering the city’s traditional business landscape. Homegrown tycoons such as Li Ka-shing and Lee Shau Kee, who built their empires by forging close ties with authorities in Beijing, may see that influence erode. Li, for instance, saw the writing on the wall some time ago and has been steadily reducing exposure to his home base.

Over time, the economic balance of power will tilt more in favor of state enterprises and away from the local billionaires, said Michael Tien, a pro-Beijing member of Hong Kong’s legislature and a deputy to China’s National People’s Congress.

“It will be very difficult for Hong Kong Chinese companies to fight mainland Chinese companies,” he said. “They are capital-rich and powerful.”

But it isn’t just state-owned companies that are building a bigger presence in Hong Kong. In 2015, billionaire Jack Ma’s e-commerce giant Alibaba Group Holding Ltd. agreed to buy the South China Morning Post newspaper and related assets for HK$2.06 billion. Prominent Chinese smart-phone makers such as Huawei, Lenovo, Xiaomi and electronics retailer Suning have retail stores in the city.

Mainland-based companies with consumer-facing businesses have been particular targets in the latest phase of the four-month-long protests, which were sparked by opposition to a proposed law allowing extraditions to China.

Bank of China branches and ATMs have been firebombed and vandalized, including this past weekend and on the Oct. 1 anniversary of Communist Party rule in the mainland. Huawei and Lenovo stores also were ransacked during the weekend at a mall in suburban Sha Tin.

At least two China Mobile stores were attacked Oct. 1 and 2, and a Xiaomi outlet had anti-China graffiti spray-painted on its walls. The local unit of China Construction Bank, which has more than 50 locations, suspended service at two branches because of protest-related damage, including smashed glass doors.

At least one local-run business has lost its immunity. Maxim’s Caterers Ltd., which operates bakeries and some Starbucks outlets, is seeing stores vandalized after the founder’s daughter called the protests “riots” and supported the Hong Kong government in comments at the U.N. Human Rights Council last month.

Maxim’s tried to distance itself from the comments and a spokeswoman said the group has never taken any political stance. Representatives for China Resources, Citic, the local units of Bank of China and China Construction Bank didn’t respond to requests seeking comments, while a spokesperson for China Mobile said the carrier is focusing on resuming services at the damaged stores.

“Anything with a star on it is vulnerable,” Gavin Greenwood, an analyst with A2 Global Risk, a Hong Kong-based political-risk consultancy, said of mainland-affiliated businesses. He was referring to the Chinese flag.

“They are extremely soft targets.”

(Updates with report on radio-controlled explosive from fifth paragraph.)

--With assistance from Chloe Whiteaker, Demetrios Pogkas and Alfred Liu.

To contact the reporters on this story: Bruce Einhorn in Hong Kong at beinhorn1@bloomberg.net;Shirley Zhao in Hong Kong at xzhao306@bloomberg.net

To contact the editors responsible for this story: Emma O'Brien at eobrien6@bloomberg.net, Sam Nagarajan, Michael Tighe

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.