WISDOM OF GENERATIONS PAYS OFF

By Tom Mitchell in Hong Kong 2010-02-11
http://www.ftchinese.com/story/001031286/en
The Hong Kong families that dominate nearly every facet of economic life in China's richest city are not well known abroad, with a few exceptions such as Li Ka-shing, by dint of his global ports and mobile phone empire, and Stanley Ho, the gambling tycoon.

Yet these families control immense fortunes and, for a territory of just 7m people, occupy a disproportionate number of slots on global rich lists. In February, even with the valuations of their companies headed for a six-year low, Forbes magazine estimated that the fortunes of Hong Kong's 10 richest families at $58.7bn. As their empires expand into China and swell in tandem with the country's fast-growing economy, relative global anonymity will be harder to maintain.

The family of Cheng Yu-tung, the city's sixth-richest with an estimated net worth of $3.8bn, is a typical example. Its history reflects the development and workings of Hong Kong's economy, and also the unprecedented opportunities un-folding on the Chinese mainland.

It is, however, unique in having three generations actively involved in management of the family's privately held holding company, Chow Tai Fook, and its publicly listed New World Group, highlighting complex transitional issues.

In addition to New World's 84-year-old chairman and patriarch, there is its chief executive, Henry, 62, and executive director, Adrian, 30.

“A lot of my friends go into [their family] companies and demolish everything, saying ‘hey, I've [studied and worked] in the US, UK and know what's going on in the world',” says the youngest Cheng, a Harvard graduate who subsequently worked at both Goldman Sachs and UBS. “They fire old advisers who have been working in the company for many years, hire their own people and create a whirlwind, executing their own visions and brand values without understanding the old family values.”

Mr Cheng is very conscious of the history of, and lessons learnt from, first Chow Tai Fook and later New World's development. His grandfather, a second world war refugee, fled from Guangdong province to Macao, the then Portuguese colony 45km west of Hong Kong. There he married the daughter of a jewellery shop owner, and expanded its network aggressively.

Hong Kong is home to hundreds, possibly thousands, of multi-millionaire families who excelled in a particular line of business. The few that graduated into the billionaire class did so primarily by crossing over into other sectors, particularly property, and often in times of crisis.

While others panic, Hong Kong's richest families tend to look for buying opportunities.

For the Chow Tai Fook jewellery chain, opportunity arose in 1967 when widespread rioting, inspired by the Cultural Revolution in China, posed the greatest threat to Britain's post-war hold on the then crown colony. “It was an opportunity-driven diversification,” he says. “We already owned jewellery shops, [we realised] we might as well own the entire building.”

In Hong Kong, where land fit for development has always been scarce, property is at the root of the tiny territory's greatest fortunes. Mr Li, a toy manufacturer at the time and now comfortably the territory's richest man, similarly crossed over into real estate in the late-1960s.

Profits from property development ultimately fuelled New World's diversification into infrastructure and transport, including franchised bus and ferry services.

History repeated itself more than 20 years later, when the Tiananmen Square protests and subsequent massacre paralysed investors. “After '89 no one wanted to go into China, so we went into China,” Mr Cheng says. “There wasn't much competition and so many projects – not just real estate but toll roads, infrastructure and department stores.” Today, the market value of the New World Group's public companies exceeds $11bn.

For the second and third-generation heirs of companies such as New World, which have cornered lucrative property, retail, transport and other cash flows, making a mark on the family business can be a challenge. Mr Cheng, who is a trained tenor and was courted by recording companies, is concentrating on a new series of “art malls” combining, New World says, “an art gallery with a shopping mall”.

He is also attempting to put his investment banking experience to good use as managing director of New World Strategic Investment, the group's recently established private equity vehicle. As the dust from the global financial crisis settles, Mr Cheng says he is “knocking on a lot of company doors asking if they want to sell”.