California’s Hong Kong Connection

At least one month a year, Hong Kong tycoon Frank Tsao likes to disappear to his home in Piedmont, an upscale San Francisco suburb, for a little rest and American television, particularly political talk shows.

Tsao straddles the Pacific as comfortably as others commute between Malibu and downtown Los Angeles.

“California is almost my second home,” says the chairman of the IMC Group, a multimillion-dollar shipping and real estate empire.

He is one of thousands of wealthy Hong Kong residents who consider California much more than just a place to conduct business. It is a refuge, the adopted home of their relatives and friends, an educational outpost for their children and a safe place to invest their rainy-day fund.

The web of personal and financial relationships linking California and this longtime British colony is vast, giving the Golden State a huge stake in what happens when the world’s largest Communist country takes over one of the world’s most vibrant capitalist outposts in July.

Tung Chee-hwa, the shipping magnate who will run Hong Kong after it becomes a special administrative region of China, is a familiar face at the Port of Long Beach, where his company owns a 101-acre container terminal. Orient Overseas was the first company to ship containers from Hong Kong to Long Beach in 1969.

Ronnie Chan, the billionaire developer who heads the Hong Kong-based Hang Lung Group, got a master’s degree in business in 1976 from the University of Southern California, where he now sits on the board of trustees.

He made 18 trips to the U.S. last year and has a branch office in Costa Mesa, where his brother makes his home.

Jimmy Lai, the Hong Kong founder of the Giordano clothing chain and publisher of several popular magazines and newspapers, recently announced plans to invest $100 million in a multimedia company in Silicon Valley. Lai has good cause to seek a safer sanctuary, having felt the censorious wrath of the mainland Chinese after describing Premier Li Peng as “a turtle’s egg with a zero IQ.”

Hong Kong’s ties to California, of course, existed long before 1984, when the agreement outlining the colony’s return to China was finalized.

But unease over the inexorable approach of this transition of power has created a new breed of wealthy, largely anonymous transpacific citizens, some of whom have been dubbed astronauts for their frequent blastoffs and landings.

They have moved their families abroad, established far-flung secondary headquarters and sunk billions of dollars into American investments--especially in California--all while maintaining their businesses in Hong Kong.

This remarkable transpacific story can also be told with numbers.

Hong Kong, with fewer people than New York City, bought $3.4 billion worth of Californian products in 1994, making the tiny colony the state’s 10th-largest export market.

At the Port of Long Beach, Hong Kong is the third-largest trading partner behind Japan and mainland China.

But getting the full picture is difficult because Hong Kong’s publicity-shy tycoons have used elaborate measures to mask their investments here, using intermediaries, dummy corporations or offshore bank accounts in exotic locales.

Official government statistics, for example, show that Hong Kong residents had invested $2 billion in California as of 1994. But those familiar with the Chinese community in both locations said the real figure is many times greater.

“They don’t want anybody, particularly the [Hong Kong] government, to know they’re making money,” said one Los Angeles real estate agent who works in the ethnic Chinese community.

Huge Implications

As traders contemplate life after the transition and Hong Kong residents with one foot in California pray for a smooth landing, the implications of Hong Kong’s transfer to Chinese control are enormous, given the colony’s role in the global economy.

In spite of its limited size and lack of natural resources, Hong Kong boasts the world’s eighth-largest trading economy, the world’s busiest container port, a per-capita gross domestic product of $25,300 and an unemployment rate of less than 3.2%.

If the transition goes well, Hong Kong’s role as a regional headquarters and financial hub for Asia will be bolstered, an issue of critical importance to the 1,000 U.S. companies with offices here. The stability of the Hong Kong stock market, the eighth-largest in the world, is also of concern to investors worldwide.

Hong Kong has also emerged as the de facto capital of the overseas Chinese business community, which stretches from Singapore to Manila to Taipei and Los Angeles.

China’s leaders recognize that any serious confrontations with Hong Kong would doom its dream of someday reuniting with Taiwan, which the mainland considers a renegade province.

John Coleman, president of the Hong Kong Assn. of Southern California, whose 600 members range from Fortune 500 companies to mom-and-pop importers, worries that Californians have not paid enough attention to the historic hand-over and its implications for this region’s economy.

“I’m amazed at the number of businesspeople who don’t understand the importance of Hong Kong as an economic center for exports to the United States,” said Coleman, a Los Angeles attorney.

Sally Harpole, the head of China operations for the Hong Kong office of Graham & James, the San Francisco-based law firm, eagerly awaits the day when Hong Kong becomes even more intertwined with its giant Communist neighbor. She predicts that will increase the colony’s attraction as a gateway into China, which is the primary target for most of the foreign firms based in Hong Kong.

Harpole, who travels frequently to Beijing, is looking forward to doing more of her business from Hong Kong instead, since more mainland companies are expected to open offices and the Chinese government will post a representative of the Foreign Ministry in Hong Kong after the transition.

“For those of us who, day in and day out, deal with China, it’s business as usual--just more business,” she said.

In addition to acting as a regional headquarters for Greater China, Hong Kong is expected to remain a critical transit point for mainland exports, particularly the container-loads of toys, electronic goods and apparel being produced just across the border in Shenzhen and Guangzhou. Already, 26,000 vehicles a day--18 a minute--cross the border into Hong Kong.

Confidence in Hong Kong’s status as a regional financial center remains high, as evidenced by soaring property and stock market prices. In a recent survey by the American Chamber of Commerce in Hong Kong, 96% of the companies rated the business climate as favorable over the next five years.

But the uncertainty seems almost palpable, and the reasons for it were underscored this week when a Beijing-backed panel recommended that the new Hong Kong government amend the colony’s 1991 Bill of Rights and repeal other laws designed to protect political freedoms and civil rights after the transition.

While few will discuss their plans publicly, most wealthy Hong Kong residents long ago set up contingency plans to protect their fortunes and families. They include obtaining foreign passports and bank accounts, establishing secondary headquarters in places like Singapore and buying homes in havens like California.

“One characteristic of the Chinese is no matter where they are, they always want to be prepared,” explained Los Angeles realtor Lindy Lee Ma, who has one wealthy Hong Kong client with a dozen foreign passports.

Ma, executive vice president of the Alhambra office of Centaline Realty, a branch of one of Hong Kong’s largest real estate firms, recently returned from the colony with a long list of interested buyers. Industrial buildings, apartment houses and hotels now top her list of properties, with an emphasis on obtaining low prices and a stable rate of return.

“When I tried to sell them [Hong Kong investors] on Texas they would ask, ‘Where’s Dallas?’ ” said Ma, a graduate of Texas Woman’s University. “If it is California, they know what they’re buying. They’ve been to Disneyland and Universal Studios. They can have friends check it out.”

Bruce Cannon, chief operating officer of Wells Fargo HSBC Trade Bank, a partnership between Wells Fargo & Co. and the London-based HSBC Group, owner of the Hongkong & Shanghai Banking Corp., said his bank’s real estate business involving Hong Kong clients in the United States grew by one-third last year and is expected to expand by the same amount in 1997.

But Cannon cautioned against assuming that all of the Hong Kong investment flowing this way is “nervous money.”

“The challenge is determining how much of that is related to 1997 and how much of that is related to the fact there are good buys around,” he said.

But whatever the motive, the vast Southern California investments by Hong Kong residents make the ties between the two regions concrete.

Last year, Hong Kong billionaire Y.S. Lo purchased the historic Biltmore Hotel and an adjoining building in downtown Los Angeles for an estimated $60 million, and a consortium of wealthy Hong Kong developers bought the Regent Beverly Wilshire Hotel for $100 million.

Lawrence Chan, head of the Hong Kong-based Park Lane Hotels International chain, owns the Parc Fifty Five Hotel in San Francisco and the Parc Oakland Hotel and developed the Pacific Renaissance Plaza in San Francisco’s Chinatown.

Hong Kong investors also own the Hilton Warner Center in Woodland Hills, the Hilton Hotel at the Club in Pleasanton and the Hilton Hotel in Whittier.

Richard Alter, a West Los Angeles broker for a group of wealthy ethnic Chinese investors, said the popularity of hotel investments is partially because of a U.S. immigration law that provides resident visas, and eventually citizenship, to individuals investing more than $1 million into businesses with 10 employees or more. Also, a U.S. government requirement of disclosure of foreign monopoly positions in U.S. firms was recently modified to exclude hotels.

In addition to buying property or establishing trading firms, many Hong Kong business owners have dispatched their families to California, where they have established permanent U.S. residency and second households.

This phenomenon of binational living accelerated dramatically in 1984, when China and Britain sealed Hong Kong’s fate with an agreement in which China agreed to a “one country, two systems” policy for 50 years after the transfer of authority.

Playing Both Sides

“Eighty-five percent of my friends are in one way or another exploiting opportunities on both sides of the Pacific, and they’re quite happy to be in either place,” said Frankie Leung, a Los Angeles attorney who worked in Hong Kong for eight years.

One reason for California’s popularity is its mild climate, proximity to Asia and higher-education system. Canada and Australia, with more liberal immigration policies, also saw their Hong Kong Chinese populations boom.

In Southern California, Hong Kong’s wealthy enjoy anonymity in the San Gabriel Valley, where Hong Kong-style shopping malls, restaurants and nightclubs cater to the so-called astronauts and their families.

While most expect the transpacific commuting to subside if the Hong Kong transition goes smoothly, few expect a huge reverse flight of money and people back to the region, given the roots that have been established in the United States.

Dominic Quinnell, a manager at the Hong Kong-based the Bank of East Asia Ltd., predicts even more Hong Kong families may choose to set up a second household in the United States as the former colony loses some of its British allure.

Although he is confident that Hong Kong will remain a very good place to make money after July, it may become a less pleasant place to live, with increased pollution, crowds and crime.

That is one reason the Bank of East Asia is hunting for possible acquisitions or expansion opportunities in California and other North American localities with large ethnic Chinese populations.

California’s prep schools and universities, already a favorite destination for the children of Hong Kong’s privileged, are another major building block in this transpacific relationship.

Lily Chiang, executive director of Chen Hsong Holdings Ltd. in Hong Kong, is one University of Southern California graduate who is getting some attention. Armed with a mechanical engineering degree from USC, she returned home in the early 1980s to work in the family’s manufacturing business.

By applying her engineering and management skills, the 33-year-old whiz kid helped modernize the company, bringing such things as computer-aided design to the company’s five factories in Tai Po, a new industrial zone in the New Territories, an area under lease from China.

Chiang, who greeted a visitor recently dressed in a T-shirt, long skirt and boots, has raised some eyebrows in stuffy Hong Kong business circles because of her age and gender.

But armed with the motto “Japanese quality at PRC prices,” referring to the People’s Republic of China, she has helped turn her company into the world’s largest producer of plastic injection molding machines.

Chiang has agreed to help raise USC’s profile in Hong Kong, where the more than 2,000 alumni include Ronnie Chan; David Lee, the managing director of Lee Kum Kee, the Hong Kong sauce manufacturer; and Stephen Riady, chairman of the Hong Kong branch of the Indonesian family caught up in the White House influence-peddling scandal.

Last month, Chiang sent out letters to her fellow USC grads soliciting their help in establishing an alumni association in Hong Kong to boost the USC image in status-conscious Asia.

“I feel USC gave me a lot of training and I would like to help it,” she said. “Then, when I tell you I’m from USC, I can be very proud.”