UPDATE 1-The mainland’s colonisation of the Hong Kong economy

31 Dec 2014 | Author: | No comments yet »

Hong Kong Stocks Trail Global Equities for Second Straight Year.

HONG KONG (MarketWatch) — Hong Kong stocks ended the year with a modestly winning session Wednesday, after HSBC revised its Chinese manufacturing activity index for December slightly higher from an earlier reading.HONG KONG (AP) — Authorities in Hong Kong began destroying 15,000 chickens at a poultry market Wednesday and suspended imports from mainland China after some birds were found to be infected with bird flu.

HONG KONG (Reuters) – When Xi Jinping wanted to deliver a political message to Hong Kong as protesters demanding free elections were threatening to take to the streets, he summoned the tycoons who dominate the city’s economy. The gauge’s advance this year compares with a 50 percent surge for stocks in mainland China through yesterday and a 2.7 percent rally on the MSCI All-Country World Index. Kunlun Energy Co. and Cnooc Ltd. tumbled amid a rout in oil prices, while Sands China Ltd. and Galaxy Entertainment Group Ltd. sank more than 37 percent as a Chinese government crackdown on corruption curbed Macau gaming revenue. Authorities will “arrange to cull all the live poultry, around 15,000 in total” at the market, Ko said at a news conference early Wednesday, according to a transcript distributed by his agency. On Tuesday, the Hong Kong government announced that tests showed some birds from the farm in Huizhou in Guangdong were infected at some time in the past with the H7 flu.

Hong Kong struggled to attract investors amid a U.S. bull market that’s sent the Standard & Poor’s 500 Index to 53 record closing levels this year and as monetary easing bolstered Japanese shares, according to VC Brokerage Ltd. Chinese state-owned railway giants China CNR Corp. 6199, +45.17% and CSR Corp. 1766, +32.32% soared 45% and 32%, respectively, after the companies announced a merger plan pushed by the central government. Even as Beijing struggles to tame Hong Kong politically, Chinese companies are consuming ever bigger chunks of the city’s key sectors including real estate, finance, power, construction and the stock market. For Ample Capital Ltd., the Shanghai Composite Index’s rally is diverting funds and the earnings outlook for Hong Kong’s biggest companies is waning. “There are no new funds coming into Hong Kong, while local fund managers have to play the China rally,” said Alex Wong, Hong Kong-based asset-management director at Ample Capital, which oversees about $150 million. “Hong Kong blue chips lag the growth story.” The Hang Seng Index fell 9.1 percent from the start of 2014 through the year’s low on March 20, before rebounding 20 percent to a six-year high in September.

Japan’s Topix index (TPX) yesterday capped a 8.1 percent annual advance, while the S&P 500 is set to gain 13 percent in 2014. “Hong Kong has been a laggard this year, with quite a bit of liquidity being absorbed by the U.S. market as well as Japan,” said Louis Tse, a Hong Kong-based director at VC Brokerage. Mainland investors have used up just 4.2 percent of a 250 billion yuan ($40.3 billion) quota to buy Hong Kong equities through the exchange link with Shanghai that started in November, according to data compiled by Bloomberg. One of the most telling signs of change is the space mainland Chinese companies lease in Central district, the heart of Hong Kong’s financial centre. They often like naming rights if it’s available.” The office directory at Hong Kong’s 88-floor International Finance Centre has a growing number of mainland companies on the list.

In a market accustomed to stratospheric land prices, state-owned Chinese developers this year stunned long-established local property giants with winning bids exceeding auction forecasts by up to 20 per cent. Part of Beijing’s vision is to draw Hong Kong into a Pearl River Delta mega-economy that would also include the giant southern Chinese cities of Shenzhen and Guangzhou just across the border. The 12th Five-Year plan, covering the years from 2011 to 2015, lays out how Beijing wants to connect Hong Kong with the Pearl River Delta’s increasingly prosperous middle class consumers. Hong Kong’s permanent secretary for Development (Works), Wai Chi-sing, said in an interview that while mainland firms accounted for less than 15 percent of public works contracts by value in the mid 1990s, they now accounted for more than a third. Frustrated by Hong Kong residents’ lack of identification with the mainland 17 years after the handover, China has at times resorted to covert means to bolster its control.

Earlier this month, for instance, Reuters reported that retired Hong Kong policemen were part of a mainland-led surveillance operation to tail leading pro-democracy figures in the city. Although the street protests ultimately petered out, at their height they drew tens of thousands, presenting Xi Jinping with his most serious popular challenge since he took power two years ago.

While the protesters have demanded full universal suffrage, the mainland authorities insist that only a handful of Beijing-vetted candidates can stand in the next elections for the city’s political leader in 2017. Hong Kong’s current chief executive, Leung Chun-ying, got the backing of Xi and Premier Li Keqiang during a visit to Beijing last Friday, according to reports in China’s state-run media. In one incident that made headlines earlier this year, locals got into a scuffle with a mainland couple who had allowed their toddler to urinate in the street. “Hong Kong without the mainlanders would be a very small city,” says Allan Zeman, explaining the business elite’s attitude to the growth in tourism. “Ocean Park and Disney without the mainlanders would be nowhere.

When Xi met the delegation of tycoons and professionals on the eve of the demonstrations, he gave no indication he was worried, according to one delegation member who gave Reuters an account of the Chinese leader’s remarks. He told the tycoons that China was now a major force in the world and most of his attention would be focused on ties with bigger nations including the U.S. and Russia, the delegate said.

The city’s business leaders were also called to the capital in the aftermath of a 500,000-strong protest in 2003 when China attempted to introduce controversial new security laws. The market in so-called dim sum bonds, bonds denominated in renminbi but issued outside the mainland, is rapidly closing on its Hong Kong dollar counterpart. China Southern Power Grid last year bought a 30 percent stake in CLP’s power unit Castle Peak for $1.6 billion, while State Grid Corporation of China spent about $1.2 billion to buy into the local initial public offering of HK Electric Investments, a spinoff of Power Assets, early this year. With the exception of some clubs like the Aberdeen Marina Club and the Jockey Club which offer hefty debentures, it is difficult for newcomers like mainland Chinese to get membership as some of these establishments have waiting lists that can be as long as 20 years. “Mainlanders haven’t quite got in any meaningful way into the clubs,” says a Hong Kong resident who is a member of three clubs. “But it is only a matter of time.” (Additional reporting by Anne Marie Roantree, Saikat Chatterjee, Charlie Zhu, Xiaowen Bi, Michelle Chen, Michelle Price, Donny Kwok and Lizzie Ko.

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