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[BUSINESS] Thoughts of Li Ka-Shing

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  • madchinaman
    Thoughts of Chairman Li China is on the mind of Asia s top tycoon. No surprise there … but pharmaceuticals? Li Ka-shing s life and times. Tim W. Ferguson and
    Message 1 of 1 , Aug 11, 2009
      Thoughts of Chairman Li
      China is on the mind of Asia's top tycoon. No surprise there … but pharmaceuticals? Li Ka-shing's life and times.
      Tim W. Ferguson and Vivian Kwok Wai Yin


      Is this your dream for China ?

      My dream for China is a strong nation caring for the well being of its people. As a matter of fact, China has been making excellent progress. Even China's competitors have to agree that it is getting better and better. You can see how China has changed in the past 10 to 20 years.

      For instance, in 1978, when I was in China, I went to see some friends in the guesthouse. They would write notes to me because they were afraid of being eavesdropped on. They had been scared by the Cultural Revolution. Today, they can openly criticize the government.

      I love democracy, but I also understand that different countries and peoples have different values. However, democracy without law and order is no democracy. We have many investments in democratic countries. A liberal society has to be founded not only on law and order but a prosperous economy.


      Li Ka-Shing is playing host on the top floor of his cheung kong Center tower in Hong Kong's Central. It is where he often mixes business and pleasure, though rarely with a pair of reporters, his guests this day. Next door to the chairman's dining room is a canopied swimming pool, complete with plastic dolphin, where his four grandchildren can frolic. Elsewhere in the suite is a treadmill, on which 78-year-old Li, who's already had a morning golf round, puts in a 15-minute walk after lunch each day.

      On this afternoon in early December he is recalling his past and projecting out a bit--five years hence--for the business empire whose saga has seen him go from plastic-flower manufacturer to the richest resident of Asia. His visitors are especially keen to hear of Li's plans for mainland China.

      On matters of the moment--such as his foundation's share purchase in Hong Kong telecom entity PCCW, which will effectuate the exit of his second son, Richard, from controlling ownership--he says little. That deal has been seen as a save after Beijing objected to PCCW's otherwise falling into foreign hands. "Don't believe the stories too much," Li says. "If you know the truth, you will be disappointed."

      Beyond insisting that a fixed-line business could be had in Hong Kong but that no foreigners have stepped up, he offers only: "This matter is over. Sorry, no comment."

      But in terms of his own corporate ambitions in China, Li is more forthcoming. His conglomerate, Hutchison Whampoa (other-otc: HUWHY.PK - news - people ), will roughly double the share of its revenues from the mainland in five years, he says, to 15%. Those businesses now are mostly ports, infrastructure, land development and hotel operations. Meanwhile, more property-heavy Cheung Kong (other-otc: CHEUY.PK - news - people ) Holdings should go to 20% of revenues from China, he says.

      Although building will continue to be a mainstay of the Li thrust in China, under the direction of his elder son, Victor, the patriarch has a surprising answer when asked what future opportunities stand out: pharmaceuticals. "Any foreign company in pharmaceuticals, if they want to come to China, if they want a partner, we will be partners," he says. Big Pharma could integrate low production cost in China with the quality control of Western medicine and tap a huge domestic demand, Li foresees.

      "Suppose the best medicine available in the U.S. could cure a man in three days, while some other mainland-produced medicine would take four days," he says. "The additional day it takes to get well does not present a major problem."

      Isn't intellectual property protection still a worry, especially with itty-bitty pills? "Without IP rights, there would be no new technology developed. But China needs time and resources to set up a watchdog bureau. IP offenders must be brought to justice, even if you have to pay $1.10 in legal fees to recover $1 of loss."

      Medical care, it turns out, is a big part of what Li Ka-shing is already doing in China. Shantou University, a state school he has generously funded, is running five affiliated hospitals and an influenza research center and received grants for 196 medical research projects last year.

      The connection to Shantou, near Li's birthplace, is going on 25 years. He got the campus built on the outskirts of a relative backwater port city (of 4.8 million) along the booming China coast and is pushing the school to establish a globally minded curriculum with a Western sort of academic openness. "I cannot say I can change China," Li allows, but Shantou is part of the "personal example" that he wants to set.

      Philanthropy, what Li calls his "third son," now occupies much of his attention. He has said he will devote a third of his wealth, which FORBES ASIA figures exceeds $20 billion, to such aims. Intriguingly, he says he won't put his holdings of listed-company shares into the charity. If there's another one-third, it's a grander fortune yet.

      But he is not retiring from his businesses--far from it. Chairing both Cheung Kong and Hutchison, he stays current with a roster of operations that extends from development to telecom, utilities, retail, online media and petrol. In fact, a little-noted part of his holdings, Husky Energy, of Canada, is on this day one of his favorite subjects.

      He muses that most media neglect his personal 37% shareholding in Husky, itself worth $10 billion, exceeding Hutchison's 35% stake. The oil company was in financial straits in the early 1990s when oil prices were low, but instead of cutting his losses, Li increased his shareholdings. Husky doubled its earnings last year as a result of the oil price spike.

      In this and other areas, Li is proud of steeping himself in the technological basics and the external conditions of whatever business he's in. He says he continues to glom on to trade or engineering journals and retains outside experts to counsel him.

      Speaking of Hutchison's embattled international wireless telephony ventures, Li rattles off vernacular of the so-called high-speed 3G multimedia phones with the same familiarity he evinces on the debt levels of the various units. His message: In business you have to know the product as well as the financing. Meantime, he admits Hutchison is "behind budget" in the U.K. wireless quest but nearing a profit in Italy, and he boasts that "we said, good luck to you" when the 3G license bids in Germany got too high.

      (Deals in that sector and in earlier-generation--2G--phone units elsewhere may be taking out some of his holdings.)

      Knowledge has always been his advantage, Li maintains. And debt--if you'll pardon the $31 billion in long-term borrowing that has gone mainly into the wireless efforts--is something he chooses to disparage.

      At age 12, having left China with his family during the Japanese occupation, he arrived in Hong Kong for high school. His schoolmaster father had contracted tuberculosis, and young Ka-shing suffered a milder bout but worked through it ("I always had a fighting heart"). When his father died two years later, Li joined an uncle's watch company to help with his household's rent.

      As time wore on and the war ended, young Li weighed where his future lay. The Chinese nationalists were finished, he calculated, so he laid business stakes in Hong Kong. With money tight, he skipped movies and shaved his head to extend the time between haircuts, he says.

      What he didn't forgo was reading--used books, manuals, leftover journals. He credits superior preparation--he was often self-taught--for his gains. When he famously gained a manufacturing foothold with the plastic flowers in the 1950s, he says, he was able to engineer critical molding machinery with an injection process made using a Coca-Cola (nyse: KO - news - people ) bottle and a plastic straw, using something he saw in Modern Plastics as a guide.

      Getting space for his production line is what took him into real estate in 1958. He built his own factory without seeking a bank loan. Li says that personally he has hewed close to that practice ever since. Where he has taken loans, he says, they could be repaid within 72 hours, or when carried for tax purposes, were offset by Treasury bond holdings. (He is quick to note that his venture partners may hold significant debt, and, of course, Cheung Kong and Hutchison do.)

      The third prong of his early success, beyond knowledge and financial soundness, was reputation. Li recalls that a large U.S. company turned up at his plastic factory early on and offered to buy all his merchandise at a 30% premium. That would mean stiffing an earlier client he was supplying on a handshake. Li says he spurned the offer.

      Though he's been in many a rough-and-tumble business, Li says he has kept to that standard in building relationships--and friendships. ("Your lawyer can never give you that.") In courting clients he's avoided entertaining in "nightclubs or ballrooms." That scruple and his unwillingness to welsh on a deal leads him to say, with irony, "Actually, I don't think I am a good 'businessman.'"

      Li also relates another rule: One business he will not get into, out of deference to his late mother's wishes, is casinos.

      Hotels are another matter. In fact, one landmark deal, so to speak, led to the property where his offices now sit. The site was the old Hong Kong Hilton, a business hub in the postwar territory. Li recounts overhearing in a cocktail lounge in 1977 that a foreign-funded hotel in Central was for sale. He deduced it was the Hilton. Twenty minutes later he had his accountants on the horn. Current as always on land values, he offered $44 million to the owner, which also held a Bali property. He had the deal in a week.

      The subsequent demolition of the Hilton in favor of Cheung Kong's 62 stories bruised a few sentimentalists. Li Ka-shing is always touching the lives of Hong Kongers--through the tab at the many residential complexes in Hong Kong built by his group, rising rates at Hong Kong Electric (which he controls), the price of rice balls at his Watson's convenience marts, or the spectrum used by the mobile network and radio station operated by Hutchison. Locals know he has a big piece of their action--perhaps one reason that so many have invested in his companies and grown richer as a result. Those who bought Cheung Kong at its 1972 listing are 30 times richer.

      Li made the greatest part of his fortune betting on Hong Kong when others wouldn't. The first wave of property deals came in 1967, when riots and bombings spawned by Mao's Cultural Revolution across the border inspired flight from the then British colony. A beginning of the end, some feared. Nonsense, thought Li--although he sent his own family to Singapore for a spell. Li busied himself with acquiring cheap factories, residential and office buildings.

      Just as his political sense had told him 20 years earlier that the KMT was finished on the mainland, he didn't particularly worry that the Chinese Communists would forcefully take back Hong Kong during the commotion. "What benefit would they have had?" he recalls thinking. "Hong Kong doesn't have natural resources. Its greatest asset is its hardworking people"-- and China had population enough. After sleeping on it, Li wagered big on local real estate.

      The story would be replayed during other panics, major or minor, such as the 1973 oil crisis and Sino-British negotiation jitters in the 1980s. As early as 1979, after Cheung Kong had acquired colonial-era Hutchison, Li was supplanting the old taipans as a symbol of Hong Kong power and wealth.

      But Li's companies long ago broadened, doing business today in 56 countries. The 3G telephony ventures have been mostly in western Europe, where income levels drive early adaptation. Hutchison's ports span the globe.

      At a few turns abroad, Li reportedly has been dogged by "national security" fears of a perceived coziness with China. Like most Hong Kong moguls, he tends to his mainland contacts. But Li asserts that relationships, or the traditional guanxi, are fading as currency in property deals. "For example, many properties are being auctioned publicly. Now 90% of our land bank is acquired from auctions," he says. "We prefer it this way."

      Son Victor, 42, managing director of Cheung Kong and deputy chairman of Hutchison, is comfortable in that world. Today the companies are active on Anglo-Saxon turf. "Law and order is the most important thing in my mind," says the father. "If a country doesn't have good law and order, I would rather not invest there. Even if we go, we'd start small to test it."

      In any case, the holy grail in China could shift away from property development as the country's consumers demand a better life. Affordable drugs are one area, but other goods and services will be moneymakers (Li, whose holdings include Marionnaud Parfumeries of France, also mentions cosmetics).

      But this tycoon is also a patriot. Li recalls a visit to China in 1978, after Deng Xiaoping's reforms had begun: "I went to see some friends in the guesthouse. They would write notes to me because they were afraid of being eavesdropped on. They had been scared by the Cultural Revolution. Today they can openly criticize the government." More and more they can, anyway.

      An open, liberal society--whose prerequisite is the rule of law--is ultimately the direction that Li's philanthropy at Shantou and elsewhere may lead. For all of the treadmill time on the top floor of his tower, it is unlikely that Asia's richest man will live to see that day. But he has faced longer odds, as a tubercular 12-year-old put to work in a poor, teeming Hong Kong.

      "I am an optimist," Li sums up his outlook. "When you study hard and work hard, your knowledge grows. And it gives you confidence."


      Thoughts Of Li Ka-Shing
      Tim W. Ferguson and Vivian Wai-Yin Kwok

      The following is an edited transcript of an interview with Chinese entrepreneur Li Ka-Shing, conducted in China on Dec. 4:

      Forbes: We wanted to start by exploring your arrival in Hong Kong, your background. You're obviously influenced by your father, a teacher. He instilled in you a deep thirst for reading and knowledge. It sounds as if, despite the difficulties of your early career, you are an optimist about the future. Would you classify yourself as an optimist?

      Li: First of all, I am an optimist. When you study hard and work hard, your knowledge grows, and it gives you confidence. The more you know, the more confidence you gain. When I was 10 years old, I lost my schooling, but I still had plenty of hope to return to school. When we came to Hong Kong, the family had no choice, and I had to work. I was facing life for the first time. I was 12 years old, but I felt like a 20-year-old. I knew then what life was. My father had tuberculosis, which was as devastating a disease as cancer is today. If you were rich and could afford proper care, you might have a better chance. We had no choice. I needed to be strong, and needed to find some way to secure a future.

      Read the Forbes Asia cover story, "Thoughts Of Chairman Li"
      And as long as you have that preparation, that confidence, you have the general belief that things will work out?

      During the Japanese occupation, besides working, I also needed to get plenty of fresh air to remain healthy, because at that time, I also had TB. But at the same time, I also needed to study and work. That gave me confidence. I got my first break right after the Second World War. My boss needed a letter written. He had a secretary who wrote his letters for him, but he was on sick leave. When he asked around the office to see who could take his place temporarily, my colleagues recommended me. My boss said that my letters were quick and nice, and I got his meaning. He was happy with my work, and I was promoted to head a small department. I always believe that knowledge can change life. It was a case of knowledge changing my life.

      Do you think that in the circumstance at that time, you could have been in any business?

      After my promotion, I requested that I be reassigned as a wholesale salesman. This was actually a more difficult job, but the prospects were better. At the time, our company had seven other salesmen. On New Year's Day, the boss announced that the bonus that year would be based on sales. At the end of the year, my sales figure was seven times higher than the second best. If they paid my bonus based on my sales, my bonus would have been higher than the general manager's. The other salesmen were already jealous. So I said to my boss, "Just pay me the same as the second best salesman; it would make everyone happy." As a result, I became a manager when I was 17 going on 18. I was second in command only to the boss. At 19, I became the general manager of the factory.

      I was already keeping an eye on the political developments within China, and I also had a firm grasp on economics, industry, management and the latest development and production of the plastics industry. I knew that plastics had a great future, because so many products can be made from plastic. Not many people in Hong Kong at that time [after the Second World War] were aware of the potential. It was still quite new in Hong Kong and China. As the civil war and political situation in China developed, I knew that with 90% of our sales going to mainland China, our business would fall off tremendously if the Chinese leadership changed. Sure enough, our business dropped 90% in 1949, which was worse than I expected. But the company did not suffer much, because I didn't keep too much stock or order too much raw materials. The boss told me that I would become the general manager of the head office. I was confident about the bright prospects of the plastics industry, and I told him that I would like to start my own business. Before doing so, however, I would help my boss sell the remaining stock and wind up the company's business in an orderly manner. That was 1949. I started my business in 1950 and named it Cheung Kong.

      So instead of restructuring the company, you chose to start your own business?

      My boss wanted to close down the business and become partners with me, but I wanted to start the business small on my own. I already knew a lot about the plastics business, including the technology, the market and sales. I knew everything including the accounting. The first year, as I didn't have much capital, I did everything by myself, including the first set of account books. I needed to go the Inland Revenue Department, and I asked my auditor if my accounts were correct, since I had no experience doing accounting. He said that it was complete and that I could take this to the government. I had no experience, but I learned by reading books on accounting. When you want to understand the balance sheet, you needed to know a little bit about accounting. I did so many things by myself, which kept my overhead low. I have made a profit every year since 1950. I have never lost a penny in any year.

      You also learned about finance in that early business?

      I started from the bottom up and went through so many different levels, doing different jobs. Like a mechanical watch, if one gear breaks down, the watch doesn't work. In manufacturing in particular, you must be well versed not only with the market, but also with productivity and quality. I had worked at every level, doing different tasks. I was very careful. I had no debt (actually, I was not qualified for a bank loan at the time), but I knew my company's finances like the back of my hand, and I could answer any question that anybody asked.

      In 1956 to 1958, I was already buying properties. I bought my first property with a partner. By 1958 or '59, I owned my factory site as well as other real estate. By 1960, we were the biggest manufacturer in Hong Kong in terms of dollar value export. I started working in 1940, I started a business in 1950, and by 1960, I was the biggest manufacturer. I am very prudent financially because of those hard times I went through. During the Japanese occupation of Hong Kong, which lasted three years and eight months, I sent 90% of my salary to my mother. I spent nothing. I had a haircut every three months. I shaved my head like a monk. Nor did I go see a movie during this period. Seeing a movie was very cheap at the time, but I needed to save every penny. My father was hospitalized at the beginning of the Japanese occupation. The hospital fee was not much, but you had to pay for the medicine.

      I had always wanted to go back to school. My father was a schoolmaster, though not at the same school as mine. But I knew that he would be upset if my exam results were bad. I was always among the top students in class, though not the first, as I liked to play. If the Japanese had invaded just one year later, I am sure I would have been first in class. I entered Form One when I was 10. We came from a scholarly family. During the late Ching Dynasty, my father's two elder brothers studied for Ph.D.s at Tokyo University [known as Imperial University then]. Every generation of my family took education very seriously. During my father's time, our family finances were deteriorating. My uncles did not make any contribution to the family after they came back from Tokyo. I always had a fighting heart. I only had a small amount of capital when I started my own business. That's why I am always conservative. I never forget to maintain stability while advancing, and I never forget to advance while maintaining stability. Stability and advancement must always be in balance.

      So even when you have knowledge and confidence, you still want to be cautious?

      I have not had any personal debts in many years. Even now, if I have a debt, I could repay the loan within 24 hours if the bank calls me. Or maybe 72 hours, to be more conservative. I am talking about personal loans, not for Hutchison Whampoa. Hutchison is also very conservative. Many of Hutchison's assets are stated at cost on the balance sheet. When these assets are disposed of for commercial reasons, the company can make a handsome profit.

      Many events have occurred over the past 50 years, from the 1950s until now, that have had an adverse impact on Hong Kong. But how many times have you heard that Cheung Kong's finances were in trouble over the last 50 years? Never. The reason is, we are always prepared for the worst. That is my policy.

      When you first started investing in properties in 1958, that is a business historically built on debt?

      No, for me, all cash. In my case, I bought land with my own cash. If somebody invites me to be a partner, and I take only 15% to 20% as a minority stakeholder, they would perhaps get a loan from the bank. But I had no personal debt. At that time, when Cheung Kong went public in 1972, the company had almost no debt. Even if the company had to borrow from the bank, we would have alternative arrangements, such as buying government bonds equivalent to the bank loan amount, to ensure that we can readily cash out at anytime. The interest income would continue to accumulate, while interest expense on the loan would be repaid monthly. So you see, our corporate finance is very conservative and prudent.

      Actually, I don't think I am a good "businessman." There are two reasons. First, I don't like to entertain. When I was still in the manufacturing business, my clients who accounted for 90% of my production came to see me twice a year, and each time they placed a six-month order. I would have a quiet dinner with them, but we didn't go to nightclubs or ballrooms. I just tried to do a good job. Second, I am extremely trustworthy. I always make good on my promises. But perhaps times have changed. Nowadays, many people don't honor their promises, and even a signed contract can be voided.

      What is the key to building a good business relationship?

      The most important thing is to build the best reputation. Anytime I say "yes" to someone, it is a contract. I'll give you a case as an example. In 1956, when I was in the plastics business, my first order was for a three- to six-month production. I calculated a profit of 20%. My competitors were making 100% profit. A large U.S. competitor of my buyer approached me and offered to pay me an extra 30% profit for the merchandise my buyer had ordered. He said that with the extra profit, I could expand my factory. I said, "Look, I am also a businessman. I'll make a deal with you. I will start another factory in nine months' time, a much bigger one, and I will take your order. But this time, I have already promised this buyer, and I will finish the order for him, as I am his only supplier." I did not tell my buyer this story, but he learned it from elsewhere.

      So when the buyer came to Hong Kong, he humored me and said that he thought I would be bankrupt by now. He said, "Why didn't you take the extra profit from my competitor?"

      I said, "I already promised you."

      He said, "But at least you could have told me and requested a price increase."

      I said, "Next time, I will increase the price."

      After that, we became even better friends, even after I quit the plastics business. Reputation is the key to success. You have to be loyal to your customers.

      My first car was a gift from the buyer. So I don't need to entertain. You need the buyer, but the buyer also needs you. That was 50 years ago, in 1956. Even now, when I make too quick a promise, like when I buy too high or sell too low, I still keep my promise. This kind of mistake rarely occurs now.

      Read the Forbes Asia cover story, "Thoughts Of Chairman Li"
      How do you balance between being cautious with bank loans and investing in properties during very hard times?

      In 1967, Hong Kong turned upside down when the Red Guard started trouble in China. I bought a lot of property in Hong Kong at the time. If you studied politics, you would know that if China had wanted to take over Hong Kong, there would be so many ways. They didn't need to start trouble. If they started trouble, all the rich people would leave and it'd be an empty city. What good would it be? I was worried about my family, because bombs were going off everywhere. I needed to take care of my business, so I sent my family to Singapore and flew every Friday to visit them and returned to Hong Kong on Sunday evening. I did that for one year. In 1967, I bought a lot of property. A completed new building could be bought cheaper than the cost of the land. For example, I paid 60% of the replacement cost for a building in Kwun Tong. The seller wanted me to pay in U.S. dollars. I made the decision in five minutes. The seller, an American company, lost confidence in Hong Kong. The building had a floor area of about 330,000 square feet. I made my money back in 15 months. In other cases, the site had only half of the pilings done, and the seller would offer to sell the site on the cheap, because they could not complete the construction.

      If you look at our interim results, Cheung Kong's debt is about 20% of our book value, or maximum of 25%. But the 25% does not take into account the property already sold and short-term receivables from the sale. Our true debt ratio is much lower. Our debt is always set at a safe level.

      How did you prepare yourself to get into the property market?

      You have to keep an eye on supply and demand. You have to watch the political environment, and how government policy impacts the economy. Hong Kong is not isolated; it is always influenced by outside factors, like the U.S. economy, and now mainland China is the most important influence. If the Chinese economy is very good, our [gross domestic product] is quite good, and interest rates are not too high, then the demand and supply will be in balance. Still, you have to prepare for the worst-case scenario. If nobody buys your property, can you support your debt? For 56 years, especially after we went public, Cheung Kong has never had any financial problems. We can get bank loans at low interest rates--something like 30 basis points above HIBOR. People have confidence in you. My boy Victor also shares my conservative policy. One day, if I consider retiring--but I'm not yet considering--my boy Victor and the group's management team will continue to run the company in the same conservative manner.

      Why did you believe that it was not in China 's interest to run all of the wealth out of Hong Kong in 1967?

      If China took back Hong Kong, it would become a burden for them. They would get 5 to 6 million more people, but they already had enough people. What benefit would they have had? Hong Kong doesn't have natural resources. Its greatest asset is its hardworking people. Of course, I was quite clear at the time when I bought the property. But I did not borrow money; I used my cash reserves to invest.

      What was the next big opportunity in Hong Kong ? Was it in the 1980s?

      I bought a lot of property during times of uncertainty, like when in 1965, the Canton Trust and Commercial Bank went out of business, which led a run on Hang Seng Bank, or during the 1967 riots. The economy was fundamentally sound, even in 1967, but people were worried. Even my plastic toys buyer was worried. He hired over 38 planes in one month to take the merchandise to the U.S. We made 50% more profits than usual that year. I was certain that China had no intention to take back Hong Kong, so I continued to invest in properties, even during crises like the bank runs in the 1960s, [British Prime Minister Margaret] Thatcher's visit to China in 1982, and other tumultuous events that caused steep market drops.

      Your general view of Hong Kong hasn't changed?

      I hope I'm right, but things are now changing fast.

      No, Hong Kong still has many advantages. Our GDP is quite strong, and the Chinese economy is growing at 10% per year, which yields many opportunities for Hong Kong. However, our labor costs are too high compared to our next-door neighbors, and for political reasons, it is almost impossible for Hong Kong to import laborers. On the other hand, we need to develop new technology and higher-quality industries, but we don't have enough engineers and professionals. Yes, our banking and tourism industries--as well as basic infrastructure, such as cargo transport, airport, and telecommunications and other service industries--are doing very well. But some nearby cities are also highly competitive. You can see many industries are successful in Shenzhen and Guangdong. They also have many kinds of different industries. If Hong Kong wants to stay in the lead, people need better knowledge and [they need to] work harder. Hong Kong people need to see where we can compete.

      Many European countries, such as Finland, have high GDP growth and good industries. Denmark, Sweden and Norway are examples of countries with a small population that are doing well. Hong Kong is benefiting from China's strong economy. For instance, the ITU [International Telecommunication Union]conference is being held in Hong Kong for the first time, because Mainland China is such a huge market. Many local sectors benefit from the conference, like hotels and retail.

      Our principal policy is never take financial risk. All businesses of the group except 3G [third-generation wireless communications] are profitable. Property, energy, oil, power stations, highways, retail, even telecom are doing well. We are continuing to expand our container terminals in many countries.

      With 3G, we are behind our budget in some of the countries where we operate, like the United Kingdom. But in many other countries, we are on budget and will become cash flow positive in less than two years. Italy is doing very well. Globally, we have 14 million 3G subscribers today. Our 2G business is very successful, with over 26 million subscribers worldwide.

      In the long run, 3G, with its high speed, definitely has a good future. We have developed high-speed 3G, HSDPA [high-speed downlink packet access], which is 10 times faster than the original 3G. The network and license for HSDPA is the same as those for 3G. All you need to do is upgrade the network, and you can increase the transmission speed another 10 times in the future. People say 4G or 5G will overtake 3G, but that's not true. Last month, the Hutchison Group launched X-series in Europe. This is a convergence of mobile portability with the speed and multifunctionality of fixed-line broadband. Simply put, X Series augurs the true arrival of mobile broadband.

      Hutchison Telecom started in mobile phones about 22 years ago, but I still believe ordinary 2G has at least another 10 good years of business. 3G is very young compared with 2G, and we believe that it will continue to be widely adopted for a long time to come. That is why it does not affect us if our breakeven target is 12 or 18 months behind schedule. Our losses have been narrowing every year since 2005. In 2008, we should at least be cash flow positive. Our depreciation is HK $26 billion, or $3 billion. All our 3G businesses will definitely become cash flow positive by 2008.

      If 2G will enjoy another ten good years, will it be another 10 difficult years for 3G?

      In developed countries, 2G will become saturated. I think lots of good companies are also keen to build 3G, and now they are quickly catching up. We will reach 7 million 3G subscribers in Italy [at the end of December 2006], and it will be the first country to become profitable. Despite strong competition, our losses are narrowing every year, while our revenues are increasing. The handsets are better, nicer, smaller, quicker.

      In keeping with your approach to other businesses, you understand the technology and such. But in terms of seeing the market over an extended period of time, is it a different way of thinking about business than you have to think about building luxury buildings, or is it a similar process?

      Different. A building is simple. We already know how to build the best building and how to get the cheapest financing. Our company already has a good reputation. We have no problem selling units. Cheung Kong does extremely well in Hong Kong and Mainland China. But with 3G, we are facing more competition than we originally expected, and we are slightly over one year behind budget in the U.K. But we are doing well in other locations, such as Hong Kong, Australia and Italy.

      Read the Forbes Asia cover story, "Thoughts Of Chairman Li"
      But strategically, when you think about whether you want to be in this business, is it inconsistent with the business principles that you have used in other industries?

      When we started Orange [Hutchison's telecom brand], it was a tremendous challenge. We had just reached breakeven and were nearing a profit when we sold it for a huge profit. In the early 1990s, when oil prices were low, and Husky [Energy] was making a loss, there were many articles about Husky being an unwise investment. In recent years, the company has been doing extremely well. Besides Hutchison's 35%, I also have a 36% to 37% personal stake in Husky.

      We are also cautious while developing the 3G business. We had stopped bidding on a license in Germany. The cost of a license in Germany was much higher than in the U.K. We had originally agreed on a maximum bid with our partners, but they changed their mind later and raised the maximum. We said, "That's fine, but that's the limit. We won't go any higher than that." When they went over the top, we said, "Good luck to you. We won't go forward." It was over our budget. The German license was important, but we stopped because we are cautious.

      Though competition in the 3G business is strong, we are confident that our revenue will continue to grow, as high-spending customers are migrating to 3G. People will see the true picture two years from today. It will turn cash flow positive and will become profitable. Net growth of users will keep growing.

      You are confident about the cost structure that you have limited yourself to?

      Yes. The revenue is growing, while the losses are narrowing. The handsets are nicer and cheaper than before. It's only a matter of time before we reach profitability. The loss in 2006 was much less than in 2005, and the losses will continue to narrow in 2007. And we will be cash flow positive in 2008. In telecommunications, another one or two years is nothing. It is a growth business, and we expect 3G to be a major contributor to our group in the future.

      The growth prospects of China : Currently, 8% of Hutchison's revenue is from China . Five years out, what percentage of your business will be from China ?

      I would say approximately at least 15%. Cheung Kong also invests in China. Today, something like 10% to 12% of Cheung Kong's revenue comes from China, and five years from now, about 20%. We have many kinds of businesses in China. Our total investment in China is more than $15 billion for the group, both Cheung Kong and Hutchison, and I think the growth will be fast.

      Do you need to adopt new strategies?

      We will continue to invest. All our existing businesses are doing well. China is still a high-GDP-growth country. But China has its problems. The cost of so many of their agricultural products is higher than that of agricultural products in Western countries. Wheat, rice, corn and sugar cost more than in Australia, the U.S., and Canada. Rice in the U.S. and Canada is much cheaper than in China.

      Those farmers need to go to the city to get a job in manufacturing. You need approximately 20 million new jobs every year. On the other hand, the quality of products is also improving. This year alone, over 5 million freshmen will enter university. Every year, more and more university students graduate and enter the job market with better knowledge and skills, helping the economy to grow, especially engineering in the manufacturing industry. Five years after joining the [World Trade Organization], China is more open to the world.

      Will there be rule of law in China ?

      There is always room for improvements. It takes time [when you have] 1.3 billion people. Thirty or 40 years ago, there was almost no contact with the outside world. Now, the government is trying very hard to improve the rule of law, including commercial law.

      Your businesses will make prudent investments in China, and you have a sense of what the possibilities are five years out?

      I am still very confident. With our China investments, we're not looking at just the next five years; we are looking very long-term. A lot of what we do in China is infrastructure, like highways, power stations, bridges, container terminals and many kinds of properties. We have invested over $15 billion.

      Is progress in China inevitable at this point?

      Certainly. Products made in China are good and inexpensive, and their production technique and quality are continuing to improve, but they need to focus on sustained development and on creating new jobs. China still has 700 million farmers, and many of them need to change to a new industry. China needs a good economic base to provide enough jobs for the farmers.

      Last year, nearly 120,000 students were sent to Western countries for higher education. Many overseas Chinese who have received their education abroad and have patents and professional qualifications are returning to China with new skills. Some Chinese-Americans now see opportunity, and they bring their know-how and technology to start businesses in China. Most of them are very successful. They are also helping to advancing technology in China. Lots of China exporters are run by foreigners. They manufacture their products in China, but they also bring new technology into China.

      Read the Forbes Asia cover story, "Thoughts Of Chairman Li"
      Even though this market is very likely going to grow, as you said, and there are lots of opportunities, relationships (guanxi) are very important in China --for your company, for all companies. Do you see in the future you companies being able to continue to build those relationships?

      China has changed quite a bit. The importance of guanxi is gradually diminishing. For example, many properties are being auctioned publicly. Cheung Kong and Hutchison have acquired many property projects in China through an auction process. China has made good progress in this area. Did you see any property auctions 10 years ago? Now, 90% of our land bank is acquired from auctions. We prefer it this way. Our heaviest investments outside Hong Kong and China are in the Western countries, like Europe, Australia and the U.K., and we also intend to look for some investment opportunities in the U.S. Law and order is the most important thing in my mind. If a country doesn't have good law and order, I would rather not invest there. Even if we go, we would start small to test it.

      As you say, China is moving toward a genuine market system where guanxi won't matter as much, but the bid will. But it will be a while until China becomes that kind of market.

      I think China is moving more and more toward a free-market system. I see more properties being auctioned by the government next year. That is good for the country and also good for investors. Property is just one of our investments. We are heavily invested in the infrastructure sector, and China has the conditions to attract the foreign investors.

      Your company and other companies making significant investments in China nevertheless need to be sensitive to the relationship with the government.

      I returned to China in 1978, 29 years after the change of government. At that time, our company had already invested about $10 million in China. But of course, personally, I had made contributions to education as philanthropy. If a country does not welcome foreign investors, of course you need to be cautious. But after [Communist Party of China leader] Deng Xiaoping opened the door to foreign investors, our group's strategy changed. Any suitable opportunity that's done properly, we would consider.

      But even today, when their leadership changes in China , as it did a couple years ago, there is a new set of personalities, a new emphasis, if you will, in some policy. Does that mean that any businessman trying to be very involved with China needs to read the tea leaves?

      I think China will get better and better. Even though the leadership changes, the open-door policy will not change. They cannot go back. In China, the same as in other countries, the wealth gap is becoming wider. The same goes for Hong Kong. That is a global problem. Since Deng Xiaoping, the Chinese leaders have all been trying to improve the living standard of the people. With such a large country, you can't say that mistakes haven't been made, for example, by municipal governments. But when you look at China, you need to see it as a whole, with all of its good points and bad points.

      Is there some aspect to this changing China that you think can give your company an advantage over others?

      The 1967 riot was an unusual incident in China. I don't think anything like that will ever happen again. You cannot say it is perfect. But it's improving. Starting next year, 80% or 90% of the land for sale is through public auction. Some projects, like infrastructure projects, cannot be auctioned. That is true for many other countries, even Western countries.

      There are some industries the ownership of which China is very sensitive about.

      Telecommunications is one of them. Banking is already beginning to open up.

      In Hong Kong, there is unlimited access to fixed-line licenses. Any company in the world can have a fixed-line license in Hong Kong. The commitment is very small. But after this policy was implemented, were there any new local or overseas investors? None. Competition is very tough--toughest in the world. It is easy to get a license. But I don't see any true investor coming to Hong Kong to get a new license.

      So issues over investments in telecom have become such a big story as they have here in recent days?

      Don't believe the stories too much. If you know the truth, you will be disappointed. In Hong Kong, if you want a fixed-line license, you can definitely have one. I can only say that competition in the fixed-line business in Hong Kong is very tough. Why don't we have any foreign investors even with an open policy?

      In such a difficult situation, your foundation is willing to invest in telecom company PCCW.

      I don't want to comment on this case. The foundation has invested in a lot of companies with good returns, and they are 100% for charity. One of the items is almost five times bigger than the PCCW investment. This matter is over. Sorry, no comment.

      Read the Forbes Asia cover story, "Thoughts Of Chairman Li"
      If PCCW is not an investment in the long run for a relationship with China , that's not what this investment is about?

      I prefer not to comment on this issue.

      How will you continue your legacy for the next 50 years?

      We have already built a firm foundation upon which our core businesses can continue to grow and prosper. Hutchison is a multinational conglomerate operating in 56 countries, with boundless potential and bright prospects. I think there are plenty of opportunities in China, including cosmetics, pharmaceuticals and other new industries. If there are any pharmaceutical companies that want to enter the Chinese market with a partner, we would be very happy to be partners with them, as long as conditions are right. The pharmaceuticals business needs time and a great deal of effort to develop, but there is a vast market in China. There are plenty of good medicines on the market, but they are very expensive, and people cannot afford them.

      Are you familiar with the India pharmaceutical experiments?

      India has been very successful. I make a lot of donations to medical care projects, and I know what people need. So if you can make a profit and help people at the same time, why not?

      Give us a more specific sense of what the opportunity in China would be. Would it be to produce low-cost but life-saving pharmaceuticals not just for the domestic market but also to markets abroad?

      There is enormous potential in the Mainland pharmaceuticals business. Suppose the best medicine available in the U.S. could cure a man in three days, while some other Mainland-produced medicine would take four days to cure the man. The additional day it takes to get well does not present a major problem. It would be great if we could do business and also accomplish something meaningful.

      What about the intellectual property problem in China ?

      There are IP problems. The government leadership realizes that it is serious not only to Western investors but also for domestic Chinese industries, so they are already taking measures to improve the situation. IP gives people the assurance to spend the money, time and energy to create and to invent, and that is essential for a country moving toward the high-tech road.

      In China, where the pharmaceuticals industry is so afraid of IP theft, do you think conditions are satisfactory now, to be willing to consider partnership to develop pharmaceutical products?

      Personally, I take intellectual property very seriously, and I can see that China is also taking IP very seriously and taking steps to improve.

      A business that's sufficiently localized and watchful can operate with proper legal enforcement.

      IP is very important. Without IP rights, there would be no new technology developed. But China needs time and resources to set up a watchdog bureau. IP offenders must be brought to justice, even if you have to pay $1.10 in legal fees to recover $1 of loss. I think China is moving in the right direction to align itself with Western countries on the issue of IP.

      There is also a problem in the health care deliver system. Hospitals seem to make a point of selling very high-cost pharmaceutical products, forcing people to seek out local care in the villages. Is changing that delivery system necessary for a pharmaceutical business to succeed in China ?

      In China, I have set up many hospitals. Shantou University alone has five affiliated hospitals with a total of 1,800 beds, and there is also a Joint Shantou International Eye Center. We are also undertaking free medical services in many provinces in China and therefore have some knowledge and experience in this area.

      So, Mr. Li, you still have no retirement plans at this time?

      No, no plan.

      Are you trying to provide a model or, in some way, some kind of example that will help to change China . And what is the change that you would like to see?

      I cannot say that I can change China, but at least I can set a personal example. I set up a foundation that I refer to as my third son. This idea dawns on me like an enlightenment, not coming from any books. Since 1980, I have dedicated to this son not only my assets but all my heart, and I believe that my colleagues in the foundation and my family are--and will remain--as committed as I am to serve his causes, reshaping destiny through education and seeking efficient initiatives that can forever help those in need.

      In Asia, our traditional values encourage and even demand that wealth and means pass through lineage as an imperative duty. I urge and hope to persuade all of us in Asia that if we are in a position to do so, that we transcend this traditional belief. Our reorientation of perspective today could bring forth great hope and promises for the future.

      I will not inject the shares of my listed companies--Cheung Kong, Hutchison and Husky Energy--into the foundation. Instead, I will donate non-core assets. No family members or directors will benefit from the foundation. It is 100% for charity.

      The foundation will go on continually, unless war or politics puts an end to it. As I've said before, I will donate one-third of my wealth to the foundation to enable it to benefit more people.

      I have worked hard to establish my business over the past decades, and now we are seeing the fruits of our labor. Not only is my group reaping the benefits, I am also able to make greater contributions to worthy causes.

      Five years ago, there was a new emphasis from your foundation, right?

      No change. We try to create a new model. In the medical college, the program was changed from five years to seven years. The principle behind what we are trying to do at Shantou University has not changed, but every few years we have a new emphasis going on, different focus of reforms. Shantou University will be much better in the coming three to five years.

      What is the model that it will try to establish for other universities in China?

      The credit system, and the emphasis on students' responsibility to seek the truth. We have invited many overseas scholars to visit the university, as we believe that the understanding of Western ideas and concepts, together with the knowledge of Chinese culture and history, will help the students expand their horizons.

      The worldwide network of medical institutions that receives support from the foundation makes it easier for the medical college to form partnerships and links with overseas institutions. It is not a top-down university. The people inside think I am too Western. I always keep an open mind; I try to study more and learn more. I believe that if you impart critical thinking skills to the students, they will have a good future.

      Look at the new library being built at Shantou University. As a knowledge center, it is a totally new concept, bringing together physical books and an electronic learning environment. This whole changing of perspective of learning in China, instead of rote learning, equips students with critical thinking skills necessary to be highly responsive in a rapidly changing world.

      Is this your dream for China ?

      My dream for China is a strong nation caring for the well being of its people. As a matter of fact, China has been making excellent progress. Even China's competitors have to agree that it is getting better and better. You can see how China has changed in the past 10 to 20 years.

      For instance, in 1978, when I was in China, I went to see some friends in the guesthouse. They would write notes to me because they were afraid of being eavesdropped on. They had been scared by the Cultural Revolution. Today, they can openly criticize the government.

      I love democracy, but I also understand that different countries and peoples have different values. However, democracy without law and order is no democracy. We have many investments in democratic countries. A liberal society has to be founded not only on law and order but a prosperous economy.


      Li Ka-shing
      Debra Lau

      Dubbed Superman by the local press, Hong Kong business tycoon Li Ka-shing has made a fortune in real estate, telecommunications and energy. Now the billionaire is trying to build an old-fashioned media empire through his new economy assets.

      The 73-year-old controls Chinese Web portal Tom.com (otc: TOCOF - news - people), which went public in March amid much fanfare on Hong Kong's Growth Enterprise Market. Despite the nearly $90 million raised from the IPO, the portal has suffered operating losses because of a weak business plan. Its stock now languishes at around 23 cents a share after reaching a high of $1.97.

      But Li's not worrying because he's got plans to generate revenue by acquiring old economy assets. As part of that strategy, Tom.com in October purchased a 50% stake in the weekly newsmagazine Yazhou Zhoukan, read by Chinese in Asia, Europe and the U.S.

      Now Li is setting his sights on the magazine's parent, Ming Pao Enterprise, which also publishes Ming Pao daily and the entertainment magazine Ming Weekly. The publisher had net profits of $6.4 million for the six months ended Sept. 30, 2000, compared to $1.01 million during the same period a year before. Analysts predict continued revenue and profit growth in the region's media stocks based on advertising sales and an improved economy.

      If the deal goes through, Li will have complete control of Yazhou Zhoukan, which was created in 1987 and has an online version and more than 100,000 print subscribers. Already an influential figure as chairman of Hutchison Whampoa, Li will be in a better position to voice his opinion in his new publications, and also in the Sing Pao daily and Wide Angle magazine, both owned by his close business associate Chan Kwok-keung.

      Not bad for someone who barely had his hand in any media outfit a year ago. But why is the business-savvy Li focusing on this new venture rather than on those that generate better returns? For one, the thin-skinned Li can limit any bad press about him and his youngest son, billionaire Richard, frequent targets of liberal pro-democracy publications that claim the Li family dominate the Hong Kong business landscape through anti-competitive means.

      But more importantly, Li, one of Hong Kong's wealthiest men with an estimated worth of $11.3 billion, is poised to score big points with leaders in Beijing. Indeed, the pro-Beijing Li is already well plugged with China's higher-ups. Deng Xiaoping was said to have sought advice from him on how to handle Hong Kong's future, and Li has rubbed elbows with President Jiang Zemin and former premier Li Peng. Meanwhile, Li's close ties to Chief Executive Tung Chee-hwa have also fueled charges that his government favors his family in business deals. Nevertheless, Li will gain further clout in a country where guanxi (personal relations) is key.

      Although Li said the editorial integrity of his new acquisitions will remain intact, China has certainly exerted influence over free speech, even banning Ming Pao's critical coverage on numerous occasions. If that happens, Li will have to fend off even more criticism. And that's a hard job, even for Superman.
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