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NOVEMBER 3, 2000 VOL. 26 NO. 43 | SEARCH ASIAWEEK

Master of Guanxi
How Li wins people - and deals
By THOMAS HON WING POLIN

ALSO:
Struggle:
Why Asia's battle against cronyism is taking forever
Fall: Suharto's buddies are fighting their way back
Fighter: Sabri Zain on the new Malaysia
Reformers: Crusaders wage war against corruption
Cronyism in Asia: A primer

No one has connections like Li Ka-shing. In his hometown of Chaozhou in southern China, he is a hero for building a university. He is said to have shared breakfast congee with Jiang Zemin. Both times that China's president visited Hong Kong — for the 1997 handover and the opening a year later of Chek Lap Kok airport — he stayed at Li's hotel, a unique honor. And Li's partner in developing Beijing's glitziest commercial complex was Tung Chee-hwa, long Li's friend before he became chief executive of Hong Kong. Li, the territory's premier tycoon, is a recognized master of the art of guanxi (personal relations).

Tapping such ties to facilitate business, though it can be controversial, is usually a far cry from either cronyism or corruption. Businessmen worldwide do it all the time. From Henry Kissinger to Richard Branson, the greatest businessmen know how to build relationships with people that will buttress their commercial empires. In Asia, Li sets the pace. "What he is so good at is making the right gesture at the right time, before the right audience," says a senior executive of a rival Hong Kong company. "That helps him win hearts and minds — and the trust of potential partners."

Li's ties in Beijing date back to the early 1980s. When Deng Xiaoping wanted local advice on how to handle Hong Kong's future, he summoned Li and pro-Beijing magnate Henry Fok. Li's efforts to build up his businesses and connections in China accelerated after 1992, when Deng made his famous "imperial tour" of the South to kickstart the country's stalling market reforms. In Beijing, Li was enthusiastically received by Jiang and then-premier Li Peng. "China's leaders saw him not just as an influential player in Hong Kong, but also someone who could help rally local business leaders to their causes," says a trade consultant.

Li's biggest and most controversial mainland project is the $2-billion Oriental Plaza in central Beijing. It was the Tung clan's Orient Overseas International Ltd. (OOIL) that brought Li into the venture as majority stakeholder. In 1994, the deal hit a roadblock when McDonald's refused to move from a site earmarked for the vast compound. Li Peng reportedly helped resolve the dispute. In 1996, city authorities renegotiated their contract with the U.S. fast-food giant, granting it better concessions and the right to open many more restaurants in return for moving out. Another fracas erupted over the design of Oriental Plaza, whose size and height infringed local planning rules. Li scaled it down and built it.

Oriental Plaza deepened the ties between Li and Tung. In the early 1990s, OOIL entered into a mutually profitable alliance with Hutchison International Port Holdings (HIPH), a subsidiary of Li's Hutchison Whampoa conglomerate. Wherever OOIL shipped its goods, Hutchison, flush with property profits from Hong Kong, would build on its partner's introductions to acquire a stake in container ports. Take Felixstowe, Britain's largest port. Tung and Li bought the nine-container facility in the 1980s. Later OOIL sold its minority stake to HIPH, which today owns the port on a freehold basis. When Tung, with Beijing's blessing, ran for Hong Kong chief executive in 1996, it was no surprise that Li backed him.

Such close ties have prompted charges that Tung's government favors Li and his family in business deals. The critics cite the award by private treaty to develop a Cyberport to Richard Li, Li's younger son; rule waivers for the listing of Li's Internet portal, Tom.com; and Richard Li's takeover of Hong Kong Telecom. Such concerns were repeated in a European Parliament report on post-1997 Hong Kong last week, which cited the "undue and dominant influence" of some local tycoons and said that Li family businesses "account for between one-quarter to one-third of stock market capitalization." The Li camp, which had denied charges of favoritism, rejected the Europeans' calculations, saying Li clan companies added up to less than 18% of market capitalization.

Li knows how to cultivate grassroots support too. He has donated $450 million to charitable causes in Hong Kong and China, with a third of it going to the construction of his hometown university. In September, he gave another $10 million to set up an Internet Technology Research Center at Beijing's Tsinghua University. "Li always told us he makes his money in Hong Kong and gives it back home," says a Chaozhou official. "Everyone knows Li Ka-shing is a Chinese patriot." And that's not bad for business.

With reporting by Allen T. Cheng/Hong Kong and David Hsieh/Beijing

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