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Concerns Rise Over CK Hutchison Port Deal and China's Influence in Hong Kong
Concerns Over Beijing's Influence in Hong Kong

Introduction

HONG KONG, April 2 (Reuters) - Analysts express growing concern over Beijing's influence in Hong Kong following a delay in CK Hutchison's sale of its Panama ports to a U.S. group, a deal criticized by Chinese media.

Context

Definitive documentation for the port operations near the Panama Canal was due to be signed by April 2, according to the March 4 sale announcement, but sources have said the signing would be delayed and it was not a hard deadline. CK Hutchison did not immediately respond to a Reuters request for comment.

Wednesday was meant to mark the first part of a larger deal, in which a BlackRock-led group would buy 43 ports in 23 countries.

Developments

The CK Hutchison transaction, which would bring the firm more than $19 billion, has faced backlash from pro-Beijing media portraying it as a betrayal of China and a potential violation of national security. Chinese authorities are also reviewing the deal on grounds of fair competition.

  • "This issue bodes ill for Hong Kong, regardless of what comes next," wrote Steve Vickers, the CEO of the political and corporate risk consultancy Steve Vickers and Associates Limited in Hong Kong.
  • "Should CK Hutchison buckle to Chinese demands, Hong Kong's reputation for enjoying a high degree of autonomy, and hence its standing amongst Western investors as a safe place to do business, will suffer serious harm."

Since the COVID pandemic and China's imposition of a national security law, Hong Kong has struggled economically and is widely seen to have taken an authoritarian turn.

The U.S. State Department said in a report earlier this week there was an "overall trend ... of centralization under Beijing."

  • "Beijing permits Hong Kong to retain some differences from mainland China, including commercial and trade policy, but only so far as these policies offer unique contributions to Beijing’s interests," it noted.

Christopher Beddor, Deputy China Research Director at Gavekal Dragonomics, highlighted the broader implications of the Panama ports deal.

  • "It's hard to escape the conclusion that Beijing now clearly views CK Hutchison as a company with obligations to the Chinese national interest, and faces retaliation if it does not comply with those obligations," Beddor said.
  • "Markets will almost certainly do at least some read-across to the other Hong Kong conglomerates."

U.S. President hailed the BlackRock transaction as a positive step in "reclaiming" the Panama Canal. It remains unclear how Washington will react should the deal fall through, though sources told Reuters that negotiations with BlackRock will continue.

The controversy risks overshadowing Hong Kong's mega events aimed at promoting the city globally, which officials often describe as showcasing "good Hong Kong stories."

Last week, the Hong Kong Rugby Sevens took place in a new 50,000-seat harborside stadium, part of the mega events that also include Art Basel, performances by Coldplay, and a July football tournament featuring Liverpool, Arsenal, Tottenham Hotspur, and AC Milan.

  • "There are two realities about Hong Kong - the social aspect and the business aspect," said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis.
  • "(Socially) Hong Kong is still safe and has a boost because of where the world is heading," she said. "In business, though, people feel Hong Kong is now under a different regime," Herrero added.

Conclusion

This unfolding scenario reflects the complexity of Hong Kong's current relationship with Beijing and the implications for both business and social environments within the city. The outcomes of these developments will likely play a crucial role in shaping Hong Kong's future and its standing in the international community.