HONG KONG Without question, the business sector has been the top beneficiary of the Hong Kong handover to China. Under "one country, two systems," property conglomerates and other local companies have seized the lion's share of mainland opportunities while bowing to the political establishment in return.
Consider the new landmark in Xujiahui, the prime commercial spot in downtown Shanghai. The soon-to-open ITC, or International Trade City, sprawls over 99,000 sq. meters of land and features offices, stores and a hotel. The land alone is worth 21.77 billion yuan ($3.18 billion), and the megaproject is 100% owned and operated by Sun Hung Kai Properties.
The Hong Kong developer was a slow starter on the mainland. There was no substantial revenue in China for the year ended in June 1997. It was then constructing its first major mainland project, the Sun Dong An Plaza -- now Beijing apm -- in the capital's commercial center of Wangfujing.
In its annual report issued in October 1997, then-Chairman Walter Kwok Ping-sheung, who would be ousted a decade later after a family feud, wrote that the company would take a "prudent and gradual approach to investment in mainland China." Exposure there would be "limited to less than 10% of the group's total assets," with projects to be confined to Beijing, Shanghai and Guangzhou.
Fast-forward to June 2016: Its balance sheet showed 117.7 billion Hong Kong dollars ($15.1 billion) worth of mainland property developments and investments. That accounted for 19% of total assets. With a presence beyond the three cities, the fair value of the company's investment properties under development in China came to HK$31.1 billion -- 2.6 times the figure for Hong Kong.
It is a similar story for Hang Lung Properties. At the time of the handover, the developer, then called Amoy Properties, was building two projects in Shanghai: Plaza 66 and The Grand Gateway. Its revenue from China was virtually nil.
For the latest fiscal year through December, its property leasing revenue from the mainland came to 3.4 billion yuan, exceeding that from Hong Kong. The two initial Shanghai projects are its top mainland breadwinners, with combined revenue of 2.2 billion yuan, accounting for 20% of the company's total revenue.
Including two projects now underway, Hang Lung has 10 complexes in eight mainland cities, from Shenyang to Kunming.
BIG RED MACHINE Early birds have gained even more ground. Henderson Land Development's mainland unit, Henderson China Holdings, logged a profit of HK$637 million for the fiscal year through June 1997, with assets in Beijing and Shanghai.
The conglomerate now runs city-gas projects in 131 mainland locations spread over 23 provinces, autonomous regions and municipalities, providing 17,140 million cu. meters of gas last year. It operates six water projects as well. Mainland revenue came to HK$9.45 billion, equivalent to over a third of the total.
The property developers benefit not only from their footprints on the mainland but also the flow of companies and visitors coming into Hong Kong from the north.
In Henderson Land's latest annual report, issued in March, Chairman Lee Shau-kee said it has been benefiting from "a combination of limited new supply and sustained demand from mainland companies," and that "the office leasing market remained buoyant in Hong Kong."
Visitors -- who come by the millions every year -- spend in stores, restaurants and hotels that are, in many cases, run by the conglomerates or housed in their buildings.
The big businesses are also embedded in China's political machinery and wield substantial clout in local politics.
Under the undemocratic system for selecting Hong Kong's top leader, only 1,200 people are able to cast ballots in a city of 7.37 million. Major corporate groups control considerable shares of the votes.
According to local newspaper Ming Pao, Wheelock group has 12 votes, including former Chairman Peter Woo Kwong-ching and his son, current Chairman Douglas Woo Chun-kuen. New World Development and Sun Hung Kai Properties hold eight votes apiece. Li Ka-shing's Cheung Kong group has seven and Henderson Land has six, including the respective founding chairmen and each of their two sons.
Numerous Hong Kong executives make an annual pilgrimage to Beijing in early March, to take part in the Chinese People's Political Consultative Conference. Though mostly ceremonial, CPPCC membership is essentially a stamp of approval from the central government, and that stamp is a powerful tool for smoothing business dealings and forging political connections.
Victor Li Tzar-kuoi, the eldest son of Li Ka-shing, and Peter Lee Ka-kit, the first son of Lee Shau-kee, are both members. So are Peter Wong Tung-shun, the head of HSBC's Asia-Pacific operations, Victor Fung Kwok-king, the honorary chairman of Li & Fung, and a host of other businesspeople.
Yet, times are changing. Beijing's "alliance with Hong Kong big businesses, designed to stabilize the political system in Hong Kong, may be reaching its limits," said Toru Kurata, a professor at Tokyo's Rikkyo University who specializes in Chinese and Hong Kong politics. He said rising mainland companies' efforts to crack the Hong Kong market are beginning to shake the arrangement.
Ronnie Chan Chi-chung, the chairman of Hang Lung Properties, has signaled his wariness over deep-pocketed mainland peers making forays into the territory. "It's a market of short-term irrationality," he said at an earnings briefing in January.
After repeated failures to buy land and a year of strong property sales, it was left with fewer than 100 units of property in its local inventory at the end of last year.
China's economic slowdown and changing business conditions may spur some Hong Kong conglomerates to rethink their strategies as well. New World Development, which started its mainland investment in a Guangzhou hotel in 1980, is now restructuring its Chinese business. In early June, it announced plans to take a Chinese department store subsidiary private, after being squeezed by e-commerce.
Li Ka-shing's CK Hutchison Holdings now makes half its revenue in Europe. Neither the tycoon nor Vice Chairman Victor Li has explicitly discussed a shift away from the mainland. But recent investments and divestments suggest a new focus on Europe, Australia and Canada.