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--:-- Alison Pohle: Welcome to The Journal, our show about money, business, and power. I'm Alison Pohle.
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--:-- Alison Pohle: It's Tuesday, April 15th. Coming up on the show, how Hong Kong's richest man ran afoul of Xi Jinping.
--:-- Alison Pohle: In the glittering financial center of Hong Kong, a land known for its concentration of ultra-rich, one billionaire outshines them all. Billionaire entrepreneur Li Ka-shing. Hong Kong tycoon Li Ka-shing. Billionaire Li Ka-shing. Li Ka-shing. Li Ka-shing. multi-billionaire Li Ka-shing. Li Ka-shing is an investing icon. The 96-year-old tycoon is worth $36 billion and is the richest man in Hong Kong, a businessman so revered in Asia, he's earned an epic nickname.
--:-- Alison Pohle: Actually, in Hong Kong, people kind of gave him the nickname of Superman just because he's just so good at doing deals over the years and always at perfect timing. So he's Superman.
--:-- Alison Pohle: That's our colleague, Rebecca Fung. He's kind of like the Warren Buffett of Asia. You know, Buffett is 94, he's 96. When Lee Kexing does anything, everyone stops to try to figure out what's happening and what's the meaning behind it.
--:-- Alison Pohle: Frequently, reporters would quiz Lee Kexing about his economic forecasts. All sorts of questions about Hong Kong economy, global economy, and he's just giving his take. How does he feel about mainland Chinese investors investing in Hong Kong? More capital. Come to Hong Kong is a welcome. Good for Hong Kong. Is the U.S. Federal Reserve going to cut interest rate? The analysts and journalists were just asking his take on anything.
--:-- Alison Pohle: For a long time, Li was prominent in both Hong Kong and mainland China. He was an early investor in China's economy, and Beijing courted him for his money and fame. And for decades, he's rubbed shoulders with Chinese leaders.
--:-- Alison Pohle: Which is why, in recent weeks, attacks from Chinese media on Li Cushing have been so jarring. Yeah, it's surprising. It's very harsh, actually. Pro-Beijing newspapers have aggressively criticized Li. Betraying and selling off all Chinese people. Yikes.
--:-- Alison Pohle: So yeah, like, these editorials were quite scathing. Yeah, it really sounds like it. Why are they suddenly attacking someone who's been the Superman of investing? So it all goes back to this one deal. That kind of anger, this one person in China who is more powerful and sort of has more sway than Li Ka-sing. And that person is the president, Xi Jinping.
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--:-- Alison Pohle: Welcome to The Journal, our show about money, business, and power. I'm Alison Pohle.
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--:-- Alison Pohle: So he started with a kind of a very humble beginning. Lee began his career in the 1950s by manufacturing decorative plastic flowers. He eventually turned into a savvy real estate investor and bought low-priced land in 1960s Hong Kong. And then his kind of rise to fame was in 1979 when he took over this massive trading group called Hutchinson Wanpoa It was considered a a very like a landmark deal Because you know in 1979 when he took it over Hong Kong was still under British control. So that deal was the first that put a local Hong Kong person in charge of the kind of business that had always been run by British nationals.
--:-- Alison Pohle: Lee and his family were part of a new rising class of wealthy locals in Hong Kong. For decades, Hong Kong's free market economy allowed tycoons like Li to prosper while the island was still under British rule, turning Hong Kong into an economic powerhouse. When the British transferred control of Hong Kong back to China in 1997, China pledged to keep Hong Kong's capitalist system for at least 50 years.
--:-- Alison Pohle: In the years that followed, Li's empire only grew. His flagship company, C.K. Hutchison, became a global conglomerate with interests in real estate, drugstores, and telecoms. His assets were in Hong Kong, mainland China, and around the world, including dozens of trading ports.
--:-- Alison Pohle: So Li Ka-xing's C.K. Hutchison has a bunch of different ports around the world. And among those ports, there were two ports at either end of the Panama Canal. It is those two ports on the Panama Canal that have become the center of Lee's current headache.
--:-- Alison Pohle: Because lately, U.S. President Donald Trump has become very interested in the Panama Canal. Security, the Panama Canal. Has anyone ever heard of the Panama Canal? Because we're being ripped off at the Panama Canal like we're being ripped off everywhere else.
--:-- Alison Pohle: To Trump, Lee Cushing's Hong Kong company controlling key ports in the canal was a problem, just as if Beijing was controlling those ports. Trump saw that as an unacceptable economic and geopolitical risk. And above all, China is operating the Panama Canal, and we didn't give it to China, we gave it to Panama.
--:-- Alison Pohle: It seems clear that he was referring, when he said China, he was referring to C.K. Hutchison, so Lee Cushing's firm. So Trump says that China's operating the Panama Canal, but this is not technically true. To clarify, C.K. Hutchison owns two of the five ports on the canal but doesn't control it. The government of Panama owns and operates the canal.
--:-- Alison Pohle: All of which brings us to Lee Cushing's latest and possibly most controversial deal. In early March, the group C.K. Hutchison announced that it signed an agreement with a consortium of investors led by BlackRock, the world's largest asset manager, which is an American company.
--:-- Alison Pohle: And in this case, the BlackRock consortium agreed to buy majority stakes in the ports on either end of the Panama Canal and a bunch of other ports around the world. It would be the biggest deal of Lee Cushing's career, worth nearly $23 billion. And as Trump continued to threaten tariffs, it looked like a savvy business move.
--:-- Alison Pohle: It meant Li would be dumping a bunch of his shipping ports ahead of a possible global trade war. So, yeah, for like a business person, it makes sense to de-risk, as they would say.
--:-- Alison Pohle: At first, China's reaction to the agreement was muted. But within weeks, things got a lot more complicated. Because President Trump loved the prospect of this deal, since the company leading the purchase of those ports was BlackRock, an American company.
--:-- Alison Pohle: Trump saw that as a win against the Chinese. After the deal was signed, President Trump made this speech. My administration will be reclaiming the Panama Canal, and we've already started doing it. President Trump kind of bragged about it as a victory. He said that we're taking it back.
--:-- Alison Pohle: Just today a large American company announced they are buying both ports around the Panama Canal What looked like a win for Trump looked like a loss for China After Trump's statements, how did Xi Jinping's reaction change? It changed pretty dramatically.
--:-- Alison Pohle: You know, Xi was infuriated by it. And that's according to people familiar with the matter, because they were caught off guard that they suddenly lost this very important bargaining chip.
--:-- Alison Pohle: U.S.-China relations are at their lowest point in decades, and Chinese officials saw Trump's desire for the two ports as a crucial piece of leverage. Our reporting basically showed that before CK and BlackRock signed the deal, Chinese officials were trying to include the ports in the massive negotiation deal with the U.S.
--:-- Alison Pohle: And suddenly the deal itself became geopolitically sensitive. Yeah. In public remarks, BlackRock CEO Larry Fink said that the growing tariff rift between the U.S. and China could complicate the deal.
--:-- Alison Pohle: Lee and his son Victor, who now chairs Hutchison, pressed on with the deal anyway. But China would amp up the pressure to block the deal from being finalized. And its tactics are starting to present a real challenge.
--:-- Alison Pohle: And so now what's the big question looming over this deal? Basically, the biggest question is like, is the deal going to get done or not? That's after the break.
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--:-- Alison Pohle: Li Ka-shing was in a bind. His deal to sell two Panama Canal ports had landed him in the middle of a global dispute between two of the world's most powerful men, Donald Trump and Xi Jinping.
--:-- Alison Pohle: Xi Jinping didn't like the deal, but he had to proceed with caution. Why can't China's leader simply say, nope, this isn't happening? Why can't he just kill this deal? It'll be a really, really risky move if he does that, because China right now is in the middle of courting foreign investors and hoping for foreign direct investment into China.
--:-- Alison Pohle: Xi Jinping is walking a fine line. He's been aggressive in the trade war with the U.S., but he's also trying to put on a charm offensive to bring foreign investment into China. Xi's message? China is a safe, fertile ground for business.
--:-- Alison Pohle: And if he actually forcefully pulled the deal, it sends quite a bad signal, I think, to global investors, especially because the ports are not actually in mainland China or Hong Kong.
--:-- Alison Pohle: So we know that Xi Jinping is not happy with this deal. What options does Beijing have to actually put a stop to it? So there's like a three-part response to this, basically. Okay.
--:-- Alison Pohle: First, that there's, you know, that series of attacks on newspapers. And then, secondly, officials were telling some of the Chinese state-owned businesses to not do new business with Li Ka-Sheng.
--:-- Alison Pohle: And the state-owned firms, you know, were told to hold off on any new collaboration with businesses linked to Li Ka-Sheng and his family. That's already sort of an escalation. Yeah.
--:-- Alison Pohle: And then there's like a third tool that Beijing can do, and it has done, basically, that they can throw in an antitrust review. The Chinese government likely can't fully block the deal through this antitrust review, but they can significantly tie it up with red tape.
--:-- Alison Pohle: We had reporting that basically shows that the officials in Beijing are hoping that by sending signals about potential regulatory challenges, the two sides Hutchinson and BlackRock would just pull back by themselves voluntarily
--:-- Alison Pohle: The delay tactics appear to be working The BlackRock consortium had planned to have the deal finalized by April 2nd That didn't happen Now, members of the consortium are exploring breaking off the Panama ports into a separate deal.
--:-- Alison Pohle: In recent weeks, Beijing has also been working to line up alternative buyers should the deal fall through, according to people familiar with the matter.
--:-- Alison Pohle: China's pressure tactics continue, but the biggest challenge so far has come from Panama. Last week, in the latest twist, Panama's top auditor accused C.K. Hutchison of misconduct.
--:-- Alison Pohle: Panama's top auditor is accusing the company of owing $300 million in dues. This is the most serious hurdle yet that this deal is facing. China and Panama are close, and the Chinese corporations invested a lot in Panama.
--:-- Alison Pohle: This audit began after the deal was announced, and now that the auditor is looking into it, it could potentially drag on for months, and that could definitely scuttle the deal.
--:-- Alison Pohle: In a statement, Panama Ports Company, the unit of C.K. Hutchison that operates the two ports, denied wrongdoing.
--:-- Alison Pohle: A senior Panama official said that the legal process could take between six months and a year. So, given all those challenges, what's going to happen to this deal? We really don't know.
--:-- Alison Pohle: It kind of depends on what else at the moment that Beijing can do to make Li Ka-shing and his son care. People kept saying and investors kept saying that Li Ka-shing only has 12% of revenue from Hong Kong and mainland China. So it's not that much in the grander scheme of things.
--:-- Alison Pohle: Maybe he just doesn't care. However, 12% is still 12%. Right. It's not nothing. It's not nothing. Yeah.
--:-- Alison Pohle: So I think right now the decision kind of rests within Li Cushing and his son and his close advisors to basically weigh going through with the deal. How much would that anger Beijing? And what's sort of the trade-off here?
--:-- Alison Pohle: What does this say about Li Ka-shing's legacy? I mean, he's 96. It does seem to be a bit of an unfortunate final act of his decades of business career. But I think what it says more is just that the company that Li Ka-shing built many decades ago is now in a different environment.
--:-- Alison Pohle: So if other tycoons are watching the so-called Superman get punished this way, what message does that send to them? It sends a very chilling signal to other Hong Kong tycoons and their kids, second generation basically.
--:-- Alison Pohle: And these tycoons will be watching very closely because many of these tycoons are the people and the families who made Hong Kong Hong Kong over the years.
--:-- Alison Pohle: And it basically says that, you know, doing business is no longer just business. There's political risk involved in that. I think they're going to ask themselves which side they want to be on, whether it's U.S. or China.
--:-- Alison Pohle: And I'm not sure which side they will end up choosing, but that's a question that they would definitely ask themselves. Because it seems now that you can't just do like a commercial deal. you do need to choose a side.
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--:-- Alison Pohle: Thanks for listening. See you tomorrow.
