Is the tide turning for Hong Kong’s tycoons? It may feel like it for Raymond and Thomas Kwok, two property moguls arrested by the city’s corruption watchdog last weekover suspected bribery. But the billionaires can relax: Hong Kong remains a low-risk haven for the one per cent, and those who invest in them.
The Kwoks, who co-chair Sun Hung Kai Properties, are the biggest fish the corruption watchdog has tried to fry since it was founded in 1974. But Hong Kong remains pretty clean, ranking above the United Kingdom for corruption, according to Transparency International. Scandals do occur – even outgoing chief executive Donald Tsang was criticized for ill-advised private jet trips – but when they do, the rule of law prevails.
A bigger worry for investors is political meddling. Hong Kong’s unpopular chief executive elect, CY Leung, is seen as a conduit for the views of Beijing. But the investigation against the Kwoks had been in the pipeline for months before Mr. Leung won the elections of March 25. Besides, while Beijing can easily manipulate Hong Kong’s access to mainland markets or tourists, it can’t touch the legal system. The city’s judiciary is independent; its chief prosecutor is an Australian.
One thing that should worry the tycoons is their diminishing usefulness to Beijing. When Hong Kong was handed from the U.K. to China in 1997, the support of Cheung Kong founder Li Ka-Shing helped ensure a stable transition. Now he and his peers, like the Kwoks or New World Development founder Cheng Yu-tung, stand for very little, except maybe the conspicuous inequality that politicians everywhere claim to oppose.
But there are more effective ways to unseat the oligarchs. Prices of residential property in Hong Kong are at levels last seen in 1997, because the government limits land supply, which inflates the income of a handful of developers like Sun Hung Kai. Create new supply, as Mr. Leung has suggested he might, and prices would fall, depriving the moguls of some of their magic. By contrast, a politically motivated graft crackdown would probably create sizable capital flight.
The time for a tycoon takedown may yet come. Many of Hong Kong’s super-rich will be nervously fingering their Canadian passports. Still, the Kwoks’ predicament should be seen as what it probably is: an independent watchdog doing its job. Hong Kong remains as investment-friendly as ever.