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Hong Kong's Li Ka-Shing (LAURENT FIEVET)
Hong Kong's Li Ka-Shing (LAURENT FIEVET)


Li Ka-shing prepares a dubious legacy Add to ...

Li Ka-shing is taking the Chinese approach to succession. After years of leaving investors guessing, Hong Kong’s richest man named his eldest son Victor as heir to his business empire. That should prevent a power scramble, and assures him a loyal follower who shares his values. The newcomer will even be surrounded by a coterie of long-time acolytes of the elder Mr. Li. It’s not dissimilar to the leadership transition happening in Beijing.

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First, consider the careful choreography. Victor’s succession was widely telegraphed: He has been number two at Cheung Kong Holdings and Hutchison Whampoa since the 1990s. There’s much to be said for removing the element of surprise. Similarly, since Deng Xiaoping wrested power in 1978, China’s leadership transitions have mostly been meticulously planned. Probable next president Xi Jinping has held several of the same party posts as incumbent Hu Jintao.

Then there’s the insurance policy. Mr. Hu and outgoing premier Wen Jiabao will help stock the Politburo’s top standing committee with loyal forces before they stand down in 2013. They’ll probably also join former leaders, such as Jiang Zemin, who continue to influence events behind the scenes. It’s not much different for Victor Li. He will head a board stocked with long-time allies of his father. Cheung Kong’s directors have served for an average of 21 years. Even the independent directors have notched up an average 19 years each.

Continuity alone doesn’t make a legacy, though. In both the People’s Republic and the Li empire, the new brooms will need new tactics. China’s growth is slowing, and its returns on investment falling. Mr. Xi and likely premier Li Keqiang will need to create a more sustainable, and environmentally less destructive, model. Li Ka-shing’s conglomerates tell a similar story. Cheung Kong and Hutchison Whampoa have delivered almost flat returns over the past five years, according to Eikon data.

Mr. Li’s challenge may be that his model is outdated. Hutchison trades at a discount of 37 per cent to its component parts, according to Credit Suisse, suggesting it might be worth two-thirds more if it were broken up. For China, there’s still strength in scale. But while Victor Li, Xi Jinping and Li Keqiang are there in large part to ensure continuity, they may create most value by deviating from their predecessors’ grand plans.

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