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Interview with Richard Li of Hong Kong
 
 
When Richard Li sat down with Insight for our December 1999 interview which was actually completed in November in Hong Kong, Insight asked Mr. Li what was his vision for Pacific Century Cyberworks, his Hong Kong flagship company. 

Richard’s response was:
“ In the simplest terms Pacific Century Group aims to be the leading Internet investment
vehicle in the Asia-Pacific region, both by acquiring and funding net ventures and by
developing our own businesses. The model is akin to that of Japan’s Softbank or America’s GMGI, but we are going to go much further than that. At the core of our strategy is the Group’s Hong Kong-listed technology flagship Pacific Century Cyberworks. That was launched in May 1999 through the acquisition and renaming of a small Hong Kong listed company. Today PCC has a market cap of US$6.6 billion and is the third largest Internet company in Asia.”

On February 29, the Pacific Century Group took an immense step toward the realization of the goal set out above when it reached agreement with Cable & Wireless HKT Ltd. to acquire Hong Kong’s biggest telecommunications company for $38.1 billion.  Pacific Century outbid Singapore Telecommunications Ltd., SingTel – the Singapore government owned phone company run by Lee Hsien Yang, the 42-year old son of Singapore’s former Prime Minister and current Senior Minister, Lee Kuan Kiew, in a contest that had the whole world watching.

The successful acquisition emphasizes the immense buying power that Asia’s new Internet start-ups wield and the increasing effect such companies will have in their stock markets and in the regional economies.  Analysts believe that the deal also may indicate behind-the-scenes influence by the Chinese government, which indirectly owns 10 percent of HKT.  China is believed to have opposed having the key telecom sector pass under the control of a non-china source.  Mr. Li is also known to have good relations with Senior Hong Kong Government officials such as Tung Che Hwa and with the senior leadership in Beijing.

These close contacts in the Hong Kong and Chinese government and the just completed acquisition of Cable & Wireless HKT Limited could give Pacific Century something that Cable & Wireless has long sought: entry into China, potentially one of the largest and fastest growing telecommunications markets.  Pacific Century is already pursuing an internet venture that includes Intel and other partners.  If telecom access was also added to this mix, it could greatly increase Pacific Century’s long-term market potential in this project.

Stay tuned and re-read Richard Li’s Insight interview below  for further insights on additional moves by this innovative leader in business in Asia. 


An Interview with Richard Li,
Chairman and Chief Executive of Pacific Century Holdings Limited, Hong Kong

December, 1999
Insight: First, thank you for agreeing to talk with us.  Could you tell us a little about the Pacific Century group of companies and particularly about the recent IPO of your Pacific Century Cyberworks group?

1: In the simplest terms Pacific Century Group aims to be the leading Internet investment vehicle in the Asia-Pacific region, both by acquiring and funding net ventures and by developing our own businesses. The model is akin to that of Japan’s Softbank or America’s CMGI, but we are going to go much further than that. At the core of our strategy is the Group’s Hong Kong-listed technology flagship Pacific Century Cyberworks. That was launched in May 1999 through the acquisition and renaming of a small Hong Kong listed company. Today PCC has a market cap of US$6.6 billion and is the third largest Internet company in Asia. 

The flagship comprises three supporting legs or businesses. First, there is Pacific Convergence Corporation which grew out of a 60-40 joint venture with INTEL, which continues to hold 13%; it aims to be the largest provider of broadband internet services in Asia via its satellite network serving 110 million connected cable households. Working with local cable operators, the service will converge TV with Internet through a global portal called NOW. The second leg, Cyberworks Ventures invests in or forms partnerships with local and international IT and Internet businesses. The third leg is the $1.6 billion Cyber-Port project, a co-development between the Group and the Government of Hong Kong. Cyber-Port is a 26 ha campus style, multi-use complex designed to jumpstart Hong Kong’s IT sector by forming a cluster of Asian and international IT companies in one location. I admit this is not a small task. The key is that we are bringing together the most the talented people and entrepreneurs in Asia under one roof. 

Insight:  From press reports I see that since the IPO, Pacific Cyberworks has made investments in numerous companies noted below:
Pacific Ocnvergence Corp Investment: SoftNet Systems/ISP Channel 23%, cyberworks Venture investment: CMGI 3.4%, Action Ace.com 10%, Biz Travel 3%, Cash on-line, inc. 5% with 5% option, Clarent Corp 3%, Creditland 5%, Ilink.net 80%, intelligenisis 6%, MediaRing 6%, Outblaze 20%, SilkRoute 25% with 5% options, StarEast Information Technology 20% with 10%+5% options
Can you tell us what strategy the company is following in aquiring new companies and where you see Pacific Cyberworks being as  a company in five years time?

2: There are three facets to our strategy for Cyberworks Ventures. First, we are creating a badly needed incubation environment for established and startup Internet businesses in Asia. With startups, we gain access to the technology created by small companies that are faster and more nimble than ourselves, while they gain access to management, superior resources and a platform to implement their ideas. For established firms, Cyberworks Ventures acts as a pan-Asian partner for regional and international companies. So for example, in September we agreed to exchange US$ 350 million in ordinary shares of Pacific Century Cyberworks for $350 million of common stock in the NASDAQ-listed CMIG. CMIG is the second largest, most diverse network of Internet companies in the world. Last, much like CMIG does in the US, or Softbank does in Japan, Cyberworks Ventures offers our shareholders a chance to participate in the growth of the Internet without the risks. You have to be analytical and highly selective because the quality is wide ranging. 

Insight:  You have been very identified with several innovative moves in Hong Kong-first the move into Media with Star TV and now with more aggressive targeting of Internet and high tech industries.  Also, as you are well aware, Singapore, Malaysia and others are trying to attract these same companies, what advantages do you see Hong Kong offering to both local entrepreneurs and foreign business as a site for high tech investment?

3. When we talk about the Internet we are speaking of a very big pie indeed and in the case of Asia one that has hardly been touched. So a company like Microsoft will probably have to be in several locations. Hong Kong has to be on the list. We have the freest press in Asia so access to information and to the media is fantastic. We have the largest market cap in Asia so access to capital is there. We have an established and respected legal system. We have the infrastructure – you can have a telephone and Internet connection up and running in three days and you don’t have to pay anything extra to get it done. And anyone who has an eye on China -- and who doesn’t -- really doesn’t have a lot choice. It takes 6 and half hours to fly from Beijing to Southeast Asia. And if you are in the IT business, by the time you land, somebody else has got the deal.

Insight:  Your group has been very identified with the Hong Kong government’s decision to open the Hong Kong Cyberport.  Where does this project now stand and how do you answer critics who see this more as a real estate project than as a real high tech industrial park?

4. Construction began in September and there are five phases leading to completion. For example, by 2001 there will be 23,000 sq m of office and 10 sq m of apartments finished. The entire campus, with offices, apartments, houses, cybermall, and recreational facilities like the golf course will be completed by 2007. Microsoft is the latest to join the list of prospective tenants which include everyone from Sun Microsystems to Softbank, all intending to apply for admission. As to critics, we have already seen one benefit in the sense that Cyber-Port has woken up the business community to IT and its impact on the new age economy. And that is what it is all about. Cyber-Port is not a real estate project, it is about creating an environment where people can think and work and create. If successful, and I have no doubt it will be, it will create what amounts to a new information economy  for Hong Kong and thousands of new jobs and hundreds of millions of dollars in new business. In that sense, the government has not done anything unusual. Take for example the incentives – usually land and tax breaks -- that state governments in America offer to GM or Toyota when they choose a site for a new car factory. 

Insight:  Certain critics in Hong Kong are saying that Hong Kong’s economy must change from a real estate driven economy to more of a service driven economy with a focus on IT.  Do you agree with this assessment and how do you see Hong Kong’s economy developing over the next 5-10 years.

5. Not just the critics. Hong Kong needs to develop new engines of growth, first and foremost IT, and the government appreciates that as much as anyone. On one hand the shift away from real estate is already happening due to market forces. Rental prices for prime office space in Hong Kong have fallen 46% since early 1997. At the same time the government is taking its own steps to make the transition. In addition to Cyber-Port, Hong Kong is breaking ground on a new $450 million Science Park and has set aside tens of millions of dollars to fund IT startups and related university research. But the critics have forgotten how fast Hong Kong can change and adapt, particularly when it involves trade and world markets. Microsoft estimates that there are currently 20,000 IT startups here. And when Hong Kong businessmen realize the cost savings and new revenue streams that can be generated from the net, even the local rice dealer will be surfing the web to find the best prices. If they’re not already.

Insight:  Until this point in time, Hong Kong has been pretty much the main door for companies interested in investing and supporting China operations.  Now certain observers say the future will bring increasingly direct investment into China which will bypass Hong Kong.  They also see the movement of regional offices from Hong Kong to China as becoming the model for most companies to follow.  Do you agree with this assessment and if so, doesn’t this dictate a downturn in the Hong Kong property market and in Hong Kong’s viability as a service hub for China operations?

6. When Hong Kong manufacturers shifted their operations to China in the late 1980s many people thought we were finished. Instead it turned out to be a huge benefit by creating hundreds of billions of dollars in new trade and services. Of course, as new opportunities open up on the mainland it is only natural that investors will go directly into China, but they will still need the management expertise, marketing skills, infrastructure and relationships we’ve developed over the past ten years. There is an art to working in China. At the same time, it would be misleading to say this is a zero sum game, where the Hong Kong economy shrinks while the Chinese economy grows. The SAR doesn’t have to be the main door to the mainland. Even if it is just a side entrance, Hong Kong will still grow in leaps and bounds.

Insight:  Two months ago, U.S. Ambassador to Singapore, Ambassador Steven Green who I know is a friend of yours, was a guest of our “Insight Interview.”  He noted some of the adjustments Singapore has made in response to the Asian Financial crises that will made it more competitive in attracting investment.  In general, how would you assess Hong Kong’s response to the Asian Financial Crisis and do you think that Hong Kong has also increased its competitive advantage in attracting investment? If not, what more do you think is needed?

7. The Asian Financial Crisis was an unprecedented historical event and each country had to respond according to its own circumstances and without a blueprint. It hit Hong Kong hard and I think the government responded to it as well as anyone. That is backed up by the news that economic growth accelerated to 4.5% in the last quarter, far surpassing expectations. However there were some unexpected benefits of the crisis including the fall in property prices and end to the inflation spiral that was driving up wages. If the crisis had not have happened, the government and business community would have been less willing to embrace IT and other initiatives like reforms in education and medical services. Not everything is rosy and we can’t afford to take anything for granted. The deteriorating environment is a major obstacle to Hong Kong’s future, and has been cited as such by foreign investors. So it is reassuring  that the SAR’s chief Executive Tung Chee-hwa made the environment the highest priority in his annual October address. We also have to develop a more skilled labor force to meet the needs of IT. And we need more creativity. But these things are beginning to happen. 

Insight:  The current Hong Kong government has been criticized in certain circles for interfering in the market to a greater extent than the form British controlled government.  Specifically, there has been criticism of government entry into the share market and other moves.  Do you agree with the view of the critics that the current government is less free market oriented and do you see this as a trend that is likely to continue?

8. The government took a lot of heat for its intervention in the market last year. But as I said before, the crisis demanded resolute, visionary and untried measures. The debate over whether this was right or wrong will go for years. As it turned out, the market hasn’t suffered from the intervention and the government has received abundant praise for the way it is now disposing of the shares it purchased through the creation of a unit trust called the Tracker Fund. The fund has created a way for small investors in Hong Kong to invest in the market without the high risk involved with stock picking. The intervention did not stop the Heritage Foundation from naming Hong Kong last week as the freest economy in the world. So, don’t give up on us yet.  We are still a force to be reckoned with.

Insight:  Richard, thank you very much for taking time out of your busy schedule to speak with us.  We also wish you success with all your many ventures which should have a signifigant effect on changing Hong Kong and the region.
 
 

About the Interviewer:  

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)

Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service. 


Copyright, 2005 Runckel & Associates
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