China’s Hong Kong Succession Takes Shape as Tang Steps Down

Hong Kong Chief Secretary Henry Tang resigned to consider running for the city’s top government job in a long-awaited succession plan that may be muddied by public anger at a widening wealth gap.

Tang, 59, is expected to run in elections when Chief Executive Donald Tsang’s five-year term ends next June. He faces competition from Leung Chun-ying, who yesterday said he will stand down from Tsang’s advisory body to compete in polls that are skewed in favor of candidates backed by China.

Preparations to replace Tsang take place against the backdrop of an economy contracting at the same time as surging prices of have stoked anger at a government seen as favoring business. While Tang’s path from finance secretary to chief secretary followed Tsang’s and fueled speculation he was being groomed to take over, China has raised concerns over social tension in the city.

“China can wait for a bit to make the final decision, as both Tang and Leung are acceptable,” said Willy Lam, an adjunct professor of history at Chinese University of Hong Kong. “Hong Kong people see Tang as a representative of the business community, which may disadvantage him. On the other hand, civil servants clearly would favor Tang over Leung, and Beijing will no doubt take that into consideration.”

China’s Unease

In a sign of unease at Hong Kong’s leadership, Chinese Premier Wen Jiabao said in March that Tsang and Tang’s administration should resolve “deep-rooted conflicts” as social unrest is growing. Tens of thousands of demonstrators marched to protest surging home prices and inequality on July 1, the 14th anniversary of Hong Kong’s return to Chinese rule.

Hong Kong was handed back in 1997 under an agreement with the U.K. that included guarantees of civil liberties, an independent judiciary and autonomy laid out in the city’s constitution, or basic law. That status helped cement its role as Asia’s biggest international financial center, with a $2 trillion stock market that hosts China’s biggest companies by market value, including Industrial & Commercial Bank of China (601398) Ltd. and PetroChina Co.

The success also created the widest rich-poor gap in Asia, according to a report by the United Nations in 2008. Inflation, excluding distortions from government subsidies, accelerated to 6.3 percent in August, the highest since the global financial crisis. The city can’t set interest rates to damp demand because its currency is pegged to the U.S. dollar.

Shrinking Economy

Rising consumer prices coincide with a slowdown in export growth that caused the economy to contract 0.5 percent in the three month ended June 30 from the previous quarter. Gross domestic product will shrink again this quarter, according to economists at Morgan Stanley and Daiwa Capital Markets.

Tang said he was stepping down to consider "how to improve our livelihood, and ensure that all sectors, particularly the underprivileged, would be able to truly share the fruits of our economic success." In a televised resignation speech he called the prospect of running for office "a great challenge for me."

The 1,200-member committee to be formed in December that will decide the next chief executive is elected from several sectors that represent “narrow business interests” and won’t confront Beijing, said Joseph Cheng, a political science professor at City University in Hong Kong. Some of the biggest groupings in the committee include delegates to the National People’s Congress, China’s parliament, and the Communist Party’s own advisory committee.

‘Cultivated’

China hasn’t always got its way with Hong Kong’s 7 million people. Tsang’s predecessor, Tung Chee-hwa, stepped down early in 2005 citing ill health after unpopular decisions fueled demonstrations that included a march of 500,000 to protest a China-backed anti-subversion law.

“In a climate where people are suspicious of collusion between the government and business, if Tang becomes chief executive there may be a backlash,” Lew Mon Hung, a Hong Kong member of the National Committee of the Chinese People’s Political Consultative Conference, told reporters in Beijing today in comments broadcast by Cable Television. “C.Y. Leung, who comes from a poor family, can avoid such doubts,” he said, adding that he would back Tang’s rival.

Leung, 57, is Asia Pacific chairman at DTZ Holdings Plc (DTZ), a real estate advisory company. He will leave his job “within days” on the Executive Council, the top advisory body to the city government, Leung told reporters yesterday.

Home Base

Leung has been vocal about housing policy, urging the government to resume a program to build subsidized homes that was halted in 2002. Home prices surged more than 70 percent since 2009 on low mortgage rates and an influx of mainland Chinese buyers, according to an index by Centaline Property Agency, the city’s biggest closely held real estate broker.

Tang’s best-known policy success was to abolish duties on wine in 2008, helping the city overtake London and New York as the world’s biggest wine auction market. Imports of the beverage surged to $858 million last year, from $185 million in 2007.

The son of a manufacturer, Tang has faced criticism over his response to public protests, including security measures during a speech by Chinese Vice Premier Li Keqiang at Hong Kong University last month. Tang described criticism that police violated demonstrators’ civil rights as “completely rubbish.”

Tang in May said young people shouldn’t blame the rich for dominating Hong Kong and should instead focus on how to become the “next Li Ka-shing,” the South China Morning Post reported. Li is known as “Superman” in Hong Kong, after parlaying a business making plastic flowers into a multibillion-dollar ports, telecoms and property empire.

Tang’s support fell to 46.6 out of 100 in the latest survey ended this month, from 65.4 when he succeeded Tsang as chief secretary in July 2007, according to the University of Hong Kong’s Public Opinion Programme.

“Chinese officials have cultivated Henry Tang and he has been groomed for the chief executive position for 10 years,” City University’s Cheng said. “Because he appears so weak, that’s why C.Y. Leung believes that he has a chance to win.”

To contact the reporter on this story: Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

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