Hong Kong's New Boss

Will tycoon C.H. Tung stand up for the territory--or just be a figurehead?

When Simon Murray, Deutsche Bank Group's executive chairman for Asia, had a family problem, he turned to his old buddy, shipping magnate C.H. Tung. Murray's son Justin wanted to marry a Chinese woman from Taiwan, but her family objected to an East-West marriage. The personable Tung "handled the situation in a very statesmanlike manner," smoothing the way for the wedding in 1993, says Murray. "I regard him as being a very well-balanced guy, which is just what [Hong Kong] needs at this point."

And that's just what Hong Kong is going to get. On Dec. 11, in a cavernous hall at the Hong Kong Exhibition Center, a 400-person committee controlled by Beijing overwhelmingly elected Tung, 59, as the first chief executive to run Hong Kong when it reverts to Chinese control on July 1, 1997. At that time, he will face the matchmaking challenge of a lifetime: maintaining Hong Kong's Western freedoms as it becomes part of the People's Republic of China. In an interview with BUSINESS WEEK, Tung says he aims to emphasize "good traditional Chinese values" as well as preserve Hong Kong's Western-style system. "The best of the East and West will make our society stronger," he says.

FINE LINE. Hong Kong's special marriage of East and West won't be easy to keep intact. China, of course, is eager to prove it can manage Hong Kong as well as the British have. But Beijing's leaders will undermine confidence if they erode the civil liberties and rule of law that let Hong Kong thrive. Beijing is particularly worried that Hong Kong's freedom may "pollute" the rest of China.

Tung will have to walk a fine line, trying maintain freedom while keeping Beijing happy. He hopes to use quiet persuasion and his reputation as an honest broker to head off clashes between pro-democracy forces and China's hard-liners. He also aims to convince average residents they'll be better off in 1997 because the new government will be more attentive than the British to issues such as housing, education, and attracting new industry. "Our community is too politicized," Tung says. "We're not dealing with the issues that need to be dealt with."

But it's also possible Tung, a conservative who often echoes the Beijing line, is misjudging popular sentiment. In legislative elections and popular opinion polls, the public has overwhelmingly backed the Democratic Party, which is sharply critical of China. Each June since 1989, thousands have protested China's Tiananmen Square bloodbath. And as a member of Hong Kong's superrich, who are used to operating behind closed doors, Tung may underestimate the intense public scrutiny his actions will receive.

Activists are sure to test the limits of free expression soon after the handover. So far, Tung has been evasive about where the lines will be drawn. He insists that all of Hong Kong's liberties will remain intact. But he also concedes that some protests--such as those involving Tibet and Taiwan--won't be tolerated. Mainland officials use an even broader definition of "subversion." The contradiction was underscored just as Tung was being elected. Outside, 400 police broke up a small protest of the meeting and hauled away one of Hong Kong's most popular legislators.

To many Hong Kong watchers, the key question is whether Tung will be a strong leader who will stand up for Hong Kong--or merely a well-intentioned caretaker. Critics say he is too close to Beijing. As he struggled in the 1980s to save his shipping company, Orient Overseas (International) Ltd., fellow tycoon Henry Fok raised a crucial $120 million loan. Much of it came from mainland Chinese companies. "He owes them," says London School of Economics China-watcher Michael Yahuda.

SINCERE. But Tung also has proved that his low-key style can yield results. After his father nearly bankrupted the company, he went on to build Oriental into a $1.7 billion shipping giant. He often bounces ideas off employees before making big decisions. In the early 1990s, when 21 employees died after a tanker crashed, he insisted that the families get more compensation than they technically were owed--and he offered to pay out of his own pocket. "He is a man of principle," says one Hong Kong tycoon.

That's one reason associates believe Tung is sincere when he says he is determined to safeguard the territory's rule of law. Asked what he would tell mainland companies if they looked for special favors in Hong Kong, Tung says emphatically: "No, no, no."

Tung also has a wide network of contacts. Born in Shanghai, he was brought up in Hong Kong, went to university in Liverpool, and worked for General Electric Co. in the U.S. He regards George Bush, Henry Kissinger, and Paul Volcker as friends. "One of the strongest qualities he would bring is an unparalleled set of relationships," says Jeffrey E. Garten, dean of the Yale School of Management, who helped restructure Tung's company. These contacts should give Tung credibility when dealing with Washington.

Tung will need every asset he has in handling the challenges ahead. His key teammate in Hong Kong's first Chinese administration will be Anson Chan, head of the civil service. She has backed the democratic reforms pushed by Governor Chris Patten--Beijing's nemesis. Chan will provide continuity and legitimacy and will seek to limit Beijing's interference in the bureaucracy.

FACTORIES. Tung intends to focus on the economy. He believes faltering school standards have led to a decline in the quality of university students. Tung wants to invest more in education and appoint the first education minister.

Another concern is housing. Because of a shortage of government-subsidized apartments, many residents live in squalid conditions. And due to high prices, few can afford to buy their own flats. The problem is the government's tight control over its prized land bank. Tung wants to increase the land supply, to make more housing available.

Tung also aims to bolster Hong Kong's industrial base, which has shrunk as manufacturing has shifted to take advantage of China's cheap labor. Besides keeping its edge as a financial and trading hub, Tung believes Hong Kong should "revitalize" industry. To lure high-tech facilities and suppliers, Tung plans to offer multinationals such incentives as cheap access to land and permission to import foreign labor. With its superior facilities and legal system, he thinks Hong Kong should be a high-tech base for South China.

But Tung is no fan of Big Government. He believes in making investments in fields where they are likely to pay off, such as education. "If he feels the money will be well spent, he'll go for it," says Stanley Shen, a top executive at Oriental. But while Tung believes in assisting the elderly poor, he doesn't want a lavish welfare state.

Tung is tight with money in his private life as well. For decades he has had his hair cropped in the crew-cut style by the same barber. He has worn the same Rolex watch for 20 years. His children drive second-hand cars. An ideal vacation is going to a Hawaiian beach with a book on Chinese history. "He doesn't go for the extravagant," says his sister Alice King, an art dealer. "He's not a socialite." And his pride and joy are his two granddaughters, whose pictures are the only ones on display in his office.

"BULLYING." Despite Tung's distaste for controversy and politics, he is likely to get plenty of both. The Democratic Party is already denouncing Tung for supporting Beijing's decision to disband the legislature and replace it with a hand-picked "provisional" lawmaking body as soon as the British depart. That raises the possibility of competing legislatures reviewing laws in the months leading up to July 1. Tung believes the provisional body is necessary to avoid a "legislative vacuum." But he also says

he plans to hold elections "in the first half of 1998, as early as we can."

Tung also will have to adjust to being in the public eye. Since few in Hong Kong will want to criticize China openly, the chief executive will be the main target. He will be leaned on by every Hong Kong interest group and by Beijing. "The Chinese system involves a good deal of bullying," says Jimmy McGregor, who once worked with Tung in Patten's Executive Council. "Either you get your back up or back off--and backing off will be unacceptable for Hong Kong." For most of his life, Tung has proved that one can succeed in business without alienating anyone. Soon he will find out how well this experience has prepared him for one of the world's toughest political jobs.

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