Why Multinationals Are So Gung Ho

Back when he was in Citibank's Brazil office, Stephen H. Long was puzzled to read that Citi was helping finance a monumental skyscraper in Hong Kong's Central district. It was late 1989, in the wake of the Tiananmen Square bloodbath and a time of deep anxiety over the territory's future under China. Recalls Long: "I thought to myself, `Now that seems awfully risky."'

Today, as Citi's corporate officer for Hong Kong, Long is at ease. Both 50-story towers of Citibank Plaza are brimming with tenants paying some of the world's stiffest office rents. And his lending, investment banking, and trade finance businesses are going gangbusters. The reason is simple: Hong Kong's stature as East Asia's premier business hub for some 2,300 multinationals has grown enormously. With the city set to become a bigger dealmaking center for thousands of mainland companies, in fact, no slowdown is in sight.

A lot would have to go terribly wrong after July 1 to dislodge Hong Kong as the region's preferred base for everything from advertising and asset management to trading and television programming. The competition has its problems. The infrastructure in Manila and Bangkok is a mess, while Taipei is overly bureaucratic. Singapore is too far from China. And no matter how much Hong Kong deteriorates, it's hard to envision anyplace in China being any better for corporate offices. A recent American Chamber of Commerce survey found that while U.S. businessmen fret about rising costs and corruption in Hong Kong, 95% have a favorable view of its business climate and 53% plan to expand there in the next three years.

CUSTOMERS. To be sure, corporations all have their contingency plans--because they know Beijing is fully capable of messing things up in Hong Kong. By clamping down on the press, tightening up on work visas for non-Chinese foreigners, and politicizing the judiciary and civil service, it could drive away companies that depend on Hong Kong's free flow of information and level playing field.

Hard-charging Asian rivals also can bridge the gap fast if Hong Kong is complacent about its costs. Rents for office space and housing are astronomic, while wages are rising 10% annually. Meanwhile, even Tokyo is gaining allure, thanks to the yen's 40% depreciation in two years. And such competing business hubs as Kuala Lumpur, Singapore, and the Philippines' Subic Bay continue to tantalize multinationals with sweetened tax deals, subsidized rents, and worker-training centers. "Until recently, the Philippines had absolutely dreadful infrastructure and a sloppy `maana' attitude," says Wick Smith, managing director for BBDO Hong Kong Ltd., an advertising office with 80 staffers. "But Subic, developed right, could be very, very livable."

Shanghai's Pudong district is starting to look good, too. Besides the state-of-the-art telecommunications, expressways, and airport Pudong is building, it will soon have an American Club and affordable housing and golf courses for expat managers.

Still, Hong Kong's slide would have to be awfully steep to trigger an exodus of corporate headquarters. It's simply where their biggest customers are. Since deciding to go great guns in 1992, AT&T has seen demand in Hong Kong explode for its long-distance, Internet, and electronic-commerce services, while its staff has swelled from 50 to 383.

Even in politically touchy industries such as mass media, the climate "would have to be pretty, pretty terrible before we would leave," says CNN Hong Kong Bureau Chief Mike Chinoy. Besides CNN's ambitious plans for regional news programs, Hong Kong also is a base for Turner Broadcasting System Inc.'s entire Asian push. Its TNT Cartoon Network alone employs 80 staff tailoring programming in Mandarin, Thai, and other languages for its 24-hour Asian cartoon and movie channel.

While the tax breaks offered by Singapore and Kuala Lumpur seem tempting, the savings aren't much when you factor in Hong Kong's flat 16.5% corporate tax and minimal bureaucracy. In Singapore, qualifying for tax benefits entails a time-consuming approval process, notes Kenneth E. McKelvie, a partner of Deloitte Touche Tohmatsu's 1,900-employee Hong Kong office. "Here, a company can line up a temporary office and staff, buy a registered company off the shelf, and be in business in days."

That's Hong Kong. And as long as Beijing and local officials can keep it that way, it will be a business hub other Asian cities can't easily match.

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