Xi showdown with Li Ka-shing threatens China’s pro-business push
There are few good options for the president – blocking the Panama deal risks more retaliation from Washington, while letting it go ahead removes a potential bargaining chip with US
[BEIJING] President Xi Jinping is seeking to paint China as a steady partner to investors roiled by a global trade war. A spat over a shipping lane coveted by his US counterpart Donald Trump is testing that push.
Hours after Xi pledged at a meeting with global executives in Beijing last Friday (Mar 28) to create a “predictable” business environment, China’s market regulator said it would open a review into Hong Kong billionaire Li Ka-shing’s deal to sell 43 ports around the world, including two in the Panama Canal, citing the need to “protect public interests”.
Over the weekend, Chinese officials overseeing Hong Kong affairs shared articles on social media accusing the CK Hutchison conglomerate of acting “in concert with US hegemony” over the US$22.8 billion sale. Those broadsides came after the US president framed the prospective deal to a group featuring BlackRock as America “reclaiming” the famed waterway.
Beijing’s attempts to influence the operations of a private firm in Latin America risk undercutting Xi’s bid to bolster confidence in the world’s No 2 economy, where foreign investment last year fell to the lowest level in decades.
Derailing the deal could also give credence to the US leaders’ claims that CK Hutchison is ultimately controlled by the Communist Party – a perception with implications for private Chinese companies worldwide.
“This flies in the face of the charm offensive for private firms,” said George Magnus, research associate at Oxford University’s China Centre, formerly chief economist at UBS. “Beijing has, in effect, told the world there is no real difference between private and public in the Chinese Communist Party’s eyes.”
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CK Hutchison shares dropped the most in more than a week on Monday. Work on the Panama ports deal is continuing, though the parties will not be able to sign the definitive agreement by the original target of Apr 2, people familiar with the matter said.
A Chinese Foreign Ministry spokesman said Beijing opposed coercion at a regular briefing on Monday in Beijing, referring to Trump’s efforts to pressure the Panama government to curb Chinese influence. The State Administration for Market Regulation did not respond to a faxed request for comment.
The Panama Canal, used mainly by the US and China, became a geopolitical lightning rod after Trump vowed to retake it. The US president has falsely said the canal is operated by the Chinese and controlled by the Chinese military.
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CK Hutchison is based in Hong Kong, a semi-autonomous former British colony where companies are given wide berth to operate free from Beijing’s control.
The spat over the ports comes at a delicate time, as China grapples with a US trade war that will likely see Trump unveil new so-called reciprocal tariffs this week.
For Xi, there are few good options: Blocking the Panama deal risks more retaliation from Washington, while letting it go ahead removes a potential bargaining chip once negotiations between Chinese and US officials finally get underway.
The dilemma also comes as the Chinese leader tries to build on DeepSeek’s artifical intelligence breakthrough and Xi’s recent embrace of Jack Ma, which have revived animal spirits and stoked confidence that the era of regulatory crackdowns is over.
Until a formal agreement on the port deal is signed, China’s ability to directly block the transaction is limited. That could explain why Beijing is ramping up pressure through less formal channels, hoping that Li will walk away from the deal.
Opening a probe into a deal spanning 43 facilities over multiple continents would mark the latest example of Beijing extending the long arm of its statecraft toolkit. That comes after China last year expanded its export control regime to include a ban on selling some goods to the US by applying it to companies both inside and outside China.
Beijing has precedent for influencing deals overseas when the companies involved have a major presence in China.
Chinese officials effectively scuttled Intel’s US$5.4 billion bid for Israel’s Tower Semiconductor in 2023 by delaying approval as US-China tensions rose.
The year before, DuPont de Nemours scrapped a proposed US$5.2 billion acquisition of Rogers Corporation after failing to get timely clearance from Beijing. China sales accounted for more than a third of Rogers’ 2021 revenue.
“Beijing won’t hesitate to intervene if it believes a Chinese company is being pressured by a foreign government to sell its assets to foreign investors,” research firm Trivium China said in a note.
China could even frame its action as a countermeasure to foreign sanctions, invoking a new law that gives Beijing broad power to strike back at perceived foreign meddling, said Winston Ma, adjunct law professor at New York University.
“The countermeasure could have far-reaching implications for cross-border transactions and the various parties involved,” he added.
After years of deleveraging from China, CK Hutchison now gets more than 80 per cent of its revenue from overseas countries including the UK, Canada and Australia. That means Beijing has limited scope to influence Li directly. But his two sons are more exposed.
CK Asset – the company’s property arm now headed by Li’s older son, Victor – has one-fifth of its long-term rental investment property portfolio by area on the mainland.
Meanwhile, Richard Li’s insurance company, FWD Group, has stated its ambition to expand into mainland China in financial documents, which would likely require partnerships with Chinese companies.
Beijing has kept up the pressure on CK Hutchison, even after reports that it was delaying the signing.
China’s top office overseeing Hong Kong affairs on Monday reposted an article – the seventh it shared on its official website since Wednesday – criticising the deal. The piece by pro-Beijing newspaper Ta Kung Pao cites a local lawmaker in saying the companies should “proactively withdraw” from the planned transaction.
For the Hong Kong conglomerate caught in the crossfire, there are downsides to both outcomes, said Christopher Beddor, deputy China research director at Gavekal Dragonomics.
If the deal goes ahead, Li’s affiliated companies in China “could be exposed to a substantial fine”, he said. “If the deal collapses, the risk is that the company will now be seen as part and parcel of Chinese interests abroad.” BLOOMBERG
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