Asian Godfathers: Money And Power In Hong Kong And South-East Asia
If you were doing the rounds of the City this autumn you’d have heard a similar story in pretty much every office you stepped into. The fact that housing markets across the Western world – in the US, in Australia, in Spain, in Ireland and in the UK – were either faltering or crashing, that a credit crunch was threatening the ongoing ability of the average American consumer to consistently spend twenty per cent more than he earned, and that the UK had just seen its first run on a bank in living memory, did not in any way suggest that there would be an appreciable slowdown in global growth.
Nor did it mean that global fund managers were finding themselves short of investible opportunities. Why? Asia. In the minds of the investment community, Asia has become the great white knight. America may stumble and Europe may stumble. But Asia, home to a vibrant culture of entrepreneurship and, perhaps more importantly, millions of willing consumers, will not. You’ve got, I am told almost every day by one earnest young manager or another, to be in Asia.
It isn’t the same place it was ten years ago. No, ten years on from the Asian crisis, it is a new region. No more huge current-account deficits, no more overvalued fixed currencies, indebted companies, horrible corporate governance or any of the like. Growth is on an upward trend (about 5.5 per cent) while inflation and interest rates are low (an average of 4.4 per cent compared with a mid-crisis level of more than fifteen per cent) and better still, in the past five years all the South-East Asian countries have been running current-account surpluses – and healthy ones at that. The upshot? The baton of global growth is in the process of passing to the east.
I’m happy to accept a lot of guff – I’m fond of America, but it’s clearly not quite what it once was and there is no doubt that Asian economies are in pretty good shape for now – but having spent many years in Asia, I draw the line at the idea that most of its countries have embraced capitalism with quite the enthusiasm many would like to believe. Sure, most economies are growing, but are they growing thanks to good policies or just – as in the 1990s – in spite of bad ones?
With this in mind, I am grateful to Joe Studwell for this book, which explains just how Asian capitalism and Asian entrepreneurship aren’t really as modern in structure as the bulls would like to think. The truth is that while the region’s economic fundamentals look better – are better – its way of doing business is much the same as it was in 1995, the same as it was ‘ten and 50 and 100 years ago’.
The economies of Hong Kong and South East Asia (this includes Hong Kong, Indonesia, Thailand, Malaysia, and the Philippines) are dominated by only ‘40 or 50 reclusive enigmatic billionaires and their families’. These families specialise not in building new businesses but in winning monopolistic concessions from semi-corrupt governments and creating massive cash flows from them, cash flows they can then use to destroy competition and solidify their power bases.
They own the rights over the ports, the telecoms licenses, the transport infrastructure and very often, too, any agricultural commodities that are going, and they are controlled by what Studwell calls the Godfathers – ‘mysterious’ billionaire patriarchs with exceptionally powerful political connections that they see no harm in exploiting.
The problem here, says Studwell, is that with so much money and power bound up in trying to maximise cash flow from monopolies, the big men of Asia leave little for either them or others to create real companies, making products and services people really want to buy (rather than have to buy) and in the process actually creating wealth. Note that none of these rich men have managed to create a global brand or even a company that regularly features in any lists of the top twenty global companies: if you don’t know Asia or haven’t read his book, you probably haven’t heard of any of them or indeed their companies.
‘In the end all Godfather businesses are the products of under-competitive markets in which poor equity returns and bad governance are the tradition,’ says Studwell. The result? ‘Outside of Hong Kong long-term stock market returns in south-east Asia have been lousy and that speaks for itself. The main thing for the investor to recognize is that there is not correlation between economic growth rates and stock market returns.’
The point, for modern investors wanting to preserve their wealth as turbulent times hit western markets, is this: you can’t just buy a fund that tracks Asia’s markets and hope that as the economies grow you’ll make money, because if Studwell is right – and until recently it is true that most Asian markets had a trying tendency to disappoint – you probably won’t. Instead, making money out of the rise of Asia is going to require more pro-activity: you’ll need to invest in commodity producers – the western firms selling luxury goods into Asia – or a group of carefully picked non-Godfather-controlled, Hong Kong-listed companies geared more to growth than political influence.
Still, just because the Godfathers are guilty of bad behaviour when it comes to the promotion of competitive capitalism doesn’t mean they aren’t fascinating characters. They are. Just, as Studwell’s book makes clear, not always in a good way. They drink and they gamble. They have mulitple mistresses and hordes of children whom they amuse themselves by playing off against one another and educating them at English public schools.
They tell endless tall tales of their rags to riches rise to power (despite the fact that many belong to a ‘an important sub-category of tycoons who got ahead in part by marrying the bosses’ daughters’), talk a ‘good deal of cant’ about living modest lifestyles despite their huge wealth (it is conspicuously cheap Seikos all round in tycoonland), and bet millions of dollars on rounds of golf on the side. And they don’t always stay in business for the money.
As Hong Kong billionaire Henry Fok’s eldest son once said, ‘It’s not about money. It’s a game.’ Which would be fine, if only the game were more fun for everyone else.
Review by Merryn Somerset-Webb