Li Ka-shing has little to lose as China threatens Panama deal

Hong Kong Billionaire Li Ka-shing’s Dilemma: A Test Case for China’s Reach

Li’s Surprise Move to Sell Ports in Panama

Hong Kong billionaire Li Ka-shing has raised Beijing’s ire by agreeing to sell its control over ports in Panama to appease US President Donald Trump. But there may be little the Chinese authorities can do to punish him for it.

A Limited Regulatory Power

CK Hutchison Holdings is in line to make $19 billion for the sale of 43 ports, but as the assets involved are all overseas, China may not have the regulatory power to stop it. The conglomerate plans to keep its Chinese and Hong Kong ports.

A Diversified Empire

Li’s real estate arm, CK Asset Holdings, is more heavily invested in China, but to a lesser extent than other Hong Kong property giants – and Beijing may think twice about taking any coercive action that could further destabilise a sector in the midst of a painful correction.

An Insulated Position

"I see no direct evidence that China can legally block the sale of ports by CK Hutchison to BlackRock," said David Blennerhassett, an analyst at Quiddity Advisors. "Both parties would have expected this nationalistic backlash."

A Test Case for China’s Reach

The insulated position likely buttressed CK Hutchison’s surprise move to sell off the bulk of its global ports business to the consortium led by BlackRock. Announced last week, the agreement appeared to benefit both Li and US interests, with CK Hutchison offloading the assets at the higher end of their valuation and Trump ending what he called "Chinese control" of the Panama Canal.

A Message from Beijing

Within hours of the announcement of the deal, the US president hailed his administration’s "reclaiming" of the trade route. China indicated its displeasure over the transaction via its Hong Kong and Macao Affairs Office, which reposted a critical commentary article warning companies to be very careful about which "side they should stand on."

A Delicate Balance

Whether China takes any further action against CK Hutchison will be a test case for how far Beijing is willing to go to rebuke companies caught in the middle of increasingly fraught US-China relations. China’s Ministry of Commerce summoned Walmart executives earlier this week over reports the retailer was asking Chinese suppliers to bear the costs of increased US tariffs. US biotechnology company Illumina has also been hit with an import ban, barring it from selling its genetic sequencing machines in China.

Consequences for Other Companies

While those companies have substantial businesses in China, CK Hutchison has little to lose. Li began diversifying outside of China in the late 1980s amid the country’s political uncertainty, investing into ports, telecommunications, utilities, and energy in major developed countries including the UK, Canada, and Australia.

A Global Reach

CK Hutchison’s current operations in Hong Kong and mainland China mainly involve retail, ports, telecoms, and infrastructure. Still, investors have been spooked by Beijing’s displeasure and now worry that the deal may fall apart or come together on less favourable terms for CK Hutchison. Shares in the company fell 6.4 per cent on Friday, their biggest decline since 2020.

Conclusion

Li’s surprise move to sell its control over ports in Panama to BlackRock has put him at odds with Beijing, but his diversified empire and global reach may have insulated him from any potential fallout. The deal is a test case for China’s willingness to rebuke companies caught in the middle of US-China relations, and its consequences may be far-reaching for other multinational companies.

FAQs

Q: What is the significance of Li’s decision to sell its control over ports in Panama?
A: It raises questions about China’s ability to exert control over its citizens’ assets abroad and its willingness to rebuke companies caught in the middle of US-China relations.

Q: How has the Chinese government responded to the deal?
A: The Hong Kong and Macao Affairs Office reposted a critical commentary article warning companies to be careful about which "side they should stand on."

Q: What are the implications for other multinational companies?
A: The deal may set a precedent for how China responds to companies caught in the middle of US-China relations, and may have far-reaching consequences for companies with significant business ties to China.