Few Western businessmen can show a China stamp from 1970 in their passports. Still fewer can lay claim to being held at gunpoint by Chinese border guards, for a passport said not to be in order.
But Simon Murray has always been unusual. He arrived in Hong Kong in the 1960s and started his career with the dominant trading hong of the era, Jardine Matheson, before going on to run Hutchison Whampoa – the Hong Kong conglomerate owned by Asia’s richest man, Li Ka-shing.
In 1998 he established his own private equity firm, GEMS. With Henry Kissinger as one of its directors, GEMS has made substantial China investments and here Murray offers WiC his views on how he feels China has changed for better and worse since his first visit.
When you first arrived in Hong Kong, what was the prevailing view about China and its business opportunities?
I first arrived in Hong Kong in 1965. I was staying at a little hotel on the Kowloon side with the wonderful name, August Moon. It took me four hours to get to the hotel. Every street we went down, there were 500 guys coming the other way, rioting and smashing windows.
That was my first impression of Hong Kong; and a year later the Cultural Revolution was kicked off by Mao, and everything was chaotic.
When Mao was at the helm no one had a clue which direction China was going in – the prevalent view was probably south. China was a no-no for most business people.
When did you first visit China?
I first went to China in 1970 when things started to open up a little bit. Jardines had a China trading department that sold everything from Danish pigs to bull semen to fertiliser from Switzerland.
This business was all based on the future. We’ve got to make friends with these guys and 20 years down the line we’ll be the kings – that was the thinking. Jardines wanted to be able to say we understand China and if you want to get into the biggest place in the world, come and talk to us in Hong Kong. The reality was a bit simpler: we didn’t make any money.
China was a hard road. For example, in 1975 Jardines set up its first joint venture company in China with the government and the Schindler Lift company. I think it made money in 1995 – for the first time. In those days ‘the China story’ was nothing to do with exports, it was about selling products to the Chinese. The one export I remember: some rope-soled shoes which we sold to someone in the UK. They fell apart, and we got a writ!
What are your early recollections from these visits?
You’ve got to remember how different things were. In 1980 there were only eight private cars in Beijing. Everyone rode a bicycle and everyone dressed in either blue or brown and pretty much looked the same. It was cold, unwelcoming and hostile.
My main recollection of the trip in 1970 was the border at Lowu. I remember you had to walk across a Bailey bridge – made of wooden planks – with the technical frontier half way across.
On the way back, there were two Chinese guards with sub machine guns standing in the middle of the bridge. Everyone else had been waved through except me – I was told my passport was not in order. I get this lecture in Chinese, and my interpreter tells me: “It says here your country of origin is Hong Kong. Hong Kong is not a country, Hong Kong has been stolen by British bandits and you are all going to perish…”
About 15 minutes later they finish up with: “You must explain all this to your governor.” So I told them I’d tell him anything they wanted, just give me my passport. I then got into the train on Hong Kong-side and thought, I don’t really enjoy that kind of stuff. I didn’t go back to China for a long time.
When did you start to sense that economic reforms were fundamentally changing the China story?
I didn’t go back to China till 1985. It was very different, wonderfully hospitable. The tourist department looked after me in Shanghai. I stayed in a hotel with a huge suite, where Reagan had stayed the month before – there was even a piano in it. I was beginning to feel good about this place. It was miles better.
Have you been surprised at the speed of change?
If you had asked me in 1975 what was going to happen, I would not have believed for a second that the changes in China would happen at the rate they have.
I just came down from Shanghai last week. I went to have lunch with a very senior party member – we went to an Italian restaurant, and that was his choice!
What have been your experiences of investing in China?
I have had some very good experiences investing in China. We were one of the early investors in China National Offshore Oil (CNOOC), when it had a value of about $4 billion [his fund bought and subsequently sold an 8.55% stake]. Today the valuation is $60 billion.
We also invested in Sino-Forest. We bought 20% of a company that had a market value of $100 million and today it’s worth $3.6 billion. So there are good stories about China. It is a great place to invest, if you know what you are doing!
Everything, of course, is about comparison. On a comparison basis, there’s China with its opportunity and growth; there’s America with $9 trillion of debt, the dollar probably depreciating and inflation round the corner.
Do you want to invest in America or China? Your risk factor in the US is an economic one; and in China, there is political risk. If you talk to the men in power in China, the top three subjects on their mind are stability, stability and stability.
There are 750 million people who are living on $3 a day and they are not very happy about various things. You read more and more about uprisings across China. You have to remember that even if China overtakes Japan to become the world’s second biggest economy next year, it still only barely scrapes into the top 100 on a GDP per head basis. Lots of mouths to feed!
Is it becoming tougher to invest successfully in China, now that China needs foreign capital less and is trying to create its own domestic private equity industry?
No, it’s easier. Why? Because the lawyers and accountants have cleared some of the air, and the Chinese government has also cleared some of the air. So there’s a better understanding of what some of the rules are. What you can own, what you cannot; what you can and cannot do; when you need a license, and when not. So you are much less likely to fall foul of the system and have a fight, which you cannot win.
You could say it’s more competitive, because the Chinese now have their own investment funds. But overall it’s easier.
Is escalating protectionism likely to be a problem?
Yes, the potential is there. Obama has recently yielded to the unions with his tax on tyres. That’s crap, because the American consumer will suffer and there are far more American consumers than members of the tyre union.
Unfortunately, China is an obvious bogeyman. Western politicians have a habit of looking round to blame other people for their own shortcomings. We in the West blame everyone except ourselves.
When things go wrong in China, you don’t hear the Chinese blaming anyone else. I think one problem in the West today is a lack of intellectual honesty – and leadership with vision.
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