FREE ESSAY ON INTERNATIONAL TRADE

INTERNATIONAL TRADE

Introductuion
Hong Kong, the pearl of Asia has been the center of trade and 
finance in Asia since the early 20th century. In a short 
history of about 150 years, Hong Kong has become the source of 
growth for many nearby economies. In a certain sense, it can be 
even said that it is a merchant city founded and managed by 
businessmen. 
Traditional hongs or trade houses of Hong Kong were the 
pillar of the economy. Jardine Matheson and Hutchison were 
major hongs that led the economy and the Hong Kong & Shanghi 
Bank were the financier of these hongs and has today grown to 
become one of the largest bank in the world. These firms were 
the critical factors of the growth for Hong Kong's economy. 
Their role however has changed overtime. They are no longer the 
de facto leaders of Hong Kong as they were in the mid 1800's. 
Their role has diminished as Hong Kong grew to become more 
international, and the 1997 handover to the People's Republic of 
China has further altered their position. Some hongs that 
adapted well to the changing times prospered while others either 
went bankrupt or become stagnant.
Background on Hong Kong Economy
The territory of Hong Kong is located at the mouth of the Pearl 
River, a little southwest of the Guangdong Province of the PRC. 
Hong Kong was ceded to the British after the Opium War in 1842. 
Many believe that the British hongs were behind lobbying the 
British government into fighting the Chinese Government and the 
settlement of the island. Kowloon was annexed in 1860, and the 
New territories were leased for 99 years in 1898.
In 1984, the British and the PRC government agreed that Hong 
Kong as a whole would return to Chinese soverienty in 1997. 
However, a system of one country two systems were also agreed 
upon where Hong Kong would retain its status as a free port, 
with it's laws remaining unchanged for 50 years. It's main 
emphasis is to preserve Hong Kong's laws and economic freedom, 
thus to enhance the position of Hong Kong as a economic center.
The Large British owned hongs were originally trade and 
warehouse companies established by the British in the early days 
of Hong Kong colonialism, they have since grown in to major 
commerical conglomerates. They hold interest in cargo handling, 
manufacturing, real estate, and even retailing. They are the 
engine of the Hong Kong economy. Since Britain took over the 
port city in 1842 to use as a gateway to the Chinese markets, 
the business of Hong Kong had been business, and the power was 
held by the hongs. The first traditional hong was the Jardine 
Matheson. It was once seen to be more influential than the 
colonial government but nowadays it has become a minor player 
compared to Li Ka Shing's Hutchision Whampoa. Li Ka Shing, the 
Chairman or Taipan of Hutchision Whampoa, became the first 
Chinese to own a traditional hong. Li's drive and business 
ability helped foster Hutchision into a global conglomerate. 
Hong Kong Bank grew from a small trader's bank into one of the 
Top ten banks in the world today.
Jardine Matheson
Jardine, Matheson & Co. was founded by 2 Scottish merchants, 
William Jardine and James Matheson in Guangdong in 1832. It was 
an opium trader that were the pioneers into the China trade. 
Eventually James Matheson takes control from 1836. It played a 
key role in the founding of Hong Kong and became the first to 
purchase land from the colonial government in 1842. Jardine 
expanded into other trade products in other Asian countries like 
Japan and South East Asian countries and also enters the 
ship/cargo handling industry and the real estate business. 
After World War II, Jardine moved their head office from 
Shanghi back to Hong Kong and it offically goes public in the 
Hong Kong Stock Exchange in 1961. The 1970's saw Jardine 
forming many ventures and aquisitions such as the joint venture 
with the Robert Fleming of UK to create the Jardine Fleming & 
Co., a holding company the aquires many foreign and local firms 
and diversifies Jardine's business. 
The mid- 1980's saw some mismanagments and misguided 
aquisition especially after the 1984 Sino-British announcement 
on the return of Hong Kong. Jardine wanted to diversify more 
abroad in fear of the Chinese takeover because their relations 
with the PRC was not good. It aquired the British construction 
giant Trafalgar House and ther various retail chains in Europe 
so that Jardine could emphasize more in Europe, but these 
investments would turnout to be disappointing in the future. 
The current taipan, or CEO is Alasdair Morrison. He has tried 
to undo many past mistakes and to rejuvenate the 160 year old 
hong. Morrison has sold off many losing companies and has a 
greater emphasis on profitability. The management has been 
changed to more aggresive and experienced managers such as 
Ronald J. Floto who previously worked as Kmart Corp. and is 
known for his turn-around ability. But most importantly, 
Morrsion has been trying to improve ties with Beijing. He 
realises that the China market as an indespenable location and 
has tried repeatly to mend the differences made by the previous 
taipans. 
Today, the Jardine Matheson group is a multinational 
enterprise that operates in over 30 countries and employs some 
160,000 people. It is divided into eight core companies : 
Jardine Pacific(general trading), Jardine International 
Motors(Car dealership), Jardine Fleming, Jardine Lloyd 
Thompsion(Insurance), Jardine Strategic, Dairy Farm(supermarket 
and convenience stores), Hong Kong Land(Commerical property), 
and the Mandarin Oriental(luxury hotel chain) . 
Last year's sales were US$11.2 billion and a operating profit 
of US$190 million was made. The profits fell 34% from last 
year, and share prices have fallen almost 60% since it moved its 
primary listing from Hong Kong to Singapore. 
The main problem with Jardine is that it needs to use its large 
cash resources to boost market shares in existing profitable 
businesses and make aquistions in core business while assests in 
Asia are still cheap from the Asian crisis. It also needs to 
refocus on Asia, because it is where it's main expertise and 
connections are, but the controlling family, the Keswicks with 
only a 4.9% share are reluctant to invest heavily back to Asia 
and especially China. The Keswicks have held control through 
cross ownership to build a financial defense against hostile 
takeovers. Li Ka Shing has tried but failed to take over 
Jardines in 1988 but many still believe that Li has not given up 
but is rather waiting for an opportunity. 
Although the current taipan, Morrison is trying to shape up 
Jardine again, many are doubtful as long as the Keswicks still 
retain the controlling shares. Jardine Matheson has had a 
astonishing past, but many fear that the golden days of the past 
are over for them.
Hutchison Whampoa 
John D. Hutchison Company was founded in 1828. Being one of 
the first major traditional hongs in Hong Kong, it had made vast 
investments in port facilities and other infrastructure 
projects in the colony. In the 1960's, in an effort to 
revitalize the hong, John Douglas Clague, the last British CEO 
of Hutchision made huge investments in not only in Hong Kong but 
also abroad. 
It reoragnized itself to the Hutchision International and up 
til the early 1970's, many believed that Hutchision would indeed 
make a comeback as a dominant firm in the colony. However, 
losses started to occur from 1973, and being overstretched and 
short in liquidity it lost the favors from its investors and 
creditors(most importantly the Hong Kong Shanghi Bank).
Eventually the Hong Kong Bank would step in to take up 33% of 
Hutchision International and within 2 years merge with a 
subsidary, the Whampoa Dock Company and create the Hutchision 
Whampoa. Hong Kong Bank was looking for a suitable investor to 
take over the pre-opium war hong and eventually they chose a 
rising real estate tycoon, Li Ka Shing.
There are many reasons that Hong Kong Bank chose Li Ka Shing, 
but two reasons stand out the most, His reputation as a honest 
and able businessman and his contacts with the government in 
Beijing. 
Today, Hutchison Whampoa has grown into one of Hong Kong's 
largest blue chip companies with over 70,000 employees 
worldwide. The Group operates five core businesses : Property 
Development and Investment, Ports and related services, 
Retailing and manufacturing, Telecomminications and Media, and 
Infrastrucutre and Energy.
Property Development and Investment
Hutchison Whampoa Property develops residential and commerical 
properties for sale and lease. Its portfolio includes some of 
Hong Kong's largest private housing projects and several 
landmark developments in the Mainland.
Ports and related services
The group's expertise in port investment and management stems 
form its pioneering operations in Hong Kong. Its port operations 
arm, Hutchison International Port Holdings, is now exporting its 
professional experience and expertise to ports in different 
parts of the world.
Retailing and manufacturing
Watsons operates three of Asia's most innovative retail 
chains:Park'N Shop supermarkets, Watson's personal care stores, 
and Fortress, selling domestic electrical appliances. The 
manufacturing division produces and distributes a wide range of 
food and beverages throughput Hong Kong, the mainland and other 
Asian countries.
Telecommunications and Media
Hutchison Telecom operates a wide range of intregrated 
telecommunications services worldwide and is one of the world's 
major providers of mobile communications
Infrastruture and Energy
The Group has major shareholding in Cheung Kong Infrastructure, 
which holds interests in infrastructure and related businesses, 
and power plant projects such as the Hong Kong Electric. It is 
the sole supplier of electricity to Hong Kong Island. Husky Oil, 
is one of Canada's largest privately owned oil and gas 
companies.
For the fiscal year ending in December 31 1998, The Hutchison 
Whampoa Group had a net profit after tax of HK$8.7 billion. It 
was lower than HK$12.2 billion from 1997. The Asian crisis which 
brought on pressures on the entire Asian region. It experienced 
a period of unprecedented asset and price deflation coupled with 
severe recessionary conditions. These conditions had the 
hardest impact on the Property/Development and 
Retail/manufacturing operations of the group in 1998. 
Li Ka Shing's another main weapon in Asian business is his 
strong ties to the Chinese Government. He has been favored 
since being the first Chinese to take over a western hong in the 
late 1970's. He also played a large role in the transition 
period for the `97 handover of Hong Kong. Currently he has a 
strong influence in the policies that effect Hong Kong both 
through his contacts with Beijing and the Chief executive, Tung 
Chee Wha.
HSBC Group
Headquartered in London, HSBC holdings is one of the world's 
largest banking and financial services organizations. The HSBC 
Group's international network comprises more than 5,000 offices 
in 79 countries.
The HSBC Group is named after its founding member, The Hong 
Kong and Shanghi Banking Coporation limited. Hong Kong Bank, as 
it is known for short, was established in 1865 to finance the 
growing trade between China and Europe.
The inspiration behind the founding of the bank was Thomas 
Sutherland, a Scot who was then working as the Hong Kong 
Superintendent of the Peninsular and Oriental Steam Navigation 
Company. He realised that there was considerable demand for 
local banking facilities in Hong Kong and the China coast and he 
helped to establish the bank in March 1865. Then, as now, the 
bank's headquarters were at 1 Queen's Road in Hong Kong and a 
branch was opened in April 1865 in Shanghai.
Throughout the late nineteenth century and the early twentieth 
century, the bank established a network of agencies and branches 
based mainly in China and South East Asia but also with 
representation in the Indian sub-continent, Japan, Europe and 
North America. In many of its branches the bank was the pioneer 
of modern banking practice. From the outset, trade finance was a 
strong feature of the bank's business with bullion, exchange and 
merchant banking also playing an important part. Additionally, 
the bank also issued notes in many locations throughout the Far 
East.
During the Second World War the bank was forced to close many 
of its branches and the head office was temporarily moved to 
London. However, after the war the bank played a key role in the 
reconstruction of the Hong Kong economy and set about further 
diversifying the geographical spread of the bank.
The post-war political and economic changes in the world 
forced HongkongBank to analyse its strategy for continued growth 
in the 1950s. The bank diversified both its business and its 
geographical spread through acquisitions and alliances. 
However, the bank remained committed to its historical markets 
and played an important part in the reconstruction of Hong Kong 
where its branch network continued to expand.
In 1965 the bank purchased a controlling interest in Hang Seng 
Bank, which had been established in Hong Kong in 1933. By the 
1970s the policy of expansion by acquisition of subsidiaries 
with their own identities and specialisations was firmly in 
place.
During the 1980s the bank concentrated on moving into those 
markets where it was not yet fully represented. Hongkong Bank of 
Canada was established in 1981 and HongkongBank of Australia 
Limited in 1986. In 1987 Marine Midland Bank, based in New York 
State, became a wholly owned member of the Group and its 
principal subsidiary in the United States. HSBC Holdings plc, 
the parent company of the HSBC Group, was established in 1991 
with its shares quoted on both the London and Hong Kong stock 
exchanges.
Conclusion
Already almost two years have passed since the handover Hong 
Kong to the PRC. It is hard to judge the impact of the handover 
to the Hong Kong economy, due to the Asian Financial Crisis in 
1997. What is definite however is that Hong Kong has suffered a 
difficult 1998 and is still in the process of recovering. The 
good news is that the fallen prices of 1997 got rid of a lot of 
the bubbles that was being accumulated in the territory. Large 
landowners like Li may have had some losses but 1999 saw the 
economic prices and activities picking up again. Many say that 
the worst is over and that recover is in process. Already land 
prices have recovered a lot of its losses during the 1997-8 
period. 
The problem in the territory is more a political one. Many 
incidents have brought attention to the problem of implementing 
the one country, two system policy, which is fundamental in 
the Hong Kong Basic Law and which will guarntee the independent 
governing of Hong Kong. The main attraction that has made Hong 
Kong what it is today is it's efficiency and lassie faire 
approach of the government. If the mainland interferes too much 
in Hong Kong, it status will decline as the international free 
port city that has made it so prosperous.
Bibliography
Biblography
Chan, Anthong B., Li Ka Shing, Hong Kong's Elusive Billionaire, 
Oxford University Press, 1996.
Clifford, Mark L, The Taipan's Last Chance, Businessweek, April 
26, 1999.
Kraar, Louis, Inside Li Ka Shing's Empire, Fortune, March 29, 
1999.
King, Frank H H, The History of the HongKong Shanghi Banking 
Coporation, 4 volumes (Cambridge University Press, 1987-91)