Hong Kong Sweepstakes

The 2 1/2-acre site of the old Victoria Barracks, located on the very edge of Hong Kong's commercial district, is prime real estate. Although its buildings are rundown and were abandoned by the British army in 1979, the parcel should have been worth about $250 million on the basis of similar recent real estate sales. But when the Hong Kong government offered it for sale this month, the bids fell "unacceptably" short, and the sale was postponed, victim to uncertainty over the future of the crown colony.

The concern centers on the July 1, 1997, deadline when, under the terms of Britain's 99-year lease, more than 90% of Hong Kong's land area, the 373-sq.-mi. New Territories, will revert to China. (Treaties signed in 1841 and 1860 give Britain ownership of the remaining 34 sq. mi.--Hong Kong island and portions of Kowloon--" in perpetuity.") Although an arrangement short of total reversion may eventually be worked out between London and Peking, permitting Hong Kong to continue to function as it does now, some fear that China will insist on full sovereignty. That could mean the end of Hong Kong's capitalistic ways. Reflecting such worries, share prices on the Hong Kong exchange have dropped 21.5% since September, and the value of the Hong Kong dollar has slumped 8.6% against the U.S. dollar.

However depressed the colony may be for the moment, Hong Kong's riches are a prize that others covet. Like heirs surrounding a millionaire's deathbed, several countries have launched efforts to gather the spoils that might flow from Hong Kong's demise. In different ways, Taiwan, Thailand, the Philippines and Singapore are all hoping to scoop up some of the estimated $20 billion in capital that could flee Hong Kong before 1997 if the question is not settled.

"Overseas Chinese are worried about the future after the expiration of the lease," explains Chao Yao-tung, Taiwan's Minister of Economic Affairs and a former businessman, "and we will try to get some of the capital outflow. Even 10% or 20% would be of great help." To that end, the Taiwan government plans to create a free-trade zone and banking center on the island. In an unregulated, Hong Kong-like environment free of import taxes, businessmen would be able to enter without visas, taxes would be low, and red tape minimal. In the eyes of Taiwan's rivals, the plan has one crucial draw back: Taipei's hostile relationship with Peking could deter Hong Kong Chinese investors.

Thailand too has entered the Hong Kong sweepstakes. A new top-level government task force is studying how residence restrictions and business taxes could be eased to attract Hong Kong investors. In the Philippines, three business groups have proposed new free-trade ports. Banker-Developer Enrique Zobel even suggests transforming the small, barren island of Mactan, off Cebu city, into a "mini-Hong Kong" and operating it like an autonomous business and trading center.

In the long run, the most likely heir to Hong Kong's fortunes could be Singapore, an already booming capitalistic haven that can offer many of the financial structures that Hong Kong investors would require. Explains one businessman: "If Singapore removed its tax on foreign company earnings remitted to the city-state, it would get Hong Kong's money in a week." So far, however, Singapore has been waiting discreetly in the wings. "Singapore's designs have been unabashedly to make this the financial capital of this part of the world," says one Western businessman. "But it would be a hostile act to attack Hong Kong now. Nevertheless, Singaporeans are watching closely to ensure they will not lose any bets."

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