Colony ‘Already a Part of China’

HONG KONG — Patrick Wang had just about decided to build a new factory in Thailand when a business acquaintance persuaded him to make a trip across the border into China to the village of Shajing.

Wang, a leading Hong Kong manufacturer, was not prepared for the poverty that greeted him. Young children ran around bare-bottomed, and the villagers lived in dirt-floor huts.

But his skepticism faded when he asked the village chief why he should invest money there. “Because we have the most honest, hard-working people in all of China,” the chief replied.

Fifteen years later, Wang is Shajing’s biggest benefactor. As chairman of Johnson Electric, the world’s largest producer of the tiny motors used in hair dryers, food processors and auto accessories, he has invested more than $100 million in four factories there and hired 13,000 people.

Over the past decade, Hong Kong firms such as Wang’s--propelled by a labor squeeze and rising costs at home, and lured by China’s low wages and cheap land--have transformed the Pearl River Delta into a reflection of the colony’s former self. They employ more people across the border, 5 million at last count, than in Hong Kong.

And the goods produced on the China side in Hong Kong-financed factories flow back across the border to the colony to be processed and shipped through the world’s busiest container port, which already handles more than half of China’s sales to the world.

“For all intents and purposes, it could be argued that Hong Kong already is a part of China,” said Al Stonehouse, president of the Diamondback bicycle company in Camarillo, Calif. He travels to Hong Kong four or five times a year to place orders for his China-built bicycles.

Indeed, while the rest of the world fretsabout the future of Hong Kong under China’s “one country, two systems” policy beginning July 1, market forces long ago began moving these two disparate regions toward a “one economy, two systems” arrangement of mutual need and prosperity.

To business leaders here, this web of economic interdependence--stretching from the banks and stock market of Hong Kong to the apparel assembly lines in Chinese villages--makes the longtime British colony a “goose that lays golden eggs” too valuable to the mainland Chinese leadership to sacrifice.

“Hong Kong’s ultimate security depends on Hong Kong’s usefulness to China,” explained David Chu, a leading businessman and Hong Kong legislator who gave up his U.S. citizenship as a show of confidence in the colony’s future. “We Hong Kong people have always realized that.”

To be sure, the uncertainty has led some of Hong Kong’s wealthy to flee to cities such as Los Angeles, Toronto and Sydney. But those who stayed behind have prospered handsomely by strengthening their ties to China and exploiting Hong Kong’s role as a financial and services entrepot for the mainland, according to Michael Enright, coauthor of “The Hong Kong Advantage,” a new book on the Hong Kong economy sponsored by a group of Hong Kong business leaders.

And some say that by eliminating Britain, whose relations with China had grown increasingly testy in recent years, Hong Kong leaders could gain a more receptive audience in Beijing for the hands-off policy that the territory needs to maintain its economic vitality under the agreement that will govern this “special administrative region” for 50 years after the hand-over.

“It will be Chinese dealing with Chinese,” noted Enright, a former Harvard business professor. “Hong Kong Chinese business leaders are far more influential than any politician, particularly a Western politician.”

The 26,000 vehicles that cross the border between China and Hong Kong daily are testament to the breadth of this economic marriage. They illustrate that all the Hong Kong economic indicators--the stock and property markets, foreign investment flows, immigration trends--remain bullish in spite of the political jitters.

That’s why Steven Nichols, president of K-Swiss, the upscale athletic shoe company based in Chatsworth, Calif., has no plans to scale back his operations in Hong Kong--the base for a Chinese manufacturing operation responsible for producing more than half his company’s shoes.

In Hong Kong, Nichols taps into a service and transportation network that can place orders with factories across the border, coordinate the delivery of laces, soles and fabric, handle the export paperwork and get the finished product to Hong Kong for shipment to the United States, Japan and Europe.

“This little island has no natural resources, no agriculture, no land mass,” Nichols marveled. “All they have is people that use their wits, and they do very well by it. Hong Kong works very well.”

The story of Johnson Electric in many ways mirrors that of post-World War II Hong Kong, a place where personal and commercial interests have coincided for decades. And today, those interests call for one foot on each side of the Hong Kong-China border.

Like many of Hong Kong’s business elite, Patrick Wang’s father, Wang Seng Liang, was among the flood of mainland refugees who fled Shanghai for Hong Kong after the Communists took power in 1949. In 1954, the elder Wang started a small manufacturing company that eventually began producing micro-motors for Hong Kong’s booming toy industry.

Over the next two decades, Johnson Electric expanded into other markets, such as automobile components and accessories, and household appliances.

As his business took off in Hong Kong, Wang never forgot his roots in China, helping to build roads and a flood-control system near his ancestral home in Anhui Province near Shanghai.

When Patrick, the eldest son, returned from studying in the United States, he took over the company and began looking for sites outside Hong Kong to reduce the company’s production costs.

After his trip to Shajing, just north of Shenzhen, in 1982, the younger Wang reluctantly agreed to employ 30 people to do low-tech assembly work for the company. It wasn’t long, however, before he decided to expand the tiny operation.

Ask Wang and other pioneers in China’s new economy about corruption or crime and they nod their heads knowingly. They are familiar with the downside of operating in a Communist system in transition, from the explosion in petty crime and corrupt border guards to a hodgepodge of government policies that are enforced at whim.

Crossing the border is one of the chief headaches. Johnson’s trucks make 40 to 50 round trips daily between the factories in China and the port of Hong Kong. Two busloads of Johnson employees make a one-hour commute from their homes in Hong Kong across to China.

At Johnson’s Hong Kong office, where the company maintains its headquarters and research and development staff, Wang has assembled a crisis-management team assigned to handle problems at the company’s China operations. Several times a week, the team makes the trek across the border in response to emergency calls.

On one occasion, a Johnson chauffeur set off a mini-riot outside the factory gates when he accidentally backed his car into a relative of a village official. A group of angry locals gathered outside the company’s gate, demanding that the company turn over the terrified driver. But Wang refused to turn over his employee to “hooligans,” and they eventually left.

Wang is not, however, putting all his eggs in the China basket. He is expanding his company’s plant in Thailand, partially in response to the tensions in the U.S.-China relationship that have led to threats of trade sanctions on Chinese-made goods. Also of concern is the Chinese government’s decision to take away some of the tax breaks enjoyed by foreign firms.

But to see why Wang remains optimistic about Hong Kong and China, one must return to Shajing, where his factories are now surrounded by other manufacturing plants, housing projects and Western-style hotels with golf courses and casinos.

Today, Wang’s Chinese workers are producing miniature motors that will end up on store shelves in Los Angeles, Tokyo and Bangkok. And he is confident that it won’t be long before those same employees are ready to spend their own money on hair dryers, food processors and luxury automobiles, all equipped with Johnson products.

“I don’t have anybody from that [original] village that still works there,” he said. “Most of them have left and are doing business now. . . . They’re trading. They’re involved in commerce. Who wants the hard job of manufacturing?”