I have just finished “Asian Godfathers” by Joe Studwell, a fascinating read in which the author laments the failure of South-East Asian economies to make the step from developing to developed. The problem, he sights, is one of political will in failing to take long-term decisions (such as on land reform) which has meant wealth continues to be concentrated in the hands of a few Tycoon billionaires who perpetuate their position by maintaining tight relationships with successive governments.

Hong Kong, in this respect, is one of Studwell’s cases in point. Tycoons rule the roost here, having divided up the domestic economy between them into a series of cartels which ensure the rest of the population has to pay them inflated prices for tiny properties, food, electricity, gas and other utilities, without the benefit of urban parkland or an unpolluted environment to produce a quality of life. Their tight relationships with government (first with Tung Chee Hwa, himself a Tycoon and the first chief executive of Hong Kong, then with his successor) have meant the political will to bring in proper regulations to curb cartel behaviour and hold Tycoon’s to proper corporate governance standards, has been entirely lacking. The result is a massive disparity of wealth in Hong Kong society (the Gini coefficient for Hong Kong is 0.5, double that of Japan).

However, writing “Asian Godfathers” from the vantage point of 2007, Studwell was guardedly optimistic about Hong Kong’s future, sighting the politicization of the Hong Kong population, impatient with the slow progress of political change and fed up with Tycoon bad behaviour, as one of the main emerging stories of the South-East Asian region. The 1st July 2003 rally, in which an amazing 500,000 people took peacefully to the streets to stop failed-Tycoon and soon-to-be removed, governor/Chief Executive Tung Chee Hwa from bringing in anti-sedition law Article 23, was symbolic of the emergence of a Hong Kong political identity. So too is the rise of minority shareholder activism as represented by the likes of David Webb, a crusader trying curb the gross anti-minority shareholder antics of the cartel controlling Tycoons. In this respect, Studwell sighted Hong Kong as possibly being able to demonstrate to the rest of South-East Asia that a better life than most people in the region are accustomed to, is within grasp.

And since the book was written…..

Asian Godfathers was first published in 2007. At the end of the book, therefore, I found myself asking whether Hong Kong has achieved the goal of providing its population with the better and fairer life to which rest of South-East Asia can aspire?

The answer, one has to suggest, is that giant strides have been made by the grass-roots, but the pendulum, although moving, is doing so slowly as change continues to be doggedly resisted by the few who stand to lose by it.

There are three main areas where one sees change happening in the form of growing activism. These are: political activism; minority shareholder activism; and individual investor activism, each of which is worth further analysis as they form the basis for the emergence of a strong, vocal Hong Kong politico-consumer society.

On the political front…..

Firstly, Studwell was absolutely right in predicting that Tung Chee Hwa’s successor, Donald Tsang risked a drift to Tung-like popularity unless he convinced Beijing to get serious about political reform in Hong Kong by staking his job on it. Tsang did not do this and Tung-like unpopularity ensued, with the continued tightness between government and Tycoons being brutally exposed with the revelation of trips on Tycoon private jets and yachts and the fact that Tsang was going to lease a luxury flat in Shenzen from a business man, at below market rates in his retirement. That Tsang was forced to reverse these retirement plans and apologise in the face of public outrage, is a further sign both that the tight relationship between big business and government still exists, but also that political will is having an effect in breaking it.

Tsang’s successor, CY Leung initially benefited from the emergence of Hong Kong’s grass root’s political voice, in a remarkable come-from-behind win to defeat of Henry Tang, Beijing’s original nomination for the chief executive post. Tang’s luxury illegal structure basement and the indecent way he “blamed it on the wife”, soon led Bejing and the Hong Kong Tycoonocracy to switch to the Leung horse, in the face of public displeasure. This again demonstrated that political force from below can lead to change in Hong Kong, but that such change will be resisted at every turn, by practical reinvention of elite loyalties to protect their interests.

Since then, however, it has been a vertical downward trajectory for CY Leung. His own illegal structure (something which he – a qualified surveyor denied all knowledge of), got him off on the wrong foot with the Hong Kong public. Compounding his unpopularity, his attempt to bring in the National Education curriculum instigated a mass protest at the Government's new Tamar offices (an event which will go down in the annals of Hong Kong history as every bit as important as the 1st July 2003 march). This forced Leung into a humiliating U-turn in the first few months of his tenure.

Most recently, on the tenth anniversary of 1st July 2003 march, people took to the streets peacefully again, this time in pouring rain, demanding universal suffrage. As yet, however, CY Leung shows no sign of knowing how to take the political reform agenda forward, even though the tide is flowing in that direction ever stronger. Donald Tsang failed to threaten to resign unless universal suffrage was brought in, as a means of convincing his Beijing masters of the need for it. One thinks CY Leung must take this bold step. The signs at the moment, however, do not look hopeful.

Corporate Governance 1, Majority shareholder 0…..

Away from the political arena, strides have also been made in trying to hold Tycoons accountable to proper corporate governance standards. Minority shareholder activism has been gaining increasing traction. In an astute Tycoon move, Richard Li tried to take PCCW back into his private hands in the face of minority opposition. He obtained passage of the necessary resolution at the shareholders general meeting, but accusations of rigging the vote followed, after the suggestion that PCCW shares had been doled out to Fortis employees in return for their voting for the buy back, became prevalent in the press. In the legal fight with the Securities & Futures Commission (“SFC”) which ensued, the Court of Appeal finally blocked Li’s attempt. Victory, then, for the minority on that occasion.

Then there is the fact that Hong Kong now has a Competition Ordinance on the statute books. At the time Studwell wrote ‘Asian Godfathers’ the prospective law was still being debated (read “delayed”). The fact that it has finally passed into law (although it is not yet in force) means that Hong Kong has taken a big step on the way to putting in place the right regulatory infrastructure needed to break the cartels that keep prices high and stifle the development of truly global competitive companies in Hong Kong. The real test, however, will be whether the Competition Tribunal goes after the big fish, or just a few minnows to prove its worth, whilst letting the status quo continue.

Minibonds and now ILAS…..

Studwell’s analysis, of course, was pre-global Global Financial Crisis. If one were to re-evaluate his analysis through a post-GFC prism, therefore, one would have to add the explosion of investor activism which has occurred into the mix when analyzing the growth of a Hong Kong political identity. Hong Kong is, after all, an international finance centre and the maturity of its population as retail investors, not afraid to ask the right questions when a sleek eyed advisor offering riches comes their way, is implicit to the emergence of that identity.

The minibond saga, in which banks sold complex structured products known as “mini-bonds” to depositors at the time they came into their branch simply to renew their time deposits for another term, is well documented. The deal foisted on the banks, which saw most investors get the vast majority of their principal investment returned, marked the start (rather than the end) of a growing retail investor-rights consciousness in Hong Kong.

From mini-bonds, the focus has now shifted to Investment Linked Assurance Scheme (“ILAS”) products - investments products wrapped in the form of an insurance product. Although ILAS products give retail investors access to institutional funds, they do often come with high administration costs and lock-up terms which means getting access to your money without incurring a hefty penalty is difficult. These products have proved popular over the years in Hong Kong, but there have been a growing number of incidents where investors are prepared to speak up in cases where they allege these funds have been missold to them.

The Hobbins court case, one of the defining cases on intermediary commission disclosure, put ILAS products very much under spotlight. However, investors have also found other routes to express their grievances at misselling other than through the courts, with a number of blogs detailing horror stories of ILAS products being sold to persons who could ill afford to buy them (see, the blog entitled “the Rape of Hong Kong” as an example). Pressure from below has instigated change with new commission disclosure requirements on intermediaries selling ILAS products set to come into force, along with an overhaul of the insurance regulatory system targeted for 2015, where the introduction of a new and powerful Independent Insurance Authority will put an end the current self-regulatory regime for insurance intermediaries.

The Octopus incident of 2010 was yet another example of people-power exposing monopoly abuse. Octopus, the provider of Octopus charge cards used ubiquitously by all Hong Kong people to pay for MTR and other public transport (as well as a variety of goods and services), came into possession of the type of customer list that any big businesses would have given their right arm for. Octopus cashed in, by renting out the list. When this was revealed, public outrage knew no bounds. What Octopus had done wasn’t illegal, but the furore which ensued not only toppled its Chief Executive, but led to a change in the Personal Data (Privacy) Ordinance which has virtually killed old-style “rent-a-customer-list” direct-marketing in Hong Kong.

The new Hong Kong politico-consumer….

All of this, then points to the emergence of a sophisticated, highly educated and politically sensitive Hong Kong population, wary of their rights being abused by government or big business and empowered to know what levers to pull (whether it be complaints to the plethora of bodies which now exist, to the press, or simply through their own blogs) when there is any hint of this happening. The above examples show that substantive democracy exists here, if not procedural (i.e. the government is forced to react to public displeasure, even though there is no voting mechanism for the public to directly express it through choosing who governs them via the ballot box).

Change in Hong Kong is therefore happening through erosion rather than eruption. One can feel the tide turning, but that it will result in universal suffrage is by no means a foregone conclusion. History has shown that the ability of the Tycoons to reinvent themselves, adapt and retain economic power (by maintaining their effective control of government) should never be underestimated. Even now, despite the activism which is apparent, property, food and utility prices remain extortionate to the local population’s detriment (and to the Tycoons’ benefit). But it is hoped the combination of a canny and voluble Hong Kong politico-consumer class and a stronger regulatory framework addressing finance, competition, data privacy and investor protection, will force the next Tycoon wave of reinvention into their becoming leaders of globally competitive transparent businesses, in place of the cartel-reliant opaque domestic oligopolies, from which we are all now forced to buy.