Business

➚ BUY: Understudies. It’s not just Bob Iger — interim CEOs are sticking around. The average caretaker-in-chief today has been in the job for more than three years, up from 10 months between 2010 and 2018, according to executive-counseling firm Challenger, Gray & Christmas, which cited pandemic exigencies that justified extensions.

➘ SELL: Underdogs. Small stocks continue to get lashed by giants. Even accounting for losses at Tesla and Apple, the S&P 100 is leading the Russell 2000 this year by its widest margin in two decades, with the exception of 2020.

Japan’s PM will avoid Nippon-U.S. Steel hot potato… Norfolk Southern pays $600M for toxic spill… Yellen: Chinese green energy tariffs on the table… Jamie Dimon doubts soft landing… Biden wants to cut student debt for 30 million… Blackstone inks $10B real estate deal…

Hong Kong contemplates its future

THE SCENE

Milton Friedman called it his favorite economy, a “laboratory experiment” in freebooting capitalism. “If you want to see how the free market really works,” he said in 1980, with Victoria Harbor behind him, “this is the place to come.”

Hong Kong is now at an economic crossroads, trying to keep the take-all-comers commercialism that made it a hub for global companies and markets, while also trying to prove its political fealty to Beijing. As China tightens its political grip, Western capital and talent have been voting with their feet.

Draconian COVID-19 travel restrictions sent many expats to Singapore, where they’ve mostly stayed. In 2022, Singapore overtook Hong Kong in a closely-watched ranking of financial hubs. Companies including FedEx and Commerzbank have moved their regional headquarters out of Hong Kong. A new national security law implemented last month, which prescribes steep punishment for vaguely defined offenses, has further spooked foreigners.

The benchmark Hang Seng Index was the worst-performing major stock market in the world last year and in January dipped under 15,000 — roughly where it was when the British handed Hong Kong over to China in 1997. (Chief Executive John Lee, speaking here this week, preferred to say the Hang Seng had “consolidated.”) Hong Kong’s stock exchange, once a crown jewel of Asia, slipped behind India’s in total market value last year.

The city’s finance and information technology sectors shed some 20,000 jobs during the pandemic, sparking fears of what one Hong Kong-born entrepreneur called an “irreversible brain drain.” They’re being replaced by workers from China: Nearly all the visas granted under a 2022 program meant to import skilled workers went to mainland Chinese.

Chinese companies have moved in, too. After Uber Eats shut down its Hong Kong operations at the end of 2021, Beijing-based Meituan moved in. Chinese battery giant CATL, which isn’t state-owned but has seen its operations steered by Beijing over the years, is setting up research facilities in Hong Kong. Hong Kong’s solution for its ailing stock market: Get mainlanders to invest.

— Additional reporting by Cezary Podkul

LIZ’S VIEW

Hong Kong has been written off before, Roach notes, after communist riots in the 1960s, the 1997 handover to China, the Asian financial crisis, and the SARS outbreak. The city has mostly proven its critics wrong — its relatively open borders and light touch on regulation and enforcement have been a magnet for entrepreneurs willing to look past its other shortcomings. Proximity to China, too, has been a major draw.

But the crackdown on dissent hits at the heart of those incentives; the key questions will be whether the influx of Chinese capital and talent can substitute for the global money and businesspeople that are leaving, and whether Hong Kong’s leaders will learn to wield their new powers with a lighter touch — or at least signal more clearly to the business community what is, and isn’t, out of bounds.

Fortune magazine famously ran a cover story with the headline “The Death of Hong Kong” in 1995. It’s a story that’s still ahead of its time. Hong Kong’s economy is expected to grow 2.9% next year and it still has more rich people than any other city in Asia, according to one recent study.

“While some have voiced their disappointment over what could well be short-term market volatility, others have expressed strong confidence in Hong Kong, and the abundant opportunities ahead of us,” Lee, the city’s chief executive, said in a soundbite that played on taxi radios throughout the week. He urged the 3,100 conference attendees to “work hard, play hard, and do remember: spend hard.”

Another question is whether being more tethered to China’s economy will import its problems, too. China is facing slower growth, lingering trauma from draconian Covid lockdowns, long-term population decline, and a real-estate bubble that is threatening a 2008-style bust. Foreign investment is at 30-year lows. Few economists believe China’s official economic data — an audience question here yesterday about the reliability of those numbers drew a laugh from the audience — but even they show an economy with serious problems.

“Hong Kong is caught in a vice,” said Morgan Stanley’s former head of Asia, Stephen Roach, whose column in the Financial Times declared the city all but dead. “It’s going to have an exceedingly difficult time growing with China on the skids.”

Julie Su, Acting U.S. Labor Secretary; David Rubenstein, Co-Founder & Co-Chairman, The Carlyle Group; Henry M. Paulson, Jr., Former U.S. Treasury Secretary; Brian Moynihan, CEO, Bank of America; Sen. Ron Wyden (D) Oregon and Sim Tshabalala, CEO, Standard Bank will join the Global Finance Session at the 2024 World Economy Summit to discuss the implications of lowering global inflation and how current geopolitical conflicts are affecting the global financial system. Understand what executives and policymakers are closely monitoring in this new world economy.

April 18 | 9 a.m.-12 p.m. ET | Washington, D.C.

House Republicans are holding a hearing tomorrow that’s expected to be a one-way bashing of a proposed Securities and Exchange rule requiring public companies to disclose their carbon emissions. The sole industry executive there isn’t from Exxon or Chevron, but from a company 100 times smaller.

Chris Wright is the CEO of Liberty Energy, an oilfield-service company worth just over $3 billion that has sued to block the rule.

You could just ride the Chamber of Commerce’s coattails here. Why be the face of this?

As far as we know, we’re only going to live once, and we lean into the things that we think are important. One piece of feedback we’ve gotten from regulators over time is ‘We get the Chamber, the National Association of Manufacturers, we get these guys this all the time.’ When industry people that are actually directly affected speak up, they tend to listen a little more, because it’s coming straight from the coalface.

The rule gets the substance of the argument wrong. They’ve also just made up a right of the SEC out of whole cloth to grandstand a whole-of-government policy on climate change. Making it harder and more expensive to produce oil and gas in the United States does nothing positive for climate change. You’re going to have a greater percentage of production coming from other countries with higher greenhouse gas emissions.

You’re a public company. Isn’t it important for shareholders to know what your emissions are, and what would happen to your business if we got stricter emissions caps?

We think safety statistics are important for investors to know. But the SEC has never asked us how those are vetted, or made us have an auditor come in and verify them and put them in our filings.

It’s counting on subjective stuff. We don’t know exactly what fuel source our suppliers use, exactly what the combustion efficiency of this was. You could have the tuning of an engine change and the emissions are different. It’s just a rat’s nest. That’s extra compliance costs and more opening for people to sue us. It’s a lot of noise and fury that doesn’t drive any benefit.

— George Yeo, former Singapore foreign minister, speaking at HSBC’s Global Investment Summit

Advise and consent: CEO bonuses at two financial giants, Goldman Sachs and LSE Group, are under fire. An influential shareholder adviser, Glass Lewis, is recommending that investors vote against David Solomon’s $31 million pay package and LSE boss David Schwimmer’s £13 million ($16 million) haul. Rival proxy adviser ISS supports Schwimmer’s bonus, but notes it’s not quite British. Neither, though, is Schwimmer, who is American. And his U.S. rival, ICE chief executive Jeff Sprecher, got $28 million last year.

Homegrown: The Biden administration gave $6.6 billion to Taiwan’s TSMC to build three semiconductor factories in Arizona, and is finalizing a similar grant for Samsung in Texas. “For the first time ever, we will be making at scale the most advanced semiconductor chips on the planet here in the United States of America,” Commerce Secretary Gina Raimondo told reporters. The distinction between “made in America” and “made by an American company” is a political one. Biden is ignoring it for his CHIPS program, which requires more capacity and technical know-how than U.S. manufacturers can provide. But not so in the case of the proposed takeover of U.S. Steel by a Japanese company, which is facing political heat, including from Biden, despite its promises to keep production stateside.

Sitting it out: We wrote last month about the forces pushing investment firms to merge. One giant that won’t be participating is the fiercely private Capital Group, which manages $2.2 trillion in traditional stock and bond funds. “We are not going to buy anybody and we are not going to sell ourselves,” CEO Mike Gitlin said in Hong Kong yesterday. “The one thing that for sure happens in M&A is, it’s distracting.” A PWC survey last summer found that three-quarters of asset managers think they’ll merge with a rival over the next few years.

Gobble gobble: Where will AI giants find the raw materials — words and images that companies call “tokens” because of course they do — to train their models? One study suggests the world will run out of high-quality data by 2026. Others figure that the majority of new online content will be AI-generated by 2030, meaning that ChatGPT will be inputting its own output ad nauseam. The New York Times reports that Meta executives considered buying a publisher like Simon & Schuster to legally ingest its published works. Less legally, they considered putting copyrighted materials into their AI model and fighting the lawsuits later, per NYT.

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