Li Ka Shing is a billionaire and one of the richest man in Asia. He is a true example of someone who came from the gutter and made it to the top by hard working. Li Ka Shing is no newbie when it comes to startups. He started many startups in his life and most of them were highly successful. Both Li Ka Shing and Jack Ma (Alibaba) believes in the same theory. They both believe that entrepreneurs do not need a whole lot of money to build a successful startup. Both of them blame too much early money for early startup’s failure. Here are some words of wisdom that Li Ka Shing has to share with the startup community.
2000RMB ($300USD) Bootstrap
Li Ka Shing said that assuming you have 2000 rmb which is about $300 USD, you should split it into 5 different funds.These 5 separate funds should last you the entire month. The very first set of funds which will be 700RMB($120USD) should be used for living expenses. He believes you have to save as much as you can on food. This means eating a bowl of noddles in the morning, a fruit for lunch, and some mini vegetable meal for dinner. It isn’t uncommon for entrepreneurs to bootstrap on ramen noddles as well. Li Ka Shing believes that you should do this when you are young because your body can still handle it. That should cost you about 600RMB which is around 100$ USD. Then you should use your last 100rmb to pay for an extremely basic phone plan. Those temporary sim cards work as well.
Second Set
The second set of funds will be used to network and meet new people. A lot of successful entrepreneurs like Tim Ferris agrees with this concept. Time Ferris said that if he had very little money, he would be using it to treat people to coffee. Li Ka Shing feels that you should network with at least 2 new people every month. He also advises that you choose wisely on the people you meet. His advice is to only network with the people that are smarter than you because the old saying goes, “You are the average of the 5 people you hang out with.” Don’t waste coffee and go with the best and brightest if possible and ask tons of questions. In Li Ka Shing’s mind it is all about building the network chain, building your own repetition, and gaining priceless knowledge.
Third Set
The third set of funds is for learning purposes. You should set aside 300RMB ($50 USD) or so for learning material. Li Ka Shing encourages you to buy some books, attend a free seminar, and take a very cheap class such as an online training class. Use any spare time you have on studying and grinding out the material. The material that you buy should be related to your field. For example if you are into retail clothing, you should purchase material only based on retail clothing and retail marketing, so that you do not waste your money on materials that won’t help your business.
Fourth Set
Fourth set is more of an optional set. Li Ka Shing recommends that you save your 4th set for travel. For this set, you should be saving 200RMB per month (35usd$). His belief is that everyone should travel at least once a year and enjoy themselves. You have to have enough money to visit a new place. Use cheap housing services such as AirBnb or community houses to save money on your travel. Traveling overseas is the best thing to do in his opinion because traveling overseas will allow you to see different lifestyle and culture. Use that experience to recharge yourself and gain more motivation to do better in business.
Last Set
Your last set of 500 RMB (80$) should be saved in your bank. Li Ka Shing suggest that this set of funds could be set aside for a little bit, then you can use it to do small business. In his opinion, small business and startups are safe in the beginning and doesn’t cost a lot of money. You can test stuff on the web, like develop a simple web app or blog to see if you can generate yourself any additional revenue. In other words, take a safe low cost route to try and build something. Li Ka Shing recommends the old school way or buying low and selling high. He suggest that you should buy wholesale and sell them separately for as much profit as you can. When this fund grows bigger, you can choose to either buy something like a car for yourself, buy long term investments such as mutual funds, reinvest back into your business, or save it incase an emergency occurs.
Li Ka Shing says that your salary should be $3000rmb per month by the end of the year instead of the starting 2000rmb as long as you followed all his steps and networked correctly. In addition he said that $3000rmb might make your life turn a little better but it still means you have to work hard. His recommendation is for you to go get a part time sales job that includes training. Sales might not be something everyone wants to do, but it is the best way to build skills for any business. Skills accumulate and run on a snowball effect overtime. His last tip is that you should not be a heavy spender. Do not waste money on clothing and shoes, you can buy all of those when your rich.
“Maintain this balance and gradually you will begin to have a lot of surplus. This is a virtuous circle of life plans. Your body will start to get better and better as you get more nutrition and care. Friends will be aplenty and you will start to make more valuable connections at the same time. You will then have the conditions to participate in very high-end training and eventually you’ll be exposed to bigger projects, bigger opportunities. Soon, you will be able to gradually realize your various dreams, the need to buy your own house, car, and to prepare an adequate education fund for your child’s future.”
Don’t give up and build your startup. Bootstrap and keep learning to build your life.
Original Chinese Interview here: http://appnews.fanswong.com/show.php?id=325950
http://entrepreneursky.com/billionaire-li-ka-shing-teaches-get-rich-300/
Life can be designed. Career can be planned. Happiness can be prepared. You should start planning now. When you are poor, spend less time at home and more time outside. When you are rich, stay at home more and less outside. This is the art of living. When you are poor, spend money on others. When you’re rich, spend money on yourself. Many people are doing the opposite.
When you are poor, be good to others. Don’t be calculative. When you are rich, you must learn to let others be good to you. You have to learn to be good to yourself better. When you are poor, you have to throw yourself out in the open and let people make good use of you. When you are rich, you have to conserve yourself well and don’t let people easily make use of you. These are the intricate ways of life that many people don’t understand.
When you are poor, spend money so that people can see it. When you are rich, do not show off. Just silently spend the money on yourself. When you are poor, you must be generous. When you are rich, you must not be seen as a spendthrift. Your life would have come full circle and reach its basics. There will be tranquility at this stage.
There is nothing wrong with being young. You do not need to be afraid of being poor. You need to know how to invest in yourself and increase your wisdom and stature. You need to know what is important in life and what is worth investing in. You also need to know what you should avoid and not spend your money on. This is the essence of discipline. Try to avoid spending money on clothing, but buy a selective number of items that have class. Try to eat less outside. If you were to eat outside, do make sure you buy lunches or dinners and foot the bill. When buying people dinner, make sure you buy dinners for people who have bigger dreams than you, and work harder than you.
Once your livelihood is no longer an issue, use the remainder of your money to pursue your dreams. Spread your wings and dare to dream! Make sure you live an extraordinary life!
Famous theory from Harvard: The difference of a person’s fate is decided from what a person spends in his free time between 20:00 to 22:00 . Use these two hours to learn, think and participate in meaningful lectures or discussion. If you persist for several years, success will come knocking on your doors.
No matter how much you earn, remember to split your salary into five parts. Take care of your body so that it will still be in good shape. Invest in your social circle so that you will constantly meet new people where you can learn new knowledge from. Expanding your network will also have an important impact in how much you earn eventually. Travel every year and expand your horizons. Also keep abreast with the latest developments in the industry. If you follow this plan diligently, you will soon see big surplus in your funds.
Whatever happened in the past is over. Do not dwell on past mistakes. There’s no point crying over spilt milk. Everybody makes mistakes. It’s what you learn from the mistakes, and promising yourself not to repeat those mistakes that matters. When you miss opportunities, don’t dwell on it, as there are always new opportunities on the horizon.
Being able to smile when being slightly misunderstood is good upbringing. When you’re wronged and you smile with calmness, it is generosity. When you’re being taken advantage of and you can smile, you’re being open-minded. When you are helpless and you can do a philosophical smile, you’re in a calm state. When you’re in distress and you can laugh out loud, you’re being generous. When you’re looked down and you can calmly smile, you’re being confident. When you’re being jilted in relationships and you can smile it off, you’re being suave.
There are many people who are struggling to make ends meet. It doesn’t matter if you are rich or poor. There are lessons for all to learn from Li Ka Shing.
Thoughts Of Li Ka-Shing
The following is an edited transcript of an interview with Chinese entrepreneur Li Ka-Shing, conducted in China on Dec. 4:
Forbes: We wanted to start by exploring your arrival in Hong Kong, your background. You’re obviously influenced by your father, a teacher. He instilled in you a deep thirst for reading and knowledge. It sounds as if, despite the difficulties of your early career, you are an optimist about the future. Would you classify yourself as an optimist?
Li: First of all, I am an optimist. When you study hard and work hard, your knowledge grows, and it gives you confidence. The more you know, the more confidence you gain. When I was 10 years old, I lost my schooling, but I still had plenty of hope to return to school. When we came to Hong Kong, the family had no choice, and I had to work. I was facing life for the first time. I was 12 years old, but I felt like a 20-year-old. I knew then what life was. My father had tuberculosis, which was as devastating a disease as cancer is today. If you were rich and could afford proper care, you might have a better chance. We had no choice. I needed to be strong, and needed to find some way to secure a future.
Read the Forbes Asia cover story, “Thoughts Of Chairman Li”
And as long as you have that preparation, that confidence, you have the general belief that things will work out?
During the Japanese occupation, besides working, I also needed to get plenty of fresh air to remain healthy, because at that time, I also had TB. But at the same time, I also needed to study and work. That gave me confidence. I got my first break right after the Second World War. My boss needed a letter written. He had a secretary who wrote his letters for him, but he was on sick leave. When he asked around the office to see who could take his place temporarily, my colleagues recommended me. My boss said that my letters were quick and nice, and I got his meaning. He was happy with my work, and I was promoted to head a small department. I always believe that knowledge can change life. It was a case of knowledge changing my life.
Do you think that in the circumstance at that time, you could have been in any business?
After my promotion, I requested that I be reassigned as a wholesale salesman. This was actually a more difficult job, but the prospects were better. At the time, our company had seven other salesmen. On New Year’s Day, the boss announced that the bonus that year would be based on sales. At the end of the year, my sales figure was seven times higher than the second best. If they paid my bonus based on my sales, my bonus would have been higher than the general manager’s. The other salesmen were already jealous. So I said to my boss, “Just pay me the same as the second best salesman; it would make everyone happy.” As a result, I became a manager when I was 17 going on 18. I was second in command only to the boss. At 19, I became the general manager of the factory.
I was already keeping an eye on the political developments within China, and I also had a firm grasp on economics, industry, management and the latest development and production of the plastics industry. I knew that plastics had a great future, because so many products can be made from plastic. Not many people in Hong Kong at that time [after the Second World War] were aware of the potential. It was still quite new in Hong Kong and China. As the civil war and political situation in China developed, I knew that with 90% of our sales going to mainland China, our business would fall off tremendously if the Chinese leadership changed. Sure enough, our business dropped 90% in 1949, which was worse than I expected. But the company did not suffer much, because I didn’t keep too much stock or order too much raw materials. The boss told me that I would become the general manager of the head office. I was confident about the bright prospects of the plastics industry, and I told him that I would like to start my own business. Before doing so, however, I would help my boss sell the remaining stock and wind up the company’s business in an orderly manner. That was 1949. I started my business in 1950 and named it Cheung Kong.
So instead of restructuring the company, you chose to start your own business?
My boss wanted to close down the business and become partners with me, but I wanted to start the business small on my own. I already knew a lot about the plastics business, including the technology, the market and sales. I knew everything including the accounting. The first year, as I didn’t have much capital, I did everything by myself, including the first set of account books. I needed to go the Inland Revenue Department, and I asked my auditor if my accounts were correct, since I had no experience doing accounting. He said that it was complete and that I could take this to the government. I had no experience, but I learned by reading books on accounting. When you want to understand the balance sheet, you needed to know a little bit about accounting. I did so many things by myself, which kept my overhead low. I have made a profit every year since 1950. I have never lost a penny in any year.
You also learned about finance in that early business?
I started from the bottom up and went through so many different levels, doing different jobs. Like a mechanical watch, if one gear breaks down, the watch doesn’t work. In manufacturing in particular, you must be well versed not only with the market, but also with productivity and quality. I had worked at every level, doing different tasks. I was very careful. I had no debt (actually, I was not qualified for a bank loan at the time), but I knew my company’s finances like the back of my hand, and I could answer any question that anybody asked.
In 1956 to 1958, I was already buying properties. I bought my first property with a partner. By 1958 or ’59, I owned my factory site as well as other real estate. By 1960, we were the biggest manufacturer in Hong Kong in terms of dollar value export. I started working in 1940, I started a business in 1950, and by 1960, I was the biggest manufacturer. I am very prudent financially because of those hard times I went through. During the Japanese occupation of Hong Kong, which lasted three years and eight months, I sent 90% of my salary to my mother. I spent nothing. I had a haircut every three months. I shaved my head like a monk. Nor did I go see a movie during this period. Seeing a movie was very cheap at the time, but I needed to save every penny. My father was hospitalized at the beginning of the Japanese occupation. The hospital fee was not much, but you had to pay for the medicine.
I had always wanted to go back to school. My father was a schoolmaster, though not at the same school as mine. But I knew that he would be upset if my exam results were bad. I was always among the top students in class, though not the first, as I liked to play. If the Japanese had invaded just one year later, I am sure I would have been first in class. I entered Form One when I was 10. We came from a scholarly family. During the late Ching Dynasty, my father’s two elder brothers studied for Ph.D.s at Tokyo University [known as Imperial University then]. Every generation of my family took education very seriously. During my father’s time, our family finances were deteriorating. My uncles did not make any contribution to the family after they came back from Tokyo. I always had a fighting heart. I only had a small amount of capital when I started my own business. That’s why I am always conservative. I never forget to maintain stability while advancing, and I never forget to advance while maintaining stability. Stability and advancement must always be in balance.
So even when you have knowledge and confidence, you still want to be cautious?
I have not had any personal debts in many years. Even now, if I have a debt, I could repay the loan within 24 hours if the bank calls me. Or maybe 72 hours, to be more conservative. I am talking about personal loans, not for Hutchison Whampoa. Hutchison is also very conservative. Many of Hutchison’s assets are stated at cost on the balance sheet. When these assets are disposed of for commercial reasons, the company can make a handsome profit.
Many events have occurred over the past 50 years, from the 1950s until now, that have had an adverse impact on Hong Kong. But how many times have you heard that Cheung Kong’s finances were in trouble over the last 50 years? Never. The reason is, we are always prepared for the worst. That is my policy.
When you first started investing in properties in 1958, that is a business historically built on debt?
No, for me, all cash. In my case, I bought land with my own cash. If somebody invites me to be a partner, and I take only 15% to 20% as a minority stakeholder, they would perhaps get a loan from the bank. But I had no personal debt. At that time, when Cheung Kong went public in 1972, the company had almost no debt. Even if the company had to borrow from the bank, we would have alternative arrangements, such as buying government bonds equivalent to the bank loan amount, to ensure that we can readily cash out at anytime. The interest income would continue to accumulate, while interest expense on the loan would be repaid monthly. So you see, our corporate finance is very conservative and prudent.
Actually, I don’t think I am a good “businessman.” There are two reasons. First, I don’t like to entertain. When I was still in the manufacturing business, my clients who accounted for 90% of my production came to see me twice a year, and each time they placed a six-month order. I would have a quiet dinner with them, but we didn’t go to nightclubs or ballrooms. I just tried to do a good job. Second, I am extremely trustworthy. I always make good on my promises. But perhaps times have changed. Nowadays, many people don’t honor their promises, and even a signed contract can be voided.
What is the key to building a good business relationship?
The most important thing is to build the best reputation. Anytime I say “yes” to someone, it is a contract. I’ll give you a case as an example. In 1956, when I was in the plastics business, my first order was for a three- to six-month production. I calculated a profit of 20%. My competitors were making 100% profit. A large U.S. competitor of my buyer approached me and offered to pay me an extra 30% profit for the merchandise my buyer had ordered. He said that with the extra profit, I could expand my factory. I said, “Look, I am also a businessman. I’ll make a deal with you. I will start another factory in nine months’ time, a much bigger one, and I will take your order. But this time, I have already promised this buyer, and I will finish the order for him, as I am his only supplier.” I did not tell my buyer this story, but he learned it from elsewhere.
So when the buyer came to Hong Kong, he humored me and said that he thought I would be bankrupt by now. He said, “Why didn’t you take the extra profit from my competitor?”
I said, “I already promised you.”
He said, “But at least you could have told me and requested a price increase.”
I said, “Next time, I will increase the price.”
After that, we became even better friends, even after I quit the plastics business. Reputation is the key to success. You have to be loyal to your customers.
My first car was a gift from the buyer. So I don’t need to entertain. You need the buyer, but the buyer also needs you. That was 50 years ago, in 1956. Even now, when I make too quick a promise, like when I buy too high or sell too low, I still keep my promise. This kind of mistake rarely occurs now.
Read the Forbes Asia cover story, “Thoughts Of Chairman Li”
How do you balance between being cautious with bank loans and investing in properties during very hard times?
In 1967, Hong Kong turned upside down when the Red Guard started trouble in China. I bought a lot of property in Hong Kong at the time. If you studied politics, you would know that if China had wanted to take over Hong Kong, there would be so many ways. They didn’t need to start trouble. If they started trouble, all the rich people would leave and it’d be an empty city. What good would it be? I was worried about my family, because bombs were going off everywhere. I needed to take care of my business, so I sent my family to Singapore and flew every Friday to visit them and returned to Hong Kong on Sunday evening. I did that for one year. In 1967, I bought a lot of property. A completed new building could be bought cheaper than the cost of the land. For example, I paid 60% of the replacement cost for a building in Kwun Tong. The seller wanted me to pay in U.S. dollars. I made the decision in five minutes. The seller, an American company, lost confidence in Hong Kong. The building had a floor area of about 330,000 square feet. I made my money back in 15 months. In other cases, the site had only half of the pilings done, and the seller would offer to sell the site on the cheap, because they could not complete the construction.
If you look at our interim results, Cheung Kong’s debt is about 20% of our book value, or maximum of 25%. But the 25% does not take into account the property already sold and short-term receivables from the sale. Our true debt ratio is much lower. Our debt is always set at a safe level.
How did you prepare yourself to get into the property market?
You have to keep an eye on supply and demand. You have to watch the political environment, and how government policy impacts the economy. Hong Kong is not isolated; it is always influenced by outside factors, like the U.S. economy, and now mainland China is the most important influence. If the Chinese economy is very good, our [gross domestic product] is quite good, and interest rates are not too high, then the demand and supply will be in balance. Still, you have to prepare for the worst-case scenario. If nobody buys your property, can you support your debt? For 56 years, especially after we went public, Cheung Kong has never had any financial problems. We can get bank loans at low interest rates–something like 30 basis points above HIBOR. People have confidence in you. My boy Victor also shares my conservative policy. One day, if I consider retiring–but I’m not yet considering–my boy Victor and the group’s management team will continue to run the company in the same conservative manner.
Why did you believe that it was not in China‘s interest to run all of the wealth out of Hong Kong in 1967?
If China took back Hong Kong, it would become a burden for them. They would get 5 to 6 million more people, but they already had enough people. What benefit would they have had? Hong Kong doesn’t have natural resources. Its greatest asset is its hardworking people. Of course, I was quite clear at the time when I bought the property. But I did not borrow money; I used my cash reserves to invest.
What was the next big opportunity in Hong Kong? Was it in the 1980s?
I bought a lot of property during times of uncertainty, like when in 1965, the Canton Trust and Commercial Bank went out of business, which led a run on Hang Seng Bank, or during the 1967 riots. The economy was fundamentally sound, even in 1967, but people were worried. Even my plastic toys buyer was worried. He hired over 38 planes in one month to take the merchandise to the U.S. We made 50% more profits than usual that year. I was certain that China had no intention to take back Hong Kong, so I continued to invest in properties, even during crises like the bank runs in the 1960s, [British Prime Minister Margaret] Thatcher’s visit to China in 1982, and other tumultuous events that caused steep market drops.
Your general view of Hong Kong hasn’t changed?
I hope I’m right, but things are now changing fast.
No, Hong Kong still has many advantages. Our GDP is quite strong, and the Chinese economy is growing at 10% per year, which yields many opportunities for Hong Kong. However, our labor costs are too high compared to our next-door neighbors, and for political reasons, it is almost impossible for Hong Kong to import laborers. On the other hand, we need to develop new technology and higher-quality industries, but we don’t have enough engineers and professionals. Yes, our banking and tourism industries–as well as basic infrastructure, such as cargo transport, airport, and telecommunications and other service industries–are doing very well. But some nearby cities are also highly competitive. You can see many industries are successful in Shenzhen and Guangdong. They also have many kinds of different industries. If Hong Kong wants to stay in the lead, people need better knowledge and [they need to] work harder. Hong Kong people need to see where we can compete.
Many European countries, such as Finland, have high GDP growth and good industries. Denmark, Sweden and Norway are examples of countries with a small population that are doing well. Hong Kong is benefiting from China’s strong economy. For instance, the ITU [International Telecommunication Union]conference is being held in Hong Kong for the first time, because Mainland China is such a huge market. Many local sectors benefit from the conference, like hotels and retail.
Our principal policy is never take financial risk. All businesses of the group except 3G [third-generation wireless communications] are profitable. Property, energy, oil, power stations, highways, retail, even telecom are doing well. We are continuing to expand our container terminals in many countries.
With 3G, we are behind our budget in some of the countries where we operate, like the United Kingdom. But in many other countries, we are on budget and will become cash flow positive in less than two years. Italy is doing very well. Globally, we have 14 million 3G subscribers today. Our 2G business is very successful, with over 26 million subscribers worldwide.
In the long run, 3G, with its high speed, definitely has a good future. We have developed high-speed 3G, HSDPA [high-speed downlink packet access], which is 10 times faster than the original 3G. The network and license for HSDPA is the same as those for 3G. All you need to do is upgrade the network, and you can increase the transmission speed another 10 times in the future. People say 4G or 5G will overtake 3G, but that’s not true. Last month, the Hutchison Group launched X-series in Europe. This is a convergence of mobile portability with the speed and multifunctionality of fixed-line broadband. Simply put, X Series augurs the true arrival of mobile broadband.
Hutchison Telecom started in mobile phones about 22 years ago, but I still believe ordinary 2G has at least another 10 good years of business. 3G is very young compared with 2G, and we believe that it will continue to be widely adopted for a long time to come. That is why it does not affect us if our breakeven target is 12 or 18 months behind schedule. Our losses have been narrowing every year since 2005. In 2008, we should at least be cash flow positive. Our depreciation is HK $26 billion, or $3 billion. All our 3G businesses will definitely become cash flow positive by 2008.
If 2G will enjoy another ten good years, will it be another 10 difficult years for 3G?
In developed countries, 2G will become saturated. I think lots of good companies are also keen to build 3G, and now they are quickly catching up. We will reach 7 million 3G subscribers in Italy [at the end of December 2006], and it will be the first country to become profitable. Despite strong competition, our losses are narrowing every year, while our revenues are increasing. The handsets are better, nicer, smaller, quicker.
In keeping with your approach to other businesses, you understand the technology and such. But in terms of seeing the market over an extended period of time, is it a different way of thinking about business than you have to think about building luxury buildings, or is it a similar process?
Different. A building is simple. We already know how to build the best building and how to get the cheapest financing. Our company already has a good reputation. We have no problem selling units. Cheung Kong does extremely well in Hong Kong and Mainland China. But with 3G, we are facing more competition than we originally expected, and we are slightly over one year behind budget in the U.K. But we are doing well in other locations, such as Hong Kong, Australia and Italy.
Read the Forbes Asia cover story, “Thoughts Of Chairman Li”
But strategically, when you think about whether you want to be in this business, is it inconsistent with the business principles that you have used in other industries?
When we started Orange [Hutchison's telecom brand], it was a tremendous challenge. We had just reached breakeven and were nearing a profit when we sold it for a huge profit. In the early 1990s, when oil prices were low, and Husky [Energy] was making a loss, there were many articles about Husky being an unwise investment. In recent years, the company has been doing extremely well. Besides Hutchison’s 35%, I also have a 36% to 37% personal stake in Husky.
We are also cautious while developing the 3G business. We had stopped bidding on a license in Germany. The cost of a license in Germany was much higher than in the U.K. We had originally agreed on a maximum bid with our partners, but they changed their mind later and raised the maximum. We said, “That’s fine, but that’s the limit. We won’t go any higher than that.” When they went over the top, we said, “Good luck to you. We won’t go forward.” It was over our budget. The German license was important, but we stopped because we are cautious.
Though competition in the 3G business is strong, we are confident that our revenue will continue to grow, as high-spending customers are migrating to 3G. People will see the true picture two years from today. It will turn cash flow positive and will become profitable. Net growth of users will keep growing.
You are confident about the cost structure that you have limited yourself to?
Yes. The revenue is growing, while the losses are narrowing. The handsets are nicer and cheaper than before. It’s only a matter of time before we reach profitability. The loss in 2006 was much less than in 2005, and the losses will continue to narrow in 2007. And we will be cash flow positive in 2008. In telecommunications, another one or two years is nothing. It is a growth business, and we expect 3G to be a major contributor to our group in the future.
The growth prospects of China: Currently, 8% of Hutchison’s revenue is from China. Five years out, what percentage of your business will be from China?
I would say approximately at least 15%. Cheung Kong also invests in China. Today, something like 10% to 12% of Cheung Kong’s revenue comes from China, and five years from now, about 20%. We have many kinds of businesses in China. Our total investment in China is more than $15 billion for the group, both Cheung Kong and Hutchison, and I think the growth will be fast.
Do you need to adopt new strategies?
We will continue to invest. All our existing businesses are doing well. China is still a high-GDP-growth country. But China has its problems. The cost of so many of their agricultural products is higher than that of agricultural products in Western countries. Wheat, rice, corn and sugar cost more than in Australia, the U.S., and Canada. Rice in the U.S. and Canada is much cheaper than in China.
Those farmers need to go to the city to get a job in manufacturing. You need approximately 20 million new jobs every year. On the other hand, the quality of products is also improving. This year alone, over 5 million freshmen will enter university. Every year, more and more university students graduate and enter the job market with better knowledge and skills, helping the economy to grow, especially engineering in the manufacturing industry. Five years after joining the [World Trade Organization], China is more open to the world.
Will there be rule of law in China?
There is always room for improvements. It takes time [when you have] 1.3 billion people. Thirty or 40 years ago, there was almost no contact with the outside world. Now, the government is trying very hard to improve the rule of law, including commercial law.
Your businesses will make prudent investments in China, and you have a sense of what the possibilities are five years out?
I am still very confident. With our China investments, we’re not looking at just the next five years; we are looking very long-term. A lot of what we do in China is infrastructure, like highways, power stations, bridges, container terminals and many kinds of properties. We have invested over $15 billion.
Is progress in China inevitable at this point?
Certainly. Products made in China are good and inexpensive, and their production technique and quality are continuing to improve, but they need to focus on sustained development and on creating new jobs. China still has 700 million farmers, and many of them need to change to a new industry. China needs a good economic base to provide enough jobs for the farmers.
Last year, nearly 120,000 students were sent to Western countries for higher education. Many overseas Chinese who have received their education abroad and have patents and professional qualifications are returning to China with new skills. Some Chinese-Americans now see opportunity, and they bring their know-how and technology to start businesses in China. Most of them are very successful. They are also helping to advancing technology in China. Lots of China exporters are run by foreigners. They manufacture their products in China, but they also bring new technology into China.
Read the Forbes Asia cover story, “Thoughts Of Chairman Li”
Even though this market is very likely going to grow, as you said, and there are lots of opportunities, relationships (guanxi) are very important in China–for your company, for all companies. Do you see in the future you companies being able to continue to build those relationships?
China has changed quite a bit. The importance of guanxi is gradually diminishing. For example, many properties are being auctioned publicly. Cheung Kong and Hutchison have acquired many property projects in China through an auction process. China has made good progress in this area. Did you see any property auctions 10 years ago? Now, 90% of our land bank is acquired from auctions. We prefer it this way. Our heaviest investments outside Hong Kong and China are in the Western countries, like Europe, Australia and the U.K., and we also intend to look for some investment opportunities in the U.S. Law and order is the most important thing in my mind. If a country doesn’t have good law and order, I would rather not invest there. Even if we go, we would start small to test it.
As you say, China is moving toward a genuine market system where guanxi won’t matter as much, but the bid will. But it will be a while until China becomes that kind of market.
I think China is moving more and more toward a free-market system. I see more properties being auctioned by the government next year. That is good for the country and also good for investors. Property is just one of our investments. We are heavily invested in the infrastructure sector, and China has the conditions to attract the foreign investors.
Your company and other companies making significant investments in China nevertheless need to be sensitive to the relationship with the government.
I returned to China in 1978, 29 years after the change of government. At that time, our company had already invested about $10 million in China. But of course, personally, I had made contributions to education as philanthropy. If a country does not welcome foreign investors, of course you need to be cautious. But after [Communist Party of China leader] Deng Xiaoping opened the door to foreign investors, our group’s strategy changed. Any suitable opportunity that’s done properly, we would consider.
But even today, when their leadership changes in China, as it did a couple years ago, there is a new set of personalities, a new emphasis, if you will, in some policy. Does that mean that any businessman trying to be very involved with China needs to read the tea leaves?
I think China will get better and better. Even though the leadership changes, the open-door policy will not change. They cannot go back. In China, the same as in other countries, the wealth gap is becoming wider. The same goes for Hong Kong. That is a global problem. Since Deng Xiaoping, the Chinese leaders have all been trying to improve the living standard of the people. With such a large country, you can’t say that mistakes haven’t been made, for example, by municipal governments. But when you look at China, you need to see it as a whole, with all of its good points and bad points.
Is there some aspect to this changing China that you think can give your company an advantage over others?
The 1967 riot was an unusual incident in China. I don’t think anything like that will ever happen again. You cannot say it is perfect. But it’s improving. Starting next year, 80% or 90% of the land for sale is through public auction. Some projects, like infrastructure projects, cannot be auctioned. That is true for many other countries, even Western countries.
There are some industries the ownership of which China is very sensitive about.
Telecommunications is one of them. Banking is already beginning to open up.
In Hong Kong, there is unlimited access to fixed-line licenses. Any company in the world can have a fixed-line license in Hong Kong. The commitment is very small. But after this policy was implemented, were there any new local or overseas investors? None. Competition is very tough–toughest in the world. It is easy to get a license. But I don’t see any true investor coming to Hong Kong to get a new license.
So issues over investments in telecom have become such a big story as they have here in recent days?
Don’t believe the stories too much. If you know the truth, you will be disappointed. In Hong Kong, if you want a fixed-line license, you can definitely have one. I can only say that competition in the fixed-line business in Hong Kong is very tough. Why don’t we have any foreign investors even with an open policy?
In such a difficult situation, your foundation is willing to invest in telecom company PCCW.
I don’t want to comment on this case. The foundation has invested in a lot of companies with good returns, and they are 100% for charity. One of the items is almost five times bigger than the PCCW investment. This matter is over. Sorry, no comment.
Read the Forbes Asia cover story, “Thoughts Of Chairman Li”
If PCCW is not an investment in the long run for a relationship with China, that’s not what this investment is about?
I prefer not to comment on this issue.
How will you continue your legacy for the next 50 years?
We have already built a firm foundation upon which our core businesses can continue to grow and prosper. Hutchison is a multinational conglomerate operating in 56 countries, with boundless potential and bright prospects. I think there are plenty of opportunities in China, including cosmetics, pharmaceuticals and other new industries. If there are any pharmaceutical companies that want to enter the Chinese market with a partner, we would be very happy to be partners with them, as long as conditions are right. The pharmaceuticals business needs time and a great deal of effort to develop, but there is a vast market in China. There are plenty of good medicines on the market, but they are very expensive, and people cannot afford them.
Are you familiar with the India pharmaceutical experiments?
India has been very successful. I make a lot of donations to medical care projects, and I know what people need. So if you can make a profit and help people at the same time, why not?
Give us a more specific sense of what the opportunity in Chinawould be. Would it be to produce low-cost but life-saving pharmaceuticals not just for the domestic market but also to markets abroad?
There is enormous potential in the Mainland pharmaceuticals business. Suppose the best medicine available in the U.S. could cure a man in three days, while some other Mainland-produced medicine would take four days to cure the man. The additional day it takes to get well does not present a major problem. It would be great if we could do business and also accomplish something meaningful.
What about the intellectual property problem in China?
There are IP problems. The government leadership realizes that it is serious not only to Western investors but also for domestic Chinese industries, so they are already taking measures to improve the situation. IP gives people the assurance to spend the money, time and energy to create and to invent, and that is essential for a country moving toward the high-tech road.
In China, where the pharmaceuticals industry is so afraid of IP theft, do you think conditions are satisfactory now, to be willing to consider partnership to develop pharmaceutical products?
Personally, I take intellectual property very seriously, and I can see that China is also taking IP very seriously and taking steps to improve.
A business that’s sufficiently localized and watchful can operate with proper legal enforcement.
IP is very important. Without IP rights, there would be no new technology developed. But China needs time and resources to set up a watchdog bureau. IP offenders must be brought to justice, even if you have to pay $1.10 in legal fees to recover $1 of loss. I think China is moving in the right direction to align itself with Western countries on the issue of IP.
There is also a problem in the health care deliver system. Hospitals seem to make a point of selling very high-cost pharmaceutical products, forcing people to seek out local care in the villages. Is changing that delivery system necessary for a pharmaceutical business to succeed in China?
In China, I have set up many hospitals. Shantou University alone has five affiliated hospitals with a total of 1,800 beds, and there is also a Joint Shantou International Eye Center. We are also undertaking free medical services in many provinces in China and therefore have some knowledge and experience in this area.
So, Mr. Li, you still have no retirement plans at this time?
No, no plan.
Are you trying to provide a model or, in some way, some kind of example that will help to change China. And what is the change that you would like to see?
I cannot say that I can change China, but at least I can set a personal example. I set up a foundation that I refer to as my third son. This idea dawns on me like an enlightenment, not coming from any books. Since 1980, I have dedicated to this son not only my assets but all my heart, and I believe that my colleagues in the foundation and my family are–and will remain–as committed as I am to serve his causes, reshaping destiny through education and seeking efficient initiatives that can forever help those in need.
In Asia, our traditional values encourage and even demand that wealth and means pass through lineage as an imperative duty. I urge and hope to persuade all of us in Asia that if we are in a position to do so, that we transcend this traditional belief. Our reorientation of perspective today could bring forth great hope and promises for the future.
I will not inject the shares of my listed companies–Cheung Kong, Hutchison and Husky Energy–into the foundation. Instead, I will donate non-core assets. No family members or directors will benefit from the foundation. It is 100% for charity.
The foundation will go on continually, unless war or politics puts an end to it. As I’ve said before, I will donate one-third of my wealth to the foundation to enable it to benefit more people.
I have worked hard to establish my business over the past decades, and now we are seeing the fruits of our labor. Not only is my group reaping the benefits, I am also able to make greater contributions to worthy causes.
Five years ago, there was a new emphasis from your foundation, right?
No change. We try to create a new model. In the medical college, the program was changed from five years to seven years. The principle behind what we are trying to do at Shantou University has not changed, but every few years we have a new emphasis going on, different focus of reforms. Shantou University will be much better in the coming three to five years.
What is the model that it will try to establish for other universities in China?
The credit system, and the emphasis on students’ responsibility to seek the truth. We have invited many overseas scholars to visit the university, as we believe that the understanding of Western ideas and concepts, together with the knowledge of Chinese culture and history, will help the students expand their horizons.
The worldwide network of medical institutions that receives support from the foundation makes it easier for the medical college to form partnerships and links with overseas institutions. It is not a top-down university. The people inside think I am too Western. I always keep an open mind; I try to study more and learn more. I believe that if you impart critical thinking skills to the students, they will have a good future.
Look at the new library being built at Shantou University. As a knowledge center, it is a totally new concept, bringing together physical books and an electronic learning environment. This whole changing of perspective of learning in China, instead of rote learning, equips students with critical thinking skills necessary to be highly responsive in a rapidly changing world.
Is this your dream for China?
My dream for China is a strong nation caring for the well being of its people. As a matter of fact, China has been making excellent progress. Even China’s competitors have to agree that it is getting better and better. You can see how China has changed in the past 10 to 20 years.
For instance, in 1978, when I was in China, I went to see some friends in the guesthouse. They would write notes to me because they were afraid of being eavesdropped on. They had been scared by the Cultural Revolution. Today, they can openly criticize the government.
I love democracy, but I also understand that different countries and peoples have different values. However, democracy without law and order is no democracy. We have many investments in democratic countries. A liberal society has to be founded not only on law and order but a prosperous economy.
http://www.forbes.com/2006/12/29/li-ka-shing-biz-cx_tf_vk_1229qanda.html
