January, 2005

People before Profit

Rose Wu

The $21.3 billion Link Reit (Real Estate Investment Trust) was supposed to be the largest privatisation of public assets in Hong Kong's history and, indeed, the largest offer of its kind in the world, but the government shelved the Link Reit listing on Dec. 19 after failing to resolve uncertainties caused by a judicial challenge to the privatisation of the Housing Authority's assets.

The Link Reit proposal marks the third attempt by the Hong Kong government to divest itself of key assets via a public share offering. In 1999, stocks the government acquired a year earlier when it intervened in the Hong Kong stock market were repackaged and sold as units in Hong Kong's Tracker Fund, and the September 2000 offering of shares of the MTR Corp. generated similar investor enthusiasm.

This time the government was forced to learn a lesson because it failed to consider the potential legal risks. As lawmaker Albert Cheng King-hon pointed out, the Housing Authority has floated its shopping malls and car parks on the stock market without properly consulting the users and commercial tenants. The government did not even hesitate after passage of the Legislative Council (Legco) housing panel's unanimous resolution to put the initial public offering on hold.

In order to block the government from proceeding with such a move, Cheng tried to seek a judicial review of the public listing of Link Management. On Dec. 6, he urged the government to respond to the judicial review before the start of trading. He even warned that an oversight could lead to "somebody" challenging this in court and that this would hurt investors and Hong Kong's reputation.

The legal challenge was brought on Dec. 13 by two public housing tenants, Lo Siu-lan and Ma Ki-chiu, who questioned the right of the Housing Authority to sell its car parks and shopping malls. They failed in the lower courts, but Lo stated her intention to take the case to the Court of Final Appeal (CFA).

On Dec. 14, the Housing Authority decided to delay the controversial listing until Dec 20. The authority applied though to the CFA to speed up the appeal process in the hope of having the tenant's case dismissed before Dec. 20. However, the CFA rejected the authority's application on Dec. 17. Because Lo said she will not decide immediately whether to pursue her appeal or not, Michael Suen Ming-yeung, the secretary for housing, planning and lands, finally announced the shelving of the Link Reit listing on Dec. 19.

Cheng supported the two public housing tenants to seek a judicial review of the government's actions for two reasons. First, the Housing Authority's assets belong to the public, he explained. After Link Reit is listed, the authority will not hold any share of Link Reit. The future management of Link Reit will fully operate as a commercial enterprise responding only to market principles and will not be accountable to the public in its pursuit of maximum profits.

The second reason, Cheng noted, is that the legality of the plan must be clarified to protect the greater public interest. Cheng pointed out that Section 4(1) of the Housing Ordinance states: "The authority shall exercise its powers and discharge its duties under this ordinance so as to secure the provision of housing and such amenities ancillary thereto as the authority thinks fit for such kinds or classes of persons as the authority may, subject to the approval of the chief executive, determine." Under the law, "housing" is construed to mean "residential, industrial, commercial and business accommodation, buildings or premises." Thus, instead of securing the provision of housing, plans are now afoot for the authority to sell part of its "commercial and business accommodation." Cheng commented that the law apparently does not provide for the authority to discharge its obligations in such a way.

There are, undoubtedly, unattractive consequences that flow from this incident: the listing has been placed in serious jeopardy; investors who have subscribed to shares in Link Reit could lose billions in potential price increases from the shares' first day of trading if the offering is withdrawn; and the Housing Authority is facing losses it can not afford. Cheng has faced criticism that the legal challenge against Link Reit's public listing has damaged Hong Kong's reputation as a financial centre.

However, 130 scholars jointly signed a public statement on Christmas Day to express their concern about the assertion of grassroots people that their rights against privatisation of public assets was distorted by the authorities and the media. Their actions though were portrayed as manipulation by some politicians. In their critique of the issue, however, the scholars noted that the real issue of Link Reit is whether the Hong Kong government should pursue privatisation of public assets without consulting the community and thus ignore the views and interests of Hong Kong's people.

As we reflect on this case, there are important lessons that we must learn. First of all, the government must note that the damage officials have done to Hong Kong's legal foundation far outweighs any short-term financial benefits that the initial public offering might bring.

Secondly, the conflict between different interests was apparent from the moment privatisation was raised. For this particular case, we are dealing with the disposal of public assets that serve the poorer members of our community. Moreover, there is every chance that the sale of the shopping malls and car parks will adversely affect the interests of Housing Authority tenants, for commercial tenants in the shopping malls fear rent increases. Similarly, housing residents, like Lo Siu-lan and Ma Ki-chiu, are worried that the sale will lead to an increase in their cost of living.

In the end, what Hong Kong needs is to reorient our values by putting people before profit. For Christians, there is a significant connection between the absence of God and the disregard for human livelihood. Let us remind ourselves again that the Church, as the caretaker of the household of God, is to be an agent for God's work to make the world into a household in which all of God's children will find access to life.