李嘉誠之福布斯採訪記錄.doc

Thoughts Of Li Ka-Shing
Tim W. Ferguson and Vivian Wai-Yin Kwok 12.29.06, 12:00 PM ET

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.
Forbes: And as long as you have that preparation, that confidence, you have the general belief that things will work out?
Li: 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.
Forbes: Do you think that in the circumstance at that time, you could have been in any business?
Li: 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.
Forbes: So instead of restructuring the company, you chose to start your own business?
Li: 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.
Forbes: You also learned about finance in that early business?
Li: 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.
Forbes: So even when you have knowledge and confidence, you still want to be cautious?
Li: 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.
Forbes: When you first started investing in properties in 1958, that is a business historically built on debt?
Li: 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.
Forbes: What is the key to building a good business relationship?
Li: 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.
Forbes: How do you balance between being cautious with bank loans and investing in properties during very hard times?
Li: 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
Forbes: How did you prepare yourself to get into the property market?
Li: 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.
Forbes: Why did you believe that it was not in China 's interest to run all of the wealth out of Hong Kong in 1967?
Li: 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 cl