BEIJING A mainland Chinese company has purchased a major stake in L.A.'s Inter-Continental Hotel, and plans to invest substantially more in the future.
In the transaction, believed to be the first of its kind in the L.A. area, Honggao International Group was a primary partner in the group that bought the downtown hotel earlier this year.
When the $40 million hotel sale was first announced four months ago, the buyers were described as a partnership from Taiwan and Hong Kong.
Indeed, Honggao's headquarters are officially in Hong Kong, although the company maintains a much larger headquarters in Beijing.
Eddy Chao of Candet Properties, which brokered the deal and was also one of the purchasing partners, explained that the original report was technically correct, since Honggao's official headquarters are in Hong Kong. But he added that public disclosure of Honggao's home base is a sensitive issue because of the changing political situation in China.
In an interview at the company's headquarters outside Beijing, Honggao President and Chairman Li Jingwei told the Business Journal that the Inter-Continental is the firm's first but certainly not its last U.S. real estate acquisition.
"We'll look at the U.S. economy. If conditions are good, we'll add a lot of money to our investment there," said Li, adding that Honggao is looking for hotels and other commercial properties in L.A. and other U.S. markets.
This initial flow of mainland Chinese investment into Los Angeles and California follows on the heels of a previous investment wave from Japan and the current infusions of capital from Taiwan and Hong Kong, said Bill McMorrow, chairman and CEO of Kennedy Wilson Inc., a real estate investment advisory firm.
He added that the Inter-Continental is the first major L.A. building sale he knows of involving a mainland Chinese buyer.
"The dynamics of what's going on in China is a lot of new wealth is being created, and that wealth will be invested both inside and outside their homeland. That money will come to California because of the stable political climate (in the United States) and because property is viewed as being relatively cheap here," McMorrow said.
Li said his choice of the United States and Los Angeles in particular for his first investment owes largely to those factors.
"I like L.A. because it's big, the weather is good, and we think there's a good future in California," said Li. "We looked at San Francisco as well, but we didn't think the market there was as good. Plus, there were already too many Hong Kongers there."
Li calls the Inter-Continental deal Honggao's "first step into the United States." He said Los Angeles is one of his company's preferred markets for future U.S. investment, adding that Honggao is also looking for U.S. partners to engage in high-tech manufacturing joint ventures.
Its L.A. investments would be part of Honggao's two-tiered strategy, whereby the firm will invest between 10 and 15 percent of its money in markets like the United States, which offer lower returns but are considered safer. Its remaining funds will go into higher-yield investments in the booming Asia market, Li said.
As China liberalizes its economy, private enterprises, like Honggao, are emerging. Such companies are free to invest at their own discretion and are not subject to government directives.
The 40-year-old Li is typical of the new breed of entrepreneurs who are emerging all over the Chinese mainland. They are rough in demeanor, well connected to government and business officials, and all possess a keen business sense and strong desire to build their young firms into the Chinese powerhouses of the 21st century.
Li's roughness is manifest in his unusually direct manner during his recent interview.
"I don't like reporters," he said, responding to a question on his view about the press as he chain smokes his way through a pack of Yunyan cigarettes, a premier Chinese brand that cost $10 per pack.
His observations about Los Angeles are also extremely to the point. He finds Beverly Hills too kuazhuang or exaggerated, hence his decision to make his L.A. home in the more understated city of Cerritos, which he visits several times each year.
Like Li himself, Honggao is also a diamond in the rough far from the slick corporations that abound in Japan, Hong Kong and are starting to appear in Taiwan.
Located in the northern Beijing suburbs at the end of a semi-paved road with a rice paddy on one side and buildings under construction on the other, Honggao hardly looks like a company that generates $200 million in annual revenues and has developed $1.5 billion worth of properties over the last six years.
But that's what it is, thanks to Li's resourcefulness and his strong connections to the Chinese bureaucracy.
The son of parents who were long-time members of the Chinese military, Li began his working life with an eight-year stint in the People's Liberation Army from 1973 to 1981, doing work he would only describe as "top secret." Evidence of his military past is present in the numerous uniformed guards stationed in and around the Honggao Beijing headquarters.
Despite his background, Li didn't choose a military career. He also resisted his parents' pressure to join the Communist party, saying he wanted to maintain a certain "distance" between himself and the party. He remains unaffiliated with any political party.
After leaving the military in 1981, Li continued to work for the next seven years at various military-owned enterprises, in a country where the army is also one of the nation's biggest business operators.
It was during his combined 15 years in the military and its affiliated enterprises that Li picked up his business experience and the web of connections that enabled him to open Honggao in 1990.
In fact, Li hinted that various Chinese military-related entities, as well as some foreign companies, may also be investors and/or current board members at Honggao.
As to his own status as a budding capitalist in a country that still calls itself socialist, Li has few worries about his company's or his own personal future in China's turbulent political climate.
And despite his current status as a Hong Kong resident, Li also has few worries about the fact that his citizenship will revert back to China in less than two months.
"The (Chinese) government can't control you if you're doing things according to the law," he said, seemingly unfazed by the coming turnover. "I'm not concerned about changes in Hong Kong. I have no plans to" seek citizenship in a country outside China, he added.
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