Socialist capitalism may sound like a contradiction in terms, but that is precisely what China has developed as State policy. Corporate analysts say that for this reason alone, if nothing else, Hong Kong will keep growing as an international business beehive.

The `red chip' companies are cited as the best examples of socialist capitalism. These are companies set up by China's central and regional governments (socialism). But they are listed in Hong Kong, the directors in charge are proven businessmen accountable to shareholders, and they and their employees are encouraged to earn performance incentives that can be shamelessly high (capitalism).

The recently released annual reports of several of these State-owned companies have been revealing. Shanghai Industrial, for example, is owned by that city's municipal government. Its chairman, Cai Laixing, was given a profit-related bonus option of 4 million shares at an exercise price of HK $8.8. The share value had, in fact, shot up to around HK $46 per share. This meant that if Chairman Cai wanted to cash his options, he would have made a personal profit of around HK $150 million in that one year.

Cai did not exercise his option. But He Keqin, chairman of Guaongdong Investment, did. His company, owned by Guaongdong provincial government, granted him one million share options at HK $3.7 per share. He bought half of what he was offered. The pre-share trading price last week was HK $11.50, which meant that he could sell his 500,000 bonus shares and make a personal fortune of HK $3.8 million.

The heads of most red chip companies were closet capitalists who suffered during communism's fundamentalist days. They were reborn when Deng Xiaoping was reborn. Zhu Yuening, head of China Travel International Investment, the investment arm of the Chinese Government's Office of Overseas Chinese Affairs, sold vegetables for a living during the Cultural Revolution. Today, his company is a hot favourite with investors.

The most glamorous figure in the world of red chips is Larry Yung Chi-kin. He was, like Deng Xiaoping, reduced to hard labour during the Cultural Revolution. In 1978, just as Deng was launching his open-door policy, he moved to Hong Kong. He is now almost setting the Hong Kong harbour on fire with a company called Citic (China International Trust and Investment Corporation).

There is an appearance of nepotism in the Larry Yung saga. He is the son of Rong Yiren, Deng's economic policy advisor, who became Vice President of China. Citic was founded by Rong Yiren in 1979 as a Beijing-controlled government agency.

But corporate circles don't see it as nepotism because Larry Yung's business credentials surpass everyone else's, though the media loves to refer to him as the `princeling'. He had cut his teeth in Hong Kong on his own by putting deals together and earning massive profits which he would reinvest to make more millions. Along the way, he also established a reputation as a colourful character, enjoying such bourgeois pleasures as racing, golf and high living in general.

When his unequalled business acumen made the Chinese authorities invite him to take over Citic, he was in no hurry. He took over in 1987, almost a decade after conquering Hong Kong, only after Beijing accepted his condition that he should be given complete autonomy in local investment and management.

Larry Yung has turned Citic into a household name in Hong Kong with a market capitalisation of HK $82 billion and a multitude of businesses including substantial holdings in such blue chips as Cathay Pacific, Dragon Air and Hong Kong Telecom.

Yung too received a year-end performance bonus from Citic -- 291 million shares which, if he exercises his option, can make him personally richer by HK $3 billion. But this capitalist son of socialism was probably unimpressed by the prospect. After all, some time ago he had won a jackpot of HK $36 million at the race course and given away the entire amount to charity.Perhaps the correct phrase to use is Capitalist Socialism.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.