Business

HK tycoon warns of Asian
credit crunch

One of Hong Kong's wealthiest businessmen has warned that Europe's push to recapitalize its banks to contain further shocks to the system could lead to a funding crunch in Asia.

Billionaire entrepreneur William Fung said few in Asia are paying attention to this danger.

European banks need more than US$100 billion of fresh capital to meet tougher regulatory capital rules laid down by the European Union. They could raise funds through share sales but the weak market is a deterrent, which means it is more likely that they will pull back loans.

"As a lot of these banks are government-controlled, the natural tendency would be to cut back on lending in Asia rather than domestic lending. If that happens, a lot of businesses are going to be scrambling for funds," Fung said.

The executive deputy chairman of Hong Kong-listed Li & Fung - the world's biggest supplier of clothes and toys to retailers - was speaking at a talk held by the National University of Singapore (NUS) Business School on 'the future of Asia amid a crisis-laden and flattened world' two days ago.

European banks, more than American banks, are heavily involved in financing businesses in Asia. If they pull back loans, Asia would face a credit crunch.

"Not many are focusing on this. In terms of credit availability in Asia, businesses could potentially face a real problem," Fung said.

He and his elder brother Victor control Li & Fung, which raked in sales of US$16 billion in 2010. Singapore's investment firm, Temasek Holdings, had a 3 per cent stake in the global trading giant as of March last year, according to Bloomberg data.

Fung is a member of the NUS Business School's management advisory board and sits on the board of Singapore Airlines.

As for the world's largest economy, the United States, from which Li & Fung derives 60 per cent of its sales, he said growth would likely be anemic.

Against that backdrop, the firm, which supplies goods to giant retailers like Walmart and Toys 'R' Us, has shifted its focus to grab market share from rivals.

"The pie is not getting bigger, so if you want to grow, you need to take a bigger slice. So instead of focusing on consumers and their needs, we are focusing on what our competitors are doing that we ought to," Fung said.

Turning his attention closer to home, he is confident that China's economy will not face a hard landing. The country's economic growth slowed last year to 9.2 per cent from 10.4 per cent in 2010.

"The Western press says China is facing a hard landing as growth this year is going to be 8 per cent," Fung said.

But he pointed out that the country's five-year plan, which runs until 2015, targets an annual growth of 7 per cent.

"As far as I'm concerned, China is a bright spot for us. It can manage itself out of a hard landing," he said.

The group has big plans to tap China's booming consumer market, which he said would overtake the US to become the world's largest consumer economy by 2039.

A few days ago, privately held Fung Brands said it was in talks with the Rykiel family to acquire one of the last family-controlled French fashion houses, Sonia Rykiel.

Fung Brands is a unit of Fung Capital, the investment arm of the Fung family.

"This is part of the whole idea of the future being about the consumer market in China. The market for luxury products in China has doubled in size over the short term," Fung told The Straits Times. He added that the group is looking at some other luxury fashion brands too.

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