Hong Kong's CK Hutchison may encounter a complex web of regulatory challenges in China as it seeks to divest port assets in a high-profile deal to a consortium spearheaded by BlackRock. The deal, which is significant both commercially and geopolitically, could be impacted by either local statutes in Hong Kong or broader Chinese state laws, potentially allowing authorities to derail the sale on antitrust and national security grounds.
Hong Kong's CK Hutchison may encounter a complex web of regulatory challenges in China as it seeks to divest port assets in a high-profile deal to a consortium spearheaded by BlackRock.The proposed $22.8 billion transaction has ignited a sharp backlash from Beijing, raising questions about potential countermeasures. The deal, which is significant both commercially and geopolitically, could be impacted by either local statutes in Hong Kong or broader Chinese state laws, potentially allowing authorities to derail the sale on antitrust and national security grounds.
On March 4, the Hong Kong-listed conglomerate unveiled its intent to offload a large part of its port operations to a consortium led by US-based BlackRock. The sale encompasses 43 ports across 23 countries, with strategic points such as those on both sides of the Panama Canal — which US President Donald Trump has vowed to “take back.”
The deal's broad scope, including not only the Panama operations but also a vast network of ports crucial to China's Belt and Road infrastructure initiative, contribute to the heightened geopolitical frictions.
"CK Hutchison must have considered the potential reactions to the deal, given their extensive team of think-tank experts," a chief financial officer at one of Hong Kong’s largest companies told MLex. "However, they seem to have underestimated the reaction."
Beijing has voiced its sharp displeasure through state media, putting significant pressure on Hong Kong Chief Executive John Lee. On Tuesday, Lee said that his administration will "handle the matter according to the law and regulations."
— Hong Kong oversight —
Unlike mainland China, Hong Kong's merger-control regime covers only telecom players, suggesting officials could use an alternative legal framework to deal with the planned port sale.
Hong Kong's Safeguarding National Security Ordinance adopts broad language that leaves ample room for interpretation and could potentially be used to ensnare the case. Effective from March last year, the ordinance fulfils Hong Kong’s constitutional duty under Article 23 of the Basic Law. It complements the Hong Kong national security law enacted by China’s legislature in June 2020.
The ordinance criminalizes acts such as “colluding with an external force to damage or weaken a public infrastructure,” whether intentionally or recklessly. Making infrastructure “vulnerable to be accessed or altered” by individuals not originally entitled is considered one of the problematic acts under the ordinance.
Interestingly, a provision defines "public infrastructure" as one that belongs to the central authorities or the government, or is occupied by or on behalf of them, "whether it is situated in the HKSAR [Hong Kong] or not."
Although Lee didn't specify that the law would be used, the fact that these offenses carry life imprisonment as a potential penalty may prompt dealmakers and their lawyers to err on the side of caution.
— Antitrust intervention —
In China, dealmakers pursuing mega-size deals often face two primary regulatory hurdles: merger control and national security reviews.
China's Antimonopoly Law, or AML, not only targets local monopolistic behavior but also applies to extraterritorial behavior that has anticompetitive effects within the Chinese market. In other words, it doesn't matter whether CK Hutchison's port assets that are being sold are located in China for the State Administration for Market Regulation, or SAMR, to initiate a merger review.
In China’s merger control, a filing is required if, in the previous fiscal year, the combined global turnover of the merging parties exceeded 12 billion yuan ($1.7 billion) — or their combined China sales exceeded 4 billion yuan — where at least two of the entities each recorded China turnover of more than 800 million yuan.
BlackRock reported $20 billion in revenue for 2024. The company's growing presence in Asia is evident through its filing records in China, including a 2022 filing for its purchase of a stake in Tata Power Renewable Energy (see here).
As for the other merging parties, while their Chinese revenues aren’t immediately clear, there is a possibility that SAMR could count service fees collected from Chinese enterprises at foreign port facilities as part of their territorial revenues in China, Chinese lawyers have argued.
To put things into perspective, CK Hutchison’s ports division reported total revenues of HK$40.85 billion ($5.3 billion) in 2023.
The size of this transaction may be further amplified by the acquiring consortium's profile. Terminal Investment Limited, or known as TiL, is owned by MSC Mediterranean Shipping Company, BlackRock's Global Infrastructure Partners, and GIC. TiL ranks as the world's sixth-largest container-terminals group. This powerful combination of buyers could add another layer of antitrust complexity.
Even if this deal falls below filing thresholds, the AML empowers SAMR to review transactions that raise competition concerns.
Of particular note is the deal's potential impact on regional maritime dynamics. For example, the transaction could affect China-Panama shipping services and port connectivity, potentially disadvantaging Chinese companies in Latin American port operations.
Further indicating the deal’s relevance to the AML, Chinese case handlers are mandated to assess a transaction's impact on national economic development. In its 2020 annual report, SAMR identified ports as essential infrastructure for national economic development and critical nodes in maritime transportation networks.
— National security —
China’s 2015 National Security Law highlights missions such as the protection of China's overseas interests, the improvement of strategic channels for resource and energy transportation, and security protection. As the country’s overseas interests expand, the significance of port operations, particularly those in Panama, is self-evident.
The law has established a framework for national security review. Foreign investments, specific items, critical technologies, network information technology products and services, as well as construction projects, will face review if they impact or potentially impact national security.
More importantly, it includes a catch-all clause stating that “other major matters and activities that affect or may affect national security” will be scrutinized, granting regulators broad discretion.
Beyond traditional considerations, new concerns such as data security are also emerging as possible angles in China's regulatory approach.
CK Hutchison’s ports manage entry and exit information on Chinese ships and cargo, providing insights into China's commercial activity in various regions. In addition, the transfer of port control may introduce changes to relevant data-processing activities, potentially creating barriers such as limiting China’s access to international maritime data. This could, in turn, impact the security of China's maritime logistics and the broader supply chain.
Information concerning the security of maritime strategic channels is deemed “important data” to China. Such data also encompass those that could be used to disrupt China's participation in international economic activities and trade, cultural-exchange activities, or to impose discriminatory prohibitions and restrictions against China.
From the trade perspective, Chinese authorities have expressed worries about potential discriminatory charges. If those ports fall under US control, it may further erode China’s global competitiveness.
In particular, the US has proposed "fees on services" on China’s vessels when they pass through US ports, following the US Trade Representative's Section 301 investigation into China's Maritime, Logistics, and Shipbuilding Sectors (see here). Ships made in China or fleets that include Chinese-made ships may incur fees up to $1.5 million.
— The dilemma —
The CK Hutchison-BlackRock transaction could represent the first major deal in Hong Kong to become entangled in Sino-US tensions.
CK Hutchison, once hailed as a symbol of the entrepreneurial spirit of the former fishing village, now faces a difficult choice between alienating the West or its ancestral homeland. Although the company's next steps remain unclear, the situation serves as a stark reminder to private enterprises that they cannot remain apolitical.
Should CK Hutchison withdraw from the agreement, it could be interpreted as a capitulation to Beijing, potentially inviting renewed scrutiny from Washington. Conversely, proceeding with the sale could introduce risks from China, though authorities must carefully consider the broader implications for Hong Kong’s business environment.
For now, CK Hutchison's decision to announce an "in-principle" rather than a definitive agreement likely reflects a strategy to preemptively gauge regulatory responses, rather than a complete miscalculation of the geopolitical ramifications.
— Analysis by Yonnex Li, Yang Yue, Wang Juan and Emily Liu
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