August 17, 2019 8:12:25 am
Written by Raymond Zhong and Ezra Cheung
The chief executive of Cathay Pacific Airways, one of Hong Kong’s best-known international brands, stepped down on Friday after a storm of criticism from the Chinese governmentover its employees’ participation in street protests that have seized the territory in recent months.
The resignation is a sign that China appears willing to put pressure on Hong Kong’s highest-profile businesses to show how serious it is about quelling the unrest, which it has described as “close to terrorism.” Paramilitary forces were seen gathering this week in Shenzhen, across the border from Hong Kong, as the demonstrations grew increasingly violent.
Companies are now working to show that they side with China and the territory’s leaders — and against the protesters. Beijing may increasingly demand that they show they mean it.
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In a filing with Hong Kong’s stock exchange late Friday, Cathay said its chief executive, Rupert Hogg, was resigning effective Monday “to take responsibility as a leader of the company in view of recent events.”
Hogg acknowledged, in an email to employees, that Cathay’s reputation and brand had come under immense pressure, “particularly in the all-important market of mainland China.”
“Could we have managed things differently? In hindsight, ‘Yes,’” Hogg wrote, without elaborating. He could not be reached for comment.
Hogg was ousted a week after the Chinese government demanded that Cathay workers who participated in the demonstrations be barred from flying to mainland China, and days after the airline’s leaders met with government officials in Beijing.
The conflict began after demonstrators protested a proposed law that would have allowed the local government to extradite criminal suspects to mainland China, where the Communist Party controls the courts. The movement has broadened into demands that local leaders resign and that residents be allowed to vote in free elections.
Recently, the protests have become more chaotic, culminating this week in demonstrations at the city’s airport that snarled traffic and raised questions about Hong Kong’s future.
Big businesses have tried to reassure the Chinese government that they condemn the mayhem and support Hong Kong’s Beijing-approved leaders. Jardine Matheson, the Hong Kong conglomerate that owns the Mandarin Oriental luxury hotel chain, said Thursday that it “strongly supported” the local government and that the violence had “seriously threatened the well-being of our community.”
On Friday, Hong Kong’s richest man, property tycoon Li Ka-shing, bought cryptic full-page ads in several local newspapers, using literary language to call for an end to the unrest.
Hours later came the news of Hogg’s resignation, an abrupt end to a career that spread over two decades at Cathay.
Hogg began working for the airline’s parent company in 1986, and ascended to chief executive two years ago. As this summer’s antigovernment demonstrations intensified in Hong Kong, a semiautonomous region of China, he found himself in an increasingly precarious position.
Cathay’s shake-up underlines the mounting economic pressures for Hong Kong. Forecasters have predicted that the protests, on top of the trade war between the United States and China, will weigh on Hong Kong’s growth. Tourism has declined, and the Hong Kong stock market is down.
Mainland China has huge economic heft in the city. Once largely dominated by local tycoons and companies that can trace their history back to the Opium Wars of the 19th century, the city’s economy now depends heavily on money from the mainland. Chinese buyers have sent property prices soaring, and mainland developers often outbid local rivals for choice patches of land in a city where attractive plots are scarce.
Like multinationals, many Hong Kong companies also do significant business in the mainland. Foreign firms have often rushed to make sure they do not offend Chinese consumers, who are often goaded into outrage by state-run media. Several luxury brands recently apologized for making T-shirts that suggested that Hong Kong and other territories were not part of China.
“If Hong Kong companies are primarily keeping the consumer in mind, they’re going to compare the seven million people in Hong Kong to the 1.4 billion people in China. That’s a huge difference,” said Scott Kennedy, a senior adviser at the Center for Strategic and International Studies in Washington, who studies Chinese economic policy.
“In some ways, they’re damned if they do, damned if they don’t,” he added. “There’s so much pressure from consumers, protesters, Beijing, Washington, their board that it’s impossible to satisfy everybody.”
Cathay Pacific became the target of mainland China’s ire after one of the airline’s pilots was arrested late last month in Hong Kong and charged with rioting. In a matter of days, the airline began sending mixed signals about employees’ actions.
On Aug. 7, the company’s chairman, John Slosar, said at a news conference that employees’ political views were not a concern.
“We certainly wouldn’t dream of telling them what they have to think about something,” he said. “They’re all adults. They’re all service professionals. We respect them greatly.”
Around the same time, Cathay said it would investigate accusations that its employees had leaked the travel information for a Hong Kong police soccer team. In the past week, Cathay has fired four workers for misconduct related to the demonstrations. Hogg also warned employees against taking part in protests that the Hong Kong authoritieshad not approved.
Chinese state news outlets have continued to criticize the airline’s leadership, and Cathay’s shares have traded at multiyear lows.
China’s big state-run companies appeared to be putting their own pressure on the airline. Bloomberg News reported that China Citic and China Resources, two conglomerates controlled by Beijing, have forbidden employees to fly Cathay for business.
Cathay also has ties to the Chinese government. Air China, which is controlled by a state-run entity, has a significant stake in the airline.
As online outrage was building, China’s aviation regulator imposed what it described as safety measures on Cathay Pacific last week. It ordered the airline to bar employees who “support or take part in illegal protests, violent actions or overly radical behavior” from doing any work involving flights to mainland China. It also required that the company submit information about all crew members who fly to or above the mainland to the authorities for approval.
Hogg said in a message to employees last Saturday that the airline would comply with the new requirements. But the early reaction from Chinese state news outlets was that the airline’s measures were too little, too late.
As this week began, Merlin Swire, the chairman of Swire Pacific, a conglomerate in Hong Kong and Cathay’s largest shareholder, met in Beijing with the deputy head of China’s air safety regulator. Swire Pacific declined to say what had been discussed, and the Chinese aviation authority did not reply to a faxed request for comment.
A day later, Cathay and Swire Pacific issued nearly identical statements condemning “all illegal activities and violent behavior” and expressing support for “a strong and respected rule of law.” On Wednesday, the airline said it had fired two pilots for violating the terms of their contracts.
Hogg’s resignation was first reported by China Central Television, the official state broadcaster, minutes before Cathay Pacific issued its news release or posted its notice to the Hong Kong exchange.
The airline said he would be replaced by Augustus Tang, a director of John Swire & Sons (HK) Limited, the holding company of Swire Pacific. Cathay’s chief customer and commercial officer, Paul Loo, will be replaced as well, the company said.
Slosar, Cathay’s chairman, said in a statement that the airline was committed to the principle of “one country, two systems,” the phrase used in both Hong Kong and China to describe the unusual relationship between the two.
“We are confident,” Slosar said, “that Hong Kong will have a great future.”
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