Jardine Matheson Holdings Ltd.
Jardine Matheson Holdings Ltd.
48th Floor, Connaught Center
Incorporated: April 9, 1984
Sales: HK$ 10.4 billion (US$1.335 billion)
Market value: HK$9.142 billion (US$1.173 billion)
Stock Index: Hong Kong London
Jardine Matheson is one of the oldest names in East Asia, and has been a highly influential member of the Hong Kong business community since the territory was made a British colony in 1842. It has been a common saying for many years that Hong Kong is run by Jardine Matheson, the Royal Hong Kong Jockey Club, and the colonial government—in that order. In recent years, however, the company’s desire to expand in other regions has caused it to lose some influence in Hong Kong.
William Jardine was born in 1784 in Dumfriesshire, Scotland. After studying medicine, Jardine went to work for the British East India Company as a ship’s surgeon, but left the East India Company in 1832 to establish a trading company in Canton, China, with James Matheson, the son of a Scottish baronet, who had served for several years as Danish consul in China.
Trading with the Chinese was made extremely difficult by a xenophobic Manchu government, which believed that as the center of the universe, China already possessed everything in abundance and had no need for the products of “foreign barbarians.” Among other things, Jardine Matheson & Company was restricted to a small plot of land on the banks of the Pearl River, near Canton, and were prevented from “keeping women” or dealing with Chinese merchants who were not officially sanctioned co-hongs. On one occasion, Jardine was struck a blow to the head as he attempted to petition local authorities. Entirely unaffected by the attack, he earned the nickname “iron headed old rat” among the Chinese.
Unable to make money selling manufactured goods to the Chinese, Jardine Matheson began smuggling opium into China aboard ships chartered from Calcutta in British India. Opium clippers sailed under cover of darkness to forbidden ports, while company agents bribed harbor masters and watchmen to prevent being discovered by the authorities. The Chinese government declared the opium trade to be illegal, but was virtually powerless to stop it. Finally, Chinese authorities seized and destroyed 20,000 chests of opium worth $9 million.
Jardine persuaded the British Foreign Secretary Lord Palmerston to send warships to China to enforce a judgment for reparations and to preserve free trade. The hostilities which ensued became known as the First Opium War. The Chinese lost, and were forced to sign a treaty on August 29, 1842, which awarded the British $6 million in reparations, opened the ports of Canton, Amoy, Foochow, Ningpo, and Shanghai, and ceded the island of Hong Kong to Britain.
Jardine Matheson purchased the first plot of land to be sold in Hong Kong, and promptly moved its offices there. The colony’s first governor, Sir Henry Pottinger, endorsed the opium trade (in defiance of Queen Victoria), and later won the support of Parliament which viewed the opium trade as a method to reduce the British trade deficit with China. When the company’s opium boats sailed into Hong Kong they were greeted by a cannon salute (the cannon is still fired daily, marking the noon hour). Jardine Matheson profited greatly from its privileged position in Hong Kong, and through the strength of its opium trade, began to develop commercial interests throughout the region. Jardine Matheson became known among the local Chinese as a hong (the word implies “big company” but has no relation to the name Hong Kong), and its chairman became known as a taipan, literally a “big boss.”
During this period Thomas Keswick, also from Dumfriesshire, married Jardine’s niece and was subsequently taken into the Jardine family business. Their son William Keswick established a Jardine Matheson office in Yokohama, Japan, in 1859, and later became a leading figure in company management. The Keswick family grew in influence within the company, largely displacing the Matheson interests.
Jardine Matheson established trading offices in major Chinese ports, and helped to set up enterprises as diverse as brewing and milling cotton, in addition to trading tea and silk. The company introduced steamboats to China, and in 1876 constructed the first railroad in China, linking Shanghai with Jardine Matheson docks downriver at Woosung.
Continued hostilities between China and Britain resulted in a Second Opium War in 1860 and a war to protect colonial interests in 1898. As victors in both these wars, the British gained trade concessions and colonies throughout China, and won virtually unrestricted commercial rights to conduct business in China. The opium trade, which China had been forced to recognize as legal, had become an extremely sensitive subject. Thousands of addicts (known as “hippies” because they would lie on their hips while smoking opium) had created a serious social problem. Elements in Parliament called for an end to commercial activities which perpetuated the pain and suffering of these addicts. The issue was seized by nationalists who argued for an end to the domination of colonial powers in China, and eventually led to uprisings such as the Boxer Rebellion and the Republican Revolution. For its own protection and business interests, Jardine Matheson was forced to curtail trading opium.
By 1906, the year it incorporated in Hong Kong, Jardine Matheson had expanded into a wider range of operations, but experienced strong competition from another British trading house called Butterfield & Swire, which was also based in Shanghai and Hong Kong. The competition between Jardine Matheson and the Swires began in earnest in 1884 when Butterfield & Swire set up a rival sugar refinery in Hong Kong in an attempt to break Jardine Matheson’s monopoly. The competition spread into shipping and trading, but remained on the whole civilized and constructive.
Jardine Matheson continued to operate in China relatively unobstructed by the Nationalist government, which had grown increasingly corrupt. The company continued to expand its interests in China and, with other foreign interests such as Swire and Mitsui, became one of the largest companies in the country.
In the summer of 1937 Japanese forces attacked China in an attempt to expand Japanese commercial and strategic interests on the Asian mainland. Jardine Matheson officials stationed in areas overrun by the Japanese were branded as agents of European imperialism and imprisoned. The company’s compradores were scattered, and its factories were looted; approximately 168,000 spindles were stripped from Jardine Matheson textile mills. Japanese military adventurism in China led to the occupation of several more Chinese ports, including Shanghai and Canton, where Jardine Matheson conducted a substantial portion of its business. Tony Keswick, a grandson of William Keswick, managed the company’s affairs in Shanghai until 1941, when he moved to Hong Kong after having been shot by a Japanese. He was replaced by his brother John, who himself was forced to flee when the city came under siege. Jardine Matheson had been effectively prevented from doing any further business in China, but continued to operate in Hong Kong which, as British territory, the Japanese were unwilling to invade.
As a member of the anti-Comintern pact, Japan was unofficially allied with Nazi Germany and Fascist Italy in the war in Europe. The increasingly belligerent military leaders in Japan pledged to evict European imperialists from Asia and to establish a trans-Asian “Co-Prosperity Sphere.” On December 1, 1941, Japanese forces invaded British colonies in Asia, including Hong Kong. Jardine Matheson officials in the colony were imprisoned with other Europeans at Stanley Prison. John Keswick, however, managed to escape to Ceylon (Sri Lanka), where he served with Admiral Earl Mountbatten’s staff.
When the war ended in 1945, the British resumed control of Hong Kong and John Keswick returned to oversee the rebuilding of Jardine Matheson facilities damaged during the war. The company owned a small airline, textile mills, real estate, a brewery, wharves, godowns (warehouses), and cold-storage facilities. In 1949, however, after four years of civil war, Communist forces seized control of the Chinese mainland.
In Shanghai, John Keswick attempted to work with the Communists (who had invited capitalists to help rebuild the economy), in the belief that they would be more orderly and less corrupt than the Nationalists. Keswick argued for British recognition of the new government, and even attempted to run his company’s ships past Nationalist blockades. By 1950, however, new government policies were enacted which increased taxes, restricted currency exchanges, and banned layoffs. Ewo Breweries, a Jardine Matheson subsidiary in Shanghai, was ordered to reduce its prices by 17%, despite heavy increases in the cost of raw materials. The government forced Ewo to remain open, despite a $4 million annual loss.
Companies based in Hong Kong were bound to observe a British trade embargo placed against China as a result of the Korean War. Conditions had deteriorated to a point where it was impossible to continue operating in China (on one occasion Keswick was arrested as he attempted to leave Shanghai). Compelled to close its operations in China, Jardine Matheson entered into negotiations with the government, and in 1954 settled the nationalization of its assets in China by writing off $20 million in losses.
Jardine Matheson continued to trade with the seven official Chinese state trading corporations, and attended the bi-annual Canton Trade Fair, where Chinese companies negotiated approximately half their nation’s foreign trade.
Many of Jardine Matheson’s management traditions changed after the war. While managers continued to be recruited primarily from Oxford and Cambridge, they started placing younger men in higher positions. John Keswick, whose nephews Henry and Simon were too young to run the company, returned to Britain in 1956 to direct the family estate and appointed Michael Young-Herries to manage the operations in Hong Kong.
In the late 1950’s John and Tony Keswick enlisted support from three banks in London and purchased the last Jardine family interests in the company. Jardine Matheson became a publicly traded company in 1962 and, with additional capital provided by shareholders, acquired controlling interests in the Indo-China Steam Navigation Company and Henry Waugh Ltd., and established the Australian-based Dominion Far East Line shipping company.
In 1966 China embarked on its second campaign to form a nation of communes. During this campaign, called the “Cultural Revolution,” China ceased virtually all trade with Hong Kong. While Jardine Matheson lost a significant amount of trade with the Chinese, its association of textile companies in Hong Kong continued to generate large profits from exports to the United States. The company’s greatest achievement during this period was the sale of six Vickers Viscount aircraft to the Chinese. By 1969 the Cultural Revolution had lost its momentum and Jardine Matheson was once again doing business with the Chinese.
In 1972 the Keswick family attempted to install Henry as the new taipan, but met considerable resistance from supporters of managing director David Newbigging, the son of a former director of Jardine Matheson. The Keswicks prevailed after winning the support of institutional shareholders in London, and Henry Keswick was named senior managing director, while his father John resumed the chairmanship to ensure that the Keswicks did not lose control of the company.
Three years later Henry stepped down and returned to London, and was replaced by David Newbigging. Henry, remarked Fortune, lacked the “panache” of the elder Keswicks, and made “more than a few enemies” through his bold financial maneuvers. Henry did, however, complete a buyout in 1973 of Reunion Properties, a large real estate firm based in London. Keswick financed the takeover by creating an additional 7% of Jardine Matheson equity, but through the acquisition nearly doubled the company’s assets. Henry Keswick also oversaw the acquisition of Theo H. Davies & Company that same year. Davies, a large trading company active in the Philippines and Hawaii, controlled 36,000 acres of sugar plantations. A few months after it was purchased by Jardine Matheson, world sugar prices rose dramatically.
At the time David Newbigging assumed the senior directorship of Jardine Matheson, a disturbing trend began to arise in Hong Kong. Throughout its history, Jardine Matheson had operated as a trading agent, or “middleman,” arranging sales between producers in one location and consumers in another. Manufacturers in Hong Kong, however, discovered ways to sell their products directly to customers, bypassing agents such as Jardine Matheson. Even Hawker-Siddeley, a British company, managed to arrange the sale of six Trident jetliners to the Chinese without the negotiating expertise of Jardine Matheson.
Between 1975 and 1979, Jardine Matheson’s profits grew at an annual rate of only 10% (a poor record for Hong Kong). David Newbigging responded by disposing of under-performing Jardine Matheson subsidiaries outside Hong Kong. He redoubled efforts to increase trade with China (which had only invited the company back into China in 1979), and resumed investments in Hong Kong-based enterprises. Jardine Matheson, however, had little expertise in these enterprises and lost money in almost every venture.
During the 1970’s British companies in Hong Kong such as Jardine Matheson, Swire, Hutchison, and Wheelock Marden, were consistently outperformed by local, ethnically Chinese hongs. Most of these hongs became public companies in the early 1970’s, and invested heavily in Hong Kong industries, which experienced strong growth during a decade-long bull market. These companies became serious competitors of the British establishment by the end of the decade.
Cheung Kong Holdings, a local hong run by an influential figure named Li Ka Shing, achieved a dominant position in the Hong Kong property market by 1980, threatening the business of Hongkong Land, a development company established in 1889 by William Keswick’s brother James Johnstone Keswick, and which remained closely associated with Jardine Matheson. In addition, when the shipping magnate Sir Yue-Kong Pao decided to diversify from ships into property a year earlier, his first move was to outbid Jardine Matheson for the Hongkong & Kowloon Wharf & Godown Company, over which the two groups had previously shared control.
When it was discovered that a secret partner had begun acquiring shares of Jardine Matheson stock in late 1980, many observers suspected that either Li or Pao (or worse, both) were attempting to purchase a large enough share in Jardine Matheson to win control over Hongkong Land. Newbigging announced in early November that Jardine Matheson and Hongkong Land had agreed to increase their interests in each other, so as to make it impossible for any party to gain control of either company. The cross-ownership scheme, however, placed both companies deeply into debt.
The defensive actions required during 1980 forced Jardine Matheson to sell its interest in Reunion Properties in order to raise cash. Newbigging was criticized for being too conservative and placing too much emphasis on local and regional operations. While members of the Keswick family attempted to have Newbigging removed, perhaps no one worked as tirelessly as John Keswick. Newbigging finally stepped down as senior managing director in June of 1983, but retained the titular position of chairman. He was replaced as taipan by 40-year-old Simon Keswick.
The election of Simon Keswick, who had not yet proved his business acumen, initially worried many investors of Jardine Matheson. Upon taking control, however, Simon moved decisively to reduce the company’s debts and to place Hongkong Land on firmer financial ground. In order to raise cash, he authorized the sale of Jardine Matheson’s majority stake in Rennies Consolidated Holdings, a South African hotel, travel, and industries group based in Johannesburg, for $180.1 million. Keswick also established a new decentralized system of managerial control which split operations into a Hong Kong and China division and an international division.
In early 1984 David Newbigging was replaced as chairman by Simon Keswick. With the company now thoroughly under Keswick family control, Simon announced on March 28 that Jardine Matheson & Company would establish a new holding company called Jardine Matheson Holdings, incorporated in Bermuda. The announcement came at an extremely sensitive point in negotiations between the British and Chinese governments on the future of Hong Kong. Many observers regarded Keswick’s plan as an attempt to remove Jardine Matheson from the uncertain business environment in Hong Kong, and as a solid display of no confidence in the Sino-British arrangement under which China would resume sovereignty over Hong Kong on July 1, 1997.
In defense of his actions, Simon Keswick admitted that Bermuda provided Jardine Matheson with a more stable operating environment than Hong Kong, but noted that the company was not abandoning its interests in Hong Kong, merely reducing its exposure there from 72% of total assets to a planned 50%. In addition, he pointed out that Bermuda (a British colony since 1612) permitted companies to purchase their own shares, a practice not allowed in Hong Kong.
In 1984 Jardine Matheson disposed of its sugar interests in Hawaii. The following year Keswick announced that after 153 years, Jardine Matheson would leave the shipping business, and that the company’s fleet of 21 ships would be sold. By the end of the year many of the assets Jardine Matheson acquired during the 1970’s had been sold, reducing holdings by 28%.
In 1986 Keswick dismantled much of Hongkong Land, selling the company’s residential real estate portfolio, and announcing that its Dairy Farm food subsidiary and Mandarin-Oriental Hotels unit would become independent. Keswick’s plan to reduce Hongkong Land to real estate alone caused its managing director David J. Davies to resign in protest.
At the final juncture of his experience in Hong Kong, Simon Keswick announced in June of 1987 that he would relinquish the position of senior managing director to a 37-year-old American named Brian M. Powers. Keswick would remain company chairman and manage the family interests from London, as his uncle John did 20 years earlier.
The nomination of Powers to become taipan caused great concern among members of the company’s more traditional Scottish establishment. Keswick, who had reversed the company’s decline with drastic and unpopular measures, and who had yet to demonstrate their success, defended his choice of Powers. He explained that Jardine Matheson was now an international company with Hong Kong interests (rather than the other way around), and that as such, Brian Powers was best qualified to manage its affairs.
Jardine Matheson is primarily a trading company with strong interests in real estate and manufacturing. The company is also involved in finance through its joint venture subsidiary Jardine Fleming, a London-based merchant bank created by Jardine Matheson and Robert Fleming & Company. Despite its announced intention to move toward a more international base of operations, Jardine Matheson will remain intimately associated with business in Hong Kong and China. It has, despite its past, managed to maintain a special relationship with the Chinese government, and continues to be an important institution in arranging greater commercial contacts between China and the industrial West.
Jardine Matheson Holdings Ltd. has 88 principal subsidiaries, including Jardine Matheson & Co., Ltd. (Hong Kong); Jardine Asian Holdings, Inc. (Panama); Jardine Davies, Inc. (Philippines) (81%); Gammon (Hong Kong) Ltd. (50%); Jardine Offshore, Inc. (Panama); Allied Guarantee Insurance Co., Inc. (Philippines) (23%); Central Registration Hong Kong, Ltd. (50%); East Point Reinsurance Company of Hong Kong, Ltd. (35%); Jardine Fleming Holdings, Ltd. (Hong Kong) (50%); Hongkong Land Co., Ltd. (26%).
Overseas Investment in the Age of High Imperialism: The United Kingdom 1850-1914 by Michael Edelstein, New York, Columbia University Press, 1982; The Thistle and the Jade edited by Maggie Keswick, London, Octopus, 1982.