(Bloomberg) -- When China regained control of Hong Kong more than two decades ago, the Communist Party entrusted the city’s wealthiest tycoons with enormous influence over local politics.

This week President Xi Jinping took his most dramatic step yet to grab some of that power back.

Xi’s sweeping overhaul of Hong Kong’s electoral system -- aimed at neutralizing pro-democracy voices -- will curtail the clout of billionaires such as Li Ka-shing and Lee Shau-kee who used to wield effective control over a quarter of the seats on the 1,200-member Election Committee that decides Hong Kong’s chief executive.

Under the new system, the moguls will lose more than 10% of their votes to smaller businesses and mainland Chinese companies. The committee will also add 300 more seats filled mostly by Beijing loyalists, further diluting the tycoons’ power.

It’s the latest sign of a fall from grace for Hong Kong’s wealthiest families, who have been blamed by some Chinese officials and state media for failing to prevent anti-government protests in 2019 or fix deep-rooted problems like housing affordability. Beijing’s reliance on the tycoons has also shrunk markedly in recent years as China’s economy ballooned into a $14 trillion behemoth.

“The biggest loser in the overhaul is Hong Kong’s pro-democracy camp; the second-biggest loser is large property tycoons,” said Ivan Choy, who teaches politics at the Chinese University of Hong Kong. “Beijing no longer wants to negotiate with them at key elections.”

Least Affordable

One of the biggest sources of friction is Hong Kong’s property market, the world’s least affordable. The city’s sky-high home prices stem from a colonial system that limits land supply while auctioning available plots with a government-decided floor price. Local property moguls, who control the bulk of the city’s buildings, have long been viewed as the biggest beneficiaries of the system and most opposed to any reforms.

Hong Kong’s top 19 wealthiest people have a combined net worth of about $272 billion, which is equivalent to 74% of the territory’s gross domestic product, according to the Bloomberg Billionaires Index. Most of them made money starting out in the property business.

In an interview this week, Leung Chun-ying, who served as the chief executive of the city for five years through June 2017, said the new electoral system will help the government tackle livelihood issues, including a shortage of housing.

“This is the root of a lot of social and economic problems in Hong Kong, housing shortage,” Leung told Bloomberg Television on Tuesday.

The comments by Leung, who is now the vice chairman of China’s top political advisory body, mean Beijing wants the local administration to focus on resolving longstanding problems afflicting the former British colony.

Some of the tycoons came under fire at the height of the 2019 protests. For instance, the 92-year-old Li -- Hong Kong’s richest person -- drew Beijing’s ire after he published a vague message in local newspapers that was widely interpreted as a call for not only halting the violence on Hong Kong’s streets, but also stressing freedom, tolerance and the rule of law. China’s top law-enforcement body accused the tycoon of “encouraging crime.”

Call for ‘Patriots’

The electoral revamp signed off by Xi allows national security police to vet candidates for the city’s Legislative Council, a step that would snuff out all pro-democracy voices and align with Xi’s call for “patriots” to run Hong Kong. The U.S., U.K., Japan and the European Union have all condemned China’s moves.

In the previous system, top tycoons controlled key votes in deciding the chief executive, Chinese University of Hong Kong’s Choy said. While they had traditionally voted for the candidate favored by Beijing, there were times when they came close to defiance, he said.

During the 2012 election, Beijing’s favored candidate Leung won with only 61% of the votes -- the lowest among all chief executives -- with many tycoons showing support for their peer billionaire Henry Tang, siding with the pro-democratic opposition camp. Local press widely reported at that time that China’s liaison officers in Hong Kong had to step up their efforts to rally support for Leung.

Supporting China

Besides Li and Lee, who founded two of Hong Kong’s best known business empires, Adam Kwok, from the family behind the city’s largest developer, and Adrian Cheng, whose family owns a jewelry-to-property conglomerate, were also on the last committee for the 2017 chief executive elections. Representatives for Li, Lee, Kwok and Cheng didn’t respond to requests for comment.

Yet some of the tycoon electors are rallying behind the new system. Hang Lung Properties Ltd., whose Chairman Ronnie Chan was on the Election Committee in 2017, said the group is supportive of China’s move “to improve Hong Kong’s electoral system.” Robert Ng, head of Sino Group that owns properties including the Far East Finance Centre and the Conrad Hong Kong hotel, expressed enthusiasm in a statement sent to Bloomberg News through a representative.

Ng fully supports the change “as it enhances the one country, two systems principle and adds greater stability and prosperity to the livelihood of H.K. people,” according to the statement.

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