Hong Kong Prudence Down the Toilet

The Hong Kong government’s former reputation for fiscal prudence and good budget management is in ruins. The latest bail-out plan for its Mass Transit Railway Corporation entails not only throwing another HK$19.6 billion of public money at the quasi-public rail and property development company but rewarding its shareholders for the company’s incompetence.

Despite needing this money to cover a massive cost-overrun on its 27 kilometer high-speed rail line from the heart of Kowloon to Shenzhen it is proposing to pay a special dividend. This will go not only to the government itself but to the public owners of the 25 percent of the MTRC that is publicly listed. The notion of capitalism has been turned upside down by government bureaucrats who may well own some of that 25 percent.

The latest estimated cost of the line is HK$84.4 billion (US$10.8 billion) and the completion date is not until 2018 – three years late. All kinds of excuses have been rolled out for this but the underlying one is that the government railroaded the project through for dubious reasons and the MTR board of government yes-men took it on with scant investigation, let alone any sense that it was either commercially viable or served the public transport needs of more than a small minority of Hong Kong people.

The line was agreed partly for political purposes, to provide a tangible link to the mainland’s own high-speed system that terminates at Shenzhen. The fact that the train couldn’t reach very high speed before stopping at the border was ignored, as was the fact that one can drive from Central Hong Kong to the border in 20 minutes.

But what added some 50 percent to the cost (and technical difficulty) of the project was the decision to take it into the middle of Kowloon rather than stop in the New Territories and interchange there with the local rail system. It is noted that Beijing and Guangzhou for practical reasons both placed their high-speed terminus far from the center of the city. Hong Kong, however, being ruled by property companies and bureaucrats with scant responsibility for the use of public money, decided that cost was no object. Commercial interests wanted it in the middle of Kowloon.

The railway is just one of several commercially worthless government projects running far over budget and years late in delivery. The biggest of all is a 42-kilometer bridge/tunnel combine to link Hong Kong with Macau and Zhuhai. The latest estimate of Hong Kong’s part of this is now HK$116 billion and completion now put back to 2017. Even that date is probably optimistic as the project has encountered major civil engineering problems to which the government refuses to own up when when these are reported by local on-line media. The bridge, which carries no rail line, is almost irrelevant for Hong Kong’s seaborne trade and of marginal benefit to the city given the existence of many high speed ferry routes across the Pearl River estuary.

Other out-of-control construction boondoggles include the world’s most expensive road tunnel being built under the Wanchai and Central districts that will benefit almost no one other than the senior bureaucrats and bankers driving to work in Central, meanwhile adding to air pollution in the centre of the city. Hong Kong’s self- and construction -industry serving bureaucracy, and the vested interests on its Legislative Council still think in 1960s terms rather than following advanced cities in limiting central-city road traffic. The bill for this is now HK$35 billion and could rise further.

Then there is the West Kowloon so-called cultural district, an ever-changing mix of glitzy cultural venues and private property development now with a price tag of HK$47 billion and completion in stages by 2020. Focus is on construction more than culture.

Thus we now have some HK$300 billion of money which could have gone to cleaning up the environment, establishing a proper pensions system for an aging population etc. being spent on infrastructure projects which were of dubious value in the first instance and have been appallingly managed by officials who are never penalised for their incompetence, being part of a self-protecting elite in close liaison with certain commercial interests. To put that HK$300 billion in context: total government recurrent revenue this fiscal years is estimated at HK$354 billion.

Next the public purse is going to have to produce more than HK$100 billion out of a total of HK$141 billion and rising for a third runway at the airport, even though flights are currently more constrained by China’s air traffic control than by having only two runways. Major airports in most countries are rightly viewed as commercial enterprises like container ports. But so influential are the interests of the bureaucrats themselves and the airline industry, particularly highly protected Cathay Pacific, that instead of raising the money for expansion by issuing shares or selling bonds the public purse is again to be hit for most of the cost, with much of the remainder coming from a levy on passengers – not the future users but the current ones. Again this is turning capitalism upside down to benefit certain sectors and people. In turn the government will then plead poverty and say it cannot afford to build new hospitals or improve the environment.

In short, the Hong Kong government decision-making process is fundamentally corrupt and compares very poorly with modern cities in Asia and Europe, and even Beijing.