HK’s success owes much to bold infrastructure projects

In a raging debate on the merits of some of Hong Kong’s biggest infrastructure projects, including the Hong KongZhuhai-Macao Bridge and the high-speed railway that links with the mainland system, both sides have cited the Mass Transit Railway and international airport in their arguments.

Supporters of the bridge and railway projects chided opponents for their myopic view, which was not dissimilar to those who objected to the MTR and the airport when these ideas were first proposed. What would have happened to Hong Kong had those projects not been given the go-ahead, they asked rhetorically.

Branding the recent mega projects as “white elephants”, opponents argued that they were financed mainly by tax payers’ money while the MTR and the airport were funded largely by bank loans.

Both sides have missed the point. It makes no sense at all to compare, say, the MTR with the bridge. They were conceived under entirely different sets of circumstances.

The MTR was built to meet a pressing and immediate need at a time when the transport system, consisting of buses, trams and minibuses crawling along on congested streets, was strained beyond limits. In contrast, the bridge was built for the future to create opportunities that can be exploited for social and economic benefits.

As such, the MTR, and the airport, for that matter, could be expected to generate healthy streams of income from the start because of pent-up demand. In fact, the MTR was able to produce an operating profit soon after the operation of its first line was completed.

Even with an injection of a large amount of capital from the government and its own credible cash flow projection, the MTR had to rely on government guarantees to raise syndicated loans from banks on tough terms. There was no shortage of lenders.

The timing of the MTR fundraising had never been better. In the 1970s, Hong Kong was emerging as a regional financial center, attracting many foreign banks that were flushed with offshore dollars and eager to lend.

The smooth progress of the railway’s construction impressed bankers. This enabled the MTR to refinance a large part of its original loans with new ones on improved terms and without government guarantees. But it was the promise of positive cash flow in the early stages of operations which gave the MTR clout as a borrower.

The idea of a new airport to replace the one sitting in the middle of a densely populated area with almost zero room for further expansion was hatched in the 1970s. Progress was slow because of the choice for a new location in land-scarce Hong Kong.

But by the 1980s, it became clear that the existing airport was running out of capacity to handle growing air traffic of people and goods.

For that reason, the building of a new airport, irrespective of the high costs, was a sound business proposition which bankers like to hear. The financial costs were high. But since its opening in 1997, the new airport has been paying for itself without any need for further government subsidies, something that cannot be said of many other regional airports.

The bridge and the Hong Kong section of the high-speed railway are an entirely different proposition. There were no models to follow — so making income projections was largely guesswork.

It is unfair for critics to lampoon the government for overestimating the traffic on the bridge and passenger flows of the high-speed railway. They should understand that these facilities are an investment in the long term and their value to Hong Kong may not become obvious for some years to come.

They were built to help broaden Hong Kong’s business horizons and are sorely needed at a time when its economy has become overly dependent on traditional industries, mainly finance, property and the markets. They are intended to unlock new opportunities to entrepreneurs, especially the younger ones, who are discovering that the local market, dominated by bankers and developers, is too restrictive.

Whether the investment in these mega projects will eventually pay off depends entirely on business people in the private sector. But one thing is certain. They wouldn’t have a chance if these projects had not been built.

They (the Hong KongZhuhai-Macao Bridge and Hong Kong section of the high-speed rail) were built to help broaden Hong Kong’s business horizons and are sorely needed at a time when its economy has become overly dependent on traditional industries, mainly finance, property and the markets.