Part Four : The New Business

4.0 Reclamation & Development
The first reclamation project took place in 1883 on Hong Kong Island. In 1924, two local businessmen, Kai and Tak started to reclaim land for a western style 'garden city', but the project was never realised. Instead it became the site of the previous Airport, hence its name, Kai Tak. The current airport is also on reclaimed land at Chek Lap Kok, west of Hong Kong Island and is connected back to the island with new underground railway, road tunnel and the largest double-deck suspension bridge in the world.

There are other equally ambitious infrastructure projects. The West Kowloon Reclamation is increasing the size of the Kowloon Peninsula by one third, adding 334 hectares. Phase 1 of the Central and Wanchai Reclamation, well under way, involves reclaiming 20 hectares of the waterfront, enabling Hong Kong to retain its status as gateway to China. Such extensive narrowing of the harbour and environmental degradation has been fiercely opposed by local pressure groups.

In addition to this, in June '97, plans were unveiled for an HK$85billion cross-border link to ease checkpoint congestion. This will involve 120km of new roads, a new super western highway and eastern highway.

4.1 Superbridge of the future
Hong Kong's plans for the future are enormous. A Superbridge is planned to link Macau, Zhuhai and the SAR, as part of a plan to build the Pearl River Delta as the "largest economic zone in the world". All three cities boast new airports, new container terminals, and now are planning a 27km long bridge.

Additionally, the government has a massive 10-year rail project proposed, expanding into the new territories. This, combined with the governments plan to build 85,000 flats a year, would give larger construction opportunities than the HK$155 billion new airport.

Hong Kong is likely to be the future Archipelagopolis Megapolis. A cross between Las Vegas and the movie "Blade Runner". Now with a little Big Brother thrown in. Some have predicted it to grow into a huge 40 million megapolis, (similar to predictions for other Asian cities such as Kuala Lumpur), joining with Shenzhen and Guangzhou in the future. How this fits in with the border controls is yet to be seen.

4.2 Population and Housing
The population of Hong Kong is predicted to increase by 2 million over the next 10 years - from a highly congested 6.2 million to 8.2 million. This is a staggering amount and Hong Kong must be ready to provide the social and physical infrastructure.

Hong Kong still has almost half a million elderly and poor people living in squatter huts, rooftop dwellings and cage homes.

Sir Gordon Wu's proposals in July'97 for providing land to house 3.6 million people included reclamation of 10,700 hectares of land. So far, the Mai Po marshes, where rare migratory birds nest, has been left free of new development, in a nod to the environmentalists. He added that "young people go through school, university, get married, get out to work and then struggle for 30 years but cannot afford to buy their own home. We are telling them : 'You don't have a future, you really don't belong.'"

The government's target for housing is to produce a massive 85,000 flats every year for the next ten years. Tung announced a land sales programme in July'97: 433 hectares would be made available over the next 5 years. This is estimated to be able to provide 146,500 flats. This is a big increase from the previous years and will probably also help to cool land prices. Property prices have shot up in Hong Kong to ten times their price over the last ten years. The scheme is estimated to make available 140% more land over the next five years compared with the previous five years.

However this is believed to be still not enough to meet the government's target. It has often been commented on by many of Hong Kong's 'over-reliance on the property market'. This will dispell those fears. HK Stocks in property dropped against this news, the Hang Seng Index dropped 41 points on the day. In June '97 when sites were sold at lower than expected prices, the Hang Seng Index dropped 230 points, illustrating Hong Kong's reliance on property investment. There is some speculation that Tung will not be allowed to follow through with the government's target, for fear of upsetting the business property tycoons. Christine Loh, leader of the Citizens Party, has noted in May '97 that "Three major property developers have a combined land bank of over 60 million square feet. 59% of residential housing units are under 430 sq ft and 84% are under 795 sq ft. The social consequences are dire. If you have a widening disparity of wealth and part of the reason is whether you hold property or not, this is going to get worse if you have a high land price situation."

4.3 The Environment - HK"Special Asthmatic Region"
The state of the environment in November'96, under Patten: Air pollution was killing 365 people a year; the cost of pollution has been estimated at $8.5 billion in health bills and business losses; cancer causing diesel fumes increased by 10% in 4 years; Hong Kong people are breathing up to 10 times cancer causing pollutants than those in Japan and nearly 3,000 times than those in Denmark. Already and understandably, Hong Kong has been dubbed the "Special Asthmatic Region"

Landfills, expected to last 50 years will be filled in 17; more sewage being disposed than the system can cope with; more than 25 dolphins have died since 1992 out of 200. Things are not set to get better. Tung has said that the new sewage treatment plant should be postponed and priority should be given to industrial development. It is clear that the new administrations focus will be business as usual.

4.4 Business and Corruption.
Corrupt gains reported to the ICAC are on the increase. A rise of 13% of 855 to 964 cases from '96 to '97 was disclosed. There is apparently some concern that business may be awarded or denied based on political sympathies or connections. In April 1996, Cathay Pacific sold a proportion of its stock at 15% under market value to CITIC, China's major investment arm. Apparently a new stock offering of a company controlled by a China critic, Jimmy Lai, was withdrawn by the underwriter after undefined 'pressure'. Many other companies were supposedly 'greasing the rails' before the through-train came, by reinvesting back into the motherland. Other Hong Kong firms, while expressing optimism have taken precautions against being wrong. In 1984, 96% of companies on the HK Exchange were incorporated in Hong Kong. Now in 1997, 37% are, indicating a shift of legal residence to afford some protection - just in case.

4.5 One Country, Two currencies.
One country, two systems maybe, but is it possible to have one country, two currencies? This is difficult for most to comprehend. One only has to look at the EEC to wonder how this could possibly work. The difficulties that the European partners are having trying to agree on one currency suggests that they possibly shouldn't attempt this, but instead, follow the "Socialism with Chinese characteristics" method.

4.6 Finances
In 1970, the Hang Seng Index stood at just over 200, now in 1997 it is at 15,000. Hong Kong is the fifth largest international banking centre, the eighth largest stock exchange in the world. It is also the largest international fund management centre in Asia. It's rise in such a short space of time is remarkable. The reasons for its success have been described by Alan Smith of Credit Suisse as : an open door immigration policy allowing companies to access international skills; the widespread use of the English language; low taxes and a non-intervention policy by the government. This must continue. China's current day investment in Hong Kong has been estimated as US$30billion. Officials at the People's Bank of China that the intention is that Hong Kong should retain its international role, while Shanghai should develop as the domestic centre for finance. Another obstacle stands in Shanghai's way if it wanted to challenge Hong Kong. The Law. Without this in place, business cannot occur. There are too many companies that have got their fingers burned already and are not so keen the second time around.

4.7 The Budget
Massive reserves were recorded on the 1 July '97, allowing the new era to begin on a positive note. A staggering HK$330billion in the bank. In 1996, growth was 4.7%, inflation 6%, surplus of HK$15.1 billion. The financial surplus for 1997 is projected to be HK$31.7 billion. The financial secretary, Donald Tsang only allowed a small increase in tax allowances. A cautious approach at a time of considerable upheaval.

4.8 Land Fund
In July'97, the Hong Kong Monetary Authority announced that Hong Kong had became 5th in the world's rankings of foreign exchange reserves, with the inclusion of the Land Fund, raising its total to US$82billion. The fund's reserves stem from income received from land transactions after deduction of the average cost of land production. Hong Kong's position in the league is now above the United States and Singapore.

4.9 Investment by China
The Chinese have always been good investors. Before the handover, China's financial stake ran into billions and 35% of its foreign currency passes through the Bank of China in Hong Kong. Thoughts that Shanghai will return to its former glory as the "financial hub of Asia" or "Paris of the East" seem at present ill-founded. Fear by Beijing that this will see a return to its capitalist excesses and organised crime is restricting its development. In 1943 there were 260 financial institutions operating in Shanghai. The city was delivered from its "colonal sins" in 1949 and most companies fled to Hong Kong. Shanghai is the most populated of cities in China and any unrest could manifest itself throughout the country. It was also the head of the Cultural Revolution which says much for the city as a city of great influence and excesses. Beijing's unwillingness to allow it to develop just yet into a great financial centre that it once was is arguably manifested itself in its statement 'one country, two systems'.

4.10 Tung's US visit
September 1997 : Tung visits US to ensure them that HK was masters of their own destiny, and not a puppet of China, although he emphasized that HK people were proud of their re-unification with the motherland. "Business as usual". Except the changes to the election laws. Tung's message was "the HK Government was to provide prosperity so its people could lead free and happy lives". But the West believes that "people should be free to allow them to be prosperous", noted an aide to a Senator on Capitol Hill.

4.11 Tung's First Policy Address
In October 1987, Tung celebrated the first 100 days since the handover by unveiling a multi-billion dollar package that addressed issues of livelihood. Education, welfare, housing and infrastructure were all given a boost. To curb soaring property costs, 25,000 public housing flats would be sold in early 1998 at "affordable prices"; 6,000 home starter loans amounting to HK$600,000 would be introduced; the elderly would receive an additional HK$380 a month; HK$5b would establish an education development fund; HK$25b would be spent on new roads and railways in the next five years; and the HK Tourist association would receive a HK$100,000 loan to boost the SAR as a holiday destination. Critics were swift to point out that issue of human rights and democracy were all but neglected. Tung noted that the 10-year timetable for democracy and universal suffrage as laid out in the Basic Law was acceptable. The only real change to the general approach of wealth creation - as opposed to wealth redistribution - was to now regard housing as not only a commodity for generating revenue, but also related to people's livelihood.

4.12 Bird Flu
In January 1998, HK endured a massive bird slaughter of 1.5 million chickens to eliminate the mysterious bird flu virus and ensured its people that "no chickens would be allowed to walk free in the territory". The birds were stuffed into plastic bags and gassed. The treatment was not completely successful as many birds survived the gassing while others were spotted being eaten by stray animals. It was not just a public health disaster, but a public relations one as well. The HKSAR government announced its plan for a massive slaughter only 24 hours after saying such a thing was not necessary. Tourists kept away.

With the SAR tourist industry suffering after the handover back to China, Cathay Pacific offfered special two for one deals on many of their routes. This suffered a further setback with news of the bird flu scare. Up to 3,750 tourists from Taiwan sought refunds as well as all over the globe. Overall, tourism fell by 25% in 1997. The government endorsed a HK$770million compensation package for the poultry industry employers. The workers were not compensated directly. While parents of the victims prepared to sue the health department for mishandling the crisis.

4.14 The Asian Financial Crisis
The currency crisis that hit Asia in late 1997, did not leave Hong Kong unscathed. Headlines read : "Investors rush to bail out", "Peg comes under fire in markets carnage", "HK puts brave face on turmoil", "Global plunge routs index", "Market feels for bottom amid gloom". The Hang Seng Index dropped from near to record highs of 15,000 points to a low of 8,000 points over a few months. For Hong Kong, the trouble started on 20 October, the tenth anniversary of 1987's Black Monday collapse. A global crisis in confidence sent currencies plunging.
The Thai baht, Malaysian dollar and Singapore dollar all weakened under attack by speculators. Just as the Mexican peso crisis was dubbed the "tequila effect", so the "Thai-phoid" was born. Thus the Hong Kong dollar appeared relatively expensive for both exporting goods and attracting tourists. It made it very difficult for the Hong Kong dollar to stand alone. The Hong Kong overnight interbank rate shot up to 300 per cent on 23 October 1997 as speculation hit the dollar market. Three-month interbank rates stood for a long time at 15 per cent in November 1997. Hong Kong is still one of the world's largest reserves holders. Clearly the benefit of the peg to the US Dollar prevented the HK Dollar suffering the same fate as other countries currencies in the region.

4.15 Peregrine Shocker
Peregrine Investment Holdings investment bank collapsed on 12 January 1998, due to an over-exposure to Asian corporate bonds. The company exposed itself to a massive US$1.2 billion in bonds, US$750 million of which were in Indonesian corporate bonds. When the Asian markets collapsed, so too did Peregrine.

4.16 Goods & Services
The prices of goods and services in the SAR were slashed almost immediately. Airlines and hotels packages were unveiled, retailers and restauranters cut prices in the high street. Manufacturers' support of the 14-year old peg dwindled after several of their customers went to other Asian countries due to cheaper costs. House prices lost 30 to 40% of their value. The people will be paying overpriced mortgages for the next 10 years or so. Estate agents shed off staff. Cathay Pacific announced 760 redundancies, or 7.5% of its workforce, in January 1998 and will cut its flights to Jakarta, Indonesia and Penang, Malaysia in May 1998. Marks & Spencers recorded a 23% drop in sales over the Christmas period. First Pacific Bank shed 5% of its staff. In all, 18,000 jobs were lost in the investment Banking Sector. SHK Properties stopped work in 10 of its developments, resulting in 200 lay-offs. Rent rates fell by 15%. The Hong Kong economic growth was forecast to be 0.5% - or even recession - in 1998. Analysts predicted that the market would take at least two years to recover.

An unfortunate start for the first Chief Executive of the HKSAR.


Introduction |||| Part One |||| Part Two |||| Part Three |||| Part Four |||| Part Five |||| Appendices