The following letter, outlining the issue of cost
control and business-like approaches, is an adaptation
from ¡§A Letter to Hong Kong¡¨ for the RTHK radio programme
that aired on 9 December 2001.
It is amazing how fast news travels these days. I
can hardly believe that you have already heard in Montreal
of the astonishing size of our fiscal deficits in the
coming year. Hong Kong is going through some tough times,
but as you quite rightly observed, we will eventually
come out of it as a stronger economy, with better work
ethics and a more business-like political culture.
As an experienced city administrator who knows Hong
Kong very well, I, again, cannot possibly disagree with
you that the people of Hong Kong are inexperienced in
managing a sustained period of deflation and negative
growth. It seems that not all of us have yet woken up
to the fact that Hong Kong is no longer a fast growing
economy. If we still continue to plan Government investments
and public expenditure with that invalid assumption
in mind, there will come a point where the rising costs
of the public sector might become unacceptable. The
strict disciplines of economics will always teach disbelieving
politicians and Government officials how wrong they
can be, if they persistently ignore basic fundamentals
and trust only their self-interested political whims.
The size of the present deficit is an early warning
You asked if our massive dose of investments in our
transport infrastructures would help. This, I believe,
is a good place to start in order to express how skeptical
The Chief Executive have announced in his recent Policy
Address that we are to invest another HK$600 billion
into our roads and railways despite the fact that many
funds have already been sunk into similar projects.
Hong Kong is a tiny place, with a reasonably well developed
infrastructure systems so I think that there is a limit
as to how much and how fast we can keep building without
losing a sense of value for money. The marginal benefits
of every new road and railway built will diminish as
costs escalate while utilities decline. A cost and benefit
analysis in every project is especially critical in
times of deflation and economic downturn.
I have already forwarded a question to LegCo to ask
the Administration how many miles of railroads we are
planning to build with a price tag of over a HK$100
billion. I suspect the cost per mile is going to be
a startling figure as Hong Kong is small and the longest
railway, the West Rail, can only be twenty-odd miles
long. With the budget size of some HK$100 billion, our
mainland neighbours can easily build hundreds of miles
more of railroads than we can. In light of the present
economic sentiment, fast shrinking wages and, for that
matter, the size of the Government's coffer, is our
business plan for railways still realistic? Can the
'poorer' people of Hong Kong still afford the eventual
high fares? Furthermore, are we still going to be competitive
as a logistic centre when compared with our Mainland
neighbours who can build at a fraction of our costs?
By the same token, I also question the Government's
brave statements that we must invest another HK$500
billion onto roads and highways. A controversial case
in point has already emerged that after luring private
investors to build the Route 3, the Government is now
intending to put another HK$20 billion or so into building
the parallel route 10, well before Route 3 reaches its
Again, any taxpayer with common sense should ask why
we need two first class highways running almost parallel
to each other. What could be the real marginal economic
benefits of such an expensive fare at a time when the
Government's own finances are already on shaky grounds?
Why must we raise new taxes to build a new road where
one will adequately serve the purpose for a long time
For decades, Hong Kong has been a booming city and
everything we touched seemed to turn to gold. The Government
was content to keep to a small size and to leave as
many resources as possible to the private sector where
the real engine of growth is housed. We could afford
expensive infrastructure investments because our inflation
and fast growth rate would soon catch up and what seemed
expensive today would become affordable in no time.
This worked well in the past but the scenario today
is drastically different.
After a sustained period of deflation and negative
growth, what seems expensive now could become downright
unaffordable in a few years. The Government is involuntarily
taking up an inflated share of our economic resources
leaving a smaller engine for growth in the private sector
to power us out of a slow recovery. The operating income
of the Government can barely pay for the basic salaries
and wages of its civil servants on a year-to-year basis.
New projects will have to be financed by new taxes if
we are to maintain a sizeable reserve. Unless a good
business case can be demonstrated, Hong Kong will risk
misallocating its limited valuable resources into costly
endeavours of low priority at a time when we need them
most in the hands of the private sector.
The broader question is whether or not our Government
has amassed substantial assets in state-owned enterprises.
As in the case of railways, it is going to invest a
lot more in the KCRC and MTRC with public funds in the
future. However, it lacks a professional and business-like
approach in its management of these highly valuable
assets, which could be realised for cash by a future
public listing. It is time to reflect on what management
efforts the Government must make to keep costs down
and their investment values up.
Personally, I think that the Exchange Fund Investment
Limited (EFIL) experience has been a proven success.
A dedicated, professional investment team engaging the
services of commercial investment bankers will assist
an appointed Board to act as impartial, passive shareholders
in a business-like manner. This will support and strengthen
the Corporate Governance structure of state-owned enterprises
like the MTRC and KCRC and help to shelter them from
excessive political influences, which they are currently
exposed to. Another suggestion might be to consider
asking the Director of Audit to become their ¡¥internal
auditor¡¦ to supplement the commercial role of the private
sector external auditor.
We are right to place high expectations on our visions
of Hong Kong. However, we must maintain a sensible balance
of vision and pragmatism. Otherwise, while Hong Kong
is still embarking on a long and difficult road of trying
to rid itself of its name as the land of the most ¡¥expensive
properties,¡¦ we might unwittingly go down another slippery
road to become the land of the ¡¥most expensive railroads
This letter was presented and aired on RTHK radio
station on 9 December 2001.
Credit: Eric Li is the LegCo Accountancy
Functional Constituency Representative. For more information,
refer to his website at http://www.ericli.org.