CONFIDENTIAL
10. HK's industrial future. A question which interests me is whether HK's highly successful formula for industrial development moving steadily upmarket on the basis of dynamic, small, light- industrial enterprises with relatively limited capital requirements and extremely rapid pay-back periods - can be continued indefinitely. As operations become more sophisticated, the amount of capital and infrastructure required tends to increase, and investment to have a longer time horizon. HK does not have some of the industrial resources with which some of its major competitors (eg Korea) have invested heavily. There were somewhat mixed reactions (which I share) to this concern. The Industry Department was pitching for more resources for its various programmes to improve technical skills and provide a sort of industrial extension service, and others, too, thought that the HKG was going to have to take a more active role than in the past in creating the right conditions for industry to thrive in future; against this there was Again, the BLDC the powerful argument of "if it ain't broke, don't fix it".
this area seems to be an important one for active consideration of policy in the coming months.
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11. Major investment projects. Several major public sector projects will be completed in the next couple of years, and decisions will have to be taken soon on the next tranche of such projects, with the major considerations being their economic viability, their contribution to longer term political stability, and ensuring that claims on resources are kept at a sustainable and reasonably stable level. The most intriguing is the question of a second airport, where Mr Gordon Wu's grandiose scheme for a linking port/road network/airport has excited a great deal of public interest and support. HKG officials seem pretty wary; they are about to engage a consultant to report on how far Kai Tak can be expanded to cope with demand; and they point out that berthing facilities are rather inflexible as compared with the existing system of lighters. Moreover, Wu's suggested costs are less than those for the much more limited project turned down a year or two ago for an airport on Lantau island. (I would have thought that in present-day circumstances the location of a new airport would be a matter of major interest to the Chinese, and might sensibly be
sited much closer to the border.)
12.
Large scale projects generally seem to be discussed without much reference to investment appraisal; and although an economic impact statement has to be attached to legislative proposals, the economists seem to think that far more serious efforts are needed on economic analysis of major economic decisions throughout the government. I suspect that they are right, and this might be another area in which there will be scope for improved policy
making.
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SH Broadbent Economic Advisers
CONFIDENTIAL