CONFIDENTIAL
HONG KONG AIRPORT: ECONOMICS
Summary
1.
Questions remain over economic appraisal, but water under the bridge. Main concern now implementation and financing. Feasible, with sluggish GDP and revenue growth the most troublesome risk. Other government spending will be crowded out, which may mean hard choices. Still some timing and financing options. HMG can offer some technical help, and should keep in touch with developments.
Discussions in HK
2.
As arranged, I met HKG officials on 24 July in the margins of the Heads of Missions meeting, including Messrs Tang (Government Economist), Yeung (Secretary for the Treasury), Allen (Chief Executive, Provisional Airport Authority), Pryor (Chief Town Planner) and Mrs Chan (Secretary for Economic Services): she also gave an excellent briefing on the airport for the HoMs. At social occasions I met the HK head of the Consulting Engineers for the project and with businessmen with an interest in the project - as prospective contractors, airline owners and members of the airport authority. I also flew over the airport site at Chep Lak Kok, where some digging had already started.
3.
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I did not pursue directly the questions we had about the economic appraisals of the project, since the final decision to proceed had just been announced. I emphasized that what we wanted was exactly the same as the HKG timely and cost- effective completion of the project. This was entirely the responsibility of the HKG. But we realised that we needed to be rather better informed about the complexities. What were now seen as the main problems? What decisions remained to be taken? Were there likely to be issues on which we could help?
4. In the time and circumstances, it was impossible to do more than gather general impressions, identify some issues to watch, and establish contact with some of the people involved. I urged them all to keep in touch (eg when in London, as they all will be in the next couple of months), and I have written to underline this. They seemed keen to do this, but it is hard to judge sensitivity about outside interference. Arrangements for HK Finance Branch officials to spend some time in HMT to discuss forecasting and appraisal issues have already been put in hand.
General impressions
5. The widespread sense of relief at the agreement with China was clear, even among those who had been critical of the project. Everyone was keen to get on with it. Nobody doubted that it could be substantially completed by 1997 (though late rather than early). Fears of crippling cost over-run were muted the main problem was seen as general pressure of demand rather than the technical unknown. The businessmen wanted to see more of the project (ie the Lantau Crossing {LFC)) managed by the private sector to cut costs, while officials thought this would put them up and undermine the long term financial position of the SAR.
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CONFIDENTIAL