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15. I drew only modest comfort from exploring what the
HK$71 billion fiscal reserves for 1997 (mentioned by the Financial Secretary in his Budget) meant. This is a figure at 1997 prices,
and hence a large part of it reflects assumed inflation between
now and then. I discovered it would be equivalent to no more than
40% of projected Government spending in 1997, as against a comparable 70% ratio now. That is still a reasonably comfortable
figure. But it underlines the fact that the strength of the
fiscal position is expected to decline substantially, even on the official assumptions.
16. As regards the airport and port development (PADS) I did not
have sufficient time to assess the realism of the latest
projections. But there were some public signs during my visit of slippage in the timetable for key aspects of the scheme.
also struck in talking to the airport projects team by how many of
the staff had been on board for only a very short time.
17.
I was
A lot of emphasis was placed by the team on their aim of securing fixed price contracts for the bulk of the work so that there could be certainty about eventual costs. Although I could
see the logic of this approach I was sceptical about the aim of
fixed price contracts over a number of years with inflation at
current levels.
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4.3
18. Overall I would reserve_judgement about how the financial numbers are likely to turn out. Most within the HKG appear to expect that China willing it may be necessary for borrowing to
rise above the current $5 billion limit (which has already more or less been reached by the programme of 2 year bond issues launched by the Monetary Affairs Branch).
19.
Businessmen I talked to argued that more long term borrowing should be allowed for the project. That seemed to me reasonable; few other countries would contemplate such a major infrastructure project, with long term returns, without significant borrowing. What was clear to me was the importance of the project for
future; the existing airport is already crowded and additional
port facilities will be needed to sustain growth of Chinese trade.
7
HK's
5