Hong Kong Infrastructure Report Q3 2008

During his Policy Address in the spring of 2007, which marked the commencement of his second term in office as Hong Kong's Chief Executive, Donal Tsang made clear that his priorities for his 2007-2011 term would be fostering cross-boundary integration to strengthen the economic development of the special administrative region (SAR). His emphasis, he said, would be on developing Hong Kong's infrastructure through ten major projects that he announced. We have traced the development of those projects in BMI's Q308 Hong Kong Infrastructure Report and we are optimistic regarding their progress.

Transport has received the lion's share of government attention in 2007 and based on recently announced projects and projects commencing this quarter, we anticipate that transport will remain on the top of the government's agenda. The reason is twofold. First, physically connecting Hong Kong and the mainland is a strong gesture indicating the union of the two former separate entities. Two, as China's growth continues relentlessly, there are many economic opportunities to be derived on the part of Hong Kong if it integrates part of its economic development with that of China and particularly with the Pearl River Delta region.

China is also Hong Kong's main electricity supplier. The SAR's electricity mix is dependent on imports of oil, coal, gas and nuclear. There are approximately 10 gigawatts (GW) of installed generating capacity generated by four thermal power plants. We believe that so long as China remains a reliable supplier and Hong Kong is not faced with an eminent power crunch, investments in energy infrastructure will remain neutral.

Another sector that we considered to be neutral was Hong Kong's construction industry. During the last few years, Hong Kong's construction industry has not received significant state-led investment. However the scenario is expected to improve. Around 93 projects worth HKD24.19bn (US$3.09bn) were expected to be undertaken in 2007. Hong Kong is one of the most competitive construction markets in South East Asia and a showcase for international innovation in design and engineering. After a five-year slump, new government projects and other infrastructure developments have provided the necessary impetus to Hong Kong's construction industry, which has also benefited from the boost in construction activity in Macau and China. Due to the factors above, BMI forecasts that the construction industry is likely to log an average annual growth rate of 9.47%, the 2008-2012 period. The industry is expected to be worth US$7.93bn in 2012.