Last week, outgoing HK Chief Executive Leung Chun-ying led a tour of government officials and their advisors around the Greater Bay Area. The GBA is a scheme endorsed by Premier Li Keqiang in his annual work report last month to improve integration between the two Special Administrative Regions of HK and Macao and nine other cities in the Pearl River Delta. As I offered when interviewed for Cathay Pacific’s in-flight magazine last year, greater integration, connectivity, coordination, etc. across the PRD is, of course, a good idea when done well and the CE was given a graphic example of why it is needed.
Along with many others, I have long been a critic of the HK – Zhuhai – Macao crossing, a white elephant which was given the go-ahead not by C.Y.Leung but by his predecessor Donald Tsang Yam-kuen who until yesterday was enjoying government housing of an alternative sort in Stanley.
Each of the three governments has doggedly stuck to quoting only its own contribution to its cost but totting these up and adding in the bank debt means that the 50 km bridge / tunnel crossing and its connections will cost in excess of US$25 billion.
No estimated benefits have been published to justify this staggering amount but we can say 1) car owners with cross border permits will benefit (if they can find parking) but there are not many of them 2) pedestrians will be able to take a bus over the bridge (there is no train) but they can just as easily use the existing ferry network 3) time – sensitive freight will benefit but it would have been cheaper to upgrade a local airport or two (there are five in the PRD) 4) less urgent freight can continue to use the existing river – borne shipping. To make matters worse, the Guangdong government later decided to build a parallel crossing from Shenzhen to Zhongshan to open in 2024. This will be a 24 km, eight lane, bridge and tunnel monster and it will syphon off much of the traffic from the HZM crossing which is still scheduled to open this year but which will almost certainly miss this latest deadline too.
It is standard practice when planning large infrastructure to reach an understanding with the planning authorities on future competing projects. In this case, either no such understanding was reached or it was not adhered to and it is precisely this sort of coordination that the GBA ought to address.
Visiting both bridges, a member of the delegation who wisely preferred to remain anonymous thought that the HZM crossing could charge drivers less than the SZ crossing – but price elasticity of bridge and tunnel tolls is typically low given the inconvenience of driving miles up to the next crossing then back down again; he also thought that “previously officials were thinking about the financial return of the bridge but now it seems its social and economic returns are more important”. What?! These should already have been factored in when assessing viability in the planning stage. It is often the case that a piece of infrastructure will generate benefits which are not captured by the project proponent – increases in real estate values along the route, less congestion elsewhere, cleaner air, etc. – so a project may show an unacceptable Financial Internal Rate of Return (FIRR), which recognises only cash flowing to the project proponent, whilst showing an acceptable Economic Internal Rate of Return (EIRR) which includes those external benefits generated by the project but not captured by it. In such circumstances, it is acceptable for the government to subsidise the project in some way, be this through contributions in kind, viability gap funding, minimum revenue support structures and more. Estimating the value of those externalities is a very inexact science so understanding the conclusion of any feasibility study requires an understanding of the assumptions underlying it. Such an exercise would have been undertaken on this project but it has not been shared with the people paying for it so we are left to suspect the worst.
We don’t know anything about the feasibility of the SZ crossing either but, given its location and the fact that it will cost only $7 billion, we can be sure that its projected returns will be a lot more sensible than the HZM crossing’s.
We can’t do much about either project now but better integration across the GBA, a powerhouse of 66 million citizens, will hopefully avoid a repeat.
