Can the bridge be financed

For economists and bankers, the question is whether the economics will justify the costs

By W C Kwan

Gordon Wu's proposed bridge carries a price tag of HKD $15 billion. Controversy is rife on whether financing can be raised. To answer the question, Hong Kong's economists and bankers look at the economics behind building the bridge.

Economists' views

K. C. Kwok says the bridge will benefit Hong Kong.

For K.C. Kwok, Chief Economist at Standard Chartered Bank, the bridge will be the last link in a comprehensive transportation loop around the Pearl River Delta (PRD). He believes that this will further increase the PRD's competitiveness

"The PRD is one of the world's most market efficient areas," he says. "It developed totally from market forces with little government investment and intervention, unlike Shanghai and the Changjiang River Delta."

The bridge will make the PRD even more market efficient, according to Mr. Kwok, and Hong Kong will certainly benefit as the region's logistics and service centre.

Businesses in the eastern part of the Delta may hurt in the short term, he says, as investments move to the west which has lower cost. But in the long run, the east will also benefit as this will stimulate industries to upgrade to higher value-added products.

"Once the infrastructure is there, market forces will take care of the rest," says Mr. Kwok. Development in the west may not exactly follow the pattern of the east, but other businesses such as tourism and theme parks can grow following the link-up, according to him.

Given the economic potentials, Mr. Kwok does not believe that financing will be a problem. The government does not need to be involved, he says. It only has to provide land and connecting roads. The private sector can take care of the rest. Many large Hong Kong business groups have significant resources in their hands, according to him.

See details of Priscilla Lau's views and view video.

Priscilla Lau of Polytechnic University agrees that Hong Kong and the PRD will generally benefit from the bridge link. However, she would first like to see a detailed feasibility study showing sufficient traffic from the western part of the delta.

She also believes that a high level of coordination will be required among the relevant government authorities in order to resolve cross border issues.

Banker on financing

View video of Tony Souza on financing the bridge.

Once underlying economics are resolved, financing will fall into place, according to Tony Souza, Head of Special Solutions, China, at Standard Chartered Bank.

Any financing will first of all look to tolls for repayment, says Mr. Souza. Therefore, it is very important that there will be enough traffic.

If there is any risk of shortfall, shareholder equity and guarantee will have to make up for the difference, he says. The credit worthiness of the shareholders and sponsors will also be key to successful financing.

Financing for an infrastructure project of this size will typically require a repayment period of ten to twelve years, according to Mr. Souza. For part of the long-term financing, he will look to export credit agencies from countries such as Japan, Korea, US, or the EU countries.

Financing infrastructure projects

Hong Kong and international financial markets have a strong record of financing infrastructure projects, whether they are in the private or public sector. Nevertheless, at HKD $15 billion, the price tag of the bridge is still high. Much work will be needed to assess its feasibility.

Tsing Ma Bridge, Hong Kong. (Hong Kong Tourism Board)