An economist and an environmental group have thrown cold water on Hong Kong’s ambitious plan to build artificial islands off Lantau to serve as a new housing and business hub, saying the project would drain the government’s fiscal reserves within as little as seven years.
The warning came as Hong Kong unveiled a third round of pandemic relief funding on Tuesday totalling HK$24 billion, further depleting the city’s reserves to HK$800 billion this financial year, though officials maintained the reclamation scheme would go ahead as planned.
“The city is already facing financial decline. Lantau Tomorrow Vision will only accelerate it and push us into massive debt,” said Andy Kwan Cheuk-chiu, director of the ACE Centre for Business and Economic Research, who was commissioned by the NGO Greenpeace to study the impact of the massive reclamation scheme on the public coffers.
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Kwan, a former professor at Chinese University, ran several economic and statistical models to estimate the impact, taking into account the two previous rounds of pandemic relief measures.
“Depending on the gross domestic product estimates, the earliest the government will run out of money is 2027,” Kwan said. “Even under the best case scenario, the city’s reserves will be depleted by 2031 or 2032.”
The controversial reclamation project, a signature policy of Hong Kong leader Carrie Lam Cheng Yuet-ngor, is estimated to cost at least HK$624 billion, and will involve creating 1,000 hectares of man-made islands in the waters off Lantau Island and building an entirely new transport network.
Construction is slated to start in 2025, with the project expected to yield up to 260,000 flats by 2032. Critics of the project, however, have said the reclamation was not cost effective, and would destroy the marine ecosystem in the area.
Last year’s anti-government protests and the ongoing Covid-19 pandemic have delayed deliberation on the matter by the Legislative Council’s finance committee meetings. The project is expected to be up for review by the council in its extended one-year term, which starts next month.
Kwan’s report predicted the fiscal position of the city at 40 different points during the time frame of 2019 to 2042, based on revenue and expenditure projections previously used in the government’s own 2014 Working Group on Long-Term Fiscal Planning report.
All of Kwan’s projections found that a structural deficit problem – wherein government spending was financed by borrowing at an unsustainable level – was either approaching or already taking place.
The core of the problem, Kwan said, was an ageing population, which will drive up spending on elder care and social welfare.
Financial experts had already raised concerns in February, when the government revealed it planned to go into the red for the next five years, warning the city was already running a structural deficit.
At that time, the city predicted its fiscal reserves would drop to less than 20 months’ worth of expenditures for the first time in 15 years.Following the latest round of pandemic relief measures, Financial Secretary Paul Chan Mo-po said on Tuesday that the HK$800 billion reserves for this financial year would be equivalent to just 12 to 13 months of government spending.
“It’s been our view that in the time of an economic downturn, if the government could implement countercyclical [fiscal] measures, it could help boost the economy and save jobs. That’s still our line of thinking,” Chan said.
The funding request before Legco covering the preliminary studies for the Lantau scheme at a cost of several hundreds of millions of dollars “would continue as planned”, Chan added.
The financial chief had previously said the government was looking into different financing models for the project, which would be developed in phases so private residential and commercial sites could be sold earlier to generate revenue.
Greenpeace senior campaigner Kate Lin Pui-yee urged the government to withdraw the project, and to instead switch to a more robust approach in developing so-called brownfield sites in the New Territories, which would yield the same amount of housing as the Lantau project.
Brownfield sites refer to abandoned agricultural or rural land used for activities such as open storage.
She went on to argue that the housing problem in Hong Kong was a short-term one, as government data has shown the population will start to decline after 2046.
The Development Bureau, meanwhile, said there was no single solution to the city’s housing problems, adding that it was looking at both reclaiming brownfield sites and the reclamation project. It stressed the reclamation scheme was still in the research stage, and the government would assess all factors, including the environment, the financial impact and planning.