Rail & Infrastructure, Talking Point

Train of events

Hong Kong railway row points to changing times in the Pearl River Delta

A security guard keeps watch near a CRH train in Beijing

The through train: China’s high-speed rail network will reach Kowloon by late 2018, after a three-year delay

“It was not a question of whether the undertaking would be an immediately remunerative concern: it was not a question of whether the railway would pay interest on the capital expended, or even if it would at once pay working expenses. It was a question of preserving the predominance of Hong Kong. It was a question of seeing that the final outlet of the main trunk railway of China should be at Kowloon, and at no other place.”

That was Sir Frederick Lugard, Hong Kong’s then governor, speaking to his legislative council in 1908, two years before the railway between the colony’s Kowloon district and Canton (now Guangzhou) first opened.

The trip took four and a half hours, or five times the journey time of the high-speed link now being constructed between Hong Kong and Guangdong’s provincial capital.

But what is striking are some of the similarities between a century ago and the high-speed venture today. Back then the railway was prompted by concerns that foreign powers were increasing their influence in southern China, threatening Hong Kong’s status as the premier port in the region. Today Hong Kong is feeling the heat again, although this time more from rival Chinese cities nearby. A century ago, the railway construction teams ran into a series of engineering problems (ditto this time). And in another similarity to today, there was controversy about the terminus in Kowloon (local officials back then had bought land for the station only to be wrong-footed when the site was changed).

History really does repeat itself, it seems. But what does today’s high-speed track tell us about where Hong Kong is heading to?

Fury over funding

The first phase of the Express Rail Link – carrying passengers between the Chinese mega-cities of Shenzhen and Guangzhou – opened four years ago. But on the other side of the border, Hong Kong’s contribution to the project is mired in political wrangling over who should shoulder the bill for delays in building its own section of the line.

The railway was supposed to be operational this year but it now looks likely to open in the third quarter of 2018 at the earliest. MTR Corporation – Hong Kong’s railway operator – blames difficulties in boring the tunnels that carry the railway underneath the city, as well as cost overruns for the ambitious terminus in West Kowloon, a popular residential area for mainland Chinese investors and just across the water from Hong Kong Island.

The expense has been huge, with the track costing about 16 times as much per kilometre as the high-speed line between Shanghai and Beijing, according to the Hong Kong Economic Journal. Most of it is being built underground, of course, adding substantially to the bill. But the Hong Kong government is furious with the failure to deliver the railway on budget and on time.

MTR executives have countered that its contract stipulates that the government bears the financial risks of construction delays. And on November 30, the government agreed to provide additional funding not exceeding HK$84.42 billion ($10.9 billion). That should get the railway finished, although it constitutes a HK$19 billion increase on the HK$65 billion approved by the territory’s legislators five years ago.

In exchange MTR will pay a special dividend to shareholders, most of which – also about $19 billion – will go back to the government, which owns a 75% stake in the railway firm. That means taxpayers won’t need to foot the bill for additional funding, while MTR will need to raise capital, which should be a boon for local banks and the local bond market. But adding leverage will also saddle MTR with substantial debt servicing costs – particularly if it borrows, as has been rumoured, around HK$30 billion. The knock-on result may be higher fares for ordinary Hongkongers using MTR’s subway lines.

The row comes at a time when the 42km Hong Kong-Zhuhai-Macau Bridge – due to connect the territory directly with the western bank of the Pearl River Delta– is also set to miss its completion date by at least a year (completion is now not expected till the end of 2017). Part of the hold-up is because an artificial island is showing signs of subsidence. Again more public money is required.

Meanwhile the Express Rail Link now faces two crucial sets of approvals: members of the Legislative Council – the territory’s quasi-parliament – are expected to decide on whether to accept the funding proposal in February; that same month MTR minority shareholders vote on the plan too.

Will the new line pay for itself?

Hong Kong’s section of the track is just 26km long but its symbolism is outsized in linking it to China’s high-speed rail network, allowing passengers to connect directly via Guangzhou to Shanghai and Beijing.

However, when the railway was first mooted, it was presented to local taxpayers more for its economic value. This was framed not only in terms of the jobs created during its construction, but also the boon that would result from vastly reducing the travel time between Hong Kong and Guangdong’s major conurbations. The full line will stretch for 140km between Hong Kong and Guangzhou, with stops in the cities of Shenzhen and Dongguan along the way. It will take just 14 minutes to travel between Hong Kong and Futian station in Shenzhen, while the journey to Guangzhou will be cut in half to 48 minutes.

These shorter journeys will deliver about 42 million hours of saved time each year, transport bosses reckon, contributing towards the HK$87 billion in economic benefits estimated over the railway’s first 50 years in operation.

Opponents of the railway say hefty ticket prices and large numbers of commuters will be needed to justify its construction costs. Passenger trips on trains between Hong Kong and Guangzhou numbered 4.48 million in 2014, says the Hong Kong Economic Journal. Even if half of these people switch to the faster express, it could take 75 years to recoup construction costs.

Political resistance too?

The thorniest issue at stake lies at the planned West Kowloon terminus: how to arrange the customs and immigration procedures for passengers.

The current plan is to put both sets of border formalities at the terminus in Hong Kong’s Kowloon. This is a decisive part of the Express Rail Link’s value proposition – because it means cross-border commuters will spend a lot less time going through immigration.

That sounds like a fairly mundane decision but the co-location proposal risks contravening the Basic Law – the constitutional document of Hong Kong.

Under the Basic Law officials from mainland China are prevented from working in official roles across the border. Article 18 prohibits the exercise of Chinese law in the territory, for instance, while Article 154 gives Hong Kong autonomy over immigration and customs procedures.

A shared immigration facility in Hong Kong would be unprecedented: the current line to Guangzhou has separate immigration controls and although one of the newer road crossings does have shared facilities, they were built on mainland Chinese soil, not in Hong Kong.

The alternative option is passenger checks at control points in Kowloon and Shenzhen, where the railway crosses the border. But, as afore stated, this would erode much of the savings in travel time, and thus undermine the economic benefits of the project.

The debate about how to manage the border controls comes at a time when more Hongkongers are sensitive to what they perceive as Chinese encroachment on their city’s way of life.

This kind of sentiment contributed to the spread of the Occupy Central movement last year (see WiC244) and the subsequent street protests that rocked the city. The rebellious mood resurfaced this year when local legislators rejected proposals for a fuller election of Hong Kong’s leader, the Chief Executive, because they object to Beijing’s insistence on screening the candidates (see WiC287).

Last week Hong Kong’s Secretary of Justice Rimsky Yuen told media that consensus had been reached on unified border control at the high speed train project. But opponents of the plan immediately cried foul, warning that it would contravene the “one country, two systems” principle. Yuen says that the arrangements can be designed in a way that won’t contradict Hong Kong’s autonomy over customs procedures. But his detractors are asking whether immigration officers from the mainland will block people from travelling to China based on criteria mandated in Beijing (despite performing their duties on Hong Kong soil where no legal objection to right of travel could apply).

Then there are the wilder fears that the co-location decision is a Trojan horse for deeper meddling with Hong Kong’s guarantees under the Basic Law. “If the Chinese authorities are given the legal power to enforce laws [in Hong Kong], Hong Kong peoples’ rights will be abused in some way or another. And our whole system is going to be in chaos,” predicts Albert Chan, one of the local legislators opposing the plan.

The bigger picture: the Pearl River Delta’s growing pains

Earlier this year the World Bank reported that the Pearl River Delta region of Guangdong had overtaken Tokyo as the world’s largest urban area in size and population. Its population of about 42 million exceeds that of either Canada, Australia or Argentina. Plus it is also a pioneer for many of the policy priorities of the Chinese government, including accelerated urbanisation, industrial upgrading and environmental clean up.

Another part of the plan is deeper integration between the region’s cities, with each capitalising on its respective strengths. In the blueprint Hong Kong serves as the financial and professional services hub. Guangzhou is home to Guangdong’s political leadership and the focal point for its heavy industry, with upgraded manufacturing in sectors like chemicals and automotives. Shenzhen’s mantle is more as the tech capital and hardware hub, and as a spillover centre for Hong Kong’s logistics and services.

Cross-border transportation infrastructure, such as the Express Rail Link and the Hong Kong-Zhuhai-Macau bridge, could foster faster integration of Hong Kong into a “one-hour economic zone”, according to Southern Metropolis Daily.

One of the biggest consequences could be in the real estate market, where home prices in Hong Kong are still substantially higher than comparable units in nearby areas in Guangdong. (The expectation: more and more younger Hongkongers – priced out of the local market – will buy a home across the border and commute, much as office workers do between places like London and the Home Counties. The Financial Times has already reported on an increase in such property transactions this year in Shenzhen, where prices are only about 40% of those in Hong Kong.)

So far the central government has shown no sign of impatience over Hong Kong’s repeated delays in bridging these cross-border transport links. But chances are, as the Apple Daily suggests, pressure from Beijing must have been mounting behind the scene.

The Guangzhou-Shenzhen-Hong Kong railway, Xinhua also notes, should serve as a showcase project for China to export more of its infrastructure capacity, which is part of Xi Jinping’s “One Belt, One Road” gameplan. “This will be the first high-speed railway to connect the Chinese standard [in railway infrastructure] with the European standard [which is being adopted by Hong Kong],” the news agency reported last month. “This will help Chinese firms to attain experience for their future expansion in Europe.”

For Hong Kong, adjusting to the integration process is anything but straightforward, and involves a move from its past as a gateway to China to a future in which it has to reconfigure its role.

As WiC has already reported, some Hongkongers are unsettled by the changing relationship with the motherland, irked by the large numbers of mainland tourists arriving in the city (see WiC235) and the impact of Chinese buying in the local property market (see WiC170).

But Hong Kong’s fundamental challenge is how to maintain its influence and prestige at the southern extremity of one of the world’s most dynamic areas. Like other cities, it hopes that new roads, bridges and railways will generate new opportunities to prosper.

In fact, much of the investment in transport infrastructure is a proxy for rival ambitions in the region. One of the strategic advantages of the new bridge to Macau and Zhuhai is that it will provide a new way of connecting Hong Kong with the western landmass of Guangdong, for instance. Currently, all of its land links to China run through Shenzhen, a city that is much more of a rival than it was in the past.

Shenzhen, on the other hand, has been lobbying for permission to build a bridge of its own to Zhongshan across a narrower stretch of the Pearl River. Presumably, this would steal some of the thunder of Hong Kong’s bridge to Zhuhai.

But there is opposition to Shenzhen’s plan from Guangzhou, which is championing a new special zone in nearby Nansha as a shipping and manufacturing hub (see WiC304). It says that a new bridge would limit navigability in waters near Nansha and that any link must be built as an underwater tunnel instead, despite protestations in Shenzhen that the bridge will have a clearance height that won’t impede any shipping lanes.

There is similar tension between some of the airports in the region. Comments last week from Yiu Si-wing, a Hong Kong lawmaker representing the tourism sector, were typical of the mood, as he backed the local aviation community in calling for more flight capacity.

“We can see our neighbours in the Pearl River Delta expanding their airports and we are still talking about a third runway,” he complained to the South China Morning Post. “Even if we complete the runway in 2023, we are still late. If we delay more our tourism and logistics sectors will suffer.”

The runway plan has stirred up a series of judicial reviews prompted by local opposition to the proposal. Already the projections look daunting. Previously given a price tag of HK$86 billion, the latest estimate is that the runway expansion could cost HK$141 billion if it is to be completed by 2023 (much of the bill is down to costly land reclamation).

Legislators like Yiu argue that – despite the cost – Hong Kong simply cannot afford to wait. But the more immediate priority for Yiu and his colleagues will be the massively over-budget MTR bullet train line. The political rhetoric should start to ramp up as we get closer to the February vote. There will be many local politicians who will use the high-speed rail track as a means to cause further embarrassment to Beijing and the Hong Kong government. We’ll keep you posted…

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