Monday, June 20, 2005

Acid test, not voodoonomics, shows atrium expansion needless

Government press release

It is the government's reasoning for going ahead with construction of the controversial 19,400 square metre atrium expansion at the Hong Kong Convention and Exhibition Centre.

Let us put some perspective on this. We do not need this expansion to showcase Hong Kong 's own wares. We have almost none of them left to showcase. Our manufacturing industries have effectively all gone across the border and our domestic exports now amount to little more than 1 per cent of the mainland's, excluding booking tricks we play with garments and textiles.

Nor can we claim that building more exhibition space is a service the mainland desperately needs from us. By the end of this year, there will be a total 870,000 square metres of floor area in exhibition centres in Guangzhou , Dongguan, Shenzhen and Zhuhai, leave alone the pretensions that Macau may have.

It is a great deal of space. To put it in contrast, the total dedicated exhibition space in our exhibition centre at present is only about 46,000 square metres while AsiaWorld Expo at the airport has about 66,000 square metres. There is almost eight times as much just across the border.

That space across the border is also virtually empty space and will long remain so. Exhibition centres are not built because they are needed. They are built because they give a thrill of pride to civic boosters who also make money from building them.

But our exhibition centre is different. It is well used and so much in demand that staging exhibitions there could be a real standalone business of its own without any further need of government help. This is in fact what our dominant exhibition organiser, the Trade Development Council, has been told must be the way of the future - stand on your own two feet.

Strange to say, however, I have heard no mention of a land premium in the $1.3 billion price tag for this atrium expansion. Standing on your own two feet in Hong Kong means paying the government a premium, a hefty one, when you want to expand your floor area.

The TDC will not be asked. We know it already. It has never stood on its own two feet and never will. It gets away with this by claiming that other countries subsidise the exhibition business and therefore we should do so, too. You know the logic - Johnny got one, gimme one too.

Thus, we get back to the first question. If we do not need to build this exhibition space to showcase our own wares and the mainland has more than enough for its own purposes, why should we do it all unless exhibitors want Hong Kong so much that it can be a standalone commercial proposition?

It is a question that exhibition boosters choose to answer only with black magic. They claim that building the atrium expansion could give us up to $778 million a year in economic benefits and up to 2,131 jobs. If we do not build it, they say, we could forgo $407 million a year in economic benefits and 883 jobs.

Very precise numbers, you will note, but it is black magic alone. Any time that you spend money, you create economic benefits and jobs. The people who are employed because they made and sold you what you bought in turn spend the money you paid them and thus create more economic benefits and jobs. From $100, you can easily conjure up $1,000 this way. We would all be trillionaires if this form of magic really worked.

But, for starters alone, it does not answer the question of whether greater benefit could be created by spending the money on something else. You always ask yourself that question when you consider an investment. Economic sorcerers who deal in this black magic never do. They just pretend that money spent on their favourite projects is all gain that we would not otherwise have.

In this case, given that most of the economic benefit they expect will come in the form of tourist dollars that mostly flow right back out of Hong Kong, I can pretty much guarantee you that $1.3 billion spent on something else than this atrium would give us greater economic benefit plus more and better jobs.

But you need not take my word for it. Proof is easily had. We shall just tell the TDC to pay a full land premium for this atrium and then set a benchmark for it of a 10 per cent annual return on the vast sums of money we have invested in its facilities.

This is the acid test of whether economic benefit is really economic benefit and I can pretty much guarantee you that the TDC will never pass that test.

What it comes down to is that we do not need this atrium, others do not need it and we could use the money better for other things. If the TDC disagrees, back we go to the acid test. No black magic is allowed here.

jake.vanderkamp@scmp.com