Golden opportunity for HK debt market
WITH average growth in the Asia Pacific region running at around seven per cent, pump-priming is the last thing that might appear on the agenda.
A mix of Keynesian economics and Franklin D. Roosevelt New Deal political thinking may have taken the edge off the US depression of the '30s by re-pressurising the economy but, at current growth rates, who needs massive infrastructure projects? According to the Asian Development Bank we all do. The economic miracle of Asia is already stretching the infrastructure to the limit.
If the region's growth is not to be strangled, by the end of the decade a massive US$130 billion will have to be spent on roads, power, communications and water supplies - every year.
At an average of five per cent of Gross Domestic Product, the current levels of expenditure fall short of requirements, and another two percentage points will be needed if the essential services are not to act as an anchor on the development of commerce and industry, warns the ADB.
This is a rare, if not unique problem in the world's economic history, and the financing of this sort of programme presents incredible challenges, but also exciting solutions.
Properly tackled, it will ensure above-average growth rates and economic expansion in the region for many years to come. Each country will have to decide its own formula for expanding its infrastructure, but the ADB is correct to point out that the days when such works were regarded as the natural fiefdom of the public sector have gone.
Private enterprise is now seen as having an equal right to become involved in many of the sort of projects which will have to be initiated.
The implications for Hong Kong could also be profound - and not just for the small group of corporations prepared to get involved in heavy civil engineering.
The money for the projects has got to be found, and the most appropriate form of financing for long-term projects with even longer pay-back periods is going to be debt, rather than equity.
This is going to present a key opportunity for the expansion of the still fledgling debt market in Hong Kong, but also one which will be recognised by other countries in the region.
While the big users of the structure finance will obviously wish to channel it through their own markets, the chances for the nimble and innovative to grab a slice of a thick pie will be there for the taking.