Land management

The road to hell is paved with good intentions and the history of state-sponsored industrial policy is not much better. Hong Kong has toyed with public initiatives to foster new industries since 1997. Traditional laissez-faire advocates in the civil service have resisted, while Chief Executive Tung Chee-hwa seems supportive.

Managing land development rights is arguably the biggest public policy challenge facing Hong Kong. It sits at the heart of housing policy, urban planning and financial reform. Taxation derived from land premium payments has bank-rolled the SAR Government for years. But it has also contributed to Hong Kong's high costs and poor record of urban renewal.

Following failed negotiations with a Taiwan-linked venture capital firm that wanted 200 hectares of cheap land and tax concessions to build a microchip plant, the Government has apparently decided the system is hindering the SAR's ability to attract investment in hi-tech industries.

Under the Vision 2030 programme, it has been decided to keep a land bank of large sites for disbursement to foreign firms engaged in future growth industries. This mirrors inducements offered by many Asian countries and, increasingly, mainland cities through multiple technology parks.

If the plan is simply to form a fast-track authority that speeds bureaucratic approval, it may have some worth. Land assembly is expensive and time consuming due to Hong Kong's public leasehold system, which places onerous use restrictions on owners. As a result, old industrial sites remain derelict and development mostly takes place on fresh green-field sites. However, if the intention is to grant land to investors on preferential terms, danger signs will flash. That was the idea behind the CyberPort project, which increasingly looks like a white elephant.

Governments are bad at picking industrial winners and Hong Kong is unlikely to be different. Centres such as Singapore and Taiwan face industrial 'hollowing out' simply because China is a more economic place to produce.

If the Government wants to go down the same road, it must outline the aims of its industrial policy for debate. We must know the terms of land disposal; whether other tax advantages will be bundled and if, like the Disney project, the Government intends to become an equity partner in such ventures.

The Government cannot credibly in one part of the Vision 2030 report claim the SAR is land-starved and then in another propose dishing out large chunks on the cheap.

Real reform of the land market and its taxation is to be encouraged. Quick fixes that compromise fundamental market principles should be resisted lest the SAR head down a proven path to failure.