As lucrative development in Hong Kong has been put on hold for the rail firm, it must look elsewhere for its growth
Most cities struggle to find adequate funding for their subway systems: digging tunnels is always a lot more costly than laying a road. That Hong Kong's Mass Transit Railway Corp (MTRC) has managed to build a top-tier rail network, earn consistent profits and list its shares have long marked it as a global oddity.
The reality, however, is that those profits came not from its rail operations but through a more valuable commodity - commercial and residential development rights atop its stations.
Now, however, the government has placed a moratorium on the MTRC and its cousin, the Kowloon Canton Railway Corp (KCRC), from building new property projects. It hopes that postponing projects such as the MTRC's 'Dream City' development at Tsuen Kwan O can stabilise the property market. So with its core passenger business looking lacklustre and fare hikes being politically untenable, the MTRC has embarked on the well-trodden route of expanding its operations across the border.
Its six billion yuan investment in extending the subway of Hong Kong's neighbouring city breaks new ground. The MTRC gets to wholly own the new 21km rail extension link for 30 years under a build-operate-transfer arrangement. After that, it can cut its stake to 51 per cent.
Shenzhen officials appear to be shrewd negotiators. Rather than employing any guaranteed return formula they have borrowed Hong Kong's model, where the high up-front costs of the project are compensated through property development rights.
In Hong Kong these proved to be gold-plated due to the virtuous circle formed when building new transport links - the value of adjacent property is, as a consequence, boosted. Replicating a Hong Kong model that is already showing signs of breakdown in Shenzhen, however, is another matter.