Hong Kong’s new government appears to be losing its inhibitions about contradicting market prices, favoring some industries over others, and using taxpayers’ money to dispense windfall profits to those in favor. The deal recently signed with Disney to build a theme park is the third major example since the ‘97 hand-over of how the PRC-selected government is moving away from an open, free-market economy to a more interventionist, planned economy.
First, in August 1998, the HK government spent US$15.2 billion buying private companies on the stock market, which it claimed would “ward off speculators”. Over a year later, the government is just beginning to sell back to the private sector some major stakes in HK’s largest companies, though the it may end up holding some influential stakes indefinitely. Secondly, in March of 1999, the government announced plans to encourage construction of a hi-tech park in Hong Kong, granting this “Cyberport” project to Richard Li, a member of one of Hong Kong’s wealthiest and most politically-connected families. So the government officially got into the business of “picking winners” and making industrial policy, while at the same time, showering a politically connected fellow with a real estate project expected to generate a $1.1 billion profit.
Now, the Disney theme park deal appears to continue the government’s policy of trying to plan the future of Hong Kong’s economy. The Hong Kong government and the Walt Disney Co. announced last week an agreement to build a large theme park near the new airport, of which the HK government will own at least 57%. The government plans to spend as much as US$3 billion to reclaim land, build infrastructure, and provide funds for the park’s construction. Disney, on the other hand, will invest a scant US$320 million, but is expected to receive 10% of ticket sales, 2% of gross revenues, and own 43% of the project. Quite a sweet deal for them.
Considering that the HK government is covering the vast majority of its expenses, it’s obvious that the Disney park is essentially a government project, with Disney providing its prestige and planning in return for getting a big slice of the take. The government is promoting the project on the basis of the 35,000 jobs it expects to “create”, and forecasts that it will provide a US$20 billion boost to the economy over the next 40 years. Note that forecasts of such “economic benefits” are highly dubious, especially when one takes into account the disappointing losses that its precursor park, EuroDisney, has generated since opening.
Governor CH Tung, when questioned about the project’s propriety, shamelessly announced that “we are not competing with the private sector”. What? The private sector had no alternative ideas about how to develop hundreds of acres of some of the world’s most expensive land? The private sector wouldn’t like its share of the “25% annual return on investment” Tung claimed the government would receive?
It’s outrageous that HK taxpayers, not private investors, will provide most of the financing for this Fantasyland, with the government playing the lead role and majority shareholder. In a day and age when unprofitable Internet companies can raise billions based solely upon future expected profits, it’s impossible to claim that private investors couldn’t have financed a legitimate business project all by themselves. But indeed, that would appear to be the point: it is an economically illegitimate project inspired by the HK government’s desire to again impose its will against the free market.