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Riding the; Contractors and consultants are having to cut prices to win work in Hong Kong. But big projects are on the horizon.

Hong Kong's construction firms are putting a brave face on the economic downturn. Consultants with road and rail schemes on their books are kept busy and contractors console themselves with the prospect of big contracts to bid for this year.

But work is being won at prices that are dramatically lower than a year ago. Engineers are working all hours and for little profit, and contractors face some nail-biting months before learning if they have won a share in the HK$40bn (£3.2bn) of West Rail contracts soon to be tendered (see supplement).

The government's intervention in the financial markets last year stabilised shares and took some of the pressure off the currency. As a result confidence is gradually returning. People are beginning to spend again - a vital first step towards the re-emergence of private sector developers as construction clients. Once more, newly marketed flats are being oversubscribed.

On the other hand, wage cuts are widely talked about, especially in the retail sector. Building projects continue to be put back, in particular major towers destined for offices.

'The next few years will be very lean,' says Colin Weir, executive director of developer and contractor Hopewell Holdings.

There is widespread relief that the government plans to spend HK$235bn (£18.8bn) on road and rail in the next five years. The Association of Consulting Engineers of Hong Kong has expressed doubt that these levels of spending can be met, but the government's secretary for works HS Kwong is confident.

'Unless we have some very unexpected serious problem in the next 12 months or so, it will not affect our ability to deliver the programmes,' he says. HK has huge financial reserves so, if necessary, the money is in the government's pocket, he says.

Transition from British to Chinese rule, once seen as a threat to Hong Kong's free market nature, is all but forgotten, eclipsed by the greater trauma of the Asian currency crisis. Feared clampdowns on free speech have so far failed to materialise and demonstrations are still held.

Concern that corruption would rise substantially has been similarly unjustified, according to Independent Commission Against Corruption director Thomas Chan (NCE 3 December 1998). However, with the huge number of infrastructure projects coming up, ICAC will be paying close attention to construction this year.

Population growth drives much of the infrastructure demand. Within 20 years the population is predicted to increase from about 6.3M to 8.2M, prompting a high-rise housing programme of 85,000 new units a year, of which 50,000 will be provided by the public sector - effectively a new town every year.

The transport arms of major consultants like Arup, Hyder and Mouchel are busy but things are much quieter for anyone working exclusively on commercial developments. Architects in particular have suffered.

'The expansion of the railway system in the coming decade will provide a relief to the congestion now experienced on roads and the public transport system,' explained highways department director Kenneth Leung, speaking at a recent Department of Trade & Industry conference in London.

'The construction of new road arteries both east-west and north-south will provide the much needed additional transport corridor to cater for the new developments in Hong Kong and the border crossings now under active consideration.'

By the end of 2004, the rail network will have expanded by 40%, and by 2008 another 100km of road will have been added. Both of the rail corporations are planning major new lines. These include Kowloon-Canton Railway Corporation's West Rail and Mass Transit Railway Corporation's Tseung Kwan O Extension, both of which recently started on site.

Seven major schemes are due to begin in the next five years, including the 27.5km dual carriageway Route 10, to be built in two sections starting in 2002 and 2004 respectively and totalling £7.9bn.

'The cost of these road and rail works exceed the cost of the Airport Core Programme, which at its height exceeded the Channel Tunnel expenditure,' points out Scott Wilson (Hong Kong) chairman Ron Rakusen. 'The 'certainty' of this market opportunity cannot be ignored by any serious international company in the construction sector.'

Rail expansion does not stop with the current plans. MVA Asia is working for the government on the Second Railway Development Study, which will take a strategic look at everything from environmental issues to funding methods.

The decision to commission the study indicates that HK is becoming a true 'railway city' says MVA principal consultant Ian Harris.

He does not expect a lull in railway development at the end of the present projects.

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