Infrastructure plans put Hong Kong on the global cultural map
24 February 2021: When you think of the dense metropolis that is Hong Kong, vast expanses of green, open spaces and a hotbed of artistic and cultural activity aren’t necessarily the first things that spring to mind. And yet a vast new development in the West Kowloon district is looking to transform the landscape and put Hong Kong firmly on the global cultural map.
The scale of the development is immense; of the 40 hectares being developed – equivalent to around 60 football pitches - 23 hectares are devoted to open spaces, thanks to a labyrinth of underground roads and car parks to keep the space above ground vehicle-free and to limit pollution. The ambitious project marks a huge shift in historical approaches to development in the region.
The new cultural district, owned by the West Kowloon Cultural District Authority which was established in 2008, will include 17 arts and cultural venues as well as space for arts education, a new museum of contemporary visual culture, numerous theatres, concert halls and other performance venues all under the management of the West Kowloon Cultural District Authority, which is directly financed by the government with an upfront endowment of HK$21.6 bn. The government also granted the land for the project for a nominal premium of HK$1,000.
“The government has a vision to promote Hong Kong as one of the major arts and culture hubs in Asia. The chairman of the board has said the main mission is to bring arts to people and bring people to arts and I buy his idea,” says non-executive board member and chairman of the audit committee Wilson Fung FCA. “When the project is finished you will almost get everything in that one area.”
More than a vanity project, Fung says that ‘wow factor’ will be important to attracting investment as the project’s funding strategy reaches an important crossroads. Investment income from the initial HK$21.6bn endowment is starting to dwindle as the project progresses, construction expenses ramp up and opening costs for venues are factored into financial forecasts. Last year was the first year the project made a loss and Fung anticipates that the initial endowment will be used up within about three years.
Discussions are currently underway about the best way to plug funding gaps – whether that’s exploring the opportunity for additional funding or government guarantees. “You can’t raise bank loans against a money-losing entity without government support,” Fung explains.
An area earmarked for hotels, office and residential buildings, not yet in construction phases, is an obvious opportunity to address the mismatch between revenue and expenditure. “The authorities are working on a financing strategy to get more upfront cash from developers. They’re thinking about operating on a BOT basis – build, operate, transfer. It’s a common approach for large projects like this. The authority will grant developers the right to build the buildings then they will collect rent for, say, 30 years and then on condition of the terms the assets will revert to the authority.”
The hope is that the project’s great location - situated at the harbourfront, with links to Hong Kong's Mass Transit Railway subway system and next to the express rail station that links to Guangzhou in China in as little as 45 minutes – will only serve to add to its appeal to potential investors.
Fung is by his own admission no infrastructure expert – he was previously Group Financial Controller of British conglomerate Jardine Matheson. Nonetheless, he is acutely aware of the complexity of the project. “The land is located above the express rail station. It makes the construction of superstructures very complicated, particularly for the Lyric Theatre site, which needs very good soundproofing to avoid noises or vibrations caused by the railway.”
What he does bring to the party is a wealth of expertise and experience in financial and management reporting, which sees him work closely with the CFO, although one of the challenges of such a long-running project is staff churn – since Fung’s involvement in the project started in 2010, the authority has already had two changes of CFO.
In the last three years, Fung has been the driving force behind attempts to beef up sustainability reporting at WKCD, which although on the radar had been informal and patchy. “As the authority started to move into operational mode with the opening of the Xiqu Centre, a Chinese Opera theatre in January 2019, I suggested that we should consider publishing sustainability reports so stakeholders can understand what we’re trying to do. This is a huge investment by the Hong Kong government and we are obliged to make the authority more transparent.”
With help from a Big Four consulting firm to do the groundwork, it is only now that the inaugural sustainability report is nearing fruition. Fung admits already that there will be areas for improvement “but for the first one it’s good enough.” Anyone going through the process for the first time should not expect to get it 100% right straight away, he warns. “It’s an evolving process but we’ll get there.”
However, the experience has reinforced his view that the key to success is to start planning early. “Data collection is not easy. It took management three years to get to this stage. Focus on narrow metrics and KPIs initially and expand them over time. There will be gaps,” Fung warns.
Despite progress on sustainability reporting in Hong Kong, Fung says many listed companies are still going through the motions to meet regulatory requirements. “Many of them were not up to scratch, they just ticked boxes without putting too much effort into it.”
It’s a situation not helped by the absence of any requirement for external assurance of sustainability reports by external parties such as auditors, Fung believes. But there are signs that things are changing. “The Honk Kong Stock Exchange has started asking more questions and recently updated its ESG Reporting Guide so I feel that the quality of reporting will be improved. For non-listed organisations, there is no obligation to produce a sustainability report, but I believe there’s a social responsibility for the bigger organisations to publish.”