Thomas (Ho) (Chairman of the Civil Engineering Committee of the HKCA), distinguished speakers, ladies and gentlemen:
First of all, thank you very much for inviting me to attend the opening of this very interesting forum "The New Economic Reality, Implications for the Construction Industry in Hong Kong". This two-day conference of the Hong Kong Construction Association coincides with the three-day debate in the Legislative Council on the Chief Executive's latest Policy Address. In fact, in introducing this year's Policy Address, the Chief Executive has mentioned that in every Policy Address in this term of Government, he has chosen the word "New" in the title of his Policy Address. So, back in 2007 when he laid out his blueprint for the 10 Major Infrastructure, it is the new direction for Hong Kong and I am sure that all of us here will have made your contribution to achieving this blueprint on Hong Kong's major infrastructure. In 2008, right in the middle of the financial tsunami, the Chief Executive delivered last year's Policy Address as rising to new challenges. I think in the year forward we have taken a bit of comfort that we do manage to rise through that challenge when I show you with some of the economic recovery figures. This year, it is a very interesting theme of "Breaking New Ground". So, I hope that all these added together will also set the scene for this conference to talk about the new economic realities and in particular its application for the construction industry.
My colleague has prepared some statistics. He said that people have now associated the Secretary for Development Mrs Lam with figures. I used to talk with a lot of figures. So this is really just to recap the economic transformation of Hong Kong. We have gone through major phases of economic restructuring back in the 1970s and 1980s when the industry moved across to the Mainland. As a result, the share of secondary production, mainly manufacturing, has dropped from about a quarter of the GDP to about 7%. If you just zero in with the manufacturing sector, the percentage now is as low as only 3%. That is exactly the same reason why I tried to tell you that one of the major initiatives in the "Breaking New Ground" Policy Address this year is to revitalise Hong Kong's industrial building stock.
I mentioned about the year-on work we have managed the financial tsunami and its aftermath. You can see while the year-on-year rate of change in the growth of GDP is still somewhat in the negative, the quarterly figure has already come back with the second quarter of this year rebounded by approximately 3.3% compared with the first quarter of 2009. Similarly in terms of consumer sentiment locally, private consumption figure is the same pattern you have seen with the GDP growth. The quarterly figure has rebounded quite significantly, thanks also to a large number of tourists from the Mainland.
Partly as a result of the government's commitment and determination to continue to spend at the time of recession, so you can see from this graph that we are really adopting an anti-cyclical policy to continue to inject or invest into Hong Kong's economy through government's spending while the gross domestic fixed capital formation as well as private consumption has shrunk over the period.
This is of course a ground very familiar to my friends in the construction industry. Somehow whatever there is this major financial crisis and economic recession, the construction sector was most hard hit, and the first to be hit. So you can see the red dotted line is the all-sector unemployment figures, rising from the very low of 3% before the financial tsunami to a high of 5.4% in the preceding quarter. The construction industry unemployment has risen very very sharply right after the financial tsunami, reaching a high of 12.4%. That was the time when I have to meet very regularly with the construction industry and the professionals to talk about how we could boost employment in the construction sector. I am happy to say that the blue dotted line has come down consecutively for five months now and the latest is 9.4% for the latest quarter's statistics that we released. Of course, compared to the sector-wide unemployment figures, the construction sector is still high but this pattern has always been there. I would say that we particularly have no need to feel worry because even at very good time, somehow the labour force situation in the construction sector makes it somewhat different from the overall employment of the labour situation. Of course, this was helped by the commitment and investment in the infrastructure programme that the HKSAR Government has laid out in the last couple of years. Had we not get prepared for this right after the financial tsunami about four months ago, I would not be optimistic that would actually have on the impact on the labour situation. Fortunately as I have mentioned previously, right in the first year of this term of government in October 2007, the Chief Executive has already committed to very strong investment in the infrastructure. So we fit in very well with this strategy announced after the financial tsunami that we would of course maintain financial stability, support enterprises and preserve employment, in our case is preserving employment by pressing ahead with infrastructure programme, whether it is major works or minor works. As you see in his latest Policy Address, the Chief Executive recap the importance of economic development and the need to contribute to that economic development through continue to invest in what we call "progressive development" i.e. pressing ahead with economic progress and at the same time paying a lot more attention to environmental conservation, heritage and cultural preservation.
Now this is dated back to the Policy Address at this term when he said that infrastructure development can bring about huge economic benefits. Local employment, opportunities and wages will increase during the construction stage and upon completion, the infrastructure projects will boost economic activities and improve the living environment. This particular commitment of the government has been very useful and timely when we tackled the financial tsunami because of all the preparatory work that the various works departments have undertaken as a result of the Chief Executive's pledge.
So this is the Government Capital Works Expenditure Graph, which I used to show on every occasion of meeting with construction stakeholders. As you can see, at the time when the Chief Executive made that particular remark which is the 2007-08 financial year, we were spending at the record low of only $20 billion that year. From that point onwards, the Capital Works Expenditure of the Government rose to about $23 billion in the following year, i.e. 2008-09, and to the current financial year of about $40 billion. We have forecasted $39.3 billion but we are pity optimistic, particular by the efforts of Director of Highways, with his costly rail projects that we properly will exceed the $40 billion this year.
Looking beyond, what is important is sustainability. So looking beyond the current fiscal year, you can be very assured that this relatively high level of expenditure will stay for a period, because we can see the biggest and the contracts we awarded, the tenders we are inviting and so on.
I mentioned about the coming year's work, so this is a good indicator to illustrate to you that we are not just bluffing, we have real figures to show you that the prospect are very good in the coming years, so this graph shows the numbers as well as the amount of funds approved by the Legislative Council for new capital works projects of increases in project estimates at each of the LegCo year. The LegCo year differs from the fiscal year as you know starts from October and ends at around July. So you can see that in the last LegCo year, a total of $120 billion of works have been approved which is twice of that preceding year and several times more than the average of the earlier years. With all these approved projects proceeded to tendering, contract awarded, construction, the various split over in terms of spending, in terms of job creation will become very real.
Within the works spending, we are particularly keen to do more minor works in the last couple of years. Because minor works by definition are more labour intensive and they are far more easier to mobilise. So in the current financial year alone, we are spending $8.6 billion on minor works. Minor works generally refer to works which are less than $21 million per project, except for the slope safety works. Slope safety works have no limit per project item, it has a minor works block vote of over $1 billion. We are actually getting another 10% through supplementary provision this year. I was told that the weather is relatively dry this year, so the GEO is able to undertake more slope repair works which is of course very beneficial to job creation, as well as to slope safety in Hong Kong.
These are some of the minor works project apart from creating jobs and boosting the economy, many of them are designed to contribute to environment conservation, greening of roofs, replacement of some energy efficiency installations, air conditioning systems and so on. The works that we are undertaking under the minor works regime. This is a very unique project that we are doing after the financial tsunami, and again has proven to be very very beneficial. This is what we call the Operation Building Bright. Building maintenance is also an area of works that is able to meet the objective of creating jobs, particularly in the decoration and maintenance sector, very fast, because they are easy to arrange.
As Hong Kong's buildings are ageing, we are concerned about building decay. While we are doing other things, like legislating for mandatory inspection of buildings and windows, and also introducing a minor works regime for people to undertake building works easier, we also do this one-off. I have to emphasise this is one-off because we are still upholding the principle that building maintenance should squarely be the responsibility of individual owners. But on this occasion, this $2 billion Operation Building Bright is aimed at helping owners of 2,000 buildings, which are of lower ratable value, whose owners are less advantaged. Of course we are not doing any mean testing, particularly for elderly, self-occupied owners. We are giving them $40,000 each and help them through the URA and Hong Kong Housing Society to undertake building maintenance. And we expect to be able to create 20,000 jobs.
Right at this moment, over 114 buildings have been undergoing this works, so you will see when you drive around or walk around Hong Kong, there will be buildings carrying a banner, called the OBB, and these 114 buildings have already created some 2000 jobs for workers, technicians as well as professionals.
As I mentioned, this conference takes place at the time when we have the annual Policy Address, so I would like to share with you some of the things we are doing in this year's annual Policy Address. In this year's Policy Address "Breaking New Ground", the Chief Executive's vision is Hong Kong's economy really needs to diversify and we should go for promoting six economic areas which Hong Kong has strategic advantage. As far as Development Bureau is concerned, we don't own any of those six economic areas like medical services, education services, certification and testing, creativity industry. But we provide a very important resource to support these new economic activities, i.e. in terms of land, so we are designating new land for development of private hospitals, for development of higher education institutes, for high value added logistics industry in Kwai Chung. But the most important initiative is of course revitalise Hong Kong's industrial buildings in order to provide affordable space in some of the most accessible areas in Hong Kong, i.e. the former industrial areas in Kwun Tong, Yau Tong, Kowloon Bay and so on, to support each new economic activity.
The second major initiative is something that is pity exciting for many people, that is "Conserving Central". This is to bring to higher level the work that Development Bureau has been doing since 2007 when we are tasked with the responsibility to preserve Hong Kong's heritage, so we realised that Central has a good cluster of historic buildings that need to be preserved and to be revitalised. So we have announced this major initiative to conserve Central, so that Central would continue to be Hong Kong's very distinctive central business district. I think we have brought pamphlets of both initiatives for friends to take away, so I'm not going into the details of the initiatives.
This is Conserving Central, the eight clusters of buildings we will work on.
I just want to make a bit of observations of what are the implications of these "Breaking New Ground Together" initiatives for the construction industry.
First, I believe that building or construction is perhaps no longer a hard, grand or big bang approach towards development. So you see from one of the initiatives in Conserving Central is not to knock down the Central Market which is a grade three historic building and build a 45-storey high-rise on a fourth floor podium with a major basement for car park. It is basically to conserve the Central Market as an "urban oasis" for the enjoyment of people working in Central and also of course for visitors. In my view, the construction industry should contribute to a sustainable, balanced and diversified development addressing the holistic needs of people. So it is not just livelihood, not just economic progress, it is also about the softer parts of city life - about some quality space, some better air quality, distinct history and culture and local characteristics. So in another word, the implication for professionals in this particular sector, the construction industry, is that perhaps you are no longer just competing on high technology, tall buildings, glamorous designs, but also you should pay more attention to lower carbon emissions, more green, and more respect for human scale.
The second observation I have which is from revitalising Hong Kong's industrial buildings is perhaps construction need not be every time replacing old with new. Revitalisation, giving old buildings or existing buildings a new lease of life, restoring and re-using old fabrics with imagination and creativity will yield very good results. That is why in our package of optimising the use of Hong Kong's industry buildings, by the way, there are 1,400 of such buildings with a total GFA of 17 million square metres, is not to knock them down. Of the various incentives or measures we have put in place, the greatest incentive is to put on wholesale conversion. Convert the whole building into, retaining the building fabrics and facades, do all the internal things that need to be done with imagination and creativity and turn them into thematic-based creative industry centres, vertical type of arts village that we envy other cities have, like 798 in Beijing or Tate Modern in London and so on. We are giving strong incentives in terms of wholesale conversion. I believe that this is an area where our construction professionals as well as architectural professionals and building professionals could make a significant contribution.
The third observation is, these are some of the new uses that we put into industrial buildings, with the new economic areas identified for development, one would naturally expect greater diversity in terms of contributions from the construction sector, which in turn will call for new skills, more patience, more engagement, and inevitably longer time before works may start. The one person who could talk and talk on this will be CS (Mr Wai Chi-sing), the Director of Highways. How much time and patience he has put into the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link is lost count now. This is something we are learning, more engagement, more patience, just keeping on explaining and explaining our case so that people understand why we are doing something that somehow there remains a certain sector of community that resists us. Officials have learnt this process through the public engagement just mentioned, and it is time that this new way of doing things is embraced not only by officials and everybody in the construction sector.
About a new way in facilitating development, let me just end by sharing with you the work of one of my newly established offices, the Development Opportunities Office, acronym DOO.
While I have been using much time introducing Government's initiatives to boost the construction sector, we must not forget that for the last 10 years, with all the things we were doing in the last 10 years, the public sector only accounted for about 30 to 50 percent of the overall construction output. So the public sector alone is not able to sustain the entire construction industry and of course the jobs in the sector. So there is continue to be the need for the role of the private sector in order to ensure we have a healthy and sustainable construction sector. Currently, since the financial tsunami, we have seen a lack of interest in private development, of course likely so because of worries about uncertainty, liquidity problems and so on. But we have also looked at what we could do, the public sector could do in order to stimulate greater interest in private sector investment and development in construction. As a result of that, we came up with an idea that perhaps it is time to offer enhanced, user-friendly service to private developers who want to develop. So in this year's Budget Speech by the Financial Secretary in end February this year, I put this idea to Financial Secretary that we want to help the private sector to take forward their development projects. In order to better coordinate development projects involving policies handled by various government departments, we proposed to set up a Development Opportunities Office under Development Bureau, to provide an effective platform where bureaux and departments can jointly assess the benefits to be brought about by proposed projects and provide coordinated enquiry services. After a lot of lobbying of Legislative Council members, we managed to create the office and it is now up and running since July 1. In fact, the first major assignment of the office at the policy level is to take forward the revitalisation of the industrial buildings, so you would see the head of this office accompanying me on occasions to talk about this major initiative on the industrial buildings. Meanwhile, the DOO has already received two dozens project proposals, more from NGOs like charity groups wanting to develop the land and social welfare institutes wanting to redevelop into a new welfare complex and so on. We have also quite a number of interesting private sector projects which we are taking forward.
So I hope that the HKCA, the CE Committee as well as other committees, will continue to support the government initiatives. I am sure you will have a very fruitful two-day conference. My Permanent Secretary for Works, Engineer C K Mak, will join you later to talk about the various aspects of work and we look forward to your continuous support.
Thank you very much.
Ends/Wednesday, October 28, 2009
Issued at HKT 20:27