A little-noticed paragraph of the recent Policy Address dictates that HKEx will move to the offices to be developed on the site of the West Wing of the Central Government Offices. What does this say about the Government's attitude to HKEx?

Donald decrees: HKEx will move
14 November 2011

Buried in paragraph 141 of Donald Tsang's final policy address is a confirmation of the hands-on, interventionist attitude that he has long held towards HK's financial markets, consistent with his approach to the economy as a whole. The paragraph caption is innocent enough: "Conserving Central". It speaks to the debate about what to do with the site of the West Wing of the Central Government Offices, which are being vacated as the bureaux move into the new Tamar Palace.

There is, dare we say it, consensus that the ugly late-1950s building sprawling across the site should be demolished. Beyond that, views range from creating a pure park in Central, to at least including some new office space to increase capacity in the CBD, and possibly yet another shopping arcade. The paragraph says:

"After taking into account public views, we have revised the plan for the redevelopment of West Wing of the Central Government Offices, expanding the public open space to be provided and significantly reducing the scale of the shopping arcade in the new development".

This in itself is exemplary of the micro-management of Tsang's administration - the Government deciding on how much retail space we need, versus other potential uses. Why not just decide limits on plot ratio, site coverage and/or building height, and let the free market decide how to utilise the permitted space to maximise its value? The winning bidder would have its own plans for office/retail/residential/hotel usage. But then the Policy Address gets worse:

"Part of the new complex will be used to accommodate the Securities and Futures Commission and the Hong Kong Stock Exchange to enhance Central as a core financial district."

Not "could be" but "will be". By "the Hong Kong Stock Exchange" The Donald of course means the Stock Exchange of Hong Kong Ltd, operator of Hong Kong's statutory monopoly on stock exchanges, and he probably really means Hong Kong Exchanges and Clearing Ltd (HKEx, 0388) which also owns the Futures Exchange and the associated clearing companies. The statement also ignores the fact that HKEx and the SFC are already located in Central - so how can moving them to another piece of Central "enhance Central as a core financial district"?

HKEx is a for-profit company owned by its shareholders. Decisions on where to locate its offices should be made by its board, not by the Government. Tsang's statement underlines that in reality HKEx is a government-controlled entity and will do as it is told.

Although the Government only owns 5.8% of HKEx, shareholders can only elect 6 of the 13 directors, the rest being appointed by Government (6 directly, while the Chief Executive of HKEx is approved by the SFC and is an ex-officio director). The Chairman of HKEx has to be approved by HK's Chief Executive, Tsang himself. The current Chairman, Ronald Arculli, is a member of HK's cabinet, the Executive Council, as was his predecessor. Mr Arculli was promoted to Convener of the non-official members of ExCo after Leung Chun Ying stepped down to campaign for Chief Executive. Mr Arculli reaches his 6-year term limit at HKEx in April 2012 and is tipped to be replaced by Laura Cha Shih May Lun, another ExCo member and Government-appointed director.

The Government's decision that HKEx will move to Government Hill also came as a surprise to HKEx management. Gerald Greiner, Chief Operations Officer, told Webb-site by e-mail on 13-Oct:

"Both the boards of HKEx and the SFC are interested in the idea and will discuss further details with the Government, but both SFC and HKEx have not yet decided if they will move in the to-be-built office tower. If the two organisations agree to move in the new office tower, they will pay market rates. They will also take up majority of the space."

If you are wondering why HKEx is speaking for the SFC, that is probably beause the line-to-take originated from the Government, not HKEx. It represents a step back from Tsang's policy statement. Mr Greiner also wrote:

"The government will decide on the developer of the West Wing redevelopment project through a public tender."

So it appears that the Government intends to sell the development rights and include a condition in the land lease that the majority of the space should be sold or leased to HKEx and the SFC, or that they should have first refusal. It is heavily interventionist to tell developers whom they should deal with when they sell or rent the project, particularly when the counterparty (HKEx) is a private-sector entity, not a Government body. Should the Government earmark office space for other companies too when it sells land?

As for the SFC, Webb-site has said before that it would be better if the SFC was not a tenant of a listed company which it ultimately regulates. The news comes soon after the SFC agreed to move into the Cheung Kong Centre in mid-2013. So it is reasonable that, as a government agency, the SFC should reside in its own, or Government-owned premises.

In today's other article, we look at other shifts in the Government's land sale policy, towards intervention and away from transparency in land sales.

© Webb-site.com, 2011

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