The return of the dragon

The year 1997 was always going to be a turning point, as Britain's colonial mandate expired after 100 years and the territory was reclaimed by China. The political transition was remarkably smooth, however. It was the financial crisis that swept across the Asia-Pacific region the following year, wiping billions off its stock markets and land values, which shook Hong Kong to its fiscal foundations. The territory's economy shrank by 5% in 1998. Land transactions dried up as the government suspended land auctions and property developers sat on land they had bought at the top of the market. At the bottom of the recession the developer of the Palm Beach luxury residential complex was throwing in a 7 Series BMW with its £700 000 duplexes, which were sold at less than their construction cost.

"It has been very tough for consultants," says Robin Whalley, managing director of Hong Kong-based engineering consultancy Mott Connell. "There have been too many consultants chasing too few jobs. It is warming up now but fees are still tight."

Through a mixture of enterprise and government initiatives, including a timely intervention in the stock market to stave off a run on the Hong Kong dollar, the economy appears to have bounced back. But the financial crisis caused Hong Kong to re-examine its position in the regional economy of Asia Pacific. It had already transformed itself from a manufacturing economy to a regional financial centre; the factories have moved to China, where labour costs are lower. It now faces the threat that China will soon be able to offer international financial services at a bargain price, too. China's entry into the World Trade Organisation, which is expected to go ahead in early 2001, will increase its economic pulling power as a trading nation.

In this changing climate, Hong Kong had to reposition itself. It is becoming a provider of information and communications technology. It determined to expand its capacity as an entrepot for China. And it had an ambition to boost tourist revenue.

These policies explain several new megaprojects in the pipeline: a £1.3bn high-tech business campus called Cyberport, the £2bn Disneyland Hong Kong, a proposed major expansion of Chek Lap Kok airport, upgrading and expanding the container port, and £21bn investment in transport infrastructure over five years, including new road and rail links with mainland China.

In the first two quarters of 2000, Hong Kong's output and trade soared 20%. Official forecasts of economic growth for the year have been raised from 5% to 8.5%. Property has been slower to respond, with developers tentative about buying new land or starting new development. "We would normally have four or five office buildings at any one time, but we are just starting one now," says Gammon's Hadaway. However, a clear indicator of a recovery in the property market came in the last government land auction, when developer Sun Hung Kai agreed to pay £1.8bn for the major air rights package above the Mass Transit Railway Corporation's Kowloon Station. The developer will tender for consultants on a 500 000 m² scheme, including a 102-storey tower – which will be the world's tallest at 580 m – designed by US skyscraper specialist Skidmore Owings Merrill. "It is designed to give an international reputation to the site and become an image known throughout the world," says Andy Blackburn, project manager at MTRC. Completion is scheduled for 2006.

Tower cranes are also visible again above the airport express railway's Hong Kong Station, where 300 000 m² of commercial development is on site. The plans include an 88-storey tower designed by Cesar Pelli, which developer Hong Kong Land had shelved for more than a year before restarting at the end of 1999. The Pelli skyscraper will be the tallest in Hong Kong when completed – until the completion of the Kowloon Station tower, that is – despite the best efforts of Nina Wang, the billionaire proprietress of rival developer ChinaChem, to top it. Wang's plans to build the 500 m high, 108-storey "Nina Tower" have been thwarted by height restrictions on the site at Tsuen Wan, which is on the flight path to Chek Lap Kok. Wang has settled for smaller twin towers, one 88-storey and one 40-storey, which are now on site; Arup is structural engineer. Conversely, Swire Properties is able to add 20 storeys to its Cityplaza development at Tai Pu Shing, where height restrictions relating to the former Kai Tak airport flight path have been lifted.

While consultants and contractors are encouraged by these signs of recovery, the heady days of pre-1997 Hong Kong, when they could take their pick of high-spec residential, office and hotel work, have not returned. Davis Langdon & Seah says prices have dropped since 1997 and "competition for tenders is fierce".

In the years since 1997, the emphasis of construction work has switched from the private to the public sector, says Hadaway. The government has a massive public housing programme – current policy is to build 20 000 to 30 000 homes a year. Gammon is building 10 000 public flats in a contract worth £250m, and Arup is also working on three public housing projects of between six and nine towers each. Education also looks set to provide new work, following Hong Kong chief executive Tung Chee-hwa's pledge last month of £177m to increase access to primary schools and universities. In most primary schools today, pupils study in two shifts because of space restrictions. Architect RMJM is designing extensions to 20 primary schools to allow full-day attendance. It is also designing new student accommodation at Hong Kong University, to meet the target of increasing the number of people in higher education by 50% by 2007. However there is a dearth of landmark cultural commissions and public projects, says Stefan Krummeck, director of Terry Farrell & Partners in Hong Kong, "though there has been talk of a new opera house/arts centre, and possibly a new government headquarters, at the West Kowloon reclamation site", he adds.

In this climate, many Hong Kong-based British firms have set their sights on mainland China, which was untouched by the recession. Atkins China is designing the titanium roof of the spectacular £400m Beijing Opera House in Tiananmen Square, designed by French architect Aéroports de Paris. And work in Terry Farrell & Partners' Hong Kong office is focused on projects such as the £120m Guangzhou Daily Cultural Plaza, and a new 520 ha masterplan for Shenzhen. Gammon, which has completed 80 projects there since 1981, including higher-end industrial, pharmaceutical, medical and biotech facilities, is bullish about opportunities. The firm has sought to strengthen its foothold by sponsoring 60 engineering students and a safety research centre at Tsing Hua University in Beijing.

So what does the future hold for British firms in Hong Kong? For the moment, it remains an extremely important market. But opinions are divided on the repercussions of China's entry into the WTO. Hong Kong could be vulnerable if companies bypass it for a more open, low-cost China. But most of Hong Kong is convinced that the territory's economy will be boosted further, as it handles 40% of mainland China's foreign trade, which rose 36.7% in the first eight months of 2000. The attitude of Thomas Kwok, vice-chairman of developer Sun Hung Kai, is typical: "China's impending entry into the WTO will promote the development of business, finance and tourism in the territory, fuelling further demand for offices, hotels and shopping centres." "The last couple of years have been pretty challenging. We are quietly positive about the next couple," says Hadaway. He points out that construction is the only heavy industry left in Hong Kong, where unemployment is 4.8%. This gives construction a unique role as an employer of both skilled and unskilled workers. "We are the only people that make anything. A substantial proportion of the Hong Kong workforce are directly or indirectly involved in this industry. It is one of the mainstays of the economy – 8 or 9% of GDP. We are an important influence on what goes on here."