CONSUL GENERAL AND TRANSPORT SECRETARY CHENG

UNCLAS SECTION 01 OF 03 HONG KONG 002790 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/CM STATE FOR EEB/TRA/AN E.O. 12958: N/A TAGS: ECON EAIR EWWT ELTN CH HK SUBJECT: CONSUL GENERAL AND TRANSPORT SECRETARY CHENG DISCUSS INFRASTRUCTURE AS COMPETITIVE TOOL REF: A. HONG KONG 2428 ¶B. HONG KONG 2587 ¶C. 2006 HONG KONG 4449 ¶1. (SBU) Summary: Transport and Housing Secretary Eva Cheng told CG Cunningham that the Transport Bureau is focused on six-large scale infrastructure projects that will strategically shape Hong Kong's future competitiveness, while expanding land, sea and air links to mainland China. She stated that cross-border projects between the three governments (Hong Kong, Macau and Guangdong Province),such as the Hong Kong-Macau-Zhuhai Bridge, will enhance regional trade and economic development. She also noted that growing competition in the region, specifically Macau's emergence, is putting additional pressure on the HKG. The CG urged Cheng to restart the U.S.-Hong Kong aviation services agreement negotiations in the near future. Secretary Cheng responded by saying that the HKG would welcome discussions when both governments agree the timing is right, noting, "it is the government's responsibility to expand and optimize air infrastructure to maintain a competitive edge." She is closely watching the neighboring competition as FedEx moves its regional air cargo operations into Baiyun Airport in Guangzhou in 2008. End summary. ¶2. (SBU) Comment: Secretary Cheng is a well-respected civil servant, with extensive experience in the HKG, most recently serving as Permanent Secretary for Economic Development and Labour. In her new role, she and her staff are intensely focused on Hong Kong's competitiveness, versus Macau and in the region. Cheng recognizes her bureau's role in maintaining Hong Kong's edge through the effective and timely development of these infrastructure projects and services, while expanding links to the Pearl River Delta and Southern China. She is understood to have the full confidence of the Chief Executive, and will be a leader to watch during this five-year Administration. End comment. ¶3. (U) Background: On July 1, as part of the Hong Kong Government's reorganization of the cabinet structure, the former Bureau of Environment, Transport and Works was divided into an Environment Bureau and a restructured Transport and Housing Bureau. Eva Cheng was designated as the new Secretary for Transport and Housing. On October 10, HKG 
SIPDIS Chief Executive Donald Tsang delivered his annual Policy Address, highlighting "economic development through infrastructure projects," as a top HKG priority, and identifying ten large-scale projects expected to generate economic benefits of HKD$100 billion annually, and create over 250,000 additional jobs (reftel B). -------------- Linkage to the Mainland -------------- ¶4. (SBU) The Consul General opened the October 29 meeting by noting that in the Chief Executive's October Policy Address, the Transport Bureau would play a significant role in the Hong Kong 2007-2012 policy agenda. Secretary Cheng confirmed that six priority large-scale infrastructure projects were the Transport Bureau's responsibility, including several major "strategic" cross-boundary projects: Guangdong-Shenzhen-Hong Kong Express Rail Link, and the Hong Kong-Macau-Zhuhai Bridge. --Guangdong-Shenzhen-Hong Kong Express Rail Link: A high-speed rail connecting the three cities, with the Hong Kong portion originating in West Kowloon, extending 30km to the mainland border, and linking to the mainland national high-speel rail network (planned for 12,000km in total). The goal of both governments is to reduce transport time between Hong Kong and Guangzhou to less than one hour -- it is currently 100 minutes. Construction on the mainland-side is already underway, and the Kowloon-Canton Railway has been invited to begin planning service for the project. Anticipated initiation of operations is in 2009. --Hong Kong-Macau-Zhuhai Bridge: The 35km bridge, spanning the Pearl River Mouth (Zhujiang Kou),will connect Hong Kong with the Western Pearl River Delta, both in Macau and Zhuhai. The goal is to shorten travel time and distance, while simultaneously yielding economic development for the Pearl River West, and strengthening regional tourism and transport. HONG KONG 00002790 002 OF 003 Each of the three governments (Hong Kong, Macau and Guangdong Province) is responsible for funding and building their portion of the connecting infrastructure, and the main structure has a toll mechanism included in the revenue stream, but substantial additional funds are needed for project completion. ¶5. (SBU) The CG inquired specifically about the bridge, as it has been planned for over a decade, and explosive growth makes the connection more needed than ever before. Secretary Cheng explained that almost everyone has underestimated the complexity of this project. The will to pursue the project has been present for some time, but the land, sea and air issues are extensive, and each of the governments involved has numerous and competing priorities. Secretary Cheng indicated that step-by-step the project is moving in the right direction. The feasibility study is nearly complete, and discussion continues about how to engage private sector and community financing. (NOTE: HKG Chief Secretary Henry Tang was in Beijing during the last week of October to discuss cross-border infrastructure issues, including the Express Rail Link and Bridge. END NOTE.) -------------- Macau SAR Competition and Sea Linkage -------------- ¶6. (SBU) As visitor growth to Macau continues to burgeon, expanded ferry service has fast become a necessity, and the Macau Government has responded by opening a new temporary ferry terminal on Taipa island in Macau. This marine terminal provides service to the adjacent Macau International Airport, and the neighboring U.S.-owned casinos of the Cotai Strip. While already in possession of permits to operate in Macau, Cotai Waterjets, the new ferry company associated with The Venetian/Las Vegas Sands in Macau, is awaiting the HKG Transport Bureau's permission to utilize the HKG-operated ferry terminal on Hong Kong island for its Cotai-Hong Kong ferry service. The CG inquired as to the reason for the perceived delay in permit issuance, and a date for resolution of the application. Secretary Cheng explained that the HKG was processing the request and berthing slots would be open within several weeks. The existing terminal is limited in space and currently is home to only one ferry company operator, Hong Kong tycoon Stanley Ho's Shun Tak. The move to a multi-operator terminal is taking time, Cheng said, "safety, continued mainland-bound ferry service, and balanced connectivity are high priorities as the HKG tries to provide first-class service to more and more upscale passengers. It is good that they (Macau) are keeping us on our toes." She added that Hong Kong transportation and infrastructure operations will be greatly affected by the growth in Macau MICE (Meetings, Incentives, Conferences, and Exhibitions) business. -------------- Air Services Agreement -------------- ¶7. (SBU) The CG told Cheng that in October 2006 Consulate Officers delivered a request from the State Department's Office of Aviation Negotiations to Hong Kong's Chief Aviation Negotiator to re-start the U.S.-Hong Kong aviation services negotiations. Hong Kong's tepid response indicated that the HKG did not see this issue as a top priority (reftel C). (NOTE: The last substantive discussion between USG and HKG negotiators was in 2005 and resulted in no progress. The U.S.-Hong Kong Aviation Services Agreement was last revised in 2002. END NOTE.) The CG urged Cheng to restart the negotiations in the near future. Secretary Cheng responded by saying that the HKG would welcome discussions when both governments agree the timing is right. She went on to say that the third and fourth freedoms have gone well, and fifth freedoms are the next step in capacity, and "it is the government's responsibility to expand and optimize air infrastructure to maintain a competitive edge." HKG's negotiator in any future aviation talks would be Esmond Lee, Deputy Secretary for Transport. ¶8. (SBU) The Transport Bureau is closely watching regional competitiveness in the sector, particularly in transit of air cargo. Secretary Cheng mentioned that she is interested to see how FedEx does at Baiyun International Airport in Guangzhou. (NOTE: FedEx is moving its Asia hub from Subic Bay HONG KONG 00002790 003 OF 003 in the Philippines to a $150 million, 155-acre facility at Baiyun in late 2008. END NOTE.) ¶9. (U) Meeting participants included: Hong Kong Government Representatives --Secretary for Transport and Housing Eva Cheng --Esmond Lee, Deputy Secretary for Transport --Kwok Ming Fung, Master Mariner and Chief Assistant Secretary for Transport SIPDIS U.S. Representatives --Consul General James Cunningham --Dawn Schrepel, Economic Officer Cunningham