WSJ: Enthusiasm for Cyberport Bursts With Internet Bubble
August 17, 2001
Business and Finance - Asia
By CECILE LEONARD
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- When entrepreneur Richard Li unveiled plans for the Cyberport, a strategic cluster of high-technology companies nestled along a strip of the Hong Kong's waterfront, it was the height of the dot-com frenzy and everyone seemed eager to get a piece of the action. Now, two years later, the tech boom has fizzled, and so has much of the enthusiasm for the HK$15.8 billion (US$2.03 billion) project.
Cyberport on the Hong Kong waterfront
Sitting on 240,000 square meters of harbor-front real estate about 10 kilometers southwest of Hong Kong's Central business district, it is just one of many government-led projects across Asia that aim to jump-start local high-tech industries, all involving some element of government subsidy.
But interest in the project has faded. Many potential tenants who signed preliminary applications to be a part of the Cyberport have backed out all together, and some of the few big names still in, such as Microsoft Corp., are sounding less confident about the project's prospects for success.
"Two years ago, companies would have been more enthusiastic about the project, when Hong Kong was still a stepping stone to enter China," said Derek Cheung, property analyst at HSBC Securities. "Now they'll think twice before taking any decision."
Even so, the government still hopes to host about 250 companies, both local and multinational, once the Cyberport is completed by the end of 2003. Among the 15 multinationals that expressed interest when the project was introduced, some of them recently submitted applications to become tenants, such as Oracle Corp. An Oracle spokesman said cheap rents and the plans for the infrastructure attracted the company.
The blueprints for the Cyberport are impressive. They include low-rise office buildings, which will account for less than half of the total area, a shopping mall, hotel and apartments, exhibition and trade-show facilities, library and facilities including a fiber-optic network, high-speed Internet access and multimedia equipment. It is even an appropriate location: Telegraph Bay, where the first underwater telegraph cable entered Hong Kong more than 100 years ago.
Mr. Li's company Pacific Century CyberWorks Ltd. is building the vast complex itself. The city's dominant telecommunications company will hand the offices to the government without charge and will try to recoup its costs from selling about 2,700 apartments to be built on a corner of the site. It was a cozy deal that pleased both the government and PCCW at the time but enraged rival property developers when they discovered it was being awarded to Mr. Li's company without tender: the government got its high-tech park apparently free, while PCCW could profit from the expected recovery in Hong Kong property prices after the collapse of the late 1990s.
From the start, the Cyberport sparked accusations of favoritism because Mr. Li, who put forward the idea, is the son of the city's most influential businessman, Li Ka-shing. Later, Hong Kong officials came in for criticism that the Cyberport's below-market rents on office space amounted to little more than a government subsidy to high-tech companies, an apparent reversal of the city's claim that it wouldn't follow Singapore's route in using special subsidies to help steer the economy. The prospect of low rent has been an important inducement. Rents are expected to be between HK$11 and HK$13 a square foot a month, compared with an average of HK$40 for similar space in Central and HK$23 in Quarry Bay, another business district. "Without [low rent inducements], some companies wouldn't even consider coming to Hong Kong and would go directly to China," said Mr. Cheung at HSBC.
But even with those enticements, analysts point out that information technology isn't one of Hong Kong's strengths and that the city is getting competition from China. Lucent Technologies Inc., for example, said it wasn't considering the Cyberport because it already has research and development offices in Shenzhen, China's special economic zone just north of Hong Kong. As for Microsoft, the software concern said it hasn't decided yet if it will move an R&D center or product development offices to the Cyberport. Microsoft already has such a center in Beijing, along with similar operations in the U.S. and United Kingdom.
Matthew Ciolek, head of the Internet publications bureau at the Australian National University's research school of Pacific and Asian studies, says the Cyberport concept ignores some of Hong Kong's key weaknesses. "True, [Hong Kong] has an English-speaking population, it might be awash with venture capital, it may have a good telecommunications infrastructure. However, it lacks domestic R&D and a critical mass of outstanding programmers," Mr. Ciolek says. Cyberport, he adds, "is not going to work."
The Hong Kong government says it is aware of the city's drawbacks. "Cyberport may be a small IT hub, but it will be a place on the IT map," said Annie Tam, deputy secretary of the Hong Kong Information Technology and Broadcasting Bureau, which oversees the project's development. "It will be successful because we can leverage with other advantages of Hong Kong." The Cyberport will be "an icon, a window attracting a lot of people."
Hong Kong's effective subsidy to the project is impossible to quantify because it has never valued the land it is giving for free, but the corner of the site devoted to residential use alone was valued at HK$7.8 billion. PCCW is expected to invest US$200 million this year, and a further US$500 million next year in the development.
"Cyberport represents the worst of all possible investment scenarios: high risk and low return," according to a Deutsche Bank report published in May. "On the one hand, the total operating and financial risk is borne by PCCW, which by the end of next year will have cumulatively spent HK$6 billion on developing the project." On the other hand, the Cyberport won't pay back PCCW until 2009 or 2010, the report forecasts. "If the concept of building a high-tech hub becomes somewhat passé in the post-Nasdaq meltdown, and political support dwindles, then this has the potential to compromise PCCW," according to the report.
Hong Kong and PCCW hope to share the surpluses of the sale of the upmarket residential apartments to be built as part of the development. The first unfinished apartments will go on sale as early as 2003.
But PCCW's finances are stretched and Hong Kong property prices haven't recovered following the 1997 Asian economic crisis. Some analysts have speculated that PCCW could opt to sell the whole project, although the company denies it is considering any such move. "Cyberport is a top priority project of PCCW funding," said Michael Moir, managing director of infrastructure and real estate at PCCW. "Even though the economy is uncertain, we'll bear the risk."
Write to Cecile Leonard at cecile.leonard@awsj.com1
--------------------------------------------------------------------------------
URL for this Article:
interactive.wsj.com
Hyperlinks in this Article:
(1) mailto:cecile.leonard@awsj.com
--------------------------------------------------------------------------------
Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.
Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws.
For information about subscribing, go to wsj.com
Used with permission of wsj.com |
