The project of West Kowloon Cultural District (WKCD) has been discussed for a decade.

Recently, the Hong Kong SAR Government has decided to develop the WKCD. In this essay, it is to evaluate this project by using cost-benefit analysis. In the first section, it is to talk about the basic idea of the cost-benefit analysis and what discount factors will be specifically considered in this project. In the second part, it is to talk about what costs and benefits will be incorporated into the analysis. Finally, some potential difficulties in implementing the analysis will be mentioned.

The basic idea of cost-benefits evaluation is to compare the present values of the costs and benefits from different periods. If the total estimated costs of the project exceed the total estimated benefits, the government should not decide to implement the project. Prior to launching the project, the government should identify and evaluate all of the benefits and all of the costs of the project. After that, it is to calculate the present values of the total benefits and total costs, which means that we need to realize all of the costs and benefit from different times. As the values of $100 tomorrow is not worth $100 today, but must be worth less than $100. Therefore, discounting is essential.

With regards to computing the present values, it must take discount factor into account, which is also known as discount rate. Very often, nominal interest rate and inflation rates are used as discount rates. In the project of WKCD, HKSAR government expects the annual inflation from 2006 to 2059 is 2%. This estimation is derived from the inflation rate of other advanced economies and the average inflation rate. Such estimation would be reasonable provided that US currency was a strong dollar in international market. However, US Federal Reserve adopts quantitative easing policy since the financial tsunami in 2008, both US and Hong Kong dollar keep depreciating.

During the construction stage. The highest valued option forgone is very likely the use of building real estates. One point should be kept in mind that is the opportunity cost. construction and post-construction period. which are included in the pre-construction. there will be management costs. Exhibition Centre and Performing Arts Venues. During the operation period. Renminbi (RMB) has been appreciated due to its robust economic growth. there are spending on building main infrastructures. Transport facilities and communal facilitates. In the pre-construction period. Other than that. such as phases 1 and 2 of Museum plus (M+). which should be included into total cost. Core staffs for 2 .On the other hand. Thus. Three plans are provided by conceptual plan consultants. 2% inflation rate estimated by the Government would very likely be underestimated. the employment of project consultants is needed so as to deal with some technical feasibility tasks of the project. Consequently. Some costs have been identified. Project consultants carry out detailed technical and engineering assessments on the proposed developments and infrastructures to confirm that the Development Plan is technically and engineering feasible. The land for building the WKCD is actually could be used for others purposes. and to carry out preliminary engineering designs for the proposed infrastructures to enable early start of the construction by the relevant Government Departments. All these costs can be measured the price of the building materials and the total payroll of technical staffs and construction workers engaged in WKCD. import inflation occurs because Hong Kong relies heavily on basic necessities from mainland. the government needs to employ the consultants to give advices and conceptual draft.

job opportunities will be created to the construction industry. noise and air pollution will be generated by the construction project. One thing should be reminded that the opportunity costs should not be ignored. there are some intangible benefits. such as marketing and advertising. All these costs can be represented by their payroll. the air quality in Hong Kong will be further worsening. construction and post construction stages have their opportunity costs. editorial and publishing. Pollution should be incorporated into a part of the total costs. the opportunity cost of the employees would be positive. In practice. During the construction period. As for the benefits of the project. Such services will be contracted-out to private sector. Thus. Air and noise pollution are originated from the main road to the West Kowloon due to the heavy traffic burden. If all these employees were previously laid off. their opportunity cost would be zero. Thus. they will be generated from construction and operation stage. sound and technical service. cleaning and building maintenance. electric equipments and stage lighting. During the construction period. of the WKCD are required. day-to-day operation needs the support of the various ancillary services. Also. Activities in M+. these costs cannot be quantified and measured in terms of money easily. Construction expenditure also creates additional job opportunities 3 . exhibition centre and the performing arts facilities also demand services of design. enormous quantities of visitors go to there by coaches. marketing and advertisings. Both staffs and workers recruited in the pre-construction. as well as security. More than tangible costs mentioned above. With the completion of the WKCD. part of them need to quit the original job.

Operation expenditure will further create additional job opportunities in other industries. induced tourists. the development of art performing has been thwarted. Without denying that with the completion of High-speed rail terminal and WKCD. additional spending will create additional jobs both inside and outside the district. Inside the district. the total contribution to society should not be overestimated. the WKCD will attract tourists and local residents. Outside the district. such as the management staffs and ancillary services for the WKCD. the benefits can be represented by the total additional spending from the base tourists. Furthermore. transportation and food industries. Needless to say. After the 4 . Thus. The increase in property price manifests the other field of industries. there will be increase in demand for catering services. retail services etc. During the operation stage. it enhances the development of cultural and creative industries in Hong Kong. It should be bore in mind that there is tradeoff between local residents’ spending inside and outside the district. All these benefits could be measured by the stimulated consumption from local residents. First. For the operation economic impact. certain amount of job opportunities will be created. the price of the real estates within West Kowloon area will be boosted up. Apart from tangible benefits. the profits from the investment in real estates further stimulate consumption. Due to the lack of performing venues. operation and visitors economic impact will be induced. sight-seeing tourists and local residents. there will be increase in demand for hotels. For the visitors’ economic impact. which in turns contribute to local GDP. there is a bundle of intangible benefits. These visitors will spend over there. Thus.

Certain amount of foreign capital will be injected into Hong Kong cultural industry. Also. Thus. In my point of view. it will provide art groups 15 performing venues with a relatively reasonable rental price. substantial quantity of tree will be planted in the district.completion of the WKCD. which stimulates their incentive and motivation to create more. In the long run. the WKCD enhances the competitiveness of Hong Kong. the WKCD will become the icon of Hong Kong cultural creative industry. This brand will bring investors from mainland and oversea. cultural district is nice place to relax. such financial service and real estate sectors. Second. Cultural district not only provide art performing venues but also the comfortable leisure area where people can take a walk. which in turns benefits other sectors. the WKCD increases the living standard of HongKonger. There is no ground to deny that such industries bring tremendous contribution 5 . low employment” industries. The provision of diversified cultural activities which is alternative entertainment enriches the life of local residents. the built of Museum Plus (M+) will provide a platform for local painters and sculptors to exhibit their works. According to the blueprint of “City Park”drafted by British architect Norman Foster. The WKCD serves as the “city lung” that generates fresh and clean air to such a society suffering from serious air pollution. Third. It is very likely that more and more new generation will engage in cultural creative industry. Artists will enjoy more chance to perform and local art groups can survive. The proliferation of art performances and exhibitions will promote and educate the public cultural knowledge. Hong Kong in the past few decades overly concentrates on developing in those “high value. which is conducive to the sustainability of the WKCD.

Undue dependence on “high value. the sense of belongings is enhanced. Besides. it is hard to measure the benefits bought by the public good (leisure area) without positive price. It is very difficult to quantify the market values of those intangible costs and benefits. Forth. 6 . If the design and planning of cultural district is the product of social consensus. The aesthetic perception of buildings will make cultural district became an iconic landmark of Hong Kong. the WKCD will be conducive to social harmony. The WKCD facilitates creative industry to provide alternative way for young people to develop their careers. The growth of nominal contribution is much higher than that of employment rate. the present values of the benefits would very likely be distorted. low employment” industries. Or. Nonetheless. As a result. For example. in certain extent. they create relatively low employment opportunities. it is very complicated to determine the proxy of measuring the harmfulness brought by air pollution due to heavy traffic burden in the vicinity of the WKCD. There are some potential difficulties in implementing the local GDP and government revenue. without the crystal ball how can the government accurately predict when benefits will come? Thus. of which local residents are proud. leads to recent predicament that the generation of post 80s and 90s are dissatisfied with the lack of opportunity and upward mobility. satisfaction and legitimacy of HKSAR Government will be entrenched.

Ronald Arculli said WKCD will use the budget wisely.References SingTao Daily. 2011/3/29.html HKSAR Financial Secretary Office.wkcdauthority. Available online http://hk.html West Kowloon Cultural 2007. Available online http://www. 2011. 西九龍文娛藝術區發展之博物館和表演藝術與香港創意產業的 關係研究 7 . Economic impact of developing the WKCD (Executive summary) 許焯權 .

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