Privatization In Hong Kong Case Study

Privatization in Hong Kong
Margaret Thatcher has introduced privatization in the UK in early 80s and the trend had spread over to Hong Kong rather late as compared to other developed nations. During that time, Hong Kong was still under British Colonial and the government was likely to believe in “small government”. However, Hong Kong economy was booming and the government had a large fiscal reserve which had recorded a budget surplus in the period. This resulted in the Hong Kong government having no pressing need for privatization.
In 1997, the transitional period, Hong Kong was handed over to China and later came to be recognized as Hong Kong SAR. Later on, Mr. Tung Chee Hwa became a Chief Executive for Hong Kong. He came in with an intensive

Contracting-out has been widely used in many public services through service contracts, outsourcing, management contracts, and public-private partnership in the form of build-own-operate or build-own-operate-transfer. (Tai, 2010)

MTR Privatization
The Mass Transit Railway Corporation (MTRC) was founded in 1975 and wholly owned by the government. After 1998, Hong Kong experienced economic recessions and suffered from budget deficit because of Asian Financial Crisis and internal policy issues. The government therefore thought that the privatization of MTR was the best solution to tackle the problems at a time.
The government then came up with variety of policy alternatives with the intention to improve operational efficiency and service quality of the MTRC under private sector involvement in coordination to the government’s ideology of “Small Government, Big Market”. (Tai, 2010) The first set of policy alternatives were;
• Remaining status quo – The MTRC still owned by the government but it would be operated by private sectors,
• Merger of the MTRC and the Kowloon Canton Railway Corporation (KCRC) – merging together the two wholly government-owned corporations into a single railway

Hence, the most realistic alternatives were partial/full privatization. However, given that Hong Kong experienced fiscal recession and budget deficit, the Hong Kong government could not afford MTRC to go full privatization because it would face strong oppositions from the stakeholders who were concerned about the rise in fares, service quality, safety, layoffs and etc. The Hong Kong government therefore adopted partial privatization in which the government would still be the biggest shareholder of MTRC. By going partial privatization, it would boost the confidence of the stakeholders because the government would be taking care of issues such as fares and service quality. Moreover, the Hong Kong government chose to privatize MTRC through an Initial Public Offering (IPO). The government believed that partial privatization would;
• Create more competitiveness,
• Provide more access to capital
• Give opportunity to invest in business with a strong growth