The Government in HK is slowly getting the public ready for the issuance of bonds next year. Hong Kong, being one of those places blessed with a huge surplus of funds for much of its history, has never seen a need for bonds. In the last few years the Government has funded its deficits by drawing down on these reserves. But economically that makes little sense if the money is being invested in infrastructure.

Think about a company about to build a new factory. This company could either fund the new factory out of past profits or borrow money from the bank. Regardless of what they decide the company needs to take account of the cost of this money. Because even if they used the past profits, there is an opportunity cost of putting the money into the factory instead of some other investment. Either way the factory needs to be able to generate sufficient return to pay its way, including the cost of building it. So the cost of taking a loan with the same life as the useful life of the factory matches the costs with the benefits.

So it is with Governments. If they are going to build a road that lasts 30 years, the users should pay for it. Not the current taxpayer. Not past taxpayers. The costs should be amortised over the useful life of the infrastructure. So if the HK Government is true to their word: Tang said the principle had already been set: ``Proceeds from the possible bond issue will not be used to fill the operating deficit. Rather the money would be used to fund any capital expenditure such as infrastructure projects.'' then there should be no problem.

The temptation for Governments is to use this money to fund its current expenses, things like public servant wages. I think with HK's big reserves the prospect of that is far off.