2022 XU Yan, YU Chun Innovation for Hong Kong’s Upward Social Mobility
1 Contents Chapter 1: The Urgency for Further Developing Hong Kong’s Technology and Innovation Industries 1.1 The Urgent Need for Breakthrough 5 1.2 An Alert from “Global Innovation Index 2020” 7 1.3 Enlightenment from Hong Kong Innovation Activities Statistics 9 1.4 Opportunities in the Greater Bay Area 11 Chapter 2: Current Status of Hong Kong’s Technology and Innovation Industries 2.1 Global Snapshot: Comparison with Other Economies 13 2.2 Comparison with Other Cities in the Greater Bay Area 16 Chapter 3: Challenges for the Development of Hong Kong’s Technology and Innovation Industries 3.1 Government: Insufficient Investment in R&D, Incoherent Policies and Insufficient Coordination, 19 Laissez-faire Economic Policies, and Lack of STEM-oriented Policies in the Education System 3.2 Infrastructure: Insufficient Land Supply, Relatively high Opportunity Cost of Innovative Development 23 3.3 Culture: Insufficient Motivation for the Development of Technology and Innovation 24 in the Private Market 3.4 Society: Conservative Attitudes Towards Technology and Innovation, Livelihood Issues, 25 Political Chaos and Economic Recession Chapter 4: Youthquake and Quarter-Life Crisis 4.1 Millennium Generation: The Growing Cornerstone 29 4.2 Portraits of Millennials 32 4.3 Quarter-Life Crisis 35 4.4 Facing the Future 39 Chapter 5: Upward Social Mobility 5.1 The Impact of Technology and Innovation on Social Mobility 41 5.2 Technology and Innovation Enhance Upward Social Mobility 42 5.3 Social Mobility in Hong Kong 45 Chapter 6: Develop Technology and Innovation Industries and Foster Upward Social Mobility 6.1 The Goal and Path of Hong Kong’s Development of Technology and Innovation 49 6.2 Encourage Large Foreign Technology Companies to Settle in Hong Kong 51 6.3 Increase Support for Type II Technology and Innovation Industries 55 6.4 Stimulate and Promote Knowledge Transfer in Hong Kong’s Universities 56 Chapter 7: Conclusions 62
2 Professor Yan XU Prof. Yan XU obtained his B.Sc in Radio Engineering and M.Sc in Management Engineering from Beijing University of Posts and Telecommunications of China in 1984 and 1987 respectively, and his Ph.D in Management from Strathclyde University of the UK in 1997. He then joined the HKUST Business School and at present is professor in the Department of Information Systems, Business Statistics and Operations Management. Prof. XU has been the Associate Dean of HKUST Business School overseeing HKUST EMBA program, executive education and China strategy since 2011. His research areas include technology and innovation management, and telecommunications policy. He has published several books including Chinese Telecommunications Policy and Innovated by Hong Kong. He is in the editorial board of Telecommunications Policy and other international renowned journals. He has conducted research projects for China Mobile, Siemens, Hong Kong Telecom (HKT), Audit Commission of the Hong Kong Government, Communications Association of Hong Kong (CAHK), Central Policy Unit (CPU) of the Hong Kong Government, the Liaison Office of the Central Government in Hong Kong, Hutchison Telecom, Huawei Technology Co. Ltd., SmarTone and International Telecommunications Union of the United Nations. He has also participated executive education programs for institutes like China Telecom, China Mobile, CITIC Pacific, Li Ning, TCL and Tencent. He has also been commissioned by the ITU to provide training to Pakistan Telecommunications Authority and the National Telecommunications Commission of Thailand in the capacity of expert of the United Nations. Prof. XU served as president of the Regulation Issues Group of the Communications Association of Hong Kong (CAHK) from 2005 to 2017, and was the member of HKCSS (Hong Kong Council of Social Service) Institute Steering Committee from 2016-2018. He has been the board member of the International Telecommunications Society (ITS) since 2002, and was Chairman of ITS’s strategic Planning Committee from 2005-2012. Prof. XU was appointed by the Chief Executive of Hong Kong as member of the Communications Authority of Hong Kong from 2017 to 2019.
3 YU Chun, Calvin During his postgraduate studies in HKUST, Mr YU Chun, Calvin obtained a Master of Science in Information System Management and a Master of Philosophy in Information System. He was supervised by Professor Yan XU in the Master of Philosophy Programme to focus on the research about technology and innovation topics. His graduation thesis was titled “Re-examining the Classification of Technology and Innovation Industry in the Context of Open Innovation” and explored how to employ Open Innovation thinking to help formulate more suitable technology and innovation industry policies. Calvin assisted Professor XU in the research project “Innovated by Hong Kong”. The research result was subsequently published as the book “Innovated by Hong Kong”, co-authored by Professor XU and Calvin. Calvin has also published research papers about technology and innovation industry policies, electronic government, etc. in different international research conferences and journal, including Hawaii International Conference on System Sciences (HICSS), Pacific Asia Conference on Information Systems (PACIS), IEEE International Conference on Information Reuse and Integration, International Society for Professional Innovation Management Conference (ISPIM), and Journal of Science and Technology Policy in China.
4 The Urgency for Further Developing Hong Kong’s Technology and Innovation Industries Chapter 1
5 1.1 The Urgent Need for Breakthrough 1.1.1 Hong Kong is losing the momentum for economic growth. 1.1.2 Hong Kong was once the shining “Pearl of the Orient” among Asia’s Four Little Dragons. From “Made in Hong Kong” to “Made by Hong Kong”, Hong Kong has overcome various kinds of difficulties and challenges again and again over decades. However, the traditional industrial model is starting to lose its edge in the face of the changing world, and the catchphrase “Innovated by Hong Kong” still seems distant. 1.1.3 In the past two years, the economic downturn brought about by Hong Kong’s social instability and COVID-19 has not only severely damaged the economy and livelihood of Hong Kong residents, but also once again highlighted the problem of Hong Kong’s excessively concentrated industrial structure. The first to bear the brunt are those essential service industries for Hong Kong such as tourism, retail, and catering. Moreover, increasingly tense international political relations are significantly weakening Hong Kong’s role as a trade intermediary. The structurally excessive dependence of Hong Kong’s economy on the financial industry has also made the economic structure fragile. As the economy and people’s livelihood suffer a heavy blow, the government’s input and commitment to the society become more important. The increasing financial burden of the government is rapidly reducing Hong Kong’s financial reserves. All these statements point to the same direction: Hong Kong’s economy needs new impetus to drive long-term development and growth. Economic development has always been sailing against the current - either forging ahead or drifting downstream. 1.1.4 Young people born between 1980 and 2000 in Hong Kong, known as millennials, are now in the life stage of studying or career taking-off in the workplace. Compared with their parents, millennials grew up in a relatively affluent environment, but face more difficult challenges. Hong Kong’s declining economic momentum and weakening industries have made it difficult for young people in Hong Kong1, one of the cities with the highest living costs in the world, to move upward. It is difficult for them to escape the plight of the “working poor” 2. The pressure of survival and life has become an overwhelming heavy burden for many young people3. In Chapters 4 and 5, we will delve into the issues of Youthquake and Social Mobility. 1 The Urgency for Further Developing Hong Kong’s Technology and In novation Industries 1 Economist Intelligence Unit, Worldwide Cost of Living 2020, https://www.eiu.com/n/campaigns/worldwide-cost-of-living-2020 2 https://www.hk01.com/周報/354544/青年困境-沒有父幹如何向上流-香港的-窮忙-悲歌 3 https://www.hk01.com/周報/355617/青年困境-活在全球生活費最貴城市-談何理財-談何追夢
6 1.1.5 The cultural and social environment in which millennials grew up has offered them with a unique worldview, and also provided them with innate advantages in embracing the development of technology and innovation. For millennials growing up in the age of booming digital technology, the Internet and social media are as essential as breathing. Studies have pointed out that between 2014 and 2018, more than 90% of young people aged between 10 and 24 have used social media. In 2018, young people aged 15 to 24 spent the longest time using social media among all age groups, with an average of 17.7 hours per week4. Compared with traditional industries, technology and innovation industries are a familiar subject that millennials have been fascinated with and immersed in since they were young. According to studies, young people in Hong Kong are at an inherent advantage in fostering technology and innovation literacy in Hong Kong because they “have international perspective and are able to integrate Chinese and Western cultures. Compared with other developed countries and regions, the students in Hong Kong have outstanding learning abilities, and are among the best worldwide in many learning ability indicators. In addition, the students in Hong Kong are very open-minded in accepting new things and are willing to take the initiative to learn new skills and knowledge.” 5 If young people have no hope for the future, Hong Kong will have no future. Hence, fostering the development of technology and innovation industries is not only to address the problems of Hong Kong’s economic structure, but also the key to allowing Hong Kong’s young people to make best use of their strengths, and create employment, entrepreneurship, and long-term development opportunities for young people, and provide young people with channels for upward mobility, thus solving the problem of upward mobility for young people in Hong Kong. 4 Research Office of the Legislative Council Secretariat, “Social media usage in Hong Kong”, Data Analysis ISSH15/19-20. https://www.legco.gov.hk/research-publications/english/1920issh15-social-media-usage-in-hong-kong-20191212-e.pdf 5 STEAM Education and Research Centre, Lingnan University, a research report on “Cultivating Hong Kong Youths; STEM Literacy”. https://ln.edu.hk/serc/download/STEMLiteracy.pdf 1 The Urgency for Further Developing Hong Kong’s Technology and In novation Industries
7 1 The Urgency for Further Developing Hong Kong’s Technology and In novation Industries 1.2 An Alert from “Global Innovation Index 2020” 1.2.1 Over the past decade or so, the annual “Global Innovation Index” published by the World Intellectual Property Organization (WIPO) provides data and insights for different economies around the world to facilitate discussions and policies on innovation. The latest 2020 report “Global Innovation Index 2020 - Who Will Finance Innovation?” expounds the trend of world innovation and evaluates the performance of 131 economies in terms of innovation. Table 1.1 Framework of the Global Innovation Index 2020 6 • Political environment • Regulatory environment • Business environment • Education • Tertiary education • Research and development, R&D • Information and communication technologies, ICTs • General infrastructure • Ecological sustainability • Credit • Investment • Trade, competition, and market scale • Knowledge workers • Innovation linkages • Knowledge absorption • Knowledge creation • Knowledge impact • Knowledge diffusion • Intangible assets • Creative goods and services • Online creativity Institution Creative outputs Knowledge & technology output Business sophistication Market sophistication Infrastructure Human capital & research Innovation Input Sub-Index Innovation Output Sub-Index Global Innovation Index 6 WIPO, Global Innovation Index 2020
8 2 11 3 2 12 1 2 7 7 2 4 9 33 8 6 16 8 1 8 13 4 6 14 18 11 5 23 11 1 24 54 1 13 35 15 40 14 3 4 26 14 62 21 36 19 15 7 12 Sweden Finland Singapore Hong Kong Israel Mainland China Overall GII rank Institution Human capital & research Infrastructure Market sophistication Business sophistication Knowledge & technology output Creative outputs 1.2.2 Among the 131 economies, Sweden, Finland, Singapore and Israel excel in technology and innovation and are similar to Hong Kong in terms of the level of economic development and population. Hence, these economies, together with Mainland China and Hong Kong, are selected for comparison. 1.2.3 According to the research framework of the “Global Innovation Index 2020” (Table 1.1), although Hong Kong is ranked 11th overall, and even ranked 1st in the pillars of “Market sophistication” and “Creative outputs”, it is only ranked 54th in “Knowledge and technology output”, well behind the other economies on the list. Singapore is often selected for comparison with Hong Kong. Regarding this index, even though Singapore’s overall ranking is only 3 places ahead of Hong Kong, it is 40 places ahead in terms of “Knowledge and technology output” (Table 1.2). Table 1.2 Global Innovation Index 2020 Rankings Overall and by Pillar 7 7 WIPO, Global Innovation Index 2020 1 The Urgency for Further Developing Hong Kong’s Technology and In novation Industries
9 Types of party performing R&D activity Public technology support organizations Higher education institution the enterprise group enterprise group Others 1,188.8 (47.9%) 1,162.4 (37.9%) 1,785.2 (45.0%) 2,750.6 (61.1%) 1,812.5 (48.2%) Data Source: Census and Statistics Department, Hong Kong Innovation Activities Statistics 2015-2019 Total 2,482.9 (100.0%) 3,067.3 (100.0%) 3,963.1 (100.0%) 4,502.1 (100.0%) 3,756.8 (100.0%) 0.1 (0.0%) 6.6 (0.2%) *** 9 73.8 (1.6%) 3.5 (0.1%) 1,084.7 (28.9%) 566.8 (22.8%) 1,342.4 (43.8%) 1,373.3 (34.7%) 892.0 (19.8%) 461.7 (18.6%) 230.7 (7.5%) *** 8 416.4 (9.2%) 311.6 (8.3%) 265.5 (10.7%) 325.3 (10.6%) 551.7 (13.9%) 369.3 (8.2%) 544.5 (14.5%) HK$ million (percentage) 2015 2016 2017 2018 2019 1.3 Enlightenment from Hong Kong Innovation Activities Statistics 1.3.1 In the five years from 2015 to 2019, the business sector of Hong Kong spent billions of funding in research and development every year. From 2015 to 2018, the business sector was more inclined to entrust “Company not affiliated with the enterprise group” for R&D. In 2018, this figure was as high as HK$2.75 billion, accounting for 61.1% of the total expenditure. However, in 2019, this number dropped significantly to 28.9%, while the percentage of R&D expenditures performed by “Affiliates or parent company of the enterprise group” to the total expenditure rose sharply, from 19.8% in 2018 to 48.2% in 2019. In the meantime, the proportion of R&D invested by “public technology support organizations” also rose sharply from 8.2% in 2018 to 14.5% in 2019 (Table 1.3). Table 1.3 Total Expenditure on Contracted-out R&D Activities in the Business Sector from 2015 to 2019 by Type of Performing Party 8 The Hong Kong Innovation Activities Statistics 2017 does not contain the data of such sub-item. By deducting the items with data from “Total”, the total expenditure of R&D activities contracted-out by the business sector to the “Higher education institution” and “Others” was HK$252.9 million (6.4%). 9 The Hong Kong Innovation Activities Statistics 2017 does not contain the data of such sub-item. By deducting the items with data from the “total”, the total expenditure of R&D activities contracted-out by the business sector to “higher education institutions” and “others” was HK$252.9 million (6.4%) 1 The Urgency for Further Developing Hong Kong’s Technology and In novation Industries
10 10 Hong Kong The mainland of China and Macao • Guangdong-Hong Kong-Macao Greater Bay Area (other than Hong Kong) 12 • Pearl River Delta (PRD) Economic Zone 13 • Pan-PRD Region other than PRD Economic Zone and Hong Kong 14 • Other regions Places other than Hong Kong, Mainland China and Macao Having no collaborative R&D activity arrangements with other organizations Total Number of establishments 11 2015 425 (10.9%) 271 (63.8%) No such classi cation No such classi cation No such classi cation 119 (27.9%) 9 (2.2%) 82 (19.4%) 98 (23.0%) 3,460 (89.1%) 3,885 (100.0%) 2016 622 (15.8%) 310 (33.3%) 100 (10.8%) 162 (17.5%) 3,536 (79.2%) 4,465 (100.0%) Data Source: Census and Statistics Department, Hong Kong Innovation Activities Statistics 2015-2019) Whether having collaboration arrangements on R&D activities with other organizations or region in which the collaborating organization is located Having collaboration arrangements on R&D activities with other organizations 1.3.2 Among the business establishments “Having collaboration arrangements on R&D activities with other organizations”, the R&D activities are mainly contracted-out to local organizations in Hong Kong, accounting for about 50-80%. Among the non-Hong Kong establishments getting the collaboration arrangements, about 30-50% are organizations in the “Pearl River Delta (PRD) Economic Zone” and the “Guangdong-Hong Kong-Macao Greater Bay Area (other than Hong Kong)” (Table 1.4). Table 1.4 Distribution of Business Establishments having Undertaken R&D Activities from 2015 to 2019 by Whether having Collaboration Arrangements on R&D Activities with Other Organizations or Region in which the Collaborating Organization is Located 10 May involve more than one location.. 11 Figures include establishments with in-house R&D activities and establishments with R&D activities contracted out to other parties. 12 The Guangdong-Hong Kong-Macao Greater Bay Area covers 9 cities in the Guangdong Province, namely Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing, as well as Hong Kong SAR and Macao SAR. 13 The PRD Economic Zone covers urban area of 13 cities and counties (district) including Guangzhou, Shenzhen, Zhuhai, Foshan, Jiangmen, Dongguan, Zhongshan, Guizhou urban district, Hiding County, Boluo County, Zhaoqing urban district, Gaoyao and Sihui. 14 The Pan-PRD Region covers 9 provinces/regions (including Fujian, Jiangxi, Hunan, Guangdong, Guangxi Zhuang Autonomous Region, Hainan, Sichuan, Guizhou and Yunnan) as well as Hong Kong and Macao Special Administrative Regions. Organizations in PRD Economic Zone and Hong Kong are excluded from this category in the table. 1 The Urgency for Further Developing Hong Kong’s Technology and In novation Industries
11 1.3.3 These data on the one hand reflect the close connection between Hong Kong and the Greater Bay Area in terms of collaborative R&D arrangements, while on the other hand also reflect that local organizations also have certain capabilities to support R&D in the business sector. To develop Hong Kong’s technology and innovation industries, it is of course necessary to be closely integrated with the Greater Bay Area, but more importantly, Hong Kong must find a unique position which allows it to complement other cities in the Greater Bay Area by contributing a better synergy. In addition, when Hong Kong can develop its own unique positioning of technology and innovation industries, Hong Kong’s young people will have more room and opportunities for local development. 1.4 Opportunities in the Greater Bay Area 1.4.1 The Global Innovation Index 2020 pointed out that: “As long as innovation has existed, a central challenge facing innovators worldwide is the mobilization of stable and accessible financing mechanisms. Financing affects all stages of an innovation cycle, from ideation to commercialization, expansion, and, eventually, long-term business sustainability.” 1.4.2 No one can ignore the importance of financial resources and investment in cultivating and developing technology and innovation industries. With aging population, strained international political relations, and increasing unilateralism, coupled with the COVID-19 pandemic that has swept across the world to catastrophic effect, the world economy is becoming increasingly unstable, and many economies are facing a dilemma: In addition to the need for technology and innovation to boost the economy, they also face the challenge to obtain the financial resources to invest in technology and innovation and enable them to achieve sustainable development, so as to become the driving force of long-term economic development and bring hope to the future. 1.4.3 For this reason, when considering how to develop technology and innovation industries, we must combine the strength of partner cities in the Greater Bay Area while taking a foothold in Hong Kong. The benefits of “Cooperation and Complementation” are obvious in terms of financial resources. In recent years, the Global Innovation Index has included the “Top 100 Science and Technology Clusters” in its report, highlighting the advantages of combining the strength of regional cities. Among others, the “Shenzhen-Hong Kong-Guangzhou” cluster ranks second15. Looking to the future, the “Shenzhen-Hong Kong-Guangzhou” cluster can consolidate the power of other cities in the Greater Bay Area to form a 56,000 square-kilometer city cluster with a population of more than 72 million, which will bring about limitless opportunities. The national policy has set the direction for the development of the Greater Bay Area. Hong Kong must timely seize this golden opportunity to inject new impetus into the economy and open up new horizons for young people. 1 The Urgency for Further Developing Hong Kong’s Technology and In novation Industries 15 WIPO, “The Top 100 Science and Technology Clusters”, Global Innovation Index 2020
12 Current Status of Hong Kong’s Technology and Innovation Industries Chapter 2
13 The government plays a vital role in improving the innovation capacity of the economy 16. Empirical practice has proved that effective government policies are the foundation for fostering the development of a prosperous technology and innovation ecosystem. However, compared with many other advanced economies, Hong Kong started late in the fostering of technology and innovation industries. In this chapter, we will compare the innovation activities and performance among Hong Kong and other economies. 2.1 Global Snapshot: Comparison with Other Economies 2.1.1 Selected economies and reason for the selection: Selecting economies for comparison is a crucial step in benchmarking. Sweden, Finland, Singapore and Israel have excelled in technology and innovation, and are similar to Hong Kong in terms of the level of economic development and population. Therefore, these economies, together with Mainland China and Hong Kong, were selected for comparison. Benchmarking is carried out according to the following criteria: • Ranking of knowledge and technological output competitiveness in the Global Innovation Index • Gross domestic expenditure on research and development (GERD) as a percentage of Gross Domestic Product (GDP) • Number of research and development personnel (per million people) • Number of granted patent rights (per million people) • Intellectual property income 2 Current Status of Hong Kong’s Technology and Innovation Industriesv 16 R.Richard Nelson (1993) National Innovation Systems: a Comparative Analysis, Oxford University Press
14 Sweden Israel Finland Mainland China Singapore Hong Kong 2016 2 12 7 6 10 30 2017 3 9 10 4 11 25 2018 3 7 8 5 11 26 2019 2 6 9 5 11 33 2020 2 4 6 7 14 54 2.1.2 Global R&D capabilities: Knowledge and technology output competitiveness is the sixth pillar of the Global Innovation Index (Table 1.1), which reflects the impact of knowledge creation and innovation activities at the micro and macro economic levels, and the absorption of knowledge. Despite Hong Kong’s encouraging overall ranking of 11 in the Global Innovation Index 2020, Hong Kong’s ranking in terms of competitiveness in knowledge and technology output is still very low (Table 2.1), let alone its score in 2020 being the lowest in the past five years. This exposed Hong Kong’s shortcomings in patents and the value generated by high-tech exports. Table 2.1 Ranking of Selected Economies in the Global Innovation Index in Terms of Their Knowledge and Technology Output Competitiveness from 2016 to 202017 2.1.3 The gross domestic expenditure on research and development (GERD) as a percentage of GDP is an internationally recognized evaluation indicator that reflects the economy’s scientific and technological R&D investment and technological competitiveness. On a global scale, the GERD as a percentage of GDP averages 2.27%18. Hong Kong’s figure remains low, at less than 1%, well below the global average and other developed economies such as Israel (4.95%), Sweden (3.30%), Finland (2.77%), Mainland China (2.19%) and Singapore (1.60%) (Table 2.2). 2.1.4 In terms of R&D personnel, Hong Kong’s research talent pool is relatively limited. In 2018, Hong Kong had 4,026 researchers per million people, which is much lower than the figures of comparable economies such as Sweden (7,536) and Finland (6,861) (Table 2.2). Hong Kong’s excellent education system can train R&D personnel, but the market lacks career opportunities suitable for R&D personnel. This has caused difficulties in maintaining the development of research talents and led to a shortage of talents. 17 WIPO, Global Innovation Index 2016-2020 18 WorldBank, Research and development expenditure (% of GDP), https://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS 2 Current Status of Hong Kong’s Technology and Innovation Industries
15 Sweden Israel Finland Mainland China Singapore Hong Kong E: 347.61 W: 434.68 E: 80.27 W: 83.53 E: 279.76 W: 364.61 E: 3.47 W: 248.40 E: 70.94 W: 55.33 E: 8.19 W: No data 22 Ranking in 2020 2 4 6 7 14 54 7,536 No data 6,861 1,307 6,80329 4,026 8.25 1.58 3.55 6.60 8.47 0.74 201823 3.3% 4.95% 2.77% 2.19% 1.60% 0.86% Competitiveness of knowledge and technological output Number of granted patent rights (Per million people) GERD as a percentage of GDP 2.1.5 From R&D to commercialization and to final market development, patent rights play an important role throughout the entire technological life cycle. In fact, the extent to which patent rights encourage innovation is difficult to measure with actual data19, but the number of patent rights can still indicate the ability of the economy to support the development of comprehensive and complex technology and innovation industries20. Global patent activity continues to increase, with active patents worldwide increasing by 6.7%, to 14 million in 201821. However, Hong Kong’s low R&D investment and insufficient supply of local R&D researchers have inevitably led to a scarce amount of research results. The number of patents granted in 2018 is far fewer than in other advanced economies (Table 2.2). 2.1.6 Intellectual property revenue highlights the value brought by the commercialization of innovation. Hong Kong’s income from intellectual property rights is much lower than that of Sweden, Israel, Finland, Mainland China and Singapore (Table 2.2). Table 2.2 Ranking of Selected Economies in the Global Innovation Index 2020 and Data of Key R&D Indicators 19 Nicol & Liddicoat (2012), Do patents promote innovation, The Conversation 20 For more information, see Lehman, Lee & Xu, What is the difference between an invention patent and a utility model patent? 21 WIPO (2018), World Intellectual Property Indicators: Filings for Patents, Trademarks, Industrial Designs Reach New Records on Strength in China 22 WIPO, Global Innovation Index 2020 23 WorldBank, Research and development expenditure (% of GDP), https://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS 24 WorldBank, Researchers in R&D (per million people), https://data.worldbank.org/indicator/SP.POP.SCIE.RD.P6 25 WIPO, Statistical Country Profiles, https://www.wipo.int/ipstats/en/statistics/country_profile/ 26 European Patent Office, Annual Report 2018, https://www.epo.org/about-us/annual-reports-statistics/annual-report/2018.html 27 E represents the figure obtained by dividing the data from the European Patent Office by the population data of the World Bank database; W represents the figure obtained by dividing the data from the WIPO by the population data of the World Bank database. 28 WorldBank, https://data.worldbank.org/indicator/BX.GSR.ROYL.CD 29 In the World Bank database, Singapore only has data for 2017, so the data for 2017 is used here for comparison. 2 Current Status of Hong Kong’s Technology and Innovation Industries
16 2.2 Comparison with Other Cities in the Greater Bay Area 2.2.1 Selected cities and reasons for the selection: In the past ten years, the Greater Bay Area (GBA) has developed into a world-class technology and business hub. The GBA is composed of 9 mainland cities in Guangdong Province, Hong Kong and Macao Special Administrative Regions, forming an innovative city cluster. In 2019, the Central Government of China issued the “Outline Development Plan for GuangdongHong Kong-Macao Greater Bay Area”, clarifying the new stage of social and economic integration in the GBA. In the past 25 years, Hong Kong has had the lowest annual GDP growth rate among the 11 cities in the GBA30. Analyzing the innovation environment and performance of cities in the GBA is of great significance to fostering the development of Hong Kong’s technology and innovation industries. We selected the 5 fastest-growing cities for comparison, namely Guangzhou, Shenzhen, Zhuhai, Dongguan and Zhongshan. Benchmarking is carried out according to the following criteria: • GERD as a percentage of GDP • GERD • Number of PCT international patent applications 30 CEIC data 2 Current Status of Hong Kong’s Technology and Innovation Industries
17 Shenzhen Zhuhai Dongguan Guangzhou Zhongshan Hong Kong GERD as a percentage of GDP 2019 32,33 4.93% 3.15% 3.06% 2.87% 2.11% 0.92% GERD (Hundreds of millions of CNY) 2019 34,35 1,328.28 108.31 289.96 677.74 65.37 237.20 Number of PCT international patent applications 2019 36,37 17,459 561 3,268 1,622 192 429 2.2.2 In 2019, Shenzhen’s GERD reached 132.828 billion CNY (Table 2.3), which is far ahead of all cities in the GBA and more than five times that of Hong Kong. Among the six cities, Hong Kong has the lowest GERD as a percentage of GDP, at 0.92%, which is much lower than the other five GBA cities31 (Table 2.3). 2.2.3 The Patent Cooperation Treaty (PCT) international patent application is one of the indicators that can reflect the technology and innovation capabilities of an economy. In 2019, Shenzhen applied for 17,459 PCT international patent rights, making it one of China’s most active technology and innovation cities, a number that is far ahead of other cities in the GBA. Hong Kong has only 500 PCT international patent applications, which is far behind Shenzhen, Dongguan and Guangzhou (Table 2.3). Table 2.3 Data on Key R&D Indicators of Cities in the GBA 31 National Bureau of Statistics of China 32 Department of Science and Technology of Guangdong Province, Guangdong Provincial Science and Technology Statistics Data http://gdstc.gd.gov.cn/attachment/0/415/415545/3242355.pdf 33 https://www.statista.com/statistics/632546/hong-kong-research-development-expenditure-ratio-to-gdp/ 34 Department of Science and Technology of Guangdong Province, Guangdong Provincial Science and Technology Statistics Data http://gdstc.gd.gov.cn/attachment/0/415/415545/3242355.pdf 35 https://www.statista.com/statistics/632620/hong-kong-research-development-expenditure/, Exchange rate1:1.11 (2019) 36 Department of Science and Technology of Guangdong Province, Guangdong Provincial Science and Technology Statistics Data http://gdstc.gd.gov.cn/attachment/0/415/415544/3242348.pdf 37 WIPO, World Intellectual Property Indicators 2020, https://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2020.pdf 2 Current Status of Hong Kong’s Technology and Innovation Industries
18 Challenges for the Development of Hong Kong’s Technology and Innovation Industries Chapter 3
19 Since the 1990s, Hong Kong has encountered many obstacles in developing a knowledge-based society and advancing technology and innovation. As a result, Hong Kong has fallen behind other developed economies in the region, and faces the risk of being marginalized38. Under the national policy of building the Guangdong-Hong Kong-Macao Greater Bay Area (GBA), Hong Kong should seize this opportunity to seek economic transformation by examining current pain points and making the best use of the advanced experience of Mainland China and the world. This chapter reviews the main factors hindering the development of Hong Kong’s technology and innovation industries, including government, infrastructure, cultural and social domains, and explores the future development opportunities. 3.1 Government: Insufficient Investment in R&D, Incoherent Policies and Insufficient Coordination, Laissez-faire Economic Policies, and Lack of STEM-oriented Policies in the Education System 3.1.1 Insufficient investment in R&D: The Hong Kong government has long been criticized for its allocation and management of resources dedicated to technology and innovation. According to the Census and Statistics Department, Hong Kong spent HK$24.5 billion (US$3.14 billion) on R&D in 2018. In 2018, the GERD as a percentage of GDP was only 0.86%39. According to the latest World Bank data,40 this figure lags far behind South Korea (4.81%), Japan (3.26%) and Mainland China (2.19%), and is much lower than the average 2.37% of the Organization for Economic Cooperation and Development (OECD) member economies.41 Low public R&D investment has had its consequences: the lack of R&D investment inevitably limits the number of research results, which is clearly reflected in the number of patent applications. According to the WIPO, Hong Kong, amongst the more than 100 economies surveyed in 2019, only applied for 429 patents. This is in sharp contrast to the thousands or even tens of thousands of applications from economies such as Sweden, Finland, Singapore, and Israel, which have similar economic volume and populations. When compared with Mainland China, Hong Kong’s applications represent less than 1%. As OECD experts Guellec and van Pottelsberghe (2001) pointed out, R&D performed in public sector, in particular the higher education sector, have a substantial impact on economic growth in the long run.42 At the end of 2018, the Hong Kong government promised to increase its R&D expenditure to 1.5% of GDP before the five-year term of Ms Carrie Lam Cheng Yuetngor’s current term of government expires. This shows that the Government has taken a substantial and hopeful step in the right direction to accelerate the development of Hong Kong’s technology and innovation industries. 3 Challenges for the Development of Hong Kong’s Technology and Innovation Industries 38 Xinqi, S. (2018, May 14). Hong Kong must ‘innovate or die’, new study warns. South China Morning Post. https://www.scmp.com/news/hong-kong/hong-kong-economy/article/2146076/universities-warn-hong-kong-must-innovate-or-die 39 Table 207 : Research and development (R&D) expenditure by performing sector | Census and statistics department . (2019, December 23). Census and Statistics Department. https://www.censtatd.gov.hk/hkstat/sub/sp120.jsp?ID=0&productType=8&tableID=207 40 The World Bank, Research and development expenditure (% of GDP), https://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS 41 OECD, OECD Main Science and Technology Indicators, 2019 data release, https://www.oecd.org/sti/msti2019.pdf 42 OECD. (n.d.). R&D AND PRODUCTIVITY GROWTH: PANEL DATA ANALYSIS OF 16 OECD COUNTRIES. https://www.oecd.org/economy/growth/1958639.pdf
20 Sweden Finland Singapore Hong Kong Israel Mainland China 2014 43 12,663 6,093 2,581 279 6,055 22,473 12,967 5,510 2,605 343 6,391 27,656 2016 45 12,315 5,543 2,880 341 6,724 34,377 Table 3.1 The Number of PCT International Applications that have Entered the National/Regional Level Published by the WIPO 3.1.2 Incoherent policies and insufficient coordination: In terms of technology and innovation industries, Hong Kong has long lacked consistent leadership and coordination in terms of policies and funding. This can be traced back to before the handover in 1997. The Applied Research Fund (ARF) was established in 1993 as a government-owned venture capital. The initial asset value held was HK$750 million (approximately US$96 million)49. The ARF aims to foster R&D activities with local commercial potentials. However, due to the poor performance under the management of officials, its business was transferred to a private venture capital company in 1998. Although the government had tried to shut it down due to continuous high losses, its demise hardly attracted the attention of stakeholders. As of June 2004, the ARF had been listed as an important part of Hong Kong’s innovation system in the consultation document of the Innovation and Technology Commission, but continued losses had forced the ARF to stop investing since March 200550. Cases of poor innovation resource management are not rare. According to a report issued by Our Hong Kong Foundation at the end of 2018, the government’s R&D funding mechanism is too fragmented, and the approval process is usually lengthy and inflexible51. The government has five agencies that are mainly responsible for approving and allocating funding, 43 WIPO, Patent Cooperation Treaty Yearly Review 2018, https://www.wipo.int/edocs/pubdocs/en/wipo_pub_901_2018.pdf 44 WIPO, Patent Cooperation Treaty Yearly Review 2018, https://www.wipo.int/edocs/pubdocs/en/wipo_pub_901_2018.pdf 45 WIPO, Patent Cooperation Treaty Yearly Review 2020, https://www.wipo.int/edocs/pubdocs/en/wipo_pub_901_2020.pdf 46 WIPO, Patent Cooperation Treaty Yearly Review 2020, https://www.wipo.int/edocs/pubdocs/en/wipo_pub_901_2020.pdf 47 WIPO, Patent Cooperation Treaty Yearly Review 2020, https://www.wipo.int/edocs/pubdocs/en/wipo_pub_901_2020.pdf 48 WIPO, World Intellectual Property Indicators 2020, https://www.wipo.int/edocs/pubdocs/en/wipo_pub_941_2020.pdf 49 Hong Kong LEGCO. (n.d.). Legislative Council Panel on Commerce and Industry The Applied Research Fund. The Legislative Council of the Hong Kong Special Administrative Region. https://www.legco.gov.hk/yr16-17/english/panels/ci/papers/cicb1-415-1-e.pdf 50 Hong Kong journal. (n.d.). Carnegie Endowment for International Peace. https://carnegieendowment.org/hkjournal/archive/2007_winter/4.htm 51 OHKF. (2019, December 10). OHKF innovation and technology research report initiates to unleash Hong Kong’s potential as an international research and development powerhouse. OUR HONG KONG FOUNDATION. https://www.ourhkfoundation.org.hk/en/media/32/science-techinnovation/ohkf-innovation-and-technology-research-report-initiates-unleash 3 Challenges for the Development of Hong Kong’s Technology and Innovation Industries
21 52 Innovation Policy and the Limits of Laissez-faire: Hong Kong’s Policy in Comparative Perspective. Front Cover. Dr Douglas B. Fuller. Palgrave Macmillan, 2010 53 Shih C., Chen SH. (2010) On Reform of Hong Kong’s Public Research Funding System. In: Fuller D.B. (eds) Innovation Policy and the Limits of Laissez-faire. Palgrave Macmillan, London. https://doi.org/10.1057/9780230304116_6 including the Innovation and Technology Commission (ITC), the Research Grants Council (RGC) of the University Grants Committee (UGC), and the Food and Health Bureau, etc. However, there is insufficient coordination among these agencies, which often leads to resource overlaps and policy mismatches. In addition, the average processing time required by the ITC to approve projects from its five research centers may take 158 to 222 days, which substantially limits the R&D efficiency of organizations and private companies. 3.1.3 Laissez-faire economic policies: Basically, the reasons for the lack of willingness to implement the above-mentioned policies and fund management can be attributed to a fundamental reason, that is, the government has adopted laissez-faire economic policies in the past to foster Hong Kong’s economic development. Taking into account the colonial history of Hong Kong as a trading center 52, coupled with the government’s long-standing aversion to active intervention in market mechanisms, this laissezfaire and positive non-intervention policy has resulted in a poorly-developed innovation system. After the handover, the government played a passive role in fostering Hong Kong to become an international market participant. Therefore, the diversity and scope of Hong Kong’s innovation system has been dwarfed by that of many other small economies53. Singapore, for example, has been actively fostering technology development well before 1990. Since then, Singapore has continuously improved its long-term strategic positioning to enhance the R&D image of Singapore companies. Hence, improving the level and mechanism of innovation governance is the key to the successful implementation of R&D policies. 3 Challenges for the Development of Hong Kong’s Technology and Innovation Industries
22 3.1.4 The education system lacks STEM-oriented policies: In addition to research investment, education investment is also an important factor in promoting innovation and technological development. However, several indicators reflect that Hong Kong’s education may not be able to provide the community with suitable talents. In response to the full implementation of the New Senior Secondary Curriculum ten years ago, the performance of Hong Kong students in science subjects has been declining since 2012. Under the new curriculum, secondary school students have greater flexibility in choosing elective subjects, and Liberal Studies is also offered as a compulsory subject to cultivate their global vision and thinking. However, it is worth noting that the number of students in all science-related elective courses under the New Senior Secondary Curriculum has dropped sharply. 54 According to the test results of the Program for International Student Abilities (PISA) in 2018, which compared the academic performance of 15-yearold students in 79 economies, Hong Kong was ranked fourth in reading and mathematics, lagging behind Mainland China, Singapore and Macao55. Hong Kong’s past performance in science has always been excellent, but its performance has plummeted since 2015. The result in 2018 marked the first time Hong Kong has fallen to fourth place in reading and mathematics, two places down since 2015, while it remained ninth in science. The trends reflected in the figures are worrying. The report shows that only 7.8% of students in Hong Kong have the highest scientific abilities (levels 5 and 6), which is only slightly higher than the OECD average level (6.7%). This is even more alarming. Other economies in the region have performed relatively well in these subject areas. For example, the proportion of students with the highest scientific abilities in Macao is twice that of Hong Kong, and the proportions of students with the highest scientific abilities in Singapore and Mainland China are respectively three times and four times that of Hong Kong students. From another perspective, comparing the total number of students, if 100 students are randomly selected from various places, 57 students in Mainland China will have better scientific abilities than Hong Kong students. Singapore has 27 students outperforming Hong Kong students; Macao has 2256. In addition, according to a survey conducted by the Hong Kong Federation of Education Workers in 2017, respondents from the education sector believed that 83.8% of students did not have enough training and support in science, technology, engineering and mathematics (STEM); 63.6% of teachers replied that they had no confidence in teaching STEM subjects to students. Given that Hong Kong had a good record in providing world-class education in the past, the government should strengthen its support for students and teachers in providing quality STEM education in order to reserve more talent pools for Hong Kong’s technology industry, as well as contribute to the long-term development of the technology and innovation industries. 54 PISA results 2018: Latest rankings show Hong Kong down two places to fourth in reading and maths, remain ninth in science. (n.d.). Young Post. https://www.scmp.com/yp/discover/news/hong-kong/article/3069444/pisa-results-2018-latest-rankings-show-hong-kong-down 55 The Standard. (n.d.). HK students falling behind. https://www.thestandard.com.hk/section-news/fc/4/214561/HK-students-falling-behind 56 OUR HONG KONG FOUNDATION (17 April 2020), Hong Kong students are backward in science and technology and need to strengthen applied education, https://www.ourhkfoundation.org.hk/en/insight/1264/education-and-youth/%E6%B8%AF%E7%94%9F%E7%A7%91%E6 %8A%80%E8%90%BD%E5%BE%8C-%E5%BC%B7%E5%8C%96%E6%87%89%E7%94%A8%E6%95%99%E8%82%B2 3 Challenges for the Development of Hong Kong’s Technology and Innovation Industries
23 57 Hong Kong SAR Government. (2018). Hong Kong 2030+. Hong Kong 2030+. https://www.hk2030plus.hk/document/Consolidated%20 Land%20Requirement%20and%20Supply%20Analysis_Eng.pdf 58 https://www.joneslanglasalle.com.cn/en/newsroom/hong-kongs-central-tops-list-of-worlds-most-expensive-office-markets 59 Empowering Innovation in Hong Kong. (2019). Deloitte. https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/technology-mediatelecommunications/tf/deloitte-cn-tmt-tf20-hongkong-2019-report-en-191107.pdf 3.2 Infrastructure: Insufficient Land Supply, Relatively High Opportunity Cost of Innovative Development 3.2.1 Insufficient land supply: With rising rents, some technology and innovation industries and logistics/ warehousing industries that require land and infrastructure resources will not be able to support their operations in Hong Kong. In such context, the government predicts in “Hong Kong 2030+” that, overall, the long-term demand for economic land will reach 457 hectares, including market-driven (200 hectares) and non-market-driven (257 hectares) demands for economic land/space. However, the land supply is only about 200 hectares57. This may have huge consequences, because the shortage of economic land will endanger the development of enterprises, investment opportunities for industrial renewal, and will hinder Hong Kong’s transformation into an innovative economy. Specifically, due to the obvious shortage of land for economic activities, the current high rents and high prices are expected to deteriorate in the long term and further weaken Hong Kong’s competitiveness. Due to the continuing shortage of economic land and high operating costs, emerging industries that usually require cheap office and production space, especially innovative technologies and start-ups, may not be able to fully develop in Hong Kong. This will damage the structural transformation of Hong Kong’s economy and negatively affect social mobility and employment opportunities for young people. 3.2.2 Relatively high opportunity cost of innovative development: With the rapid development of real estate development and financial services, office rent, salaries, service fees and other related resource expenditures are getting increasingly higher, which poses a huge challenge to participants in Hong Kong’s technology and innovation industries. Hong Kong, for example, is the city with the highest premium office rent for the fourth year running58, 60% higher than Midtown New York and 75% higher than London’s West End. According to Deloitte59, 74% of corporate executives believe that high costs are the biggest challenge for running new business in Hong Kong. Compared with the convenient and low-cost transportation in Mainland China, the cost of starting business in Hong Kong is still high. A noteworthy industry model is that most R&D companies will only setup their sales and communications offices in Hong Kong and transfer their research, testing, and manufacturing facilities to nearby economies to enjoy significant cost savings. For example, Hong Kong is now the world’s second largest biotechnology financing center, but due to the high cost of developing emerging technologies in Hong Kong, only 15% of respondents in the Deloitte report believe that Hong Kong’s biotechnology ecosystem is ideal for start-ups to innovate. 3 Challenges for the Development of Hong Kong’s Technology and Innovation Industries
24 3.3 Culture: Insufficient Motivation for the Development of Technology and Innovation in the Private Market 3.3.1 Insufficient motivation for the development of technology and innovation in the private market: The private sector’s support for innovation is one of the basic factors for accelerating technological development. However, Hong Kong’s research results are mainly dominated by universities and other institutions, while industry-led R&D is rare. Survey results show that among its 10 peer cities, including Singapore, Beijing, Shenzhen, and Tokyo, Hong Kong was ranked second to last in terms of availability of private funding60, talents and pilot tests, and ninth in the Start-up Index, which measures the quality of Asia’s entrepreneurial environment. Similarly, according to the study from Microsoft-IDC, only 55% of business decision-makers in Hong Kong regard innovation as an “essential” condition for improving business resilience61. Hong Kong companies have always been interested in growth and development. Unfortunately, private companies have a weak motivation to pursue cross-industry innovation. To make matters worse, under the influence of the 2019 Novel Coronavirus Disease (COVID-19), almost half of companies (48%) predict that their business models will lose competitiveness within five years62. The Hong Kong Investment Program of Alibaba Entrepreneurs Fund established a HK$1 billion fund to invest in promising local start-ups. This is an encouraging start, and also reflects that Hong Kong has the potential to develop technology and innovation industries. The government should reassess and consider how to provide private companies with greater incentives to promote Hong Kong’s technology and innovation industry culture. 60 Deng, I. (2018, December 17). Hong Kong start-UPS stymied by lack of innovation culture, survey finds. South China Morning Post. https://www.scmp.com/tech/start-ups/article/2178313/hong-kong-needs-cultural-change-if-its-catch-regional-tech-peers 61 Asia News Center. (2020, September 10). A culture of innovation fuels business resilience and economic recovery. https://news.microsoft.com/apac/2020/09/10/a-culture-of-innovation-fuels-business-resilience-and-economic-recovery/ 62 Building Hong Kong as a global innovation hub – China business knowledge. (2020, September 2). China Business Knowledge. https://cbk. bschool.cuhk.edu.hk/building-hong-kong-as-a-global-innovation-hub/ 3 Challenges for the Development of Hong Kong’s Technology and Innovation Industries
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