Innovation for Hong Kong's Upward Social Mobility

23 57 Hong Kong SAR Government. (2018). Hong Kong 2030+. Hong Kong 2030+. Land%20Requirement%20and%20Supply%20Analysis_Eng.pdf 58 59 Empowering Innovation in Hong Kong. (2019). Deloitte. 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