Last Wednesday Chief Executive Leung Chun-ying delivered his third policy address and pro-establishment lawmakers were quick to praise it for being pragmatic and innovative.
I didn’t see much innovation in it.
While the speech put a lot of emphasis on housing and land supply, it merely repeated what the government had already pledged to do to boost Hong Kong’s competitiveness over the next decade.
Many in the technology sector, including myself, have begun to question the government’s determination to promote new technologies and innovations.
There are five “new” initiatives worth mentioning:
1. Injection of HK$5 billion (US$804 million) into the Innovation and Technology Fund;
2. Using Kowloon East as a pilot area to study the feasibility of building a Smart City;
3. Setting up a HK$300 million Youth Development Fund to encourage entrepreneurship;
4. Enhancing education on science and technology and intensifying professional development training for teachers;
5. Easing restrictions on importing overseas talent.
However, it seems our chief executive simply repackaged some old measures on science and technology from the past 10 years by his predecessors to try to make them more presentable to the public this time.
Recycling old ideas won’t change the fact that the policy address lacks strategy and global vision.
Over the next few weeks, I will continue to respond to the policy address from different policy perspectives and discuss what it takes to create a social environment that encourages innovation.
In this article, I will look into government support for R&D.
According to the policy address, our total government spending on R&D rose from HK$7.1 billion dollars to HK$15.6 billion between 2001 and 2013, an average growth rate of 7 percent.
The number of R&D personnel doubled to 26,000 during the corresponding period. The figures might look impressive but Hong Kong has lagged in R&D initiatives in the past decade compared with other major economies.
For example, total government spending on R&D by OECD members is 2.4 percent of gross domestic product (GDP) on average.
Hong Kong is stuck at just 0.7 percent.
South Korea spent 4.36 percent of GDP on R&D in 2012, making it No. 1 in the world that year.
Israel, Japan and Taiwan spent 3.93 percent, 3.35 percent and 3.06 percent of GDP, respectively.
Even though our economy is smaller than those of our OECD counterparts, our economic structure is also different.
We could have stayed on top of the game if our R&D sector had not relied almost entirely on government funding and university initiatives in the past decade.
Founded in 2000, the Innovation and Technology Fund spent HK$8.9 billion to support 4,250 projects until November 2014.
At the suggestion of the Innovation and Technology Commission, the government introduced the Research and Development Cash Rebate Scheme and pledged to inject another HK$5 billion into the fund.
However, it is hardly convincing that the current government is only willing to invest the same amount of money as its predecessor did 15 years ago.
Given the high inflation rate in the past decade, the administration is effectively committing less money to the fund this time.
On the other hand, the time may also be ripe for the government to review its policy of directly funding R&D projects of enterprises and research centers.
According to an OECD report on innovation and technology policies in 45 countries, 65 percent see direct funding as the most important means of sponsoring R&D projects but 46.9 percent agree that providing tax benefits could also effectively boost R&D efforts.
The report provides some insight into how the resources of our Innovation and Technology fund can be utilized in a more cost-effective way.
For instance, the government could diversify its funding model by generating new incentives for more cooperation among enterprises, universities and research centers, or by providing tax rebates and easier access to financing for companies that embark on R&D.
The key is to allow more flexibility and eliminate unnecessary bureaucracy.
I believe only by encouraging private enterprises to play a bigger role in R&D can the ecosystem of innovation and technology truly grow.
In order to minimize risk and cost, some in the technology sector have been urging the government to offer double tax relief for R&D initiatives.
I hope the administration will consider reviving the Applied Research Fund.
This article appeared in the Hong Kong Economic Journal on Jan 19.
Translation by Alan Lee
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