20 September 2019
Hong Kong needs to nurture close collaboration between entrepreneurs and research institutions to boost the development of technology sector. Photo: LinkedIn
Hong Kong needs to nurture close collaboration between entrepreneurs and research institutions to boost the development of technology sector. Photo: LinkedIn

The missing links in Hong Kong’s tech development

Chief Executive Carrie Lam Cheng Yuet-ngor, in maiden her policy address on October 11, outlined her ambition to nurture the tech industry and create a new growth driver for the economy.

Among her new initiatives, Hong Kong will double its expenditure on research and development to 1.5 percent of gross domestic product (GDP) in the next five years to boost innovation.

Lam will lead a high-level steering committee covering different departments in order to improve government coordination in relation to tech sector initiatives.

On the same day when announced those plans, China’s Alibaba Group, controlled by billionaire tycoon Jack Ma, said it will set up a new research institute called Damo Academy and invest over 100 billion yuan.

The e-commerce giant plans to set up seven research labs in Beijing, Hangzhou, Singapore, Moscow, Tel Aviv, San Mateo and Bellevue. Hong Kong is not on Ma’s list.

The ratio of research and development (R&D) spending in relation to GDP is a useful gauge to assess the resources a government dedicates to technology and innovation.

Data shows that Hong Kong lags far behind on this measure, compared with top countries on the list, including Israel (4.72 percent), South Korea (4.23 percent), Japan (3.28 percent), Sweden (3.26 percent) and Austria (3.07 percent).

Meanwhile, Germany, US and China all spent more than 2 percent of their GDP on R&D, while Netherland, UK, Italy and Russia all spent more than 1 percent.

Even compared with major mainland cities, Hong Kong is way behind.

Take Shenzhen, for example. The city spent as much as 4.02 percent of its GDP on R&D in 2015, and it intends to further boost the ratio to 4.25 percent by 2020.

Eastern China’s Hangzhou city, where Alibaba has its headquarters, has seen its R&D spending reach 3 percent of the local economy. Elsewhere, Guangzhou, the capital city of Guangdong province, spent 2.5 percent of its GDP on research and development activities.

Beijing and Shanghai invested 6 percent and 3.7 percent of their GDP on R&D respectively. Singapore, a long-time rival of Hong Kong, spent 2.2 percent on such activities. In contrast, Hong Kong spent only 0.73 percent of its GDP on R&D last year.

Shenzhen is home to a number of technology giants including Tencent, Huawei, BYD, DJI, etc. As for Hangzhou, Geely Automobile also has its headquarters there, apart from Alibaba.

Overseas, California spent up to 3.5 percent of its GDP on R&D, with the region home to a number of technology giants.

Looking at Hong Kong, the city’s economy has four main pillars, namely finance, trade & logistics, tourism and professional services. All these sectors did not require high R&D spending.

Hong Kong spent around HK$18.3 billion last year on R&D. Hence, the city needs to add around HK$20 billion in order to lift the R&D spending ratio to 1.5 percent of GDP. Government-led spending will contribute part of that.

Nonetheless, we should not be overly obsessed with numbers. Spending more is easy, but getting results is the difficult part, and here is where Hong Kong suffers a real disadvantage.

We all know Hong Kong lacks technology firms on a sufficient scale. This makes it hard to foster cooperation among the business and academic sectors to turn research results into concrete products of commercial value, the profits from which can be used to support more R&D activities at universities, a system that Alibaba founder Ma advocates.

Shortcomings in the ecosystem are why it’s not easy for us to keep talents.

For instance, Frank Wang, who founded leading drone maker DJI from his dorm room at the Hong Kong University of Science & Technology, later decided to set up a manufacturing hub in nearby Shenzhen, where he could tap into a large pool of engineering talents and reliable manufacturers.

That said, Hong Kong does have several of the world’s top universities and they have been coming up with some great research results. Hong Kong is also a leading financial hub and home to several unicorns or billion-dollar startups, such as Think Labs, WeLab, TNG, GoGoVan, LaLaMove.

So while we do have what it takes to succeed, there are missing links, such as the kind of close collaboration between entrepreneurs and scholars seen in China. 

It is now up to Lam to take some steps to fill that gap.

This article appeared in the Hong Kong Economic Journal on Oct 13

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

– Contact us at [email protected]


Hong Kong Economic Journal columnist