The 2024 Policy Address delivered by Hong Kong Chief Executive John Lee Ka-chiu on Oct 16 has introduced a new set of policy measures to promote Hong Kong’s innovation and technology (I&T) development. The government will draw up a medium-to-long-term development plan for new industrialization in Hong Kong. It will increase public investment for I&T sectors, promoting closer collaboration among the government, industry and academia in research and development, launching a new round of the Research Matching Grant Scheme, totaling HK$1.5 billion ($193.05 million).
In addition, to enhance Hong Kong’s innovation ecosystem, the government will set up a HK$10 billion I&T Industry-Oriented Fund to channel more market capital to invest in strategic emerging industries, such as life and health technology, artificial intelligence and robotics, semiconductors and smart devices, advanced materials and new energy. It will also deploy HK$1.5 billion to set up funds jointly with private partners, on a matching basis, to invest in the startups of targeted strategic industries. Through Hong Kong Investment Corp Ltd, the government will try to maximize the impact of “patient capital” in promoting innovation and industrial development.
Moreover, to attract international startup accelerators with proven track records to Hong Kong, the government will launch the I&T Accelerator Pilot Scheme with a funding allocation of HK$180 million at a 1-to-2 matching ratio between the government and the institution, up to a subsidy ceiling of HK$30 million.
These policy measures will provide a new impetus for Hong Kong’s I&T development as they help to increase R&D investment, leverage the potential of combining public investment with private sector capital, as well as harnessing the strength of Hong Kong’s financial prowess, international linkages, and open innovation networks.
The relatively lackluster investment in R&D has long been a structural weakness of Hong Kong’s economy. Despite the substantial growth in recent years, Hong Kong’s R&D expenditures’ size and intensity remain relatively low. In 2022, Hong Kong’s gross domestic expenditure on R&D amounted to around HK$30 billion, equivalent to 1.07 percent of its GDP. It represented a substantial increase compared with 2014, when Hong Kong’s R&D expenditure was less than HK$17 billion, equivalent to only 0.74 percent of its GDP. In comparison, Shenzhen’s R&D expenditure reached around 188 billion yuan ($26.4 billion) in 2022, equivalent to 5.8 percent of its GDP. Guangzhou’s R&D expenditure was around 99 billion yuan, equivalent to 3.4 percent of its GDP. The R&D expenditures of Dongguan and Foshan were around 46 billion yuan and 36 billion yuan respectively, amounting to 4.1 percent and 2.8 percent of their respective GDPs.
The different levels of R&D expenditures among cities in the Guangdong-Hong Kong-Macao Greater Bay Area reflect their different comparative advantages and economic structures, so a simple comparison may be misleading. However, few would deny that Hong Kong needs to invest more in R&D to strengthen its innovation capability and long-term competitiveness.
Apart from increasing public investment in R&D, how to leverage the potential synergy between public funding and private market capital is also crucial for building a competitive innovation economy. In terms of the source of funding, 54 percent of the expenditures on R&D activities in Hong Kong were financed by the government in 2022, while the business sector contributed around 40 percent. In terms of the sectors that perform R&D activities, the higher education and government sectors accounted for 59 percent, while the business sector constituted 41 percent in 2022. This is very different from the R&D investment structure of Shenzhen, where the business sector accounts for over 90 percent. From this point of view, Hong Kong’s innovation is heavily driven by the public sector, while Shenzhen’s innovation is primarily powered by the business sector.
Innovation is inherently an uncertain and risky process. We need a robust pool of smart “patient capital”, from both the public and private sector, to nurture a vibrant innovation ecosystem. To enhance the role of the business sector in Hong Kong’s innovation system, it’s vital to attract and nurture both well-established large leading firms (or “dragon-head” enterprises) and a dynamic portfolio of startup companies to invest in Hong Kong.
As an international financial center, Hong Kong should harness its financial prowess and explore innovative forms of financial organizations, market instruments and investment mechanisms to finance innovation more effectively. The establishment of the Hong Kong Investment Corp and various I&T industry-oriented funding arrangements are important breakthroughs in crafting mechanisms to better align market capital with the government’s strategic vision, but their success will depend on their operational development in the future.
A key source of Hong Kong’s competitive advantage is its openness and international linkages. Hong Kong’s I&T development is an integral part of the broader regional, national and global innovation networks. In 2022, the GBA contributed around 15 percent of China’s R&D expenditures, with Shenzhen and Guangzhou playing a leading role in orchestrating the regional innovation networks and supply chains. While the size of Hong Kong’s R&D expenditure is significantly lower than Shenzhen and Guangzhou, Hong Kong has a unique role to play in the GBA’s regional innovation networks as a highly internationalized connecting platform, or as Chief Executive Lee put it, a “superconnector” and “super value-adder”.
To the extent that it can, Hong Kong needs to be simultaneously well-connected with the West, the East and the South in an increasingly fragmented global geo-economic environment, harnessing and strengthening its international linkages to facilitate innovation. It’s going to be a challenging process, but that will be the nature of the new game.
Under the leadership of Lee and his team, the recent few years have witnessed a profound reorientation of Hong Kong’s innovation policy and the revamping of traditional policy practices, with the government now playing a much more proactive role in articulating the vision, deploying resources and developing policy tools for I&T development. It’s one of the areas in which we have seen substantial progress of reforms, but it also needs continuous further efforts to achieve more success. The policy measures introduced in the 2024 Policy Address represent strategically important new steps in this process.
The author is an associate professor and associate director at the Centre for China Studies, the Chinese University of Hong Kong; and a member of the Chinese Association of Hong Kong and Macao Studies.
The views do not necessarily reflect those of China Daily.
