There I was, in the late 1980s, working in AMD, a Silicon-Valley chip manufacturer. My boss, the VP of International, called me into his office one day. He asked me to relocate back to Asia where I came from, to expand our Asian business. Like a good soldier, I packed my family, moved back to Hong Kong, and then soon to Taiwan.
By early 1989, AMD was beginning to turn the table on arch-rival Intel in the Taiwan market. Emboldened about our potential elsewhere in Asia, I developed a proposal to enter the embryonic China market. The executive board liked the proposal, and was about to implement the China entry plan. And then on June 4th, the Tiananmen Incident erupted in Beijing. Top management hesitated, and eventually decided to shelf the plan. Almost ten years would elapse before the company resolved again to enter China. By then Intel's worldwide revenue had grown ten-fold, riding on a strong China business. AMD was left in the dust, a setback from which it has yet to recover.
In 1995, Compaq relocated me to Hong Kong on the eve of the 1997 sovereignty "Handover". Surprised friends derided, asking "Why on earth are you moving back there when Communist China will take over soon?" Fortune magazine even declared "The Death of Hong Kong" in its famous June 26, 1995 cover story.
Travails and Lessons
How wrong they were! Top brass at a top-drawer company, well-intentioned friends, as well as a highly respected business magazine.
Two key lessons learned.
First, Business is war! As Sun Tzu pointed out in his treatise "Art of War", timing is critical, "Like the decisive swoop of a falcon which enables it to strike and make a kill (孙子势篇:激水之疾,至于漂石者,势也;鸷鸟之疾,至于毁折者,节也。是故善战者,其势险,其节短。).
Second, underestimate China at your own peril! Back in the early 1990s this may ring hollow to friends in the West. But it is intuitive to anyone who understands this country's history, and the potential of the world's oldest continuous civilization. China suffered a series of invasions, humiliations, famines, revolutions, setbacks and socio-political upheavals starting mid nineteenth century, and did not disintegrate. This was followed of course by the country's revival in the last forty years.
Napoleon Bonaparte allegedly made a prescient warning over 200 years ago, "When China wakes, she will shake the world." I can almost imagine this French Emperor now pointing eastward in his grave, exclaiming, "Voilà! What did I tell you?"
The 2021-2022 Hong Kong Budget
Against the backdrop of these lessons, I took a deep look at the HKSAR Budget after it was released on February 24.
It is gratifying to see that the HKSAR government had allocated over HK$100 billion to support the development of innovation and technology (I&T). In particular, HK$4,750 million per year will be injected to the Innovation and Technology Fund (ITF) two years in a row. Also, the GBA Youth Employment Scheme launched early this year will provide 700 I&T jobs to encourage enterprises to employ Hong Kong's graduates to work and receive on-the-job training in the GBA.
However, the Budget does not adequately address how Hong Kong can integrate into the GBA in terms of I&T. China's promulgation of the GBA Planning Outline, as well as the 14th Five-Year Plan (2021–2025), are bringing huge opportunities for the future development of HK's technology industry. While Shenzhen continues roaring ahead in I&T, Hong Kong is still lethargic in its integration and interaction with Shenzhen's I&T development.
This is an area for substantial improvement.
As one of the core engines in the GBA development, Hong Kong possesses strengths in various aspects of technology, as well as certain weaknesses. HK will do well by leveraging the strengths and overcoming the weaknesses.
Hong Kong's Strengths
Hong Kong has comparative advantages in numerous aspects of technological development. The following are a few key strengths.
Overseas Talent
In addition to cultivating local talents, Hong Kong also attracts talents from overseas and the Mainland. This strength in diversity is reflected in the city's startup ecosystem. InvestHK's 2020 survey reported a total of 3,360 startups (an increase of 6% from 2019). A quarter of the startup founders in the city hail from countries of origin outside HK. This international outlook, coupled with local talent with their language capabilities and market knowledge, created strong startups. The city boasts eight unicorns. The branding of HK as "Asia's World City" is designed to reflect and leverage this strength. Startups and multinationals alike, attracted by the huge China market, find it easier to set up their R&D in HK. Even Mainland China's returnees find it easier to work, live, do business as well as educate their children here.
Higher Education
As reported by SCMP and others, 5 of Hong Kong's universities have been ranked among the world's top 100 tertiary institutions. In US News' 2021 ranking of Asia's universities, 3 out of the top 10 are in HK. The 2019 social unrest has put a dent in this strength, and neighboring cities such as Shenzhen are working feverishly to close the gap.
Education is a very long-term endeavor. As the Chinese proverb maintains, "While it may take only ten years to nurture trees, it takes a hundred years to educate a generation of people" (十年树木,百年树人). Therefore, HK will not easily lose its commanding advantage here. That said, however, I can see the GBA campuses of Hong Kong's universities growing much faster than their HK mother ships. While the HK branding will be kept, the Shenzhen branch of a HK-based university may eventually turn itself into a quasi-"main campus".
Government Policy
The HKSAR government has listed the development of I&T as a priority policy. It listed biotechnology, artificial intelligence, smart cities and financial technology as areas of focus. It doubled R&D investment to a target of 1.5% of GDP. It also actively joined the global battle for talent and launched a plan to develop a research talent pool. In addition, it is expanding the HK Science Park, Cyberport and other parks to help incubate technology companies, while continuing the I&T venture capital fund, which will jointly invest in local innovative tech start-ups with private VC funds in the form of matching.
One Country, Two Systems
Hong Kong enjoys very unique dual advantages. Hong Kong is a part of China, but it also operates under a different economic, legal and social system from the Mainland. As a highly open and international city, HK continues to benefit from the common-law judicial system, the free flow of information, IPR protection, as well as many other everyday realities familiar to the international business communities. HK can easily extend the experience of international connections in scientific and technological innovation to the Mainland, and vice versa. It can also conduct R&D projects jointly with scientific research forces and enterprises in the Mainland as well as overseas. To borrow the term used by Leung Chun-ying, the third Chief Executive of HKSAR, Hong Kong fulfills a special role as the "super-connector" between China and the rest of the world.
Hong Kong's Weaknesses
Frequently cited impediments of doing business in Hong Kong include high costs, the lack of space, as well as the difficulties of opening a bank account. Instead of dwelling on these, I will outline several other weaknesses with specific significance for techies and startups.
Low investment in R&D
The SAR government's investment in scientific research only accounts for about 0.7% of Hong Kong's GDP, against a target of 1.5%. This continues to be far lower than that of neighboring countries. For example, the figures in Japan, South Korea and Taiwan range from 3% to 5% [According to Wikipedia, latest data available shows the following R&D spending as a % of GDP: China (2.1%), Singapore (2.2%), Taiwan (3.1%), Japan (3.2%), South Korea (4.3%), Israel (4.9%)]. As a consequence of this shortfall, it is relatively difficult to retain top scientists for any substantial length of time.
Commercialization
Hong Kong is strong in research capabilities, but weak in industrial development. Hong Kong's scientific research is dominated by universities and mostly engaged in cutting-edge upstream research. Although the government strongly supports it, it lacks an effective incentive mechanism for the transformation of results.
Scale
Due to the small size of HK's local market, it is difficult to build a scale advantage. Therefore, the result of its scientific research often lacks the support of an industrial ecosystem. This limits the opportunities for midstream transfer and downstream expansion. After a tech startup is initially created, it has to grow and expand where it is close to the market. As the case examples of DJI and SenseTime demonstrated, such expansions are often best achieved in the GBA, with its lower overall costs, larger market scale and ample resources for further development.
Integration into the GBA
Hong Kong is at a crossroads. A window of opportunity has opened for the city to prosper by leveraging its integration into the rest of the GBA. This requires HK to cultivate a renewed identity as a key part of a successful city cluster. In Part Two of this article, I will examine the reasons why it is crucial for the city to seize this window of opportunity.
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