Hong Kong competitiveness ranking decline reflects reality

By Hilton Yip Source:Global Times Published: 2015-5-31 20:38:01

More diversified approach urgently needed

Illustration: Peter C. Espina/GT

The latest indication that Hong Kong needs to diversify its economy came in the form of a report released by the Chinese Academy of Social Sciences (CASS) on May 15, which stated that Shenzhen was the most competitive city in China in 2014. Hong Kong had occupied the top spot for the previous 10 years but it was dethroned by the city across the border last year, mainly due to Shenzhen's burgeoning tech sector.

In the past few years, Shenzhen has seen the sprouting of many start-ups, which, together with giants like Huawei and Tencent Holdings, have created the mainland's most vibrant tech cluster. In contrast, Hong Kong is seriously lagging in this field, with a small start-up scene that attracts relatively little support.

While the public and private sectors only spent 0.73 percent of Hong Kong's GDP on research and development in 2013, Shenzhen spent 4.05 percent of its GDP on these fields in 2014. The Chinese mainland and Japan also spent higher percentages on research than Hong Kong.

This isn't to say nobody in Hong Kong has acknowledged the need to foster tech talent, but the attempts have been woefully inadequate. From large but ineffectual government projects like Cyberport to limited funding and support for start-ups, various measures taken to create a local tech sector have been minor.

The case of DJI Technologies, which is now the world's biggest maker of aerial drones, is a striking example. The founder is a mainland-born engineer who graduated from a Hong Kong university and had thought of starting a company in the special administrative territory, but ultimately decided to do it in Shenzhen, according to reports.

Even in comparison with regional rival Singapore, Hong Kong comes out second best. The start-up scene in Singapore is considered one of the most developed in the region.

For instance, venture capital spending in tech in 2013 was $1.71 billion in Singapore. In Hong Kong for the same year, it was $15 million, according to data from Asian Venture Capital Journal. Singapore also has had more government support in terms of funding and cheap office space.

Besides technology, entrepreneurship in other sectors is difficult for young people in Hong Kong. It is hard to start up a small business due to high shop rents and a lack of affordable office space. The recent controversy over mainland parallel traders was exacerbated by the proliferation of shops selling daily goods for the traders while property owners jacked up rents accordingly. This both pushed existing shops like restaurants out of business while making it hard for budding entrepreneurs.

The problem isn't just government ineffectiveness and lack of support. Hong Kong's status as a financial and commercial hub has resulted in a societal culture that has a fondness for money and spending it.

This means that many parents often push their children to study business and other related fields like economics and commerce at the expense of computer science. For instance, I have a Hong Kong relative who is an engineer but pushed all three of his children to study business in university, which they did.

This conservative and risk-averse attitude also extends to companies. Meanwhile, Hong Kong companies do not tend to branch out or innovate significantly, as seen by the lack of Hong Kong companies overseas and the low percentage of funds spent on research and development. This has been an area of concern that has been blamed on the excessive importance placed on property, which is exorbitantly expensive in Hong Kong and hence an easy revenue-earner.

With mind-sets such as these, Hong Kong will always face a lack of computer engineers, developers and programmers to create a vibrant local tech scene. With booming Shenzhen next to it, many talented mainland entrepreneurs and engineers will probably avoid Hong Kong as well.

Hong Kong has long focused on finance and tourism, while neglecting small businesses. It is unfortunate that the local government's attempt to create an "innovation and technology" bureau was blocked earlier this year in the legislature, though perhaps more bureaucracy is not the answer.

The local authorities can do more, such as increasing funds for entrepreneurs and making cheaper office space available, while perhaps encouraging young people to study technology-related fields.

While Hong Kong has a small population and lacks a large local consumer market, it has advantages such as bilingualism, strong Internet connectivity, and an open online, media and legal environment. It also boasts close proximity to Shenzhen and the manufacturing hubs in Guangdong Province. There are local and expat entrepreneurs trying to create good start-ups but the authorities could do more to help.

The answer may not necessarily be technology, but Hong Kong's mentality needs to change. Hong Kong needs to move beyond just finance and tourism, not just to boost its economy, otherwise it could find itself in danger of falling behind even more in competitiveness and innovation.

The author is an editor with the Global Times. bizopinion@globaltimes.com.cn

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