Asian Education and Development StudiesEmerald Article: Hong Kong and the knowledge-based economy: developmentsand prospec...
The current issue and full text archive of this journal is available at                                                 ww...
entrepreneur skills and cheap labour from the Mainland in the late 1940s and                 Hong Kong:throughout the 1950...
AEDS   economic philosophy, except in developing the financial industries quite aggressively.1,3    In September 2006, Don...
pillar of “high education and training” when compared to the average amongst the            Hong Kong:OECD countries.     ...
AEDS   economy. The key concept behind the proposed “market niche” is that Hong Kong1,3    already has all of the “soft po...
compared to the size, scale and experience in commercialization that the Mainland             Hong Kong:universities have ...
AEDS   Canadian universities that follow the UW model are working better and more1,3    successfully than the other univer...
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Developments & Prospects of HK as a Knowledge-based Economy (Oct 2012)

  1. 1. Asian Education and Development StudiesEmerald Article: Hong Kong and the knowledge-based economy: developmentsand prospectsAlan Lung Ka-LunArticle information:To cite this document: Alan Lung Ka-Lun, (2012),"Hong Kong and the knowledge-based economy: developments and prospects", AsianEducation and Development Studies, Vol. 1 Iss: 3 pp. 294 - 300Permanent link to this document:http://dx.doi.org/10.1108/20463161211270509Downloaded on: 23-10-2012References: This document contains references to 6 other documentsTo copy this document: permissions@emeraldinsight.comAccess to this document was granted through an Emerald subscription provided by Emerald Author AccessFor Authors:If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service.Information about how to choose which publication to write for and submission guidelines are available for all. Please visitwww.emeraldinsight.com/authors for more information.About Emerald www.emeraldinsight.comWith over forty years experience, Emerald Group Publishing is a leading independent publisher of global research with impact inbusiness, society, public policy and education. In total, Emerald publishes over 275 journals and more than 130 book series, aswell as an extensive range of online products and services. Emerald is both COUNTER 3 and TRANSFER compliant. The organization isa partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archivepreservation. *Related content and download information correct at time of download.
  2. 2. The current issue and full text archive of this journal is available at www.emeraldinsight.com/2046-3162.htmAEDS1,3 Hong Kong and the knowledge- based economy: developments and prospects294 Alan Lung Ka-Lun Asia Pacific Intellectual Capital Centre, Hong Kong SAR, China Abstract Purpose – The purpose of this paper is to examine Hong Kong’s future economic diversification prospects to become a high value-added knowledge-based economy. Design/methodology/approach – This paper is a view of the knowledge-based economic development of Hong Kong and its potential future prospects since its re-unification with China. It is important to have a good understanding of the past before trying to predict the future. Findings – The key message is that Hong Kong now needs a “horizontal” support structure, a good understanding of how things work in a globalized knowledge economy, continuation of the “free market” structure and a lightweight facilitation system that supports all high-value added economic activities in Hong Kong. Originality/value – The papers provides an original viewpoint on the potential for Hong Kong’s knowledge-based economic development, in line with the rise of China as a global economic power. Keywords Hong Kong, Innovation, Economic growth, Globalization, Knowledge-based economy, Research and development Paper type Viewpoint Introduction As the current HKSAR administration comes to the end of its term, this is probably a good time to catch a glimpse of our past, so that we could have a better understanding of our future. This paper is about Hong Kong’s future economic diversification prospects to become a high value-added knowledge-based economy. It is not a dissertation about science and technology, nor is it an account of what Captain Charles Elliot (the first colonial administrator of Hong Kong) and the 28 colonial governors did in Hong Kong from 1842 to 1997. One of the strategies Hong Kong could consider to achieving such a goal is to make best use of our traditional strengths to find a unique “market niche” in the new opportunity provided by China’s rise and in a global economy driven by innovation and technology. However, we need to have a good understanding of the past before we try to predict the future. So perhaps we should start the story from the early 1900s when Hong Kong began building up its modern economic capacity. Hong Kong has always been about free trade Hong Kong was still a young colony at the time the University of Hong Kong was built in 1912. Shanghai was the centre of trade in China and was very much the focus of attention throughout the roaring 1920s and 1930s. Hong Kong has always been aboutAsian Education and Development free trade and has been innovative in trade. Probably because of this “traderStudiesVol. 1 No. 3, 2012 mentality”, we do not see the need in investing in the long term or in research andpp. 294-300 development as an economic development capacity. Hong Kong’s rapid rise to becomer Emerald Group Publishing Limited2046-3162 the trade and financial centre of Asia started at the end of the Second World War.DOI 10.1108/20463161211270509 Triggered by the founding of Communist China, there was a flight of capital,
  3. 3. entrepreneur skills and cheap labour from the Mainland in the late 1940s and Hong Kong:throughout the 1950s and 1960s. Hong Kong continued to thrive in the 1970s under developmentsBritish rule: experienced colonial administrators had provided the basic infrastructureas well as the legal and administration system that enabled trade and business to and prospectsthrive in Hong Kong. During the same period, China continued to make economicmistakes and had remained an inward-looking country isolated from the world’seconomic development. It was not until the end of the Cultural Revolution (1966-1976) 295and the beginning of Deng Xiao-ping’s “Reform and Opening” that China started itsmodernization programme. By that time, Hong Kong had already become one of the four “Asian Dragons”,along with South Korea, Singapore and Taiwan, between the early 1960s and 1980s.The beginning of the transfer of Hong Kong’s manufacturing industries into the PearlRiver Delta coincides with Mainland China’s “Reform and Opening” in the early 1980s.Hong Kong provided a third of China’s foreign investment in the early days of China’s“Reform and Opening”. Today’s China is the second largest economy of the world,accounting for more than 10 per cent share of the world’s GDP. China is still at the“Stage 2” of economic development where the main driver for growth is “efficiency”.Hong Kong, however, has developed economic status to the “Stage 3” of economicdevelopment (World Economic Forum, 2010). Over 90 per cent of today’s Hong KongGDP comes from the “service” sector and the main driver for this type of economy is“innovation” – not the more basic things such as “infrastructure”, “institution” and theoverall efficiency of the economy which Mainland China is trying to achieve. Along with Japan, Singapore and South Korea, Hong Kong is listed amongst the“OECD Countries” of Asia. Hong Kong is an economic miracle that took a differentroute from Japan and the other “Asian Dragons”. Japan’s technological capacitieswere built since the Meiji period of late nineteenth century. South Korea, Singaporeand Taiwan have all developed strong scientific and technological capacities out ofnecessity or an economic survival instinct. Even up to 2012, Hong Kong has largelybeen run under the economic philosophy of “positive non-intervention” of JohnCowperthwaite (Hong Kong Financial Secretary from 1961-1971). Hong Kong is aboutfree trade. Cowperthwaite believes in the free market – he explained that the aggregatedecision of businessmen is more likely to be right than the centralized decisions of agovernment when he made his first budget speech in 1961. Today’s Hong Kong has all the necessary conditions to become a “knowledge-basedeconomy”. We are probably better placed that any other cities in China to start thejourney for Hong Kong and for China as a whole. However, unlike Mainland China,Hong Kong has almost no experience in building up research and development (R&D)capacity or related economic activities that require a longer-term view into the future.Yes, there was a short departure from this “proven” Cowperthwaite strategy underTung Chee Hwa, the first Chief Executive of HKSAR, who coined the “four pillarindustries” – “financial services”, “trade and logistics”, “tourism” and “professionalservice”. Against traditional wisdom of “free trade” and “positive non-intervention”,Tung took Berkeley Professor Tien Chang-lin’s advice and pushed ahead with buildingthe Hong Kong Science and Technology Park and started funding initiatives underthe Innovation and Technology Commission. Tung resigned in March 2005 but heshould be given the credit for having the foresight to build up the innovation andtechnology capacity Hong Kong now has today. It is probably fair to say that Donald Tsang, the second Chief Executive, who led theHKSAR Government since April 2005 has largely reverted back to the Cowperthwaite’s
  4. 4. AEDS economic philosophy, except in developing the financial industries quite aggressively.1,3 In September 2006, Donald Tsang explained that he was certain that citizens in Hong Kong would endorse his policy of “big market, small government” and that there was consensus in the community that the government’s basic role was to provide a framework for the market to operate effectively. Donald Tsang, who was Hong Kong Financial Secretary from 1995 to 2001, has remained a good student of296 Cowperthwaite and other financial secretaries of Hong Kong who preceded himself. Yet after the Global Financial Crisis of 2008, Tsang launched the “six new economic pillars” (“education services”, “cultural and creative industries”, “inspection and certification”, “medical services”, “environmental protection industry” and “innovative science and technology”) alongside the “four pillar industries” of Tung Chee-hwa. The conflict between these two opposite economic philosophies of “free market” v. “picking winners” was never resolved during Tsang’s regime. Probably because of this unresolved conflict at the philosophical level, the “six new economic pillars” were not executed fully in the three years since it was announced in 2008. Its seems to me that Hong Kong does not understand that more advanced OECD countries tend to deploy a “horizontal” industry-support strategy and offers support to all knowledge-intensive industries and not the “vertical” support approach of picking winning industrial sectors in centrally planned economies. John Cowperthawaite’s instinct was probably correct. In a free market economy, government cannot predict the winning industries and where the next burst of economic growth might come from. However, Hong Kong does seem to fully understand Cowperthawaite’s philosophy as one of the requirements of “positive non-intervention” is the “positive” part – that government must not stand still and must do as well as it possibly could. What the World Economic Forum’s “Global Competitiveness Report” tells us? Publicity churned out by the HKSAR Government always highlights Hong Kong’s “freest economy” rating and Hong Kong’s global competitiveness ranking. It seems that the Government genuinely cares about those ratings but is less interested in publicizing that the World Economic Forum acknowledges that growth of the advanced economies of the world come from “innovation” not “infrastructure” and “efficiency factors” alone. The World Economic Forum’s Global Competitiveness Report 2010-2011 lists Hong Kong amongst the OECD countries at “Stage 3 development” – where “innovation” – not “basic requirements” and “efficiency enhancers” – are the key driving force for further economic growth. Out of 139 countries and territories surveyed, Hong Kong has an overall ranking of 11th, ahead of Mainland China (27th), South Korea (22nd), UK (12th) and Taiwan (13th) but behind Singapore (third) and Japan (sixth). Hong Kong ranks first in the world in terms of meeting the overall “basic requirements” category of economic development pillars – particularly achieving the world Number 1 position in the second pillar of “Infrastructure”. Hong Kong is also Number 2 in the world in terms of meeting the overall “efficiency enhancers” requirements – in particular achieving the world Number 1 ranking in our sixth pillar of “financial market development”. Hong Kong is now ahead of New York and London in this particular economic development pillar. However, Hong Kong ranks number 24 in terms of overall “innovation and sophistication factors” – doing poorly in the 11th pillar of “business sophistication” (17th) and 12th pillar of “innovation” (29th). The Report also shows that Hong Kong is under-performing in terms of the fifth
  5. 5. pillar of “high education and training” when compared to the average amongst the Hong Kong:OECD countries. developmentsHong Kong must find its own market niche and prospectsFrom the figures, it seems that further economic growth in Hong Kong cannotcome from further investment in hard infrastructure alone. Such investment willdeliver diminishing economic returns and does not necessarily create the driving forces 297now needed by Hong Kong as an advanced “OECD economy”. Investing in massiveconstruction projects does not create the high-quality employment opportunitiesexpected by the younger generation either. In the “efficiency enhancement” area, HongKong is already at the top of the world rankings in terms of its “financial marketdevelopment”. Yes, Hong Kong should try to consolidate this Number 1 position, but anarrow focus in the financial industry cannot bring the economic diversificationneeded. Letting Hong Kong be at the mercy of a turbulent global financial marketcannot be the only answer for economic growth either. As a developed and high-cost territory, Hong Kong does not have many choicesbut to follow the examples of the OECD countries, become innovative and support allhigh-value-added industries, regardless of whether they are “R&D”, “service” or“manufacturing” industries. As part of China under “one countries, two system” andyet seamlessly connected to the economies of the world, Hong Kong is an extremelygood position to connect Mainland China to the world and extract extremelyhigh-economic value from it. Such economic activities could include assistingMainland enterprises to “go out” or to assist international companies to use Hong Kongto “go into” China. Particularly, Hong Kong should make best use of some of itstraditional strengths that include a separate legal and administrative systems andfurther developing Hong Kong professional service capacity into an economicdevelopment capacity that can handle “commercialization” of scientific output fromMainland China and around the world. In this future process of economic transformation, Hong Kong cannot be completelyignorant of “R&D” and technology. Hong Kong should not repeat what MainlandChina and the world are already doing either. One of the strategies Hong Kong couldconsider is to focus on the last 10 per cent of the process that leads tocommercialization of products. Such an approach will involve broad upgradingof our knowledge-based economy capacity, including R&D, industrial and professionalservice capacities. This is not a narrow “picking winners” approach to economicdevelopment as described by the opponents of “innovation and technology”. Coordinated economic diversification strategy and policy measures need to beidentified by the incoming HKSAR Government and implemented properly in the nextfive to ten years (see Lung, 2011b). To begin with, Hong Kong should recognize thatChina is now rich and money from Hong Kong will be of less relative valued whencompared to the early days of “Reform and Opening”. Hong Kong’s intangiblecompetitive advantages are often referred to as Hong Kong’s “soft power” – rule of law,efficient institutions, the freest economy in the world, corruption free government,freedom of speech and free flow of information, 1 July 2012 is the beginning of a five(or ten) year period. This presents an opportunity for change and for Hong Kong tothink hard about what we ought to be doing to achieve sustainable economic growth inthe next ten year. Hong Kong is well placed to transform itself from a traditional “trading hub” tobecome as well a “knowledge hub” and a key player in the globalized knowledge
  6. 6. AEDS economy. The key concept behind the proposed “market niche” is that Hong Kong1,3 already has all of the “soft power” which Mainland China is still trying to develop. With the small addition of a strategy, more coordinated government policies, and cooperation from the regional economies in Europe and around the world that wish to work with China, Hong Kong has everything it needs to turn itself into a world class knowledge-based economy. In this transformation process, Hong Kong can reap very298 substantial economic benefit by positioning itself as the centre of excellence for technology commercialization for China as a whole. Hong Kong’s innovation and technology role in China’s 12th Five-Year Plan Hong Kong must not write off the National 12th Five-Year Plan idea as nothing more than central planning. Despite conflicting views about central economic planning, Hong Kong cannot afford not to try to find a footing (positioning) and a more active role in China’s 12th Five-Year Plan. Insisting on “laissez-faire” is not a feasible alternative. At the very least, Hong Kong must not miss out on China’s rapid economic development and run the risk of becoming totally irrelevant to the second largest economy in the world (Lung, 2011a). Hong Kong should not look at the exercise from a pure mercantile viewpoint and an opportunity to grab more commercial interests either. No one should believe that Shanghai – or any city or province in China – would stop developing because of successful jockeying of certain narrow economic benefits for Hong Kong from the Central Government through the 12th Five-Year Plan. We should, therefore, take a wider social and economic development view on Hong Kong. At the same time, we should examine what specific strategy Hong Kong might undertake to help China’s national development objectives, and how Hong Kong might make use of this opportunity for our own economic transformation. As stated in the National 12th Five-Year Plan, economic planners at the Central Government level would support Hong Kong’s: consolidation and advancement in its roles as international finance, trading and logistics centres; innovation capacity in business and industries; coordinated economic and social development; and regional economic cooperation between Guangdong, Hong Kong and Macau. For the purpose of finding a useful role for Hong Kong, we should treat these objectives as some of the desirable goals and not as unmovable directives from above. Specific factors which give Hong Kong distinct advantages over Mainland China in the area of “innovation and technology” include: a free press, freedom of information, rule of law, a corruption free and professional civil service and a very liberal and free thinking environment. Hong Kong is a territory of China that has done most of the important things right and a territory Mainland China could continue to look at when faced with confusion regarding policy choices. Hong Kong does have some advantages in terms of rule of law and societal freedom. This is the main reason why Google decided to “shut down” Google-Beijing and China Telecom made up its mind to set up its “International Headquarters” in the HKSAR where data can be protected far more easily than the Mainland. As of 2012, about ten major data centres, such as Google, HSBC and China Telecom, are being built in Hong Kong. These Hong Kong advantages have also been described as the essential “first-level business conditions” which enable Hong Kong to develop all the “second-level business conditions” – the essential ingredients to turn into a world-class innovation and technology centre and incubation and commercialization hub to service R&D outputs from Hong Kong, Mainland China and from the world (Hong Kong Bauhinia Research Foundation, 2006, 2007). However,
  7. 7. compared to the size, scale and experience in commercialization that the Mainland Hong Kong:universities have already possessed, Hong Kong does not really have any advantage developmentsover the Mainland. The Hong Kong higher education does not really invest heavily inresearch and technology, compared to the Mainland counterpart. and prospectsLessons from OECD countriesThe knowledge-based economy is not just about creating or pushing back the frontier 299of knowledge. It is also about the creation of wealth through commercializationof knowledge. The OECD defined “knowledge-based economies” as economies that aredirectly based on the production, distribution and use of knowledge and information. Itwas estimated that more than 50 per cent of GDP in the major OECD economies is“knowledge-based” (OECD, 1996). There is a higher demand for highly skilled workersin knowledge economies and correspondingly higher unemployment rate for thosewith lower-secondary education. While OECD countries have been losing jobs in themanufacturing industries, employment is growing in the high-technology, high-skilledsectors such as computers and pharmaceuticals. Facilitation from HKSAR Government is probably necessary. Such a move shouldnot be equated to Hong Kong abandoning the “free market” principle. A coordinatedpolicy and some facilitation would support creative and scientific start-ups, and theR&D outputs from Mainland China and Hong Kong, and would absorb the supplyof young university graduates effectively. Hong Kong, however, has been applying itsknowledge and strength in a rather piecemeal fashion. The “intellectual argument”behind Hong Kong’s economic development is an on-going issue amongst detractors(and therefore the general public) who might see any sort of government “facilitation”as economic “intervention”. In fact, this is just only one of the many “intellectual arguments” amongst manysocial, economic and political issues faced by Hong Kong. Hong Kong is the part ofChina that has been doing all the important things right: now the British are gone,we must think for ourselves. Based on its own unique history and political position aspart of China under “one country, two systems”, we must find our own irreplaceablerole in the context of Hong Kong as a city of China. The need to avoid failures alsoneeds to be balanced against the opportunities of success, national goals and the socialand economic well-being of Hong Kong’s own population. Hong Kong has always beenpragmatic. We have always faced difficulties with optimism and found solutions. Wehave always done it through hard work – not lingering inactivity. Practically, we have much to learn from some OECD countries. For example, theFinland model is relatively unrivaled as its “old money” (i.e. funded by very wealthyindustrialists, the so-called “grateful entrepreneurs” who have made billions fromthe production of pulp and timber) is used to help technology start-up through a veryspecific incubation programme at some Finnish universities. The Finnish modeldemonstrates how universities engage in technology-related investment – aphenomenon found in Mainland China but not really in the case of the HKSAR.Besides, there are also other models for the HKSAR government and higher educationto consider. In Canada, almost half of the universities are now following the “Universityof Waterloo (UW) Model” in which university researchers can develop and possesstheir own patents – precious products of their innovation and creativity. However,according to the Chairman-Designate of the Canadian Association of UniversityTechnology Manager, who is actually a Canadian scholar from the University ofOttawa whom I met in Beijing in 2012, said that there is no evidence showing those
  8. 8. AEDS Canadian universities that follow the UW model are working better and more1,3 successfully than the other universities. In short, Hong Kong may need to experiment with everything that can contribute to technological innovation and also economic profits – not an easy task amidst the need to change business culture and to build territory-wide community consensus. It has been 15 years since Hong Kong’s reunification with China but the big300 hurdle to Hong Kong’s successful development into a world class knowledge economy is still an unsolved intellectual argument. This paper does not advocate a “vertical”, sector-by-sector approach to economic facilitation. The key message is Hong Kong now needs a “horizontal” support structure, a good understanding of how things work in a globalize knowledge economy, continuation of the “free market” structure and a light weight facilitation system that supports all high-value added economic activities in Hong Kong. In Beijing, our national leaders have kept the promise and have been relying on Hong Kong people running Hong Kong under “one country, two systems”. The world is now watching. It is now up to us to find our own way to develop Hong Kong into a world class knowledge-based economy. References Hong Kong Bauhinia Research Foundation (2006), “Hong Kong competitiveness: a multidimensional approach, phase I report: international views of Hong Kong’s competitiveness”, available at: www.bauhinia.org/ESA-Bauhinia-Part1-Report-2006-09- 26-A.pdf (accessed 24 May 2012). Hong Kong Bauhinia Research Foundation (2007), “Hong Kong competitiveness: a multidimensional approach, phase II report: industry level competitiveness”, available at: www.bauhinia.org/index_en.php Lung, A. (2011a), “Hong Kong’s innovation and technology role in Mainland China’s 12th five year plan”, available at: www.apicc.asia/wp-content/uploads/2011/03/HKs-Inno-Tech-Role- in-12-5.pdf (accessed 24 May 2012). Lung, A. (2011b), “Policies and practices for Hong Kong as a knowledge economy and the proposed innovation and technology bureau”, available at: www.apicc.asia/wp-content/ uploads/2011/11/Inno-Tech-Bureau-English-25-7-2011.pdf (accessed 24 May 2012). Organization for Economic Co-operation and Development (1996), The Knowledge-Based Economy, OECD, Paris. World Economic Forum (2010), The Global Competitiveness Report 2010-2011, World Economic Forum, Geneva. About the author Alan Lung Ka-Lun was born and educated in Hong Kong. He was also educated at the University of Wisconsin in the USA and Wilfrid Laurier University in Canada. He chairs the Hong Kong Democratic Foundation (www.hkdf.org), a political and public policy think tank founded in 1989. He is skilled in converting his knowledge of governments and public policies into practical steps to move forward “Knowledge Economy” initiatives. He is a member of the Innovation and Technology Advisory Committee of the Hong Kong Trade Development Council (HKTDC) and he has been promoting innovation and technology practices in Hong Kong, Guangzhou and Beijing through the Asia Pacific Intellectual Capital Centre (www.apicc.asia) (where he is Director and General Manager), since 2006. Alan Lung Ka-Lun can be contacted at: alanlung@apicc.asia To purchase reprints of this article please e-mail: reprints@emeraldinsight.com Or visit our web site for further details: www.emeraldinsight.com/reprints

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