Confident

(Translation)

Introduction

The innovation and technology industries are one of the priority industries put forward by the incumbent Chief Executive (CE) in his election manifesto. As stated in the 2014 Policy Address, the CE will initiate the setting up of an Innovation and Technology Bureau and work with various sectors to formulate the objectives and policies for the development of innovation and technology in Hong Kong. Endowed with a range of strengths, Hong Kong is well-positioned to develop its innovation and technology industries. Nonetheless, to develop the innovation and technology industries into one of our pillar industries, specific policies have yet to be formulated and input of more resources is necessary. The study has reviewed the local policies on innovation and technology as they currently stand, analysed various key factors and essential conditions for developing the innovation and technology industries, and made reference to international experience in developing the industries.

Background

2. In retrospect, despite over 30 years of economic restructuring, Hong Kong has yet to notch up notable success in the area of innovation and technology. With the relocation of our production base to the Mainland and the increasingly close ties of trade between Hong Kong and the Mainland, our economy and employment market structure is driven by the service industry. In 2012, our expenditure on research and development (R&D) as a ratio of Gross Domestic Product stood at 0.73% and the number of R&D personnel (in full-time-equivalent term) was around 25 300, which was equivalent to 0.67% of Hong Kong’s labour force for the same period.

Annex II

3. Hong Kong has many advantages which are conducive to the development of innovation and technology industries. To name a few, Hong Kong has universities with strong research capabilities, an outstanding pool of research talent, free flow of information, well-established infrastructures, the rule of law, a sound regime for intellectual property (IP) rights protection, as well as well-developed financial and capital markets.

Nevertheless, private enterprises in Hong Kong are not keen on investing in local innovation and technology development. Local universities are faced with a lack of channels for commercialisation of R&D results, and not many local research graduates with science and technology background regard Hong Kong as their first choice of place for career development.

Benefits of developing innovation and technology industries

4. Hong Kong has a pool of young technology talent who are innovative and possess knowledge of science and technology. The Government’s commitment to promoting the development of innovation and technology industries can provide these young people with opportunities to unleash their potential. Meanwhile, apart from improving our quality of life as well as facilitating the upgrading and restructuring of industries that will enable the development of more competitive products and services, technological inventions and applications can also create new markets and development opportunities for start-ups. The development of Hong Kong into a leading innovation and technology hub in the Asia-Pacific region can create high value-added employment opportunities and facilitate sustainable development of our economy.

International experience

5. International experience tells us that the development of innovation and technology industries requires close collaboration amongst the government, private enterprises and international investors. On the part of the government, its role is to create an institutional environment that can facilitate the flow of knowledge and the formation of industry cluster network so as to enhance the innovation capabilities of enterprises, and also to provide various financial support such as tax incentives. By making reference to the current position of Asian regions as well as countries and regions around the world in the development of innovation and technology, the study has come to the observation as summed up below in seven respects:

(1) Quite a number of countries and regions have drawn up systematic medium-to-long term technology development plans with concrete implementation details so as to guide the efforts of local business sectors and researchers to a specific direction, for example, South Korea’s “577 Initiative” and China’s "Summary of the National Plan on Medium and Long-term Development in Science and Technology (2006-2020)".

(2) Quite a number of countries and regions have set up government-affiliated businesses to promote the development of specific industries for ensuring the implementation of government development plans and policies at the commercial level. Examples include government-linked corporations in Singapore and Chaebol enterprises in South Korea.

(3) In some countries and regions, venture capital funds and technology incubator programmes are launched jointly by the government, local investors and overseas investors to support the development of start-ups. An example is the Yozma Fund of Israel.

(4) In many countries and regions including the United States and China, the government promotes innovation among local enterprises and duly introduces alternative measures of import substitution through procurement policies. For instance, China’s Administrative Measures for the Government Procurement of Imported Products provides that when purchasing products, it shall adhere to the principle of being conducive to domestic enterprises' indigenous innovation or assimilation of core technology from overseas.

(5) To promote the development of innovation and technology industries, many countries and regions have devoted considerable resources to nurture talent in the area of innovation and technology, and provide local outstanding

Furthermore, they take an active part in attracting international technology companies to set up business in their countries or regions so as to provide graduates with employment opportunities in related industries.

(6) Quite a number of countries and regions have launched specific programmes to bring in overseas investors and acquire international leading technologies through promotion of international co-operation, such as the Binational Industrial Research and Development Foundation (BIRD) founded by Israel and the United States in 1977, which facilitates the formation of an international alliance on industry development through co-operation between the private sectors of the United States and the high-tech industry of Israel.

(7) Various countries and regions have made proactive efforts to set up technology parks equipped with quality scientific research facilities so as to pool manufacturers, educational institutions and researchers together for promoting the development of innovation and technology industries.

Examples include the Hsinchu Science and Industrial Park of Taiwan and the Daedeok Innopolis of South Korea.

Policy recommendations

6. After consolidating the analysis of the present position of Hong Kong’s innovation and technology policies and industries, stakeholders’

views and international experience, the study puts forward 12 policy recommendations as follows:

(1) Formulate macro development strategies and specific development objectives for the industries

 To review the overall innovation and technology policy and draw up specific development objectives for the industries, conduct regular progress assessments and make appropriate adjustments;

 To strengthen internal co-ordination and enhance macro planning during the decision-making process within the government to ensure adequate connection and continuity of policies and programmes under different departments;

 To formulate more accurate and comprehensive indicators to gauge the performance of technology-related entities (such as the Science Park and the Innovation and Technology Fund (ITF)).

(2) Formulate specific policies for nurturing and attracting innovation and technology talent

 To develop specific policies for nurturing and absorbing talent, such as making it obligatory for tenants of the Science Park or beneficiaries of the ITF to engage a certain number of local or overseas professionals to undertake innovation and technology related research;

 The department(s) concerned should consider taking the initiative to attract innovation and technology talent from around the world since it is currently not a policy objective to absorb talent of high-tech industries under various talent admission schemes;

 The Government, universities and non-governmental organisations should secure internships offered by Mainland and overseas research institutes for senior secondary and university students;

 In recent years, universities in Hong Kong have admitted a considerable number of postgraduates from the Mainland.

However, many of them choose not to pursue their career in Hong Kong after graduation, resulting in a shortage of R&D talent in Hong Kong. The Government should work out appropriate measures to strike a balance between the needs of developing local higher education and developing local innovation and technology industries to ensure the

(3) Adjust government procurement procedures to allow for more use of innovation and technology products and services of local small and medium suppliers

 Government departments and public organisations should formulate a clear procurement policy to give priority to products and services provided by local small and medium enterprises (SMEs), subject to the Agreement on Government Procurement of the World Trade Organisation, to which Hong Kong is a signatory;

 In devising its tendering procedures, the Government should introduce terms that may facilitate local SMEs and encourage innovation, in order that SMEs and innovative tenders may stand a better chance of success with their tenders.

(4) Encourage government departments and public organisations to try and apply R&D results of local universities and other institutions, subject to the fulfillment of safety, efficiency and cost-effectiveness requirements

 Currently, the Public Sector Trial Scheme only covers projects related to the ITF. In the long run, consideration may be given to extending the Scheme to other local innovation and technology related SMEs.

(5) Study how the existing mechanism can be enhanced to offer better financial and business development support to start-ups

 At present, organisations such as the Hong Kong Science Park and Cyperport run various incubation programmes for start-ups. Subject to the effectiveness of such programmes, their scale can be enlarged to step up the efforts in fostering the development of start-ups and emerging trades.

(6) Introduce policies to encourage investment in start-ups

 To introduce policies such as tax incentives or honour awards and recognition schemes to encourage entrepreneurs to invest in innovative ventures or support young people to start their own business;

 To consider allowing major enterprises or organisations to invest part of their central pool of pension assets in the private equity fund market as an alternative class of assets.

(7) Consider offering tax incentives and providing land and related infrastructure for innovation and technology industries, or providing a low-cost service platform for start-ups

 To explore whether more incentives should be provided for R&D projects undertaken in Hong Kong under the Inland Revenue Ordinance, such as tax concession for additional expenditure on R&D;

 To consider taking measures to revitalise industrial estates;

 To encourage technology infrastructure and network services companies to provide business development support for business starters and start-ups, such as providing a lower cost trade service platform (including online shopping platform, data centre, etc) for start-ups.

(8) Foster linkage of universities with the commercial and industrial sectors as well as technology users; devote more resources to translational research

 The University Grants Committee should review the pay and promotion mechanism of funded institutions so as to provide incentives to encourage academic staff to apply knowledge and R&D results for the betterment of society or for commercialisation development;

 More theme-based research funding schemes with specific

R&D talent and encourage transdisciplinary studies and collaboration between universities and the commercial and industrial sectors;

 Enhance investment in translational research of high valued-added industries (such as biotechnology and nanotechnology) to promote local R&D and its production so that R&D talent can realise their ideas in Hong Kong.

(9) Innovation and Technology Bureau to coordinate the review and amendment of obsolete policies that hinder innovation, and enhance inter-departmental co-ordination

 The Government should introduce greater flexibility in various policies and strengthen inter-departmental co-ordination to provide a favourable environment for start-ups and innovation.

(10) Put in place systematic and internationally recognised regulatory and certification regimes for some specific industries that are related to innovation and technology development (such as medical equipment industry, electronics industry and environmental protection technology) to promote the development of industry standardisation

 If a standard accepted by “cross-strait four regions” can be established, it will help relieve businesses of the burden of seeking registration or certification from different jurisdictions separately.

(11) Strengthen collaboration and ties between the local R&D sector and the international research network

(12) Collaborate with neighbouring regions and set up a proper mode of division of function for the development of an innovation and technology industry cluster that is competitive in the global market

 To promote the development of IP-related legislation and systems, strengthen Hong Kong’s capability in IP rights valuation and identification, and attract talent to develop Hong Kong into an IP trading hub;

 Hong Kong may develop finance-related innovation and technology by capitalising on its status as an international financial centre where leading financial institutions have set up their businesses;

 Hong Kong may act as a super-connector to give play to its free market economy, facilitate quick grasp of information, pool the right innovation and technology resources locally and from overseas, tap into the Mainland and overseas markets given our well-established tradition of the rule of law and corporate governance, and make use of the Mainland as the back-up for mass production.

Concluding remarks

7. In recent years, Hong Kong has gradually come to a consensus that it is necessary to diversify the development of our industrial structure, where the innovation and technology industries have a vital role to play.

Apart from continuing its efforts to promote investment in the innovation and technology industries from the private sector, the Government also needs to formulate appropriate policies, allocate more resources in a targeted manner to nurture local innovation and technology talent, and strengthen co-ordination in cross-sector and cross-border co-operation in the light of the actual situation in Hong Kong. Subject to a combination of factors such as talent, resources, policies and market conditions, Hong Kong will be well placed to gradually develop into a leading innovation and technology hub in the Asia-Pacific region which will promote the sustainable development of our economy.

Central Policy Unit March 2015