Hong Kong should adopt a comprehensive strategy to deepen integration with other GBA cities, and cement its innovation and technology startup network in a bid to become the region's inno-tech hub, experts say. Oswald Chan reports from Hong Kong.

The Hong Kong Special Administrative Region has forged a robust entrepreneurship and innovation ecosystem over the past 25 years, with President Xi Jinping pinning high hopes on the city's potential to become a global innovation and technology hub.

During his inspection tour of the SAR last month, Xi pledged the central government's full support for Hong Kong to align itself with national development strategies, particularly, the 14th Five-Year Plan (2021-25), the Guangdong-Hong Kong-Macao Greater Bay Area and the Belt and Road Initiative which reinforce Hong Kong's potential in innovation and technology.

The president visited the Hong Kong Science Park and urged Hong Kong to collaborate closely with other cities in the Greater Bay Area in strengthening and creating synergies among research and academic institutions, industries and finance, and building a global highland for scientific, technological and innovation advancements in the 11-city cluster.

Business chambers, professional services bodies and global business advisory firms in Hong Kong say that integrating Hong Kong's innovation and technology sector with the Greater Bay Area will be a key catalyst for growth. Therefore, the SAR should adopt a full-fledged approach in cementing its inno-tech ecosystem.

First, Hong Kong should employ a comprehensive strategy to bolster integration with other Greater Bay Area cities, with a focus on harmonizing different institutional systems.

"Hong Kong should actively collaborate with the central government in implementing more preferential arrangements to strengthen the flow of people, capital, goods and information," said Chinese Manufacturers' Association of Hong Kong Chairman Allen Shi Lop-tak.

The business chamber would like to see the 11-city cluster become a "special commuting zone", with some tax exemptions related to "days of presence" for Hong Kong and Macao residents who regularly live and work in the Greater Bay Area's mainland cities. For example, if Hong Kong and Macao residents enter and leave the Chinese mainland through the Greater Bay Area's boundaries within a specific time limit, their stay should not be counted as a "day of presence".

"We urge the Hong Kong authorities to coordinate with their counterparts to provide policy support and business facilitation measures, such as streamlining the approval process for Hong Kong products to be registered and sold in the Greater Bay Area, strengthening intellectual property protection of Hong Kong brands, promoting mutual recognition of testing reports in Hong Kong and on the mainland, and introducing insurance services for domestic sales," said Shi.

Hong Kong has cemented various inno-tech infrastructures to drive the industry's growth. The San Tin Technopole, under the Northern Metropolis Development Strategy, which is expected to pool the resources of research institutions, universities and technology companies, can be an ideal platform for synergistic research and development and knowledge spillover.

"The Northern Metropolis can be the perfect testing ground for prototyping and pilot production before proceeding to mass production in plants in adjacent cities in the Greater Bay Area. If they succeed in turning ideas, inventions and breakthroughs into commercially viable products, the Northern Metropolis can become the link for startups with supply chain expertise/downstream demands in the Greater Bay Area cities," said Deloitte China's TMT Industry Southern Region Leader Chan Yiu-bong.

Under the Northern Metropolis development plan, Hong Kong-Shenzhen Innovation and Technology Park and the areas around Lok Ma Chau/San Tin will be consolidated to form the San Tin Technopole, which will have an estimated 240 hectares of land for innovation and technology-related use. The technopole, together with the Shenzhen Innovation and Technology Zone, will form the Shenzhen-Hong Kong Innovation and Technology Cooperation Zone with about 540 hectares. The first batch of eight buildings of the HSITP in the Lok Ma Chau Loop will be completed in phases from late 2024.

Shi urged the HKSAR to cooperate with Shenzhen in establishing a "pilot-plant" platform in the Northern Metropolis to achieve a win-win situation. "The platform, on one hand, can raise the success rate in the transformation of local R&D achievements by leveraging the Greater Bay Area's land resources and strong manufacturing base. The platform can also serve as a gateway for information and technology enterprises in the Greater Bay Area in going global and attracting foreign investment and global talents," he said.

Procurement and funding

Meanwhile, Hong Kong should introduce a pro-innovation procurement policy with priority for local inno-tech products and services to set an example for private enterprises.

Chan from Deloitte China cited Singapore, which introduced the concept of dynamic contracts, allowing suppliers to offer new products and services to the government instead of waiting for their contracts to expire. Another innovative solution in Singapore is the use of spiral contracting, with companies contracted in stages as a project progresses, and each step dependent on the success of the previous one.

Besides procurement, funding is another financial lifeline for technology startups. The HKSAR should enhance co-investment programs by increasing risk appetite or introducing alternative models, and channelling funding into high-risk, high-impact and scalable startups more aggressively.

"By expanding the eligibility of its funding programs to cover more startups, the government can stimulate more funding from private investors and share the risk by providing guarantees or co-investing in joint funds. It can also actively seek new co-investment partners to increase the number of deals, for example, by expanding the type of co-investment partners to include mature startups," Chan suggested.

Hong Kong saw its number of startups almost quadruple from about 1,000 in 2014 to 3,755 last year, while venture capital investment surged from HK$1.2 billion ($153 million) to about HK$41.7 billion during the same period, according to government data.

Hong Kong has witnessed the birth and development of 18 unicorns in the technology and innovation sector, including high-end manufacturing, robotics and financial technology.

Attracting talent

Moreover, Hong Kong should attract and retain global talent and build a sustainable pipeline of local talent.

Albert Wong Kwan-butt, Greater Bay Area committee member at CPA Australia, said Hong Kong should be aware of the number of talents and skillsets required in formulating talent policy. "If there are not sufficient local talents, the government should consider importing talents that are badly needed. Startup entrepreneurs want to be sure whether Hong Kong has sufficient required talents to support their operations."

As for skillsets, expertise in data science, robotic machines and material science is needed, along with the ability to use animation to deliver virtual experience in the metaverse, according to Wong.

Hong Kong is leveraging its strengths in life and health sciences to fit into the 14th Five-Year Plan (2021-25). The HKSAR government has proposed setting up an InnoLife Healthtech Hub at HSITP in the Lok Ma Chau Loop, with the 16 life and health-related laboratories in the InnoHK research clusters and the eight State Key Laboratories in life and health disciplines as the basis, to focus on research and development of biomedicine, chemistry, physics, engineering and artificial intelligence. These can be applied in disease prevention, diagnosis, pathology tracking, medicine, surgical micro-robots, as well as advanced treatment and rehabilitation of patients.

In Wong's view, Hong Kong should not just mull attracting talents to work in technology startups, but find ways to lure more startup entrepreneurs to start their careers in Hong Kong. "The SAR government, the Hong Kong Science Park and the Cyberport should have another set of business facilitation measures, such as administrative support, tax incentives or direct financial subsidies, to lure global innovative talents to start their technology careers in Hong Kong. With more startups in the city, there would be more jobs for technology workers," he said.

Policy support

Last but not least, the importance of policy support in propelling the growth of the inno-tech ecosystem should not be underestimated. Policies should focus on formulating a clear industry formula, positioning Hong Kong's technology startups' business acumen, and supporting the traditional manufacturing sector.

"Hong Kong does not have a policy to promote high-growth industries. The government should do the stocktaking to know what kind of industries Hong Kong should support. Sticking to the level-playing field may not be a good strategy in the inno-tech age," Wong said. "When Hong Kong has a clear industry policy, it will then create supply and demand. Elderly care, manufacturing medical devices, biotech and gerontech are industries the government can focus on."

The second kind of policy support required is that the SAR government, the Hong Kong Science Park and the Cyberport should cooperate with their counterparts in the Greater Bay Area to be a "technology solution architect" - sourcing different technology solutions provided by startups, and integrating them into a comprehensive solution to solve a particular business problem.

"Enterprises now face various complex business problems and need technology solutions that require the bundling of various technologies. In this aspect, Hong Kong may have to consider playing the role of some kind of a technology solution broker," said Wong.

A vibrant inno-tech startup ecosystem does not concern just the inno-tech industry. Although many Hong Kong manufacturing enterprises have relocated their production lines to the mainland, their headquarters and support bases remain in Hong Kong, and they are important application venues for local inno-tech startups.

"We believe Hong Kong should strengthen its role as the region's manufacturing coordination hub and encourage more advanced manufacturing processes to take place, in order to drive further development in technology startups and have a far-reaching impact on our economy. Hong Kong can continue playing a pivotal role in the regional manufacturing value chain by engaging in R&D and producer services, while (other cities in) the Greater Bay Area remain the commercialization and production base for companies," said Federation of Hong Kong Industries Chairman Sunny Chai Ngai-chiu.

He hopes the HKSAR government can support and upgrade local producer services to give technology startups more room for growth and development.

"The government should review its existing industrial policy and include Hong Kong-invested manufacturing enterprises on the mainland as the beneficiaries of various industrial and innovative subsidy schemes. Traditional manufacturing industries can therefore utilize government funding to realize transformation and upgrading, while inno-tech startups can have more business opportunities," Shi from the Chinese Manufacturers' Association of Hong Kong reckoned.

The business chamber suggested that the new Innovation, Technology and Industry Bureau should promote a two-track system of innovation and technology and industrial development, and formulate long-term, clear, macro industrial policies to enable the integration of manufacturing industries with industries related to innovation and technology.

A cross-border government collaboration and policy coordination system to promote cooperation among research institutes, as well as inno-tech and manufacturing sectors in Hong Kong and Guangdong province, should be set up to form an inno-tech upstream, midstream and downstream industrial chain and turn the Greater Bay Area into an international inno-tech hub, it added.

The HKSAR's fifth-term administration had pledged to raise the R&D expenditure ratio to 1.5 percent of the city's GDP between 2017 to 2022, and had invested more than HK$130 billion in the past five years to develop the inno-tech industry.

However, the ratio was only 0.99 percent in 2020 - still lower than the Organization for Economic Cooperation and Development countries' R&D intensity ratio of 2.7 percent - according to Hong Kong's Census and Statistics Department.

The Global Innovation Index 2021, published by the World Intellectual Property Organization, ranked Hong Kong among the top 15 of some 130 economies.