Hong Kong as a knowledge-based economy and its role in China's economic development
Mr John TSANG, Financial Secretary of the HKSAR Government, was the Foundation's guest speaker on 31 May 2010. Below is the full text of his speech.
Thank you so much for the kind invitation to lunch today, and also for the opportunity to speak with you.
I would like to thank, first of all, the Hong Kong Democratic Foundation and its members for your many and varied contributions to Hong Kong over more than two decades.
The 21 years since the Foundation's launch have indeed been eventful.
But what about the next decade and beyond?
Today, I wish to share with you a few thoughts about Hong Kong's path towards a knowledge-based economy. I will also talk about Hong Kong's role in our nation's knowledge economy. And, of course, there is the topic of constitutional reform that is reaching yet another critical juncture. More about that later.
Standing still not an option for Hong Kong
It was back in 1966, that the management guru, Peter Drucker, first introduced the concept of a knowledge economy in his book, "The Effective Executive".
In the book, Mr Drucker described the difference between the manual worker and the knowledge worker. Manual workers, he said, work with their hands and produce goods or services. In contrast, knowledge workers work with their heads, not hands, and produce ideas, knowledge, and information.
Some 44 years have passed since the publication of "The Effective Executive".
We have gone through the golden era of the industrial age. Thanks to automation and advances in production technology, the cost for producing physical goods has decreased significantly. The global economy has flowed towards abundance, and companies have to move upstream in search of new opportunities.
In 2001, another management guru, Seth Godin, wrote in his popular e-book, "Unleashing the Ideavirus" about the importance of ideas in today's world. He observed that 20 years ago, the top 100 "Fortune 500" companies either dug something out of the ground or turned a natural resource into something tangible that you could hold.
Today, only about one-third of those Top 100 companies produce tangible goods. The rest sells ideas, instead of processing resources. Some offer services such as health care and telecommunications. Even for companies that sell physical products, such as medicine, their most valuable assets are the intellectual properties for making the goods.
This trend has created a gigantic force driving us towards a so-called knowledge-based economy. The change is upon us, and we must act fast to seize the opportunities.
In his Policy Address last October, our Chief Executive outlined his vision for Hong Kong to enhance our competitiveness and continue evolving into a high value-added, knowledge-based economy.
Emphasis on six areas
They are education services, medical services, testing and certification services, environmental industries, innovation and technology, and cultural and creative industries.
The first essential ingredient for a knowledge-based economy, no doubt, is knowledge itself. While it is never easy to quantify knowledge, the wealth of knowledge in an economy is closely linked to the education level of the workforce, or what we often refer to as human capital.
Over the years, Hong Kong has been doing a lot to enhance our human capital. Education expenditure has increased by 18% over the past 10 years. It now takes up the largest share of recurrent government expenditure.
We are continually improving our education system. Recent examples include the new academic structure for senior secondary and higher education, as well as small-class teaching in primary schools.
Higher education promoted
In the information age, the diffusion and use of information and knowledge is as important as its creation. The success of a company, and, indeed, an entire economy, relies on how effectively knowledge can be gathered and put to use.
Hong Kong is fully geared up to facilitate the flow of information and knowledge. We have a world-class telecommunications network that connects us with the rest of the world.
According to the Fiber-to-the-Home, or FTTH, Council - a multi-national industry association - the household penetration rate for FTTH and related services in Hong Kong is 33%. Only South Korea and Japan have higher rates globally.
With first-class hardware as well as our personal freedoms, including freedom of speech and free flow of information and ideas, knowledge can be exchanged here without hindrance.
This is important for our economy because the free flow of ideas and knowledge often culminates in new technology. The Government attaches great importance to the promotion of R&D. We fully appreciate that innovation and technology are key drivers of our economic growth.
We are committed to providing a favourable eco-system to enhance the development of this important sector. Such efforts include providing first-class technological infrastructure through the development of the Science Park and Cyberport.
We have the $5 billion Innovation and Technology Fund, which finances applied R&D projects conducted by universities, R&D institutions and companies. We also have five specific R&D centres to promote research work in focused technology areas.
In my Budget in February, I reinforced our efforts in promoting R&D by:
First, supporting the development of Science Park Phase 3.
Secondly, enhancing support for inventors under the Patent Application Grant.
And third, launching the $200 million R&D Cash Rebate Scheme that started in April.
Testing, certification in limelight
Our services industries are also highly regarded globally. We are ready to capitalise on the huge opportunities in providing quality certification and product testing services for Mainland enterprises.
We set up the Hong Kong Council for Testing and Certification in September last year to spearhead the development of the industry. The Council has outlined the blueprint for development. This includes making general improvements to accreditation services and factors of production affecting the industry. At the same time, the Council is focusing on four trades with special business potential, namely Chinese medicine, construction materials, food and jewellery.
Hong Kong also has an edge in developing various creative industries, from advertising to motion pictures, and from design to digital entertainment. Indeed, creative industries alone add more than $60 billion worth, or 5% of value, to our GDP each year. There are over 32,000 establishments that are related to creative industries, employing more than 176,000 people.
Creative industries' boost
Different kinds of support have also been provided to medical services, education services and environmental services. Such initiatives aim to create the right market conditions. Areas where the government can lend a hand include ensuring adequate land resources and nurturing talents. Perhaps most important, we can seek to enhance business co-operation with the Mainland to enable enterprises to tap into the huge market there.
Our CEPA with the Mainland is a good example of how we open doors to markets across the boundary. This includes pilot initiatives with Guangdong Province to speed up the process.
With all the ingredients I have just mentioned, our success will still depend to a large extent on how far we can synergise our development with that of our nation.
The days when the Mainland could compete on low costs and sheer quantity alone are fast disappearing. The Mainland too, is moving up the value chain with services and other high value-added industries growing fast with support from the Central Government.
Despite growing competition, both Hong Kong and the Mainland have much to gain from closer collaboration. Co-operation between us will speed up the Mainland's transformation to a knowledge-based economy and, in turn, open up new opportunities for businesses in Hong Kong.
The establishment of the Shenzhen-Hong Kong Innovation Circle and the joint funding schemes with Guangdong Province and Shenzhen are notable examples.
We have successfully invited DuPont to locate its global thin-film photovoltaic business headquarters and research centre at the Hong Kong Science Park. Its manufacturing facilities are in Shenzhen. Such collaboration brings investment and talent to Hong Kong, new technology to the Mainland and opportunities for all the firms involved.
Expo reflects unlimited potential
The Government has also been working with local creative industries to organise a rich variety of events in Shanghai during the Expo period. These include activities that promote creative and artistic co-operation between Hong Kong and Shanghai.
Another area where Hong Kong entrepreneurs can contribute to China's economic development is through their international exposure and experience in exploring overseas markets.
Hong Kong has established a solid business network in different parts of the world, and also gained the trust of overseas buyers by ensuring high quality goods and reliable services. Mainland enterprises can leverage on our reputation by collaborating with Hong Kong companies to explore overseas markets.
The Government recently put forward a package of proposals for the methods for selecting the Chief Executive and for forming the Legislative Council in 2012.
The package was formulated after extensive public consultation. An important conviction of the proposals is that we should roll forward reforms in the 2012 elections to pave the way for implementing full universal suffrage. This is also the mainstream public sentiment.
The package of proposals injects new democratic elements into the two electoral methods for 2012 under the framework of the decision of the Standing Committee of the National People's Congress (NPCSC) in 2007. The decision by the NPCSC allows for universal suffrage for the Chief Executive elections in 2017 and LegCo elections in 2020. Some of the new democratic elements include:
Regarding the universal suffrage model for the Chief Executive, the NPCSC decision has already made it clear that in selecting the Chief Executive by universal suffrage, the nominating committee might be formed with reference to the current provisions regarding the Election Committee in the Basic Law.
If the composition of the Election Committee for 2012 can be dealt with properly, it will facilitate the transformation of the Election Committee into the nominating committee when universal suffrage is implemented in 2017.
There has also been wide public concern about the future of the District Council appointment system. The Government adopts an open and constructive attitude towards abolishing the District Council appointment system. After the passage of the proposed package for the two electoral methods for 2012 at LegCo, the Government will implement the proposals as soon as possible.
Only two methods can be dealt with
We would also recommend the next term Government to follow up and consider the relevant proposals seriously.
The Government will strive to obtain public support and also LegCo's endorsement of the package of proposals before the summer recess of the LegCo in July.
Some people have cast doubt on Hong Kong's ability to transform into a truly knowledge-based economy. There are also different views in our community on the pace of democratisation in Hong Kong.
Different opinions are part and parcel of living in a free and open society such as ours.
While respecting different views, it is time for us to reach a consensus on the topics I have covered today so that we can continue to move toward our ultimate goals. We are well aware that standing still has never been, and will never be, an option for Hong Kong.
Thank you for listening. And thanks to you all for your sound advice over the years and commitment to the continued progress and prosperity of our city.
The above does not necessarily represent the views of the Foundation.