Barriers of Hong Kong as an Innovation Hub for High-Tech Development in the Greater Bay Area and Improvement Measures

An interdisciplinary research team of the University of Hong Kong (HKU) conducted a questionnaire survey of 363 domestic, Hong Kong, and other overseas funded high-tech firms in the Pearl River Delta (PRD) from December last year to May this year. For the  biomedical products and intelligent manufacturing equipment firms that they have interviewed, they found that despite Hong Kong’s strength in research, there are many barriers in the PRD that needed to be overcome for the firms to use the high-tech innovation, manpower and producer services in Hong Kong.

The research team is led by Chair Professor Anthony Yeh of the Centre of Urban Studies and Urban Planning and the Department of Urban Planning and Design, with members including Professor Tao Zhigang of the Business School and the Economics and Institute for China & Global Development, Chair Professor George Lin of the Department of Geography, Dr. Xingjian Liu of the Centre of Urban Studies and Urban Planning and the Department of Urban Planning and Design, HKU; and Dr. Fiona Yang of the School of Geography and Planning, Sun Yat-Sen University, Guangzhou.

Research background
Hong Kong and the Pearl River Delta (PRD) have collaborated intensively and effectively since China’s economic reform in the late 1970s. However, the once-successful market-driven economic cooperation model of ‘Front Shop, Back Factory’ encountered severe challenges in the face of the PRD’s rapidly rising economic power and Hong Kong’s declining role as its bridge to the world in the last two decades. Of the traditional Four Key Industries, namely financial services, tourism, trading and logistics, and professional and producer services, only financial services and professional services are the industries that Hong Kong still has an edge, in addition to new high-tech industry that is rapidly developing in the PRD.

With rapid development of high-tech industries in the PRD of the Greater Bay Area (GBA), Hong Kong has a role to play as an innovation hub for high-tech development in the Greater Bay Area. With 4 universities among the top 100 universities in the Quacquarelli Symonds (QS) World University Rankings and 16 State Key Laboratories in Hong Kong as compared to none in the 9 cities in the PRD and 11 State Key Laboratories in the whole of Guangdong Province respectively, Hong Kong is leading the GBA in innovation research.

Although Hong Kong’s high-tech research is leading in the GBA, has our high-tech research been used by the high-tech industries in the Pearl River Delta?

Major findings of the study
1. The PRD has departed remarkably from the export-oriented labour-intensive development model during the early reform period towards an emerging high-tech industrial development model equipped with an almost complete high-tech supply chain system and mixed domestic and overseas markets.

2. Domestic-funded firms mainly use services and technology in the PRD and other parts of Mainland China. They rarely use Hong Kong’s services and technology primarily because of Hong Kong’s higher cost in comparison to that in Mainland China, insufficient alignment with Mainland China’s market demands, limited penetration into the awareness of business communities in the PRD, unawareness of Hong Kong’s producer services and technology achievements, and Hong Kong residents’ low  intension to work in the PRD.

3. Although Hong Kong- and other overseas-funded high-tech firms also mainly use services and technology in the PRD, they still use some Hong Kong services and technology, but not a lot. Reasons for that include an enlarging domestic market and rapidly growing domestic producer service and high-tech industries in the PRD that compete with those in Hong Kong.

4. Intra-firm organisational linkages between parent firms in Hong Kong and branch offices in the PRD form critical channels for the use of Hong Kong’s labour, technology and producer service in the Hong Kong-funded high-tech firms in the PRD.

5. Hong Kong’s key roles in facilitating high-tech industrial development in the PRD is fading away. However, it still has an edge in market expansion, international operation, corporate financing and producer service provision.

Policy recommendations
Based on the findings of firm-based survey and interviews of high-tech firms, this study presents the following policy recommendations for making Hong Kong as an Innovation Hub for High-Tech Development in the Greater Bay Area.

1. Need to let PRD high-tech firms know about Hong Kong high-tech innovations
PRD domestic high-tech firms generally lack a good understanding of high-tech innovation in Hong Kong because they do not have the channels or opportunities to do so. Therefore, Hong Kong needs to actively find ways to let the PRD domestic high-tech firms know about the high-technology innovations in Hong Kong.

Policies recommendations include : 1) encourage Hong Kong high-technology innovations to engage more with the domestic market by adapting to as well as combining with the business models there; 2) facilitate Hong Kong high-technology firms to set up branch offices in the PRD to participate in various promotion activities (e.g. exhibitions and conferences) and interact with domestic firms in Mainland China; and 3) facilitate PRD high-tech firms to set up offices in Hong Kong to engage them with Hong Kong’s high-tech innovation system so that they can promote the use of Hong Kong’s high-tech innovations to other firms in the PRD.

2. Further enhancement of Hong Kong’s R&D environment
Hong Kong’s high-tech innovation system has yet to be improved, including insufficient R&D efforts and low public R&D expenditures, and the system that supports the development of high-tech start-ups. These are bottlenecks for further technology transfer and commercialization. Facing the increasingly large domestic market and comprehensive high-tech industrial system in the Pearl River Delta, Hong Kong must further improve its R&D environment and improve its upstream innovation capabilities to better connect with the complementary high-tech innovation and production system of the Pearl River Delta.

Policies recommendations include : 1) the Hong Kong SAR government should increase the level of public expenditure on R&D to encourage high-tech entrepreneurship, and existing companies should increase their investment in upstream technology research and development; 2) in addition to applied research, more resources should be given to the  Hong Kong Research Grants Council for strengthening Hong Kong’s basic research in order to develop applied research; 3) improve the mechanism of universities in Hong Kong in encouraging scholars to transfer their research results to industries, so as to facilitate the  commercialization of Hong Kong’s high-tech innovation.

3. Development of 0-1 and 1-100 start-up industries in Hong Kong & High-Tech Firms in the PRD
The results of the study show that the internal organizational connections of the enterprise itself are extremely important for the interactive development of the high-tech industry between Hong Kong and the Pearl River Delta. Therefore, Hong Kong must strive to develop its innovation and local high-tech industries to prevent the hollowing out of the local industries. Hong Kong needs to make good use of its innovative high-tech research to develop its local start-up industries to avoid relying solely on the Pearl River Delta industries.

Policies recommendations include : 1) strengthen support for local start-ups and high-tech industries through different policy tools (such as providing more industrial land and financial support for strategic industries); 2) encourage companies to develop and commercialize Hong Kong’s hi-tech innovations and improve the local innovation chain; 3) improve the high-tech infrastructure, labor force, and market sales channels for promoting Hong Kong’s hi-tech industry; 4) encourage Hong Kong companies to set up factories or branches in the Pearl River Delta Plants to strengthen the ties with Hong Kong’s high-tech R&D and producer service industries.

4. ‘Front Desks, Back Offices’ to obtain business in the PRD
In recent years, the producer service industry in the Pearl River Delta has risen rapidly, and Hong Kong’s role as the external window of the Pearl River Delta is steadily weakening. The “dual circulation” economy in Mainland China has formed a huge domestic demand market and a new business opportunity

Policy recommendations include: 1) encourage Hong Kong producer service companies to establish branch offices in the Pearl River Delta to seize the growing domestic market demand in the region and the mainland, thereby forming a “Front Desks, Back Offices” cross-border regional cooperation model in the producer service industry to replace the past economic cooperation model of “Front Shops, Back Offices” economic cooperation model; 2) improve cross-border cooperation to facilitate the flow of data and information; 3) improve cross-border linkages of the producer service industry, for example, mutual recognition of professional qualifications and unified service standards and rules for all cities in the Greater Bay Area.

5. Smart GBA and Business Visa and Counters
Promoting the convenient cross-border flow of various production resources including people, goods, capital, data and information will facilitate Hong Kong’s participation in the development of high-tech industries in the Greater Bay Area. One-way free movement of people (from Hong Kong to the Mainland) have hindered Hong Kong’s integration and development in the Pearl River Delta. Cross-border exchanges between enterprises and scientific researchers are very important to the development of high-tech industries in the Greater Bay Area. The study research results show that domestic firms in the PRD rarely use Hong Kong’s services and technologies. One of the main reasons is that they do not understand Hong Kong’s productive services and high-tech technologies. It is convenient for Hong Kong businessmen and researchers to cross the border to the Pearl River Delta, but it is very inconvenient and time-consuming for businessmen and researchers from the Pearl River Delta to come to Hong Kong. If researchers in the Pearl River Delta want to visit universities in Hong Kong, they will have to spend a lot of time to apply for work visas from the Hong Kong Immigration Department.

Policy recommendations include: 1) use the new generation of information and communication (ICT) technology to promote the development of Smart Guangdong-Hong Kong-Macao Greater Bay Area to facilitate the flow of people, goods, capital and information; 2) innovate cross-border Visa application arrangement by using smart technology to provide Mainland’s and overseas businessmen and researchers in the Greater Bay Area with just-in-time online business Visas, and set up the Greater Bay Area Business and Research cross border counter, like the existing APEC (Asia-Pacific Economic Cooperation) counter to facilitate them to come to Hong Kong to do business and research.

The firm-based survey and interviews of high-tech firms in the PRD is part of the research project on “In Search of New Economic Cooperation Models between Hong Kong and the Greater Bay Area” under the Strategic Public Policy Research (SPPR) Funding Scheme of the Policy Innovation and Co-ordination Office (PICO) of the HKSAR government.