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Friday, December 11, 2020, 11:11
Reindustrialization Reboot
By Oswald Chan
Friday, December 11, 2020, 11:11 By Oswald Chan

Hong Kong’s efforts to rekindle its economy have achieved only modest gains in the last few years. Experts say a unified technology standard must be established to propel development. Oswald Chan reports from Hong Kong.

Reindustrialization does not mean businesses have to open new production lines. Rather, businesses can automate or upgrade some of their production capacities by leveraging cloud technology and artificial intelligence to optimize product quality and inventory. For example, smart technologies such as advanced machinery and robotics can be applied to the sectors of garment, clock and watch, electronics as well as food processing.

The COVID-19 outbreak highlights the importance of technology application. According to the Hong Kong Trade Development Council, the pandemic has led to the cancellation or rescheduling of approximately 4,000 physical exhibitions around the world, affecting deals worth an estimated US$296 billion. It is under this environment that Hong Kong businessmen need to develop new sourcing and marketing channels by capitalizing on smart technologies such as live chat and video conferencing.

Most of all, the government should put more effort into increasing information transparency so as to earn the trust and confidence of the commercial and industrial sector

Winnie Tang Suk-ming, an adjunct professor at the University of Hong Kong’s Faculty of Engineering, Faculty of Social Science and Faculty of Architecture

The city’s trade promotion agency already leverages AI and machine learning to increase the accuracy and efficiency of its business-matching services. Natural language processing is used to screen out false inquiries and provide personalized product recommendations for buyers. The HKTDC also relies on big data for automated business matching and meeting planning, as well as utilizing image recognition technology to provide better online sourcing and communication experience for buyers and exhibitors.

The application of these smart technologies helps HKTDC to connect 130,000 global suppliers and 2 million buyers with about 24 million business connections established every year through its website’s sourcing platform.

With the immense benefits that can be brought by technology application, the Hong Kong government first released the reindustrialization initiative in the 2016 Policy Address with an aspiration to revitalize traditional industries using new technologies and develop emerging industries.

According to the Global Innovation Index 2020 prepared by global business school INSEAD, World Intellectual Property Organization and Cornell University, Hong Kong was ranked as the world’s 11th and Asia’s third most innovative economy.

Hong Kong’s improvement in ranking was attributed to the notable advancements in investment sub-pillar indicators such as ease of protecting minority investors and venture capital deals, as well as tertiary education and research and development sub-pillar indicators such as tertiary enrolment, tertiary inbound mobility and gross expenditure in research and development.

However, beneath the improved global ranking in technology surveys, the growth of the innovation and technology sector is still trailing behind in the domestic economy.

The economic contribution of the innovation and technology industry grew from a static rate of 0.7 percent in the previous nine years to 0.8 percent of GDP in 2018. The R&D ratio increased slightly to 0.86 percent of GDP in 2018 from 0.72 percent 10 years ago, according to the Legislative Council Secretariat Research Office in July. According to the World Bank, Hong Kong’s R&D investment is far below the average of 2.59 percent in high-income countries.

How to set a benchmark

In the 2017 Policy Address, the Hong Kong government pledged to increase the total R&D expenditure by local public and private sectors to about HK$45 billion (US$5.8 billion), representing 1.5 percent of GDP by 2022.

Industry experts reckon the government should do more to harmonize the best practice standards of various technologies to govern the security, accuracy, latency, and interoperability of various technology applications in different industries.

“Without adequate product trials and the measurement benchmark, it is difficult for the Hong Kong government to change its procurement policy to purchase homemade technology products and services, hindering the progress of reindustrialization,” says Tsang Kim-fung, an associate professor at City University of Hong Kong’s Electrical Engineering Department.

“Without a clear measurement benchmark, it is also difficult to quantify the progress of those reindustrialization measures. When there is no feedback, the government cannot get the advice on how to refine the measures,” Tsang added.

The government is urged to draw up benchmarks for measuring the progress of reindustrialization, such as efficiency gains in terms of human labor reduction, better resource allocation, or lower capital expenditure, and ultimately a higher return on investment.

The Federation of Hong Kong Industries, the city’s industrial business chamber, will launch the “Made by Hong Kong” survey in early 2021 to gauge the influence of the Hong Kong manufacturing industry through measuring its product design, industry investment, market promotion and production capacity on the Chinese mainland, Hong Kong and overseas countries.

This survey can be extended to measure the chain effects of the government’s reindustrialization initiative on Hong Kong’s economy in the future, for example, how many direct job positions are created, or how can other services industries such as transportation, repairing and aviation be boosted, or how much reindustrialization contributes to the city’s GDP.

Second, the administration should develop an overarching industrial policy and direction for identifying industries that have reindustrialization potential. The recycling industry is one of the examples as various smart technologies can be applied in the recycling process.

“The administration can earmark land and provide a financial subsidy to attract enterprises for establishing their recycling facilities plants here,” FHKI Chairman Daniel Yip Chung-yin said. “The government should also purchase recycled products in its procurement policy to boost domestic demand. It can also propose legislation that mandates some portions of consumer and industrial products to contain recycled materials. If these policies are implemented, this will attract businessmen to make investments in the recycling industry in due course.”

The engineering professor Tsang reiterated that Hong Kong should focus on those technology segments that rely less on hardware technology as the city’s high land and labor costs do not favor labor-intensive manufacturing. Analytical technologies such as AI and data science, as well as smart device technologies are the technology segments that the city should focus on.

Yip expects that the downstream process of R&D commercialization will improve as more engineering courses at local universities are focusing on technology commercialization and sourcing investments. Manufacturers are maintaining closer contacts with students and they are assessing the potential of engineering students’ product designs. The Hong Kong government is more receptive to procure new environmentally friendly, internet of things and smart technology products from local technology vendors.

“Approximately 20 new projects in the different segments of reindustrialization, such as electronic products, food processing and pharmaceuticals, will be launched in Hong Kong by the second quarter next year. Some business projects that had applied the RFS will be expected for market launch by the third quarter next year,” Yip said.

In July the government launched a HK$2 billion reindustrialization funding program under the Innovation and Technology Fund to subsidize manufacturers to set up smart production lines in Hong Kong by providing financial support equal to one-third of the total approved project cost or HK$15 million per project, whichever is lower.

Third, the administration is also urged to formulate a holistic reindustrialization strategy with a better-defined concept and direction, and encourage bottom-up cooperation among the industry, and academic and research institutions. It should also continue to increase R&D expenditure to lay a solid foundation for future technology opportunities.

“Most of all, the government should put more effort into increasing information transparency so as to earn the trust and confidence of the commercial and industrial sectors,” Winnie Tang Suk-ming, an adjunct professor at the University of Hong Kong’s Faculty of Engineering, Faculty of Social Science and Faculty of Architecture, said “For example, all procurement of local products and services should be displayed on an interactive map dashboard so that everyone can view the big picture at a glance and monitor the work of the government.”

In Hong Kong, application or commercialization of research results and technology transfer are not part of the mechanism assessing the performance of academic professors. Institutions have not affirmed the contribution of scholars involved in technology transfer through performance assessment, which will discourage their participation in these activities.

“To address the issue, we need to expand the criteria in assessing university performance and to properly recognize the contributions of scholars who participate in applied research,” Tang asserted.

In addition, the government’s vetting committees that are responsible for funding approval should recruit more members from the technology and innovation industry so that projects can be reviewed with a broader perspective.

Last but not least, Hong Kong’s reindustrialization should be addressed at the regional level of the Guangdong-Hong Kong-Macao Greater Bay Area and the Association of Southeast Asian Nations as both the collaboration platform and potential export market, thus addressing the issue of a lack of local demand, which makes technology product commercialization not economically viable.

Cooperation in the Bay Area

In Tsang’s view, the manufacturing capabilities in the Guangdong province cities of the Bay Area should complement the high-end upstream research capabilities of Hong Kong. Relevant authorities across the boundary should cultivate a coherent technology benchmark standard to promote technology products and services originating in the Bay Area. For example, Hong Kong could work with Guangzhou and Shenzhen to form an ecosystem as “front research, back production”, with Hong Kong focusing on R&D and global distribution of final products.

Such a bottom-up approach, where collaboration platforms are established by academia and industry and supported by the government, is common in Denmark and Germany. This approach can ensure that research projects are based on industry needs and global trends.

“The government should promote cross-border cooperation and work with local companies to establish a sustainable reindustrialization ecosystem by actively promoting R&D collaboration with Shenzhen and the Bay Area and entering into the mainland market,” Tang said.

She adds that ASEAN countries will have a strong demand for technology products and services originating in Hong Kong as they need the smart city expertise to help solve their problems in housing, security and employment that come with their booming economies.

As the Chinese mainland and ASEAN countries are the largest trade partners, these two market blocs offer huge market potential to manufacturers and technology companies based in Hong Kong.

“The required technology standards of products shipping to US and European markets should be the same with products shipping to Chinese mainland and ASEAN nations, but manufacturers should be aware of the differences in product design tastes between these two different market blocs.” FHKI Chairman Yip noted.

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