Economic Adjustment in Hong Kong

Hong Kong steps into the new era. Service industry, especially finance and property development, replaced manufacturing industry as the main source of economic growth. But many people are worried that financial service and property development cannot sustain the Hong Kong economic growth and provide the sufficient employment because both are only supporting services for production. If the economy depends on the development of financial services and property, which supports the manufacturing industry, the risk of economic decline is looming when other Chinese cities can provide the same but cheaper services.

Ofcourse, at present, Hong Kong still plays an important regional financial center in South China. Many semi-finished products made by Hong Kong businessmen are still transported back to Hong Kong for additional services such as packaging, design and transportation. Also Hong Kong stock market is used by many Chinese companies in collecting capital for maintaining their liquidity and expanding their investment. So Hong Kong as a regional financial and management center is still dominant until other modern Chinese cities like Shanghai become better equipped.

Before Asia Financial Crisis, it is believed that Hong Kong economic growth can rely on well-established financial infrastructure and property development. At that time, the unemployment rate was low and property price was high, which created a prosperous economic atmosphere. On the arrival of Asia Financial Crisis, property prices plummeted, big foreign stores went bankrupt, bad debt of banks rocketed and unemployment rate rised up. The influences of the crisis forced people believe that Hong Kong economy is too vulnerable to external influence; and it is too relying on the foreign investment and property development. Once foreign investment in Hong Kong dwindled, the demand for renting commercial space, employment and subsequently domestic consumption was adversely affected.

To tackle economic depression since 1998, the government needs to rebuild a stable base of economic development. That is the development of high-valued added industry. High-value added development is a vague term because it may refers to many aspects. Theoretical speaking, something which can highly raise up the value of the product is a high-value added component. For example, one of high-valued added industry is information technology which becomes a main economic sector in Taiwan, Singapore, America and Europe.

In 1998, the government set up the Informational Technology Commission chaired by the previous president of U.C. Berkeley, Tien Cheung Lin in promoting high-tech development. Furthermore, the government allocated 7.5 billion to establish “Applied Research Fund” and employed three “Growth Enterprise Capital companies” in selecting the project of high potential and providing marketing, management and network-building services for the selected companies. In the 1998 policy address, the Chief Executive announced to establish 50 billion Innovation and Technology Fund in supporting innovation and technology-enhancing projects in Textile manufacturing industry and service industries.

In 1999, the information Technology Commission have reached an agreement with the Polytechnic University to set up a new research department in promoting “made in Hong Kong” products. And the 1999-2000 budget proclaimed that the government would invest 130 HK billion into the Cyberport project with the cooperation of the Century Cyberwork. The Cyberport is aimed at providing the essential infrastructure for the formation of a strategic cluster of information services companies.

These companies would specialize in the development of services and multi-media content to support businesses and industries ranging from financial services, through trading, advertising and entertainment to communications (1999/2000 Budget)

The Cyberport project is mainly designed to provide high-tech infrastructure for incubators, private enterprises and the public. The infrastructure buildup consists of three items, laying out optical fiber network with the supply of offices and accommodation of the highest standard, providing media laboratories, high-speed computers, multi-media equipment and studio facilities and designing cyber-related educational, entertainment and retail facilities to provide a public interface (1999/2000 Budget).

In the education field, the universities install internet-connected socket in promoting the computer use. Besides, Internet training courses and e-commerce courses are introduced in a large scale.

The new development really creates a new atmosphere which signals that Hong Kong steps into a new era. But we have to wait to see whether this development can establish a stable base of the economic development. Is it sufficient enough that the new infrastructure development and the establishment of funds can leverage the boom of innovation and " Made in Hong Kong” products? Is it really that the new development can build up the Hong Kong unique base in defending against external influences? Apparently, I think that the current projects are still designed to provide subsidiary services and property for foreign enterprises, despite the focus on the high-tech services. But whether such development can create a critical mass of innovation is still unknown.