• Mon
  • Dec 22, 2014
  • Updated: 2:14pm
Lai See
PUBLISHED : Wednesday, 28 May, 2014, 12:34am
UPDATED : Wednesday, 28 May, 2014, 12:34am

Hong Kong government can't be bothered to support start-ups


Howard Winn has been with the South China Morning Post for two and half years after previous stints as business editor and deputy editor of The Standard, and business editor of Asia Times. His writing has also been published in the Far Eastern Economic Review, the Wall Street Journal, and the International Herald Tribune. He writes the Lai See column which focuses on the lighter side of business.

There has been a good deal of talk recently as to whether Hong Kong has the wherewithal to become a start-up hub. For many, it's a conundrum as to why one of the richest and most entrepreneurial cities in the world shouldn't be better at this.

There are those, like our colleague Jake van der Kamp, who would say this is because it is not Hong Kong's forte. Hong Kong is better at trading and finance than start-ups, he says.

Others have remarked on the high level of capital in Hong Kong and the striking lack of investment that finds its way into technology start-ups compared with other rich centres. In their World Bank study, Martin, Han and Tanaka described the venture capital sector as successful in Taiwan and Israel, but not in Hong Kong.

Ken Au and Steven White, in Hong Kong's Venture Capital System and the Commercialisation of New Technology, attribute this to the city's "historically rooted trading-and-arbitrage business mentality, the legacy of British banking practices, manufacturers' reliance on short-term loans, and the particular backgrounds of locally active VC investors".

Nevertheless, there are also a good number of people that say Hong Kong has the potential. Legislative councillor Charles Mok believes it could be done. He was an internet entrepreneur and has been promoting the start-up and technology sector.

Musing with him recently, he was frustrated by what the Hong Kong government does for start-ups compared with those in Singapore, South Korea and mainland China. There, the government sets up investment vehicles which have a degree of independence over their investments and are able to take long-term views. At the same time, the presence of government equity attracts outside investors.

Mok said the Hong Kong government's efforts had been half-hearted. It set up its own venture capital fund in 1993 with HK$750 million at its disposal. But many of the investments were criticised for their poor performance and the fund was abandoned in 2005.

Its replacement, the Small Entrepreneur Research Assistance Programme (Serap), was set up differently in that it made loans of up to HK$6 million on a matching basis. This was not very successful and did little to encourage outside investors, Mok said.

He said bureaucrats felt uncomfortable with Serap since they were supposed to recoup the loans, and when they didn't, were criticised by the Legislative Council and the Audit Commission.

So they had come up with a scheme that suited them better called the Enterprise Support Programme, Mok said. It has yet to come into effect since it is a budget measure and is currently trapped in Legco. The scheme will hand out funds of up to HK$10 million, again on a matching basis, but as a grant rather than a loan.

Mok said this saved bureaucrats from the inconvenience of having to chase after firms when they didn't repay the funds, and from Legco and Audit Commission criticism when they failed.

"The problem is that when the Hong Kong government does something, it does it not because it is particularly worthwhile in itself, but because it doesn't want to do something else," Mok said.

In this view, the government launched Serap because it didn't want equity in start-ups, and because it didn't want to give tax deductions for research and development, which the sector has been requesting for years.

"The answer is always: 'We want to keep our taxes simple and low,'" Mok said.

He said that while places like Singapore were able to make the necessary tax adjustments, the Hong Kong government "just wants to make things easier for itself, rather than doing something really useful for these companies".

Lai See thinks that if there is a desire to aid the start-up industry, then the easiest and quickest way is to provide tax deductions for investors. This keeps the government out of the way while allowing the market to decide what to support.

This proposal will inevitably invite from bureaucrats the mantra: "If we give tax breaks to this sector, what's to stop others from asking for them?"

Our answer to this is to show some backbone. Just because they don't offer civil servants the prospect of a cosy retirement job doesn't mean start-ups shouldn't be encouraged.

Have you got any stories that Lai See should know about? E-mail them to howard.winn@scmp.com


For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive



This article is now closed to comments

Why should the government fund start-ups and create companies? This is insane. Start-ups are created by people with ideas and investors with money who can judge the ideas. Being a good judge and making returns isn't something government is good at - they will lose money, as they did last time. Perhaps the author should try fund raising on Sand Hill Road to see how this really works, without government.
Tax is already low enough - adding tax breaks will just make our wonderfully simple system more complex.
No, if the Gov't wants to encourage start ups, it should relax certain regulations, such as the obstacles to crowd funding schemes. And no need for Gov't to invest itself - leave that to the market.
with crowdsourced funding options like Kickstarter, no need for government involvement.
they really don't know what they're doing. stay out of the funding space, and focus on streamlining / making it easy to do business in HK (already is).
don't p**s away our taxpayers money.
In today's age of mobility-driven economy, Hong Kong with its East-West culture is ideally suited to develop a media-electronic economy: e-media. electronic games, mobile APPs, design, e-commerce and 3D Printing which encompasses elements of many of the above. No modern economy in the world does not get to develop their new industry without active support from their government - Hong Kong being perhaps the only exception. In the U.S., local governments at the state and city level compete to provide incentive to attract startups so to create new business and most importantly jobs, jobs, jobs. HKSAR government must wake up to the old colonial mentality of non-interference, adhering to property, finance and tourism as pillars of our economy as these are approaching their limits in terms of higher-value job creation.
One of the key factors of failure of many of the government-sponsored programs failed in the past (and present) is that most if not all are run by ex-civil servants or those considered "civic leaders" who are either ineffective, non-caring or have their own agenda.
Surely the big story here is that civil servants would rather give money away than lend it and risk some of it not being paid back. Well done to Mr Mok for standing up and telling it like it is.
OldPeak Toad
and how many Singapore companies are we aware of that became really global successes???
Will always be nay-sayers but HK has what it takes to be a player in startup land for sure. The private sector is making it happen like investment and startup incubator firm nest Hong Kong and others and you will see lots of successful HK based startups emerge in the coming years! Watch this space....
You may wish to take a look at www.3dtupo.com, a new startup of e-media of 3D Printing.
Recognizing that lack of adequate funding is often the most common stumbling block for start-ups in general. In this regard, the role of the Singapore government and its associated agencies cannot be overemphasized in contributing to Singapore’s success as a start-up friendly nation. Enterprise development is on the top of the government’s agenda. It has consciously crafted a pro-business, and supportive environment conducive to entrepreneurs who want to start a business here. Singapore-based start-ups can benefit from an optimal business environment, excellent infrastructure, low-tax system, lack of bureaucracy, strong legal environment, a readily available workforce.
Not global successes, but sustainable SMEs to create jobs and wealth for the "middle class"; to learn to walk before trying to run.la.




SCMP.com Account