Why start-ups thrive behind China’s Great Firewall more than in Hong Kong, its freest city, and how to change that

Hong Kong needs a less rigid education system and more nurturing start-up environment to counter the lure of financial incentives and heavy R&D spending Shenzhen and other Chinese cities offer

PUBLISHED : Wednesday, 18 January, 2017, 6:01am
UPDATED : Thursday, 19 January, 2017, 5:46pm

With less than six months left in the hot seat, Chief Executive Leung Chun-ying and his administration is not going gently into that good night. First came news before Christmas that Hong Kong will build a local branch of Beijing’s Palace Museum. Then, right after the New Year, the government announced an even bigger project: the Lok Ma Chau Innovation and Technology Park, on the border with Shenzhen.

The 87-hectare site, which could easily swallow four Victoria Parks, will give the two neighbouring cities “unprecedented space and opportunities” to complement each other’s advantages, officials say. But why does a city like Shenzhen, which has nurtured global giants such as Tencent and DJI, still need us?

Many of Hong Kong’s traditional advantages are still in place: a low and simple tax regime, a sound legal system, freedom of expression, press freedom and ease of setting up a company. But other cities are desperate to attract the same kind of companies the Lok Ma Chau park will be gunning for – fast-growing technology start-ups and creative industries – and they offer attractive perks and a more nurturing environment.

Leung Chun-ying, in his last policy address as Hong Kong’s chief executive, indicated a desire to see the government drop its laissez-faire attitude for a more proactive one. He said the city had to consider offering tax concessions and financial incentives to attract more investment in innovative technologies, as other cities do, in order to remain competitive. He also raised the amount of funding available for startups and proposed an “InnoCell” project at the Hong Kong Science Park in Sha Tin with living and working spaces for overseas research personnel.

Local entrepreneurs say Hong Kong has quite a bit of catching up to do.

Michael Young, an industrial designer who moved to Hong Kong from Britain 10 years ago, says many designers think it is a no-brainer to set up shop in mainland China. “The Shenzhen government once offered me free use of a huge office for three years, plus half a million yuan (HK$563,000) to cover the set-up cost. The Foshan mayor’s office also approached me. That’s why so many creative people from all over the world are heading to Shenzhen and Shanghai. It’s mainly financial,” he says.

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Tommy Tse Ho-lun, an assistant professor at the University of Hong Kong focused on the development of Asian cultural industries, says despite its draconian laws and heavy censorship, China offers investment but also “cultural capital”.

“That refers to how much people think of culture when they think of your country. Even though a lot of people do not agree with China’s restrictive politics, they are still interested in the historical culture,” Tse says.

In 2015, Hong Kong spent just 0.76 per cent of its gross domestic product on research and development, well below Shenzhen’s 4 per cent, Taiwan’s 3 per cent and 2 per cent in Singapore.

Hong Kong may not have dangled bait as enticing as other cities, but it has increased funds to help budding entrepreneurs in recent years. Last year, it allocated more than HK$4 billion for investing in innovation and technology start-ups, and for boosting university scientific research, a move that may encourage more R&D in the city.

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The government also runs a number of incubation programmes and provides cheap office space in Cyberport and the Science Park, complementing private sector accelerator programmes and new co-working venues.

I really want to hire [Hong Kong] interns but local graduates tend to be very passive ... expatriate interns are more proactive, more vocal and they work hard
Stephanie Poon

Hong Kong and overseas start-ups also benefit from matchmaking events that give them a chance to meet potential investors, such as InvestHK’s StartmeupHK festival, which runs from January 16 to 20.

Outside the technology realm, CreateHK has handed out HK$750 million since 2009 to organisers of non-profit-making programmes and events that benefit creative industries, such as Business of Design Week, Fashion Asia Hong Kong and overseas promotions.

Nevertheless, Hong Kong has yet to produce a single “unicorn” – the holy grail of technology, a start-up valued at above US$1 billion – or any new brands to rival mainland Chinese success stories. In the creative industries, including the art market, fashion, design, music and films, publishing, architecture and software development, growth seems to be stalling.

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Between 2003, the year then chief executive Tung Chee-hwa pledged to promote the creative industries, and 2015, total value added by the sector more than doubled to HK$109 billion, according to CreateHK. But there was no growth from 2014 to 2015, and its contribution to total gross domestic product fell sharply from 5.1 per cent in 2013 to 4.7 per cent in 2015.

Jerry Liu Wing-leung, head of CreateHK since 2010, declined to be interviewed for this article, but his office says the main issue facing Hong Kong is the market’s small size. Business owners agree that is a challenge, but say the government could do more.

“Legislation is important. Singapore is creating a so-called sandbox environment for financial technology start-ups to experiment in without the constraints of regular regulations,” says Gene Soo, a co-founder of community group StartupsHK. As the Hong Kong general manager of transport app Citymapper, he also struggles with a lack of data available for apps that rely on real-time information.

The idea of a civil society that prizes individual freedoms above all, a place where anyone can pursue anything untrammelled, is subversive [in Hong Kong]
Joanne Ooi

In London and Singapore, local authorities make transport data available and disseminate it in a way that is computer readable. “In Hong Kong, the government doesn’t even have the data and temporary traffic arrangements are announced via text-only press releases,” he says.

Another gripe is the city’s learning environment. Stephanie Poon is about to expand her slimming leggings brand Zarie after a successful crowdfunding campaign on Next Chapter, a local platform for female entrepreneurs. The Hong Kong native says the talent pool seems to be stifled by a rigid education system.

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“I really want to hire local interns but local graduates tend to be very passive and they don’t dare kick people in the butt. By comparison, expatriate interns are more proactive, more vocal and they work hard,” she says.

Joanne Ooi, founder of a rare Hong Kong start-up that managed to list publicly, has just quit Hong Kong for Britain. She thinks that there is a cultural resistance to creative entrepreneurship that goes deeper than the education system.

“The idea of a civil society that prizes individual freedoms above all, a place where anyone can pursue anything untrammelled, is subversive here. It is the same in many Asian cultures, where to subordinate the group, the family, for the individual has never been philosophically permitted,” says Ooi, whose online jewellery company Plukka raised A$10 million (HK$57.9 million) on the Australian Securities Exchange last year. Add to that Hong Kong’s high rents, a lack of quality engineers and cutting-edge academic institutions, and “replicating formulas that are historically validated becomes irresistible”, she says.

Ooi resigned from Plukka last year after its restructuring under a new managing director and was also tired of living under a government mired in structural inertia, she says.

Still, Hong Kong has one major advantage over most other Asian cities: freedom of expression (incidents such as the disappearing booksellers and mystery over the stabbing of journalist Kevin Lau Chun-to aside). CreateHK had no comment when asked if it considers Hong Kong’s civil liberties a valuable asset, and whether it promotes such benefits.

The value of Hong Kong’s liberal environment is perhaps best seen in popular culture, where having a finger on the pulse of society is important. Critically acclaimed Hong Kong films such as the dystopian Ten Years would never have been made in China or Singapore.

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Singer Denise Ho Wan-see, despite being dropped by sponsors and barred from China’s music scene, has an army of highly engaged fans partly because of her political activism and for coming out as a lesbian. Her Facebook page boasts almost half a million “likes”, over 100,000 more than Canto-pop veteran Leon Lai Ming’s account.

GDJYB, the self-described “math-folk girl band”, have toured in Singapore and Taiwan since their political song Durian What What What became a hit. Band members say Hong Kong’s freedom of expression is not just vital to them – it also encourages all creative industries.

“Freedom is important for those of us who write lyrics, but it is also important for everybody else in the creative industries. Our drummer Hei Hei and I used to be in advertising and we are aware that in an environment where nobody dares to be bold, people just end up duplicating each other,” lead vocalist Soft Liu says.

Drummer Hei Hei Ng adds: “We want to continue making songs about our society. That gives us a sharp image, and people outside of Hong Kong want to find out what’s going on here when they see our videos.”

Hong Kong’s freedoms and other traditional attractions still make it an appealing place for businesses, new or old, says Anson Bailey, partner at KPMG in charge of business development in China.

“Many people would still prefer to live here and not in [China]. Entrepreneurs [in China] still see Hong Kong as a safe place to live and to invest in.

“More importantly, some big companies are waking up to the fact that they have lost their entrepreneurial spirit and that customers’ behaviours and all our working lives are changing. They are saying, ‘Let’s learn from start-ups, let’s shorten production cycles’. That’s the attitude that can save Hong Kong,” he says.