Hong Kong vs Shenzhen: a technology tale of 2 cities, and a game of catch-up
- Shenzhen’s economy surpassed Hong Kong’s for the first time in 2018 on the back of its rising status as the country’s technology hub
- Analysts note Hong Kong needs to lean on its established research institutions and status as a place to raise capital
Separated by a narrow winding river, Hong Kong and Shenzhen may be close to each other geographically but they are poles apart in economic development.
The tale of the two cities revolves around technological prowess. One of them zeroed in early on its goal to become the cradle for the country’s technological development, while the other had grand ambitions but did not fully capitalise on its head start and strengths.
Hong Kong is now playing catch-up with Shenzhen on the technological front, but all is not lost, with observers noting the city simply needs to bank on its established research institutions and status as a place to raise capital.
Following its 1997 return to Chinese rule, Hong Kong two years later pinned high hopes on technology as one of the key directions to diversify and transform its economy into “a leading digital city in the region”.
Despite the government’s ambitions, such efforts continued to be eclipsed by traditional pillar industries such as finance, property and tourism.
In 2018, Shenzhen’s economy surpassed Hong Kong’s for the first time.
Will Shenzhen swallow Hong Kong as mainland city wins more economic freedoms?
While Shenzhen launched a series of policies to fuel technological development about a decade ago, Hong Kong only raised its game with over HK$15 billion (US$1.9 billion) in investments and initiatives in the past two to three years.
The government-backed infrastructure of Science Park in Pak Shek Kok and Cyberport in Pok Fu Lam are the cauldrons to catalyse new start-ups.
A new addition is scheduled for 2024 when the construction of the first stage of the 87-hectare Hong Kong-Shenzhen Innovation and Technology Park at the Lok Ma Chau Loop at the city’s border is completed. The new infrastructure – owned by the Science Park – will be the city’s largest IT platform to expand into the Greater Bay Area market.
Under President Xi Jinping’s Greater Bay Area plan, Hong Kong is expected to integrate with Shenzhen, Macau and eight other cities in Guangdong province to form a technological powerhouse rivalling California’s Silicon Valley by 2035.
Hong Kong’s research and development expenditure accounted for only 0.99 per cent of its gross domestic product in 2020, according to latest official data.
Shenzhen has made more aggressive investments, spending around 5.46 per cent of its GDP on research and development last year.
05:25
Hong Kong's competitive edge questioned as Xi says Shenzhen is engine of China’s Greater Bay Area
In 2021, Shenzhen’s hi-tech industry contributed 38 per cent to its total GDP as its biggest economic pillar, with more than 20,000 state-level companies located in the special economic zone. It is also home to some of the biggest tech companies in China, including Tencent, drone maker DJI Technology and telecommunications equipment firm Huawei Technologies Co.
On the national level, Shenzhen was a key engine of growth, with its GDP of 3 trillion yuan (HK$3.5 trillion) contributing to 2.6 per cent of China’s GDP in 2021.
Hong Kong, which used to play an instrumental role in helping transform its neighbour and once rural backwater into China’s tech hub, is trying to catch up.
The city’s GDP is still reliant on four pillar of industries – financial services, tourism, trading and logistics as well as professional services and other producer services. In 2021, Hong Kong’s GDP stood at HK$2.86 trillion, lagging behind that of Shenzhen.
Can Hong Kong keep pace?
While experts say Hong Kong needs to do more to turn research into commercialised products, it should play to its strengths in using its research universities and edge in raising capital, which will help keep it competitive with Shenzhen.
Hong Kong has seen an increase in the number of start-ups from a few hundred to 3,755 last year, employing 13, 804 people in financial technology, e-commerce, supply chain management and logistics technology.
There have been an estimated 11 unicorns in Hong Kong, the term used to describe a start-up with a valuation of at least US$1 billion.
Chief Executive-elect John Lee Ka-chiu has vowed to develop Hong Kong into an international innovation and technology hub, as outlined in China’s bay area ambition and its 14th five-year plan.
Some US$1.2 billion has been earmarked for the development of health technology, and the annual subsidy allocated to research and development in technology and commerce has been doubled.
Four Hong Kong universities are among the top 100 institutions in the world.
The Science Park and the Cyberport offer space and potential funding for start-ups, going some way towards solving the issue of the high cost of real estate for start-ups.
More spaces will be available between 2024 and 2027 when the first phrase of the Hong Kong-Shenzhen Innovation and Technology Park is completed. Costing HK$18 billion, the first stage will see the supply of eight out of a total of 67 buildings.
Science Park CEO Albert Wong said in an interview with the Post that connecting scientists to opportunities and the commercial world would be key in the coming years.
“It is not as simple as having the best product. The best idea in the world doesn’t mean someone will buy from you. In a commercial world it is about what the world needs, and then create things that solve that problem,” he said.
Pointing to the city’s success stories of logistics operator Lalamove and artificial intelligence firm Sensetime, Wong said while the companies started in Hong Kong, they were solving global issues.
Founded by a group of professors at the Chinese University of Hong Kong (CUHK) in 2014, SenseTime develops AI technology used in a variety of areas, including autonomous driving, augmented reality, facial recognition and medical imaging. Its technology is being used in smart city and smart auto initiatives in China.
Lalamove was founded in 2013 by Chow Shing-yuk, a Stanford graduate and former professional poker player. It operates in more than 20 markets in Asia, Latin America and the US, and has a pool of more than 700,000 driver partners.
Wong admitted Hong Kong could not compete with Shenzhen on size or scale, but said its research into artificial intelligence, vaccine development and drug discovery set the city apart.
“The investor base, rule of law, access to the international market, although there is geopolitical tension – still Hong Kong is holding these cards,” he said.
China’s Shenzhen plans will transform Greater Bay Area, including Hong Kong
Professor Wong Kam Fai from the Department of Systems Engineering and Engineering Management at CUHK said both cities could work together in a chain of processes, with research based in Hong Kong, mass production and commercialisation in Shenzhen and the bay area, then raising capital and getting listed in Hong Kong.
Wong said both Hong Kong and mainland Chinese authorities should facilitate collaboration and engineer an environment for fair competition, but Hong Kong had room for improvement to remain competitive, such as in regulation.
“We are not sort of agile enough to change our laws to accommodate new norms. This is something hindering us and advancement of the innovation and technology business in Hong Kong,” he said.
InvestHK – the government’s vehicle to attract foreign investment – tried to bring ride-sharing firm Uber to the city but the company continues to be deemed illegal as its drivers do not have hire-car permits.
While Hong Kong’s taxi industry has tried to persuade the government to clamp down on Uber, supporters have called for the government to open up the ride-hailing market with a simplified regulatory regime.
The government proposed in 2019 to have stiffer penalties for drivers who provided illegal rides, including Uber drivers, but nothing has been done so far.
Can Hong Kong find its place in China’s Greater Bay Area economic powerhouse?
Simon Lee Siu-po, co-director of the international business and Chinese enterprise programme at CUHK, pointed out Hong Kong could not compete with Shenzhen, because the latter had already created a critical mass of infrastructure for technological development.
Lee said scientific research needed a lot of money and required time for returns, with the city often using traditional ways to perform evaluations, which meant some companies would face difficulties if they could not produce results swiftly enough.
“We need to change our mindset. Two or three success stories out of maybe 50 or 100 is good enough to cover the loss. We need to face the losses, but it’s not easy in Hong Kong [where] we look at an immediate returns especially,” he said.
An example of this point is a project under microbiologist Yuen Kwok-yung, who said earlier this year that progress in developing a nasal spray vaccine against Covid-19 was extremely slow due to insufficient investment, with his team having sowed the seeds for their brainchild two years ago.
Yuen at the time called for the government to provide regular funding to support development and operations of the Academy of Sciences.
Shenzhen turns the table
When Hong Kong returned to China 25 years ago, Shenzhen was already growing rapidly as an original test bed for China’s reform and market opening, which allowed it to attract foreign investment and build up manufacturing clusters for various industries and most notably, tech hardware.
In the past two decades or so, Shenzhen had rapidly emerged as a tech hotspot, riding on the rise of the internet industry, one of the most important shifts in the country’s economy, said Guo Wanda, vice-president of the Shenzhen-based think tank China Development Institute.
“Shenzhen was able to grab the opportunity because the government was determined to cultivate the industry with various policy supports, including building vast industrial parks, hosting the hi-tech trade fair and offering tax incentives,” Guo said.
Among the start-ups was Tencent Holdings, founded in Shenzhen in 1998 with an instant messaging app called QQ before growing to become the biggest tech company in China.
The internet services in Shenzhen and the mainland have since grown explosively partly thanks to the protection of the Great Firewall that kept international competitors such as Google and Facebook out of the China market.
The tech industry has also been a priority for policymakers in Shenzhen, which was tasked by Beijing to be a “core engine” to achieve national self-sufficiency and become a global tech leader.
Shenzhen has been putting forward supportive policies for tech entrepreneurs and researchers from funding to various incentives to lure high-level talents.
Wang Tao, founder of the world’s biggest drone maker DJI, developed his first drones in the lab of the Hong Kong University of Science and Technology before opting for Shenzhen to start its company.
With a sophisticated supply chain and a global sourcing centre for electronic components, Shenzhen became a favourable location for tech companies and start-ups to build, test and sell their products, helping the city become the “Silicon Valley of China”.
Another example is warehouse robot firm Hai Robotics. Entrepreneurs Fang Bing and former schoolmate Richie Chen chose Shenzhen as the birthplace for the company in 2015, even though they studied electrical engineering at Hong Kong Polytechnic University (PolyU). Shenzhen had the advantages in supply chain, talent and business environment, Fang said.
Nothing to fear from rising Shenzhen: Hong Kong minister, ex-leader
“For the robotics industry, Shenzhen has a comprehensive supply chain for smart manufacturing and high-end manufacturing, which allows companies to make better robots with lower costs,” Fang said.
“As for the local government, it takes the role of serving companies when a company is facing difficulties, and it won’t interfere as long as the company operates within the boundaries of laws and rules,” he said. “The Shenzhen government is also very generous in attracting and retaining high-end talent with subsidies and other policies.”
However, the company still valued its co-founders’ roots in Hong Kong. Hai Robotics partnered with Fang’s alma mater to set up a joint lab for automation and robotics, where PolyU would nurture and supply the talent for the company.
Guo of the think-tank China Development Institute said Hong Kong could still play an important role in the bay area’s tech ambitions.
“Hong Kong has top-notch universities and science institutions in areas such as artificial intelligence and biotechnology, and it can attract international scientific talent,” he said. “At but not least, it will give important financial support to the industry as a financial hub.”
Additional reporting by Denise Tsang
