The ‘entrepreneurial state’: Hong Kong could gain more through regional collaborations

Hong Kong has long favoured free market fundamentals in its approach to governance, and the principles of “positive non-interventionism” have been central to the decision-making of the city’s officials. 

However, the challenges arising in today’s fast-changing, globalised environment mean that such an approach may no longer be viable. 

Responding to these challenges, the Hong Kong government is introducing new measures to accelerate the success of innovation and entrepreneurship – which, in turn, means that the traditional notion of Hong Kong as a “liberal state” no longer applies. 

Other governments in Asia have shown themselves to be increasingly proactive when it comes to promoting innovation and entrepreneurship – often providing ubiquitous state support for entrepreneurial ecosystems. 

To steer Hong Kong in a similar direction, Chief Executive Carrie Lam – in her (October) 2017 Policy Address – has called for a new approach to governance, one which enables multiple actors and diverse sectors to get involved – not only in policy formulation, but also in policy implementation. 

Lam made it clear that the role of government is set to change dramatically – from that of “regulator” or “gatekeeper”, to one of “facilitator” or “enabler”. 

This marks a profound shift for entrepreneurs, businesses and the community as a whole, and is positive news for young people and students seeking to develop their ideas into viable businesses. 

Some of the directions given by Lam in her 2017 Policy Address, aimed at fostering innovation-centric entrepreneurship, are discussed below.

Nurturing talent

The government has committed to making strategic investments in Hong Kong’s future, to adopting an entrepreneurial role in order to tackle the rapid social and economic changes confronting the city, and to diversifying the city’s economy. 

Part of this diversification will be achieved by boosting the development of emerging industries such as innovation and technology (I&T) and the creative industries – both of which were identified by Lam as offering considerable potential. 

Such industries will not only bolster economic growth, but also create quality employment opportunities for our young people.

“For Hong Kong to catch up in the I&T race and to become an international I&T hub, the government will step up efforts in eight key areas, viz. resources for research and development (R&D), nurturing a talent pool, venture capital, scientific research infrastructure, legislation review, opening up data, government procurement and popular science education, to propel I&T development and will put in necessary resources”, said Lam. 

An entrepreneurial state 

Lam said that for Hong Kong to become an entrepreneurial state geared towards enhancing research and innovation, the government will strategically invest in research funding, provide additional financial support to encourage local students to join the research enterprise, and seek to attract internationally renowned institutions to set up their research branches in the city. 

“We have set a goal to double the gross domestic expenditure on R&D as a percentage of the gross domestic product [GDP] from the current 0.73 per cent to 1.5 per cent within the current-term government’s five-year tenure,” Lam said. 

She has also set aside HK$10 billion for university research funding, and announced a HK$500 million “Technology Talent Scheme” to encourage young people to engage in research and product development.

“At the same time, I will strive to attract top overseas scientific research institutions to Hong Kong,” Lam said. “In the past three months, several internationally renowned institutions approached me directly and expressed interest in setting up key technology collaborative platforms here.” 

Furthermore, Lam announced an immediate HK$700 million investment in several projects to develop Hong Kong into a “smart city”. 

All of these moves are significant. When other governments in Asia realised the importance of positioning universities to become entrepreneurial, they began to engage the industry in promoting innovation, technology, knowledge transfer, and commercialisation of research for developing new economic growth pillars. 

Lam has indicated that Hong Kong is moving in a similar direction. It recently negotiated an agreement with the Shenzhen government to develop a new Innovation Node at the Lok Mac Chou Loop. Also it has directed universities to increase applied research and knowledge transfer activities with funding support and performance evaluations. 

A new form of governance has emerged from promoting cross university-industry-community collaborations. A “strategic interventionist state” – as opposed to a “liberal state” practising “positive non-interventionism” – is evolving to create the necessary conditions for the development of a market through the promotion of innovation and entrepreneurship with strong government steering efforts. 

Making up for lost time

We must applaud Lam’s moves to position the government to take a more proactive role in promoting R&D and creating an entrepreneurial state for fostering innovation-centric entrepreneurship. However, all sectors – not only government, but also industry, business, universities and society at large – must work creatively and collaboratively to search for new growth points and development opportunities. 

Compared to other Asian economies, the Hong Kong government’s pledge to double GDP share to 1.5 per cent for research and innovation is still far below commitments made by its counterparts in Shenzhen, Singapore, Guangzhou and Shanghai – which are all investing over 3-4 per cent of their GDP in R&D. 

Recently, the Ministry of Education in China rolled out another strategic investment scheme – the “Double World-class University Project” – to concentrate funding on grooming a few regions, including Beijing, Shanghai and Nanjing, to become globally competitive in research, innovation and entrepreneurship. 

Given the small number of universities based in southern China that are able to attract funding support from this project, the Hong Kong government should take the initiative to work collaboratively with the Guangzhou and Shenzhen governments to bring together the talent and resources needed to turn the Bay Area into a leading higher education hub, with strong research capacity, innovation and entrepreneurship. 

With such vast financial resources at the Hong Kong government’s disposal (a fiscal reserve in excess of HK$1,000 billion), it should not shy away from investing in the future in terms of R&D.