DDN Business Insider | Not 'another Silicon Valley': GBA focuses on industrial structure optimization as emerging industries rise
Editor's note: Since mid-July, the public consultation work on the 2024 "Policy Address" has been progressing in an orderly manner. Previously, Chief Executive John Lee also mentioned that the 2024 "Policy Address" will focus on three areas of work, including fully developing the economy, focusing on improving people's livelihood, grasping the dual opportunities of the country and the international arena, and riding on the fast train of national development. For the new "Policy Address" to be announced in October, what are the industry's expectations and suggestions?
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. Since mid-July, the public consultation work on the 2024 "Policy Address" has been progressing in an orderly manner. Previously, Chief Executive John Lee also mentioned that the 2024 "Policy Address" will focus on three areas of work, including fully developing the economy, focusing on improving people's livelihood, grasping the dual opportunities of the country and the international arena, and riding on the fast train of national development. For the new "Policy Address" to be announced in October, what are the industry's expectations and suggestions? In this episode, we invited Hong Kong economist and Director of the China Silk Road iValley Research Institute, Leung Hoi-ming, to participate in the discussion.
Hello, Mr. Leung. In October this year, Chief Executive John Lee will announce his third "Policy Address". Upon reviewing the contents of his past two Policy Addresses, we've noticed that when it comes to focusing on economic development, there has been a greater emphasis on driving innovation in emerging industries and the technology sector. But actually, when most people think of Hong Kong, the keywords that often come to mind are still real estate and tycoons like Li Ka-shing. I know that you have done some research in this area. Firstly, is the traditional industry, especially the real estate industry, still occupying a very important position within Hong Kong and even the Greater Bay Area?
According to our team's relevant research and data, the majority of wealthy individuals in the Guangdong-Hong Kong-Macao Greater Bay Area are indeed from traditional industries. Furthermore, we have also found that many of the wealth rankings published externally show that among the entrepreneurs in the Greater Bay Area, those engaged in real estate, traditional manufacturing, and other traditional industries make up a relatively high proportion. This reflects the solid foundation and important position of traditional industries in the region's economy
However, the industries and sectors in which billionaires operate do not fully represent the overall industrial structure of the Guangdong-Hong Kong-Macao Greater Bay Area. Our research has found that the industrial structure of the Greater Bay Area is actually quite diversified, including advanced manufacturing, high-tech industries, modern service industries, and various other sectors. The development of these fields has also made significant contributions to the economic and social development of the Greater Bay Area. Especially in recent years as technological advancements and industrial upgrading have led to the rapid rise and growth of the advanced industries in the region. For example, we often see very strong development momentum in areas such as artificial intelligence, big data, new energy, and smart manufacturing. It has attracted a large amount of investment, including from Hong Kong, as well as a large number of high-end talent participating in the growth of these industries. The rise and development of these advanced industries not only has injected new vitality into the economy of the Greater Bay Area. We also see that it has also changed the original industrial structure and landscape of the Greater Bay Area.
So the current industrial structure of the Guangdong-Hong Kong-Macao Greater Bay Area exhibits the characteristic of coexistence between traditional industries and emerging industries. Although the majority of wealthy individuals come from traditional industries, the industrial structure is different and represents the coexistence of the two. Traditional industries, such as real estate and traditional manufacturing, still hold an important position and provide a solid foundation for economic development. We have also seen rapid development in emerging industries such as high-tech, modern service industries, artificial intelligence, big data, unmanned aerial vehicles, and unmanned ships, which have become new engines of economic growth. Therefore, in our research, we also predict that with the continuous advancement of technology and the ongoing transformation and upgrading of the industrial structure, the industrial structure of the Greater Bay Area is expected to see optimized progress in the future.
Traditional industries, through technological transformation and upgrading, will achieve higher-quality development. Also, emerging industries will continue to maintain strong growth momentum and become the main driving force for economic growth.
Furthermore, we believe the Greater Bay Area will further strengthen regional cooperation and collaborative innovation, promoting coordinated industrial development and industrial upgrading within the region.
【Anchor】The research dimension you referred to was the number of wealthy individuals in the Greater Bay Area. As I just mentioned, when people think of Hong Kong, they think of real estate and Li Ka-shing. In fact, a considerable proportion of the top-ranked billionaires in the Greater Bay Area are still from the real estate industry. Is there certain influences from the"historical legacy factor"?
Particularly in Hong Kong, we have indeed seen that the wealthy individuals in the real estate industry are quite numerous, which is indeed influenced by historical legacy factors. After all, Hong Kong has limited land and a dense population, so land supply is relatively tight, leading to persistently high real estate prices.
Moreover, in the early days, Hong Kong's (economy)was mainly focused on trade and finance, so real estate became the primary investment direction for many.
Additionally, during the reform period, the government-controlled land supply and obtained fiscal revenue through land auctions, making the land and real estate market highly competitive.
Furthermore, Hong Kong has long implemented a low-tax regime, which has attracted a large number of local and foreign investors to enter the Hong Kong real estate market. We have also seen that Hong Kong people are keen on buying bricks and houses, and they have also achieved wealth accumulation through property purchases. This means that those who purchase homes and engage in real estate speculation will see an increase in their wealth.
It also shows that in Hong Kong, real estate and house-buying are similar to stable investment methods, which has attracted a large influx of capital.
However, we have also seen that while this is a historical legacy issue, it has also led to historical legacy problems.
For example, high housing prices have led to housing problems in Hong Kong, and the issue of affordability has become a focus of social concern, such as the problem of many people living in subdivided units or in public housing for a long time without being able to buy a house.
I believe that with the transformation of the economic structure, in the future, Hong Kong will need to seek new growth points in the field of technological innovation, in addition to real estate.
【Anchor】Yes, the coordinated development of traditional industries and emerging industries, and the discovery of new growth points in the process are the key to Hong Kong's long-term and stable development. This is also likely the reason why Chief Executive John Lee has focused more on emerging industries in the "Policy Address". Do you have any specific suggestions in this regard?
To promote the synergistic development of emerging industries and traditional industries, our research--particularly looking at the successful development experiences of mainland China and Western countries-- suggests that the HKSAR government can consider the following measures in the future:
Firstly, we should encourage traditional industries to adopt more new technologies, such as artificial intelligence and big data, to undergo this kind of digital innovation. This will help improve their efficiency and competitiveness.
Secondly, the HKSAR government should provide policy incentives and financial support to encourage traditional enterprises to expand and develop in the field of emerging industries and support the growth of these innovative enterprises.
At the same time, talents are very important, so we also need to further strengthen education and training in the future, especially in cultivating talents who have both traditional industry expertise and new technological skills. This can promote cross-field cooperation and collaboration between the two industries.
Furthermore, if the HKSAR government can establish a collaboration platform between the new and traditional industries in its new "Policy Address", this platform can facilitate the integration of the supply chain and collaborative innovation, promoting the sharing of resources between these two industries. This can also drive their coordinated development.
Additionally, we need to build a better innovation ecosystem in Hong Kong's society, promoting cooperation between enterprises, research institutions and the government, in order to facilitate technological research and development, as well as industrial implementation.
I believe the most important aspect is that the special administrative region government needs to carry out in-depth reforms, in order to further improve the systems for various services.
On the one hand, it needs to strengthen the construction of the financial service system, which provides funding support and guarantees for the synergistic development of emerging and traditional industries, especially for the SMEs within these industries.
On the other hand, there is the information service. I suggest the HKSAR government consider establishing an information service platform in the new "Policy Address", providing policy, technology, and market-related information services. This will help these enterprises, especially small and medium-sized enterprises, to stay up-to-date on industry dynamics and market demand, especially in the mainland China market, which has a massive population of 1.4 billion and on which Hong Kong currently lacks information.
【Anchor】Hong Kong's development is closely linked to the development of the Guangdong-Hong Kong-Macao Greater Bay Area. Over the years, the Greater Bay Area has been actively or passively benchmarked against the San Francisco Bay Area, New York Bay Area, and Tokyo Bay Area. In your view, does the Chief Executive's focus on the development of innovation and technology industries in the Policy Address convey a signal of intending to shift towards the San Francisco Bay Area model?
Chief Executive John Lee's policy address emphasizes innovation and technology industries, which is to drive Hong Kong's economic transformation and advancement. However, I believe this does not mean that Hong Kong will completely become the San Francisco Bay Area, as every area has its own unique characteristics and advantages. Hong Kong's biggest advantage is that it is backed by the vast 1.4 billion population market of mainland China, which the San Francisco Bay Area does not have.
So the reason why Hong Kong needs to emphasize innovation and technology industries is that the HKSAR government, including Chief Executive Lee , has seen the great development potential in these emerging industries and technology sectors, which can help further prosper Hong Kong's economy.
Formulating a policy address is a process that requires comprehensive consideration of various factors. It not only involves economic development but also relates to social stability, people's livelihood improvements, education, healthcare, and so on. Therefore, we cannot simply infer the overall intent of Chief Executive John Lee's policy address or if he is preparing to shift towards a specific development model based on certain contents of the policy address.
【Anchor】Given your research, what do you think are the key problems that various stakeholders, including the government or entrepreneurs, need to solve in the future development of Hong Kong and the Guangdong-Hong Kong-Macao Greater Bay Area, especially when facing the challenge of industrial transformation and upgrades?
Before conducting this research, we visited the San Francisco Bay Area and the Silicon Valley in the US, as well as the Tokyo Bay Area, and studied the relevant developments in the Guangdong-Hong Kong-Macao Greater Bay Area.
So our conclusions are rather open-ended. In the research process, we did identify a few issues and pondered some questions that currently have no clear answers, but are quite open-ended.
On one hand, for the traditional industries in the Guangdong-Hong Kong-Macao Greater Bay Area, especially the representatives in Hong Kong, can already generate some profits based on their existing business models and have been making money. Even though profits have been a bit lower in the past two to three years, their profits are relatively stable in the longer term.
So the question is, will they continue to invest heavily in emerging high-value-added industries in the future? This is something we explored. Moreover, our research on the annual financial reports of these traditional industries found that even when they do participate in investing in these high-tech and emerging industries, the scale of such investments is relatively small compared to their core business and the nature of these investments is quite different from their main business.
Not to mention, we've observed the fact that investing in innovative and technology industries has longer return periods and higher risks. Moreover, they are not the core competencies of these traditional industries. Success is not easy to replicate. After all, "a different trade is like a different mountain." While wisdom can be passed on, success cannot be replicated.
So we found that there are not many successful cases of traditional industries making big money by investing in emerging industries. And Hong Kong's traditional industries are more adept at areas like real estate and hospitality, which are not the primary development targets for Hong Kong or the Greater Bay Area.
Therefore, even though these traditional industries have abundant capital at their disposal, their willingness and interest to actively participate in the innovation industries of Hong Kong or the Greater Bay Area in the future is a big question mark.
More importantly, the development of innovation and technology is a key strategic objective for Hong Kong's future. This will fundamentally change the rules of the game for the overall business development in Hong Kong, which has already significantly impacted the vested interests of the traditional industries.
So in the future, if you infringe on others' interests, could this potentially lead to their retaliation? This is also a problem worth exploring and thinking about for the government and the Hong Kong SAR government when promoting policies in the future.
【Anchor】Okay, thank you Mr. Leung for sharing with us today. We will also continue to follow the latest developments of the"Policy Address" consultation and provide targeted analysis and comments for everyone. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
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