Research and Development in Hong Kong: What can our government do to make Hong Kong competitive?

• INTRODUCTION
• Research & Development
• HOW ADEQUATE IS THE R & D MANPOWER IN HONG KONG
• HOW IMPORTANT IS S&T WITHIN THE GOVERNMENT STRUCTURE

1. INTRODUCTION

Over the years, the Hong Kong government had stated on many occasions that we should strengthen our economic base by increasing and diversifying industrial development, especially in the knowledge-intensive and technology-based sectors. Only through this effort, we can enhance Hong Kong's industrial and service competitiveness.

The purpose of this position paper is to give our input along this line. One of the original visions of the Hong Kong Institution of Science (HKIS) is to encourage the advancement of science and technology (S&T) in Hong Kong. Therefore, we have developed position papers on issues related to S&T from time to time. In fact, the previous effort of HKIS had contributed to the establishment of the Science Park and The Hong Kong Applied Science and Technology Research Institute (ASTRI). The last position paper issued by HKIS was a report entitled “Research and Development in Hong Kong: The Way Forward” which was submitted to the Hong Kong Government in November 2000.

Now, a decade later, the landscape of Hong Kong’s own science and technology development, as well as that of China and worldwide, has gone through tremendous changes. Hong Kong’s higher education is moving from a three year British tradition system to a four year one that is closer to the United States system. The Hong Kong Science and Technology Park has grown significantly, and has been relatively successful in attracting small and medium enterprises and a few multinational corporations (e.g. Dupont). ASTRI now employs several hundred S&T scientists and engineers performing applied research and product development. The Research Grants Council (RGC), which is Hong Kong’s main funding agency for S&T research, now has an HK$18 billion endowment, generating about HK$800M annually, a substantial increase from just a few years ago. Finally, the Innovation and Technology Commission (ITC) also runs several funding programs, the biggest of which is the Innovation and Technology Fund, stimulating the establishment of partnership between universities and local industry.

Despite these commendable efforts, the Hong Kong government can, and should, do a lot more. In the last two decades, our competitors in Asia are making drastically increased investments in S&T. For example, Singapore has established the Agency for Science, Technology and Research (A*STAR), rapidly expanded Nanyang Technological University, formed a new university in technology (the Singapore University of Technology and Design), and started a new research funding scheme (the National Research Foundation). The Korea Advanced Institute of Science and Technology is making fundamental changes in its structure and research directions. Japan has started the Okinawa Institute of Science and Technology a few years ago. The biggest change is of course in China, which has made S&T a central feature of its national policy in its 12th Five-Year Plan. China is now either leading or participating in most S&T activities globally, including research in renewable energy, space, communication, and in many areas of basic sciences. Not only is the Central Government making strategic investments in S&T, local governments in regions, provinces and cities are doing the same.

With this new playing field emerging, it should be the concern of every scientist and engineer in Hong Kong to put our heads together and ask our government to help Hong Kong to forge a strategic vision regarding S&T. This is vital to ensure our economic competitiveness and to provide future opportunities for our younger generation. Indeed, according to The Global Innovation Index 2011, the ranking of Hong Kong in the Innovation Efficiency Index is very low (ranked #65). This is somewhat surprising since Hong Kong is supposed to be well developed for business innovation. A detailed analysis indicates that this low ranking is mainly due to the fact that Hong Kong’s development is highly imbalanced. Particularly, there was a lack of proper investment in R&D. (For detailed analysis, please see Section 1.5).

In this position paper, we would like to examine three specific issues: (1) Is the amount of resource devoted to support research and development in S&T adequate in Hong Kong? (2) Has Hong Kong retained sufficient manpower for its S&T development? (3) Does the Hong Kong government pay enough attention to the development of S&T? In the current administrative structure of our government, how important is the decision-making on S&T matters? We conclude that HK still has a window of opportunity to fully exploit its many intrinsic advantages in further developing S&T and innovation to have a positive impact on its economy. We end with a number of specific recommendations for our government to consider.

2. HOW COMPETITIVE IS HONG KONG IN SUPPORTING R&D (Research & Development)

A measure of the standard of living in a regional economy is the Gross Domestic Product (GDP) per capita. By this measure, Hong Kong has advanced rapidly in the last few decades. We are now achieving a GDP/capita above US$30,000, approaching that of the US(Fig. 1). Then, one may expect that the support of R&D in Hong Kong would be on par with the developed economies.

Let us examine if this expectation is true or not. One measure of the technological health of an economy is the investment in R&D by the public and private sectors, the sum of which is usually represented by the Gross Expenditure on Research and Development (GERD) as a percentage of Gross Domestic Product (GDP). This index is one of the leading indicators of the state of world economies, as used by the Organization for Economic Cooperation and Development (OECD). Using this index, Hong Kong's technology development can be examined from two angles: (a) by comparing Hong Kong's position with those of other economies in recent years; (b) by comparing the growth in Hong Kong's R&D expenditure with those East Asian economies closely related to Hong Kong.

1.1 GERD/GDP in 2009(the most recent year for which data are readily available)

Table 1 provides information on R&D expenditures in different economies. From this table, it is apparent that the percentage of R&D expenditure in Hong Kong is far smaller than her neighboring economies. Here we compare Hong Kong with 4 different groups: The 1st group is large developed economies such as USA and Japan. The 2nd group is medium sized technology-oriented economies, such as Switzerland, Israel and Finland. The GERD/GDP ratio of these two groups is typically around 3% or above. The 3rd group is rapidly growing, East Asian economies (the so-called “Four Little Dragons”) .Their GERD/GDP ratios range from 2.3% to 3.6%. The only exception is Hong Kong, which is 0.79%. This number is even smaller than some of the developing economies (the 4th group), such as Mainland China, which is 1.7%. It is clear from this comparison that Hong Kong has a lot of catch-up to do in terms of resource support for R&D.

(Table 1) provides information on R&D expenditures in different economies. From this table, it is apparent that the percentage of R&D expenditure in Hong Kong is far smaller than her neighboring economies. Here we compare Hong Kong with 4 different groups: The 1st group is large developed economies such as USA and Japan. The 2nd group is medium sized technology-oriented economies, such as Switzerland, Israel and Finland. The GERD/GDP ratio of these two groups is typically around 3% or above. The 3rd group is rapidly growing, East Asian economies (the so-called “Four Little Dragons”) .Their GERD/GDP ratios range from 2.3% to 3.6%. The only exception is Hong Kong, which is 0.79%. This number is even smaller than some of the developing economies (the 4th group), such as Mainland China, which is 1.7%. It is clear from this comparison that Hong Kong has a lot of catch-up to do in terms of resource support for R&D.

1.2 World ranking of GERD/GDP ratio in different economies

Figure 2 shows the world ranking of R&D expenditures among different economies in 2009. Hong Kong's GERD/GDP ratio was reported to be 0.79%, placing it at #42, between India and Poland. This ranking is about the same as a decade ago, when Hong Kong was ranked #40 in 1998.

1.3 Comparing the growth trend in Hong Kong's R&D expenditure with other East Asian economies

Figure 3 shows the GERD/GDP ratios of Four Asian Dragons and Mainland China over the past 15 years. From the trend of the GERD/GDP ratios, we can see that the level of R&D support in Hong Kong is far less than that of her competitors. In fact, the support of R&D in Hong Kong is even less than that of Mainland China, which is economically not as advanced as Hong Kong. Also, the trend of R&D support in Hong Kong is not encouraging. In the past five years, while most of Hong Kong’s competitors rapidly increased their support of R&D, the support of R&D in Hong Kong did not increase at all.

1.4 Comparison between Hong Kong and Singapore

nother way to measure the support of R&D in an economy is the amount of GERD per person. Figure 4 shows a comparison between Hong Kong and her major competitor, Singapore. These two economies share many common features. First, both are port cities, with a medium sized population. Second, they both belong to the group of Asian Four Little Dragons and undergo industrialization only a few decades ago. Third, both were ex-British colonies and have a well-established civil-servant system. Yet, these two governments had very different policies on the support of science and technology. The level of GERD per person in Singapore is apparently far more than that of Hong Kong.

Some people said that the reason for Hong Kong’s low GERD/GDP ratio is because Hong Kong does not have a strong high-tech industry. This of course is true, but it does not mean the government has no responsibility. Figure 5 shows the growth trends of R&D expenditures by public and private sectors in Singapore (SGP) and Hong Kong (HK). If we just compare the amount of R&D expenditure by government alone, we can still see that the R&D expenditure in Hong Kong is far behind Singapore. (One should also keep in mind that the population in Singapore is much less than Hong Kong, so the per capita figure is even more dramatically different.) Also, the trends of R&D expenditure supported by government are also different between the two regions. In Singapore, this trend is going up steadily while it is almost flat in Hong Kong.

Furthermore, one can see from Figure 5 that Singapore is doing a much better job in attracting private sector to invest in R&D in comparison to Hong Kong. HKIS is of the opinion that, to develop a technologically sophisticated economy, the Government must lead the way by making a substantial investment in R&D and by establishing an environment that is conducive to private sector investment in R&D.

1.5 How to improve the innovation efficiency in Hong Kong

An important survey of the innovation efficiency in various economies is given by The Global Innovation Index 2011, which evaluates economies relying on two sub-indices: the Innovation Input Sub-Index and, the Innovation Output Sub-Index. The Innovation Efficiency Index is calculated as the ratio of the Output Sub-Index divided by the Input Sub-Index.

Innovation Input Sub-Index. Five pillars are included in calculation of the Input Index: (1) Institutions, which consider the economies’ political environments, regulatory environments and business environments. (2) Human capital and research, which includes education, tertiary education and research & development. (3) Infrastructure, which examines all areas relating to information and communication technology, energy and general infrastructure. (4) Market sophistication, which looks at the aspects in credit, investment and trades & competition of the economies. (5) Business sophistication, which considers knowledge workers, innovation linkages and knowledge absorption.

Hong Kong’s rankings for various Input Indices are:

• (1) Institutions (#4)
• (2) Human capital and research (#30)
• (3) Infrastructure (#2)
• (4) Market sophistication (#1)
• (5) Business sophistication (#5)

The overall ranking of Hong Kong’s Innovation Input is #2.

Innovation Output Sub-Index. Two pillars are used for evaluating the Innovation Output: (1) Scientific outputs, which cover knowledge creation, knowledge impact and knowledge diffusion. (2) Creative outputs, which cover creative intangibles and creative goods and services.

Hong Kong’s rankings for various Innovation Output Indices are:

• (1) Scientific outputs (#24)
• (2) Creative outputs (#1)

The overall ranking of Hong Kong’s Innovation Output is #12.

Innovation Efficiency Index. From the information above, Hong Kong’s overall ranking of the Innovation Output is far behind her ranking of the Innovation Input. As a result, Hong Kong’s ranking in Innovation Efficiency Index is very low (ranked #65 in the world).

Why Hong Kong has such a poor ranking in Innovation Output and Efficiency? That is because Hong Kong has one clear deficiency in one its Input pillars, i.e. Hong Kong has poor ranking for Input pillar (2) Human capital and research. This means that, although Hong Kong has good Institutions, excellent Infrastructure, best Market sophistication and good Business sophistication, Hong Kong does not invest enough in her Human capital and research. As a result, the economic development in Hong Kong is imbalanced (in a sense, wasting the other good pillars). It is no wonder why her Innovation Efficiency is low.

1.6 The issue of defense/military R&D expenditure

In the past, some people had put forward an argument that the R&D expenditure in Hong Kong is much lower than other economies because Hong Kong does not need to fund research in defense. While it is true that in some countries, such as the USA, a substantial amount of R&D money is spent on defense. However, this is not true for Asian Four Little Dragons, since most of their military hardware were purchased from arm-export countries (mainly USA). But even if we look at USA herself, the amount of non-defense R&D expenditure is still far larger than that of Hong Kong (see Table 2). For example, on a per capita basis, the total non-defense R&D expenditure in US in fiscal year 2011 is about 15 times the yearly funding of RGC (Research Grants Council), which is the main research funding source in Hong Kong.

Another way to look at the non-defense research support is to compare the funding of biomedical science between different economies. Hong Kong currently has no separate funding agency for biomedical science. Research projects in all categories (including life science, physical science, engineering, humanities and social science) are funded by RGC. In USA, the major government funding agency for biomedical research is National Institutes of Health (NIH). In addition, National Science Foundation (NSF) also provides funding for life science as well as other basic sciences. As shown in Table 2, on a per person basis, the research funding from NIH and NSF are far more than that of RGC.

3. HOW ADEQUATE IS THE R & D MANPOWER IN HONG KONG

Education is one of the best long-term investments that a society can make. Hong Kong, as a society, must commit the resources necessary to educate our young people effectively. Everyone in our society will be benefitted from the wealth created by an appropriately educated populace.

HKIS therefore welcomes the pro-educational initiatives taken by the Hong Kong government over the past many years. In 2010-2011, government spending on education has reached 3.5% of GDP. But we also note that many economies invest over 5% of GDP in education. Thus, HKIS would like to urge our government to make a sustained commitment to education at all levels.

A bridge between education and R&D is the human resource trained to do research and development in S&T. One leading OECD indicator is the stock of R&D human resources, generally measured as Total R&D Personnel (RDP) per 1,000 people. Such data for different economies are shown in Figures 6. The number of RDP (per 1,000 people) for Hong Kong is about 3.32, ranking at #30 in the world. From this figure, one can see that Hong Kong is far behind the other Asian Little Dragons. Also, if one compares the historical RDP rankings, one can find that the ranking of Hong Kong had not improved in the last ten years (data not shown).

4. HOW IMPORTANT IS S&T WITHIN THE GOVERNMENT STRUCTURE

In many developed countries, S&T is generally regarded as an important driving force for economical development. Therefore, the decision making on S&T matters is always placed at top levels within the government structure (see Table 3). This is apparently not the case in Hong Kong. It is commonly acknowledged that S&T development is not among the high priority items in the government’s agenda. Indeed, one cannot find a government bureau or department with S&T in its title! The de facto unit in charge of S&T is the Innovation and Technology Commission (ITC), which is part of the Commerce and Economic Development Bureau. Thus, HKIS would like to advocate that the HK government should form a high level unit (at least at the Bureau level) to be in charge of long-term strategic planning for S&T, as well as to play a coordinating role among different sectors in society and government involved in the S&T eco-system.

CONCLUSIONS AND RECOMMENDATIONS

There is a growing consensus of opinion on what Hong Kong must do to regain and sustain the growth of its standard of living — it must enhance its economic strength by developing knowledge-based industrial and service sectors. To achieve this, both education and investment in R&D are vitally important. The Government must lead the way by investing in primary, secondary and tertiary education. It must also invest in basic and applied R&D in tertiary institutions and in mid-stream R&D activities. This will increase the stock of trained research scientists and engineers and encourage the private sector to increase its investment in R&D.

Hong Kong is clearly a follower rather than a leader in this regard. But with vision and commitment, we can catch up and capitalize on our competitive advantages. Therefore, the Hong Kong Institution of Science recommends the Government to:

1. Enhance Administrative Infrastructure for Science & Technology

• Hong Kong SAR should set clear S&T policy to enhance the global competitiveness of Hong Kong.
• Establish a S&T Policy Bureau and Secretary for S&T to support S&T related policy decisions. Staff it with leaders and senior staff with professional experience in S&T.
• Integrate leading academies of science/engineering into the government’s policy formulation mechanism.
• Consider establishing a high level body of S&T advisors to the government.

2. Enhance Support for Research and Innovation Capacity

• Enhance the promotion of excellence in science, engineering, innovation, entrepreneurship, and commercialization.
• Increase government research funding support to the level of our international competitors; provide incentives to encourage private sector support of R&D.
• Establish university policy to foster and facilitate HK-Mainland research collaboration.

3. Boost Integration with Mainland on S&T Collaboration

• Further enhance and actively facilitate Hong Kong-Mainland S&T collaboration with special emphasis on Pearl River Delta cities.
• Promote a CEPA-like agreement on S&T, e.g. encouraging Mainland funding agencies to consider HK-based proposals, allowing research funding to cross the border in both directions, facilitating information and data flow, and reconciliation of different tax policies for HK S&T professionals working in the Mainland.
• Consider designating certain segments of the undeveloped area between HK and Shenzhen as a special zone for S&T development and innovation enterprises, with special arrangements to attract both HK and Mainland S&T professionals to work there.

4. Enhance the Innovation and Technology Platform

• Establish joint government-university research institutes and R&D projects with minimal government micro-management.
• Enhance the Hong Kong innovation system to enable closer interaction among government-industry-educational institution.
• Develop specific action plans to promote strategic technologies to address emerging needs (such as energy saving, environmental protection and healthcare), as well as to support regional development, economic growth and employment opportunities.

Bibliography

World Competitiveness Yearbook 2012, < www.worldcompetitiveness.com >

OECD Main Science and Technology Indicators dataset, < www.oecd-ilibrary.org>

Research Grants Council of Hong Kong Annual Report 2010

Website of Office of Management and Budget (USA) < www.whitehouse.gov/omb>

World Bank database

Hong Kong Innovation Activities Statistics 2008-2010

2010年全国科技经费投入统计公报

Website of Census and Statistics Department of HKSAR, < www.censtatd.gov.hk >

National Survey of Research and Development in Singapore 2010

The Global Innovation Index 2011 < www.globalinnovationindex.org/gii/ >