II. The Economy

A. Strategies for Growth

19. To help our economy respond to the changes I have described, our strategy will be to focus on increasing the diversity of the economy by creating conditions for growth in sectors with a high value-added element, in particular in those industries which place importance on high technology and multi-media applications. We will also encourage businesses to take advantage of the opportunities offered by the Mainland, and we will bolster the established pillars of our economy such as the financial services sector, small and medium enterprises, tourism and import and export. We must also upgrade the skills of our workforce. As our strategy unfolds and we regain economic momentum, we will look forward to more opportunities for our citizens and a better employment environment.

Innovation and Technology

Engines of Growth

20. Innovation and technology are important drivers of economic growth. In a knowledge-based global economy, they are essential in adding value, increasing productivity and enhancing our overall competitiveness. The world's most outstanding economic success stories of recent years have mostly involved the application of innovation and technology. In the world's largest economy, that of the United States of America, 80% of productivity growth is attributed to technological and knowledge-based advances. This is not a phenomenon unique to the biggest economies. For example, Israel's high-tech exports in 1997 represented two-thirds of the country's total exports and were worth nearly HK$70 billion - double the 1990 figure. To achieve success in this area however does require a dedicated effort and a commitment to investing in the necessary technological infrastructure, which includes research and development, support to industry and human resources. Although the rewards may not be immediately apparent, this is an essential investment in our future.

21. Over the years we have steadily built up our technology sector. Our universities now spend some $3.2 billion annually on research. We allocate $180 million annually to the Hong Kong Productivity Council which provides technical advice to industry. We have established the Hong Kong Industrial Technology Centre to provide services and support to industry to enhance technological development at a cost of $250 million. We have injected $750 million working capital into the Applied Research Fund and $278 million into the Industry Support Fund to encourage innovation and support the development of new industries. In addition, we will build the first phase of the new Science Park in Tai Po, due to open in 2001, at a cost of $3.3 billion. This will enhance our technological infrastructure.

22. These initiatives reflect the fact that the Government has done a lot to promote technological development. We now need to look critically at these initiatives and redefine our goals and objectives in the area of innovation and technology as a whole. I believe that a focused approach in this field, together with our sophisticated capital-raising markets, our rich market experience and our well-established international business links, will provide us with the potential to turn innovative ideas into commercial products on a far greater scale than at present. We need now to strengthen our support for technological development, build up a critical mass of fine scientists, engineers, skilled technicians and venture capitalists, and encourage the development of a significant cluster of technology-based businesses.

23. With all this in mind, earlier this year I invited Professor Tien Chang Lin to chair the Commission on Innovation and Technology. In its first report to me, the Commission recommends that, to realise our vision for Hong Kong to become an innovation and technology centre for South China and the region, we need to position ourselves to be -

  • a leading city in the world for the development and application of information technology, especially in electronic commerce and software engineering;

  • a world class design and fashion centre;

  • a regional centre for multimedia-based information and entertainment services;

  • a world centre for the development of health food and pharmaceuticals based on Chinese medicine;

  • a leading international supplier of high value-added products and components in areas where Hong Kong already excels today;

  • a regional centre for supplying professional and technological talents and services; and

  • the market place for technology transfer between the Mainland and the rest of the world.

24. To take forward these recommendations, it is essential that we have a clear policy objective, namely, to enhance the capability of our firms to innovate, and to stimulate technological development and encourage its commercialisation and application in Hong Kong.


25. To ensure that technological research can add the highest degree of value to economic activity, all the links in the research and development chain must be in place. The Commission has identified "mid-stream" research and development as an area of weakness in Hong Kong. Mid-stream research is a pivotal step between basic scientific research and its commercial application. To support and stimulate mid-stream research, I accept the Commission's recommendation to establish an Applied Science and Technology Research Institute. In addition, to finance specific projects which will contribute to innovation and technological upgrading in our manufacturing and service industries, we will set up an Innovation and Technology Fund with an injection of $5 billion.

26. This upgrading of our technological infrastructure will provide the basis for taking forward other important recommendations of the Commission. One is that we stimulate the collaboration of academic institutions and industry in research and development. We shall do this by, for example, awarding matching grants for co-operative research between tertiary and other institutions and industry. Another recommendation is that we strengthen our industries' links to the technological institutes on the Mainland to make best use of the Mainland's research strengths and turn them into commercial products. In order to build a critical mass of

expertise, we will consider measures which will enable employers to recruit the best professionals from the Mainland and elsewhere in the world. We will also more vigorously promote technological collaboration through various fora.

27. We are setting out on an important strategic course. The Government will do its utmost to provide an environment conducive to the development and application of innovation and technology, and I look forward to receiving in mid-1999 the Commission's final report, which will contain recommendations for moving forward on all fronts. We will study all these recommendations carefully, and will consider how to take them forward so as to create a favourable environment for business, in which we hope the private sector will capitalise on the opportunities which we seek to create. Certain industries in particular rely on advances in innovation and technology, and these sectors provide obvious scope for developing or further enhancing our competitive edge.

Information Technology

28. Hong Kong is among the world's most sophisticated users of IT, and the average growth rate in this industry in recent years, amounting to 23.5% annually, reflects its importance both in helping us to retain our competitive edge and in driving our overall economic expansion. We need to continue to make the best possible use of IT as an essential tool in speeding the flow of business and other communications. We also need to ensure that the IT industry can flourish in an environment which will encourage the creation of new products through innovation.

Internet Hub

29. With our excellent telecommunications infrastructure, our unique position vis-a-vis the Mainland and our bi-lingual language capability, Hong Kong has a strong competitive advantage in seeking to serve as an information gateway to the Mainland. Working with our Mainland counterparts, we will improve our mutual Internet links, making it easier for Hong Kong companies to integrate their manufacturing and supply operations on the Mainland. In linking the Mainland through Hong Kong to the rest of the world we will also be able to act as a digital intermediary, which will allow us to stimulate economic growth.

Electronic Service Delivery

30. Within Hong Kong, creating an infrastructure for the free flow of electronic transactions in the community will help promote the development and growth of new IT products and services. The Government will spend $173 million on launching the on-line Government Electronic Services Delivery Scheme, which from 2000, will allow anyone to access public services and information 24 hours a day via the Internet and other means of electronic access. This will be an important step in facilitating growth in electronic commerce, as well as enhancing Government's own efficiency.

Broadcasting and Telecommunications

31. Two of our largest technology-intensive industries are broadcasting and telecommunications, which together have grown by some 14% annually in recent years. We aim to speed up growth in these industries, and therefore our economy, by creating the best possible market conditions and regulatory environment for investors in these sectors. Innovation and improvement in these industries will also lead to better service delivery and greater consumer choice, thereby promoting growth and creating new jobs.

32. In the coming year we will undertake two projects which will extend the frontiers of technology in Hong Kong's commercial broadcasting and telecommunications sector, namely -

  • technical trials of digital terrestrial television services; and

  • the development of a world class teleport at Chung Hom Kok to provide the best possible global satellite communication links.

We will also encourage greater investment and promote the provision of better services to the public in the television and telecommunications sectors by ensuring fair competition among service providers.

The Film Industry

33. Hong Kong's film-makers have long had a reputation for their distinctive style. Even today, when the industry faces difficulties, Hong Kong is still one of the world's major film producers. With a potential audience of over a billion people in the world-wide Chinese community alone, and the availability locally and on the Mainland of world-renowned creative and artistic talent, we see potential for further growth in our film industry. But the global film business is highly competitive, and our industry must upgrade itself if it is to capture a larger share of the market.

34. Government's role in this process will be to help provide an environment conducive to long-term development. In the past year we have set up a Film Services Office to help the industry with production and location shooting in particular, and provided a site for a state-of-the-art film studio with advanced post-production facilities. To help our film industry keep pace with new technology and skills, we propose to set up a $100 million Film Development Fund in 1999. This Fund will promote innovation by supporting projects aimed at enhancing the industry's professional and technological capabilities; stimulating the growth of creative productions; facilitating the use of advanced special effects techniques; and improving the skills of employees. Some of the most successful films of recent times have relied greatly on computer graphics, and our overall investment in technology will also greatly enhance our capabilities in this area. I look to the film industry to make the best use of these favourable conditions to develop the industry.

Chinese Medicine

35. In last year's Policy Address I affirmed my belief in Hong Kong's potential to become an international centre for Chinese medicine and medical practitioners. This is another industry which, through the application of innovation and technology, can enhance our economic growth and give us a competitive edge on a global scale.

36. To provide for a regulatory structure for facilitating the use, trading and manufacture of Chinese medicine, and to recognise the professional status of Chinese medical practitioners, we will introduce the Chinese Medicine Bill into this Council in 1999. Registration of Chinese medical practitioners will begin in 2000. To encourage innovation and development in this field, in the past year we have funded a series of research programmes in our universities. We will now examine the case for establishing an Institute for Chinese Medicine which will focus on applied research. This will strengthen our scientific and technological base, and will facilitate the commercialisation of medicinal products.

Intellectual Property Rights

37. If Hong Kong is to become an innovation centre we must respect intellectual property rights. The Government is committed to upholding a world-class intellectual property rights regime. Our approach has been to maintain a comprehensive legal framework, to take vigorous and sustained enforcement action, to step up education and publicity and to create strong links with cross-boundary and international enforcement authorities as well as relevant industries. In the coming year we will devote extra resources to combatting illegal activities in this area and further increase our efforts to educate the public. We simply will not tolerate the theft of ideas, and I urge everyone in Hong Kong to support this effort by refusing to buy pirated or counterfeit goods of any description.

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