An Economic Model for 21st Century Hong Kong

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Speaker: Mrs. Regina Ip

Chairperson of Board of Governors,

Savantas Policy Institute

Former Governor Patten’s Predictions in 1992:

• By 1997, our GDP per head will have reached US$ 30,500, comparable to Italian and Dutch national income levels today, and within 12 percent of France;

• The value of our total foreign trade will be US$ 548 billions, equivalent to the total external trade of France today, and substantially more than that of Italy and the Netherlands;

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Per capita GDP of selected economies

Source: Government Economist K. C. Kwok

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Hong Kong’s restructuring driven by:

• Information technology – driven global economy• Rise of China as economic superpower

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Current development of Pu Dong(浦東 ), Shanghai

Today’s economy is “bit-driven”

• Value added comes from new ways of organizing bits of information in formulas, software code, and images and less from the physical manipulation of materials to make tangible goods.

Peter B. Evans, UC Berkeley

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Characteristics of the Political Economy in the Digital Era

• Knowledge, particularly theoretical knowledge, is essential to contemporary economy

• Distinctive form of organization emerging in the digital era – the learning organization (distinct from traditional categories of craft, Taylorist, or lean production)

John Zysman, UC Berkeley

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Twin drivers of change – global and digital:

• Wintelism

(Windows operating system and Intel processors)

• Cross national production networks (CNPNs)

John Zysman, UC Berkeley

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CNPNs foster the following changes:

• Disintegration of the industry’s value chain into constituent functions that can be contracted to independent producers

• Permit an increasingly fine division of labor

• Wintelism – chip-based systems given functionality by software – core skills shift from mechanical to electronic

John Zysman, UC Berkeley

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CNPNs + Wintelism

• Commodification of production

• Modularization – constituent elements of product become modules and production becomes modularized as the knowledge about the elements and connection becomes codifiable

• Value resides in intellectual property (IP) based monopolies or standards

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China’s Economy Tomorrow

• Current per capita GDP US$ 1,730

• By 2025, China’s aggregate GDP to exceed the then aggregate GDP of Japan

• By 2040, aggregate Chinese GDP may reach the same level as aggregate US GDP; per capita GDP lags

Prof. Lawrence Lau, Vice-Chancellor, The Chinese University of Hong Kong

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Guangdong restructures and upgrades

• Its economy during 10th 5-year Plan:Trends toward “heavy-industrialization”, “digitization” and replacement of labor-intensive industries by capital-intensive industries

• In future, it moves away from heavy reliance on externally-owned IP assets, entailing heavy expenditure on royalties on proprietary technologies, components and brands

• Accelerate “upgrading” of economy, i.e. increase value-creation

Prof. Feng Bangyen of Jinan University

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Guangdong’s New Economic Model Under 11th 5-year Framework

• Change existing growth model• Enhance “autonomous innovation” capability• Move toward internationalization and innovation

of organizational structure• Foster balanced urban and rural development• Build green Guangdong• Promote harmonious social construction

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Impact on Hong Kong

• Accelerating infrastructural development (ports and airports) in the mainland affects Hong Kong’s position as a transport and shipping hub

• Migration of low value-added, labor-intensive, environmentally polluting industries puts strains on demand for Hong Kong’s trade-related and logistics services

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The Value Hierarchy (B.M.)V

alu

es

/Pro

fit

Ma

rgin

s

Applications (Mkt. & Standards)

System Integration (Archit., …)

Engineering (Design, ODM,..)

Manufacturing (Process, OEM)

Intellectual Property (IP)

Ou

tso

urc

ing

Tre

nd

Consumer recognition Core competency

Brand Innovation

50%

40%30%

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Prerequisites for Hong Kong’s Continuous Robust Development in 21st Century

• Reposition itself in global value-creation chain• Reposition itself in China’s development

generally and that of Guangdong specifically

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To compete successfully in digital, global economy, Hong Kong must

• identify new, clear strategies for creating value

• distinguish between strategies for creating products, commodities, and differentiated assets (which create the basis for premium price, distinctive sales advantage, or cost advantage in production or distribution)

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Creation of Differentiated Assets hinges on:

• Branding and design• Experiments in new business strategies

(branding, design, versioning, production re-organization and knowledge management)

• Digital approaches to segmenting the market and then attacking specific segments with functionally varied, and for the most part distinctively branded products

• Digitally rooted online sales and marketing and supply chain management

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Government actions required:

• Provision of talented, trained, educated, skilled people and centers of technology development and diffusion

• Provision of necessary infrastructure (both physical and digital) that connects Hong Kong to Mainland China’s and world markets

• Reconfiguration of packages of social protections to support experimentation and adjustment

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Thank you very much !

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Question & Answersession

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