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Many advanced economies have undergone significant changes in recent years. One of the key characteristics of the changes is the growing importance of knowledge in all sectors of economic activities. The incorporation of information and knowledge into economic activities is inducing profound structural and qualitative changes in the way an economy operates.

This article aims at portraiting the development of Hong Kong in the past decade from different perspectives of a knowledge-based economy (KBE) by presenting some relevant statistical indicators which capture the essence of a KBE.

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Census and Statistics Department Hong Kong Special Administrative Region

People’s Republic of China

Hong Kong as a Knowledge-based Economy 2

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Hong Kong as a Knowledge-based Economy

1. !!!!"""" 1. Introduction

1.1

1.1 Many advanced economies have undergone significant changes in recent years and one of the key characteristics of the changes is the growing importance of knowledge in all sectors of economic activities. These economies have developed from an agricultural economy in which land is the key resource, then to an industrial economy in which natural resources and labour are the main resources, and now to a knowledge-based economy (KBE) in which knowledge is the key resource. Knowledge, as embodied in human capital and in technology, is now seen as a vital source of long-term economic growth.

1.2

1.2 The incorporation of information and knowledge into economic activities is inducing profound structural and qualitative changes in the way an economy operates. Driven by the rise in knowledge intensity of economic activities and the increasing globalisation of economic affairs, there has been a paradigm shift in economic analysis model from the past approach of devoting major attention to the traditional factors of production such as land, labour and tangible capital.

2. ####$$$$%&'()%&'()%&'()%&'()? 2. What is a KBE?

2.1

2.1 The term KBE was first defined by the Organisation for Economic Co-operation and Development (OECD) as “an economy which is directly based on the production, distribution and use of knowledge and information”. This idea was then extended to that in a KBE, the production, distribution and use of knowledge are the main driver of growth, wealth creation and employment across all industries.

2.2

2.2 A KBE is characterised by the momentum of continuous learning of codified information and competencies to use this information. New capital investment, particularly that on Information and Communication Technology (ICT), rising quality of labour, and greater efficiency in combination of capital and labour are regarded as the fundamental features of a KBE.

Hong Kong as a Knowledge-based Economy 3

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23232323?

3. Why is It Important to Measure Hong Kong as a KBE?

3.1

3.1 Increasing attention is directed to understanding the dynamics of the KBE and its relationship with traditional economic forces as economic growth is much more dependent on the creation, production, distribution and use of knowledge than before. New issues regarding the implications of the KBE are the focal points for policy makers to formulate appropriate development policies. As such, statistical indicators showing the evolution of an economy into a KBE can provide guides for devising appropriate strategies.

3.2

3.2 Many economies around the world are now progressing on the knowledge track. Appropriate KBE indicators thus help ascertain whether the targets of KBE policies have been achieved, and benchmark with other economies with a view to identifying areas for improvement.

4. 4*,-./%&'()5674*,-./%&'()5674*,-./%&'()5674*,-./%&'()567

89898989 4. Statistical Approach for Measuring

Hong Kong as a KBE

4.1

4.1 To help understand the development of an economy into a KBE, an analytical framework is needed, following which relevant statistical indicators can be constructed. While an internationally accepted standard is not yet available, quite a number of different frameworks have been developed by individual economies and international organisations for measuring a KBE. Generally, a “descriptive” or “presentational” framework encompassing a suite of statistical indicators grouped into four dimensions, viz. ICT; human resources development; innovation system; and business environment, is adopted. The KBE framework adopted in this article follows this framework.

4.2

4.2 The growing codification of knowledge and transmission of information through ICT are enablers of an information society. Statistical indicators categorised under ICT reflect the efficiency and effectiveness of knowledge and information distribution/application in the economy.

Hong Kong as a Knowledge-based Economy 4

4.3

4.3 Development of a pool of knowledge-rich human resources is the key for carving out competitive advantage. Indicators covered under human resources development reflect the quantity and quality of individuals equipped for access to and use of knowledge and information for further creation/production/distribution of knowledge and information in the economy.

4.4

4.4 Innovation and technology are crucial driving forces to enhance competitiveness. Indicators of innovation system reflect the quantity, quality and rate of knowledge and information creation/ production/application in the economy.

4.5

4.5 The underlying social and economic characteristics together with the macroeconomic environment provide the pre-requisite for nurturing a successful KBE. Indicators categorised under business environment reflect how conducive the business environment is to the creation/ production/distribution/application of knowledge and information in the economy.

5. ,-5:;<=;>?@A,-5:;<=;>?@A,-5:;<=;>?@A,-5:;<=;>?@A 5. ICT Development in Hong Kong

5.1

163%

5.1 Businesses and consumers in Hong Kong enjoy an excellent telecommunications infrastructure. With the full liberalisation of the telecommunications market in 2003, the telecommunications sector in Hong Kong has become highly competitive. The use of mobile phone is part of everyday life in Hong Kong. The mobile subscriber penetration rate reached 163% in end 2008, which is one of the highest in the world. The number of mobile subscribers had surpassed the number of fixed telephone line subscribers since 1999. (Chart 1)

Hong Kong as a Knowledge-based Economy 5

(1) (2)

Chart 1 Number of Telephone Lines(1) and Public Mobile Subscriber Units(2) Per 100 Population

5.2

27.9

5.2 Hong Kong is at the forefront of adopting new ICT and has been regarded as a test-bed for the industry. There is also extensive ICT diffusion in the community, with broadband reaching all commercial buildings and virtually all residential buildings. As at end 2008, the number of broadband subscribers per 100 population reached 27.9. According to the International Telecommunication Union, the broadband penetration rate in Hong Kong was the second highest in the Asian region and 15th highest in the world in 2008. (Chart 2)

58.857.856.3

57.158.3 56.5 58.858.855.555.555.6

136.7125.0120.0

44.0

60.1

78.0

106.4

84.792.5

152.3162.7

0

20

40

60

80

100

120

140

160

180

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Notes : The above statistics are compiled based on the population estimates released in August 2009.

(1)

(IP)

(VoIP)

(1) Including direct dialing in lines, facsimile lines, datel lines and subscribers of Internet Protocol (IP) telephony/ voice-over-IP (VoIP) services.

(2) (2) Including pre-paid SIM cards and Personal Communications Service subscribers.

Number per 100 population

Number of public mobile subscriber units per 100 population

Number of telephone lines per 100 population

Hong Kong as a Knowledge-based Economy 6

Chart 2 Number of Internet Subscribers and Broadband Subscribers Per 100 Population

5.3

74.6%

70.9%

49.7%

36.4%

5.3 ICT as a tool has changed the way we live, learn, do business and interact with each other. In 2008, 74.6% of all households had personal computers (PCs) at home, while the proportion of households having PCs at home connected to Internet was 70.9% (49.7% and 36.4% respectively in 2000). (Chart 3)

25.227.0 27.9

24.1

18.2

21.8

5.8

9.3

14.7

36.834.6

38.5

35.4

39.640.6 39.040.9 41.6

0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006 2007 2008

Notes : The above statistics are compiled based on the population estimates released in August 2009.

(1)

(i)

( ) (ii)

(iii)

(iv)

(1) Figures refer to the number of customers of licensed Internet service providers which are compiled based on (i) registered customer accounts with dial-up access (excluding Internet pre-paid calling cards), (ii) Internet pre-paid calling cards for dial-up access, (iii) registered customer accounts with leased line access; and (iv) registered broadband Internet access customer accounts.

(2) (2) Figures refer to the number of registered broadband Internet access customer accounts.

Number per 100 population

(1)

Number of Internet subscribers(1) per 100 population

(2)

Number of broadband subscribers(2) per 100 population

Hong Kong as a Knowledge-based Economy 7

(1) Chart 3 Percentage of Households with PCs at Home or Households with PCs(1) at Home

Connected to Internet among All Households

(1) Note : (1) Excluding palm top and Personal Digital Assistant (PDA).

5.4

51.5%

63.1% 58.8%

21.5

7.3%

19.3%

5.4 The proportion of business establishments having used PCs had been increasing steadily from 51.5% in 2000 to 63.1% in 2008. Some 58.8% of all business establishments had Internet connection in 2008, representing an increase of 21.5 percentage points as compared with 2000. The percentage of business establishments having webpages or websites also increased from 7.3% in 2000 to 19.3% in 2008. (Table 1)

Table 1 Information Technology Usage and Penetration in the Business Sector

2000 2001 2002 2003 2004 2005 2006 2007 2008

Percentage of business establishments having used PCs

51.5 49.7 54.5 54.8 58.4 60.5 60.5 63.8 63.1

Percentage of business establishments having Internet connection

37.3 37.2 44.2 47.5 50.4 54.7 55.9 59.8 58.8

Percentage of business establishments having webpages/websites

7.3 10.7 11.8 13.5 14.8 15.5 17.5 18.2 19.3

70.171.167.5

62.1

71.7 74.6

60.6

49.7

74.2

52.5

64.9

36.4

60.0

70.967.1

48.7

70.164.6

0.0

20.0

40.0

60.0

80.0

100.0

2000 2001 2002 2003 2004 2005 2006 2007 2008

(%)Percentage (%)

Households with PCs at home connected to Internet Households with PCs at home

Hong Kong as a Knowledge-based Economy 8

6. !"#$%&'()!"#$%&'()!"#$%&'()!"#$%&'()

6. Human Resources Development in

Hong Kong

6.1

24%

4.5%

6.1 Knowledge is usually applied through the skills of individuals. Intellectual capital is widely recognised as a critical asset and development of human resources is one of the critical strategic thrusts for sustainable development. Education is the fundamental building block of human resources development. In 2008-09, government expenditure on education accounted for about 24% of total government expenditure, representing a ratio of 4.5% to the Gross Domestic Product (GDP). (Chart 4)

6.2

492

759 54%

180

6.2 Government expenditure on education rose markedly by 54% from $49.2 billion in 1998-99 to $75.9 billion in 2008-09, reflecting the Government’s unrelenting commitment to investing in education. The significant increase in government expenditure on education in 2008-09 was mainly attributable to the establishment of an $18 billion Research Endowment Fund to strengthen the research capacity of the higher education institutions and nurture more research talent. (Chart 4)

Chart 4 Government Expenditure on Education as a Ratio to GDP

49.2 51.1 52.2 53.1 55.6 57.3 54.5 54.3 51.9 53.8

75.9

4.0 4.0 4.14.4

4.6

4.2

3.8

3.3

4.5

3.9

3.5

0.0

20.0

40.0

60.0

80.0

100.0

1998-99 1999-

2000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

0.0

1.0

2.0

3.0

4.0

5.0

@ Note : @ Figures are subject to revision later on.

(%) Percentage (%)

Government expenditure on education

Government expenditure on education as a ratio to GDP

!$ billion

@ @

Hong Kong as a Knowledge-based Economy 9

6.3

17.4%

24.5%

6.3%

12.7%

6.3 The level of knowledge and skills in the population is highly related to their educational attainment. In today’s knowledge-driven society, people in general are keen to better equip themselves and there is an upward shift towards post-secondary education. The figures during the past decade indicated that the stock of human resources with post-secondary education (i.e. having attended non-degree/degree/postgraduate courses) as a percentage of the population aged 15 and over increased from 17.4% in 1998 to 24.5% in 2008. Among these persons, the proportion of those with postgraduate educational attainment increased remarkably from 6.3% in 1998 to 12.7% in 2008. (Chart 5)

Chart 5 Distribution of Population Aged 15 and Over by Educational Attainment

8.9 5.5

18.2

22.9

51.8

50.8

8.27.0

13.39.3

3.11.1

0.0

20.0

40.0

60.0

80.0

100.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

6.4

21.0%

26.1%

6.4 Moreover, the proportion of employed persons who worked as professionals and associate professionals increased from 21.0% in 1998 to 26.1% in 2008. (Chart 6)

(%) Percentage (%)

Postgraduate courses

Degree courses

Non-degree courses

Secondary/Sixth form

Primary

No schooling/Pre-primary

Hong Kong as a Knowledge-based Economy 10

Chart 6 Employment by Occupation

7.9 9.9

5.37.1

15.7

19.0

18.515.7

14.215.9

11.17.4

8.7 6.2

18.5 18.9

0.0

20.0

40.0

60.0

80.0

100.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

7. !"#$%&'!"#$%&'!"#$%&'!"#$%&' 7. Innovation System in Hong Kong

7.1

7.1 Innovation is one of the engines to enhance competitive edge and productivity, while technology is a key driver for innovation. An innovation-driven economy builds upon these components for sustaining economic growth.

7.2

16.0% 42.2%

7.2 Primarily, innovation relates to the implementation of new or significantly improved products and processes, organisational structures, marketing strategies, etc. that create value to consumers and generate financial returns to the establishments concerned. Innovation activities can be distinguished into technological innovation (TI), including research and development (R&D), and non-technological innovation (non-TI). The proportion of business establishments that had undertaken one or more types of innovation activities (including TI and non-TI) rose from 16.0% in 2001 to 42.2% in 2007. (Chart 7)

(%) Percentage (%)

Services workers and shop sales workers

Plant and machine operators and assemblers

Craft and related workers

Elementary occupations and others

Managers and administrators

Clerks

Associate professionals

Professionals

Hong Kong as a Knowledge-based Economy 11

Chart 7 Percentage of Business Establishments with Innovation Activities

7.3

7.3 Measuring the output or outcome of innovation and technology activities performed by business establishments involves some conceptual and practical difficulties. Innovation and technology are complex processes and, conceptually, output of these activities should be distinguished from their outcome. Intuitively, innovation activities give rise to new knowledge and ideas and the output of innovation activities can be construed as new or significantly improved products and processes implemented by the business establishments. The outcome relates to the economic impacts that innovation activities have on the innovating establishments, such as higher business performance (e.g. profitability, increase in market share) and enhancement of competitiveness

18.6

42.3

48.2

41.7 41.9

21.8

42.8

48.5

42.3 42.2

4.0 6.2 5.54.75.05.64.9

14.2

44.9

16.0

45.6

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2001 2002 2003 2004 2005 2006 2007

(1)

Notes : (1) TI activities refer to the introduction of a technologically new or significantly improved product (goods or service) to the market or of a technologically new or significantly improved process within an establishment. The TI may be based on the results of new technological developments, new combinations of existing technology or utilisation of other knowledge acquired by the establishment.

(2)

(2) Non-TI activities cover all innovation activities which are excluded from TI activities. The major types of non-TI activities are in the areas of instituting important changes in several dimensions, viz. corporate strategy, management, organisation, marketing and aesthetic changes in products.

(3)

(3) Figures refer to the percentages of business establishments that had undertaken, in the respective years, TI activities or non-TI activities or both.

(%) Percentage (%)

(1) TI activities(1)

(2) Non-TI activities(2)

(3) Overall innovation activities (3)

Hong Kong as a Knowledge-based Economy 12

(e.g. higher productivity, cost savings, product quality improvement, etc). It is more difficult to measure the outcome attributable to innovation activities alone because business performance is also affected by other factors (e.g. the interplay of supply and demand factors) apart from innovation activities undertaken by the establishments concerned.

7.4

7.4 Innovation activities tend to be internal to the business establishments in most cases. The output of such activities is for own use of the business establishments for further implementing new products and improved processes and unlike a final product, there are no observable prices for the output of innovation activities undertaken on own account of the establishments. Furthermore, there may be some time lag for the outcome of innovation activities undertaken in a particular period to be translated into new products, enhanced processes or higher productivity, and in some cases the outcome of some innovation activities may not be successfully commercialised.

7.5

7.5 In recognition of the importance of innovation and technology to economic growth, the 2008 Edition of the United Nations’ System of National Accounts which provides the latest international guidelines for GDP compilation has introduced a new approach for measuring the output of R&D activities. Primarily, for R&D activities that are carried out as “own-account production”, their output is estimated as the total production costs involved for practical considerations. The Census and Statistics Department is undertaking research study on this new methodology and exploring the feasibility and data requirements of adopting this new statistical framework for measuring the output of technological innovation in Hong Kong.

7.6

0.43%

0.77%

7.6 Expenditure on R&D is one of the science and technology indicators for gauging the investment in R&D, forming the knowledge capital and its use in devising new products/services/applications. Although the level of investment in R&D is not high as compared with other advanced economies, investment in R&D has been growing at a faster pace than the Gross Domestic Product (GDP) over the past decade. As a result, the ratio of the gross domestic expenditure on R&D (GERD) to GDP increased from 0.43% in 1998 to 0.77% in 2007. A noteworthy feature is that businesses are taking up a more important role in R&D activities. The share of

Hong Kong as a Knowledge-based Economy 13

28.5%

48.8%

business in the total R&D expenditure increased markedly from 28.5% in 1998 to 48.8% in 2007. (Table 2)

Table 2 R&D Expenditure by R&D Performing Sector

R&D expenditure (HK$ million)

Sector 1998 2003 2004 2005 2006 2007

Business

1,598.6 (28.5%) [0.12%]

3,545.1 (41.5%) [0.29%]

4,590.3 (48.3%) [0.36%]

5,621.6 (51.5%) [0.41%]

6,287.4 (52.6%) [0.43%]

6,054.6 (48.8%) [0.37%]

Higher education 3,912.3 (69.8%) [0.30%]

4,796.2 (56.1%) [0.39%]

4,707.3 (49.5%) [0.36%]

5,085.0 (46.6%) [0.37%]

5,410.9 (45.3%) [0.37%]

6,056.9 (48.8%) [0.37%]

Government

91.6 (1.6%)

[0.01%]

207.5 (2.4%)

[0.02%]

207.6 (2.2%)

[0.02%]

215.2 (2.0%)

[0.02%]

248.6 (2.1%)

[0.02%]

295.8 (2.4%)

[0.02%]

Total

5,602.5 (100.0%) [0.43%]

8,548.8 (100.0%)

[0.69%]

9,505.2 (100.0%)

[0.74%]

10,921.8 (100.0%)

[0.79%]

11,946.9 (100.0%)

[0.81%]

12,407.3 (100.0%)

[0.77%]

100

Notes : Figures in round brackets represent the percentages to total. The percentages in a year may not add up to 100 due to rounding.

Figures in square brackets represent the ratios to GDP.

7.7

19 553

2.08 5.39

7.7 Another input measure of R&D activities is the number of researchers. There is a pool of high-quality researchers in Hong Kong. The total number of researchers measured in full-time equivalent stood at 19 553 in 2007, which almost trebled the figure in 1998. During the same period, the number of researchers per 1 000 persons in labour force also rose markedly from 2.08 to 5.39. (Chart 8)

Hong Kong as a Knowledge-based Economy 14

(1) Chart 8 Number of Researchers(1) per 1 000 Persons in Labour Force

8. !"#$%&'!"#$%&'!"#$%&'!"#$%&' 8. Business Environment in Hong Kong 8.1

8.1 A sound macroeconomic framework together with a level playing field is the cornerstone to encouraging business investment and consumer spending. This requires prudent fiscal management, stable prices, robust legal and tax regimes, among many others.

8.2

8.2 Hong Kong is one of the most open, external-oriented economies in the world, with free trade being its lifeblood. Apart from being strategically located in the heart of East Asia on China’s southern coast, there are many favourable factors that make Hong Kong an ideal metropolis for conducting business : low tax regime; transparent common law system; impartial judiciary; robust fiscal system; state-of-the-art infrastructure; free flow of information; a clean government; and entrepreneurial spirit. Some statistics depicting the economic performance of Hong Kong during the past decade are highlighted in the ensuing paragraphs.

7 922 7 7289 149

10 639

13 49714 593

18 024 18 32519 553

6 819

2.082.29

5.135.39

2.39

2.67

3.89

3.06

4.15

5.10

0

4 000

8 000

12 000

16 000

20 000

24 000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

0.00

1.00

2.00

3.00

4.00

5.00

6.00

(1)

12

Note : (1) The counting unit for researchers is Full-time Equivalent, which is defined as the actual number of employee man-months deployed to R&D activities during the reference year, divided by 12.

Number of researchers per 1 000 persons in labour force

Number of researchers

Number of researchers Number of researchers per 1 000

persons in labour force

Hong Kong as a Knowledge-based Economy 15

8.3

28,242

7.7%

7.8% 30,253

10.6%

2,621 7,188

6.3%

1,942

3,570

8.3 On trade in goods, the value of total exports of goods (comprising re-exports and domestic exports) amounted to $2,824.2 billion in 2008. This represented an average annual growth rate of 7.7% between 1998 and 2008. In tandem with robust export trade, imports of goods increased at an average annual growth rate of 7.8%, reaching $3,025.3 billion in 2008. On invisible trade, the value of exports of services grew at an average annual rate of 10.6% from $262.1 billion in 1998 to $718.8 billion in 2008. The value of imports of services also increased at an average annual rate of 6.3%, from $194.2 billion in 1998 to $357.0 billion in 2008.

8.4

4%

8.4 Between 1998 and 2008, per capita GDP of Hong Kong increased at an average annual growth rate of around 4% in real terms.

8.5

85.9% 92.3%

8.5 The structure of the economy continued to shift from manufacturing to services. This led to a further advance in the contribution of the services sector as a whole to GDP at current factor cost from 85.9% in 1997 to 92.3% in 2007.

9. ()()()() 9. Concluding Remarks

9.1

9.1 Generally, Hong Kong positions well on many of the general characteristics of a KBE. We have excellent ICT infrastructure and our favourable business environment helps boost confidence to businesses. Our people are increasingly equipped in terms of knowledge and skills. Nevertheless, there is still room for improvement. We need to strengthen our innovation capacity to fully exploit advanced technologies. To sustain the momentum of economic growth and continued vitality, we need to embrace a culture of continuous learning and improvement both at the individual and organisational levels.

2887 5138

If you have any enquiries on this article, please call Science and Technology Statistics Section, Census and Statistics Department (Tel. : 2887 5138).