HKU Bulletin May 2016 (Vol. 17 No.2)

Economic activity has defined Hong Kong in ways that cannot be said of most other cities. The pragmatic focus on the bottom line has enabled it to thrive in the wake of war, revolution, political uncertainty, major financial crises and disease scares ( e.g. SARS). Now the economy faces direct challenges from changing demographics, regional and global competition, and rapid technological development, can the city stay strong and flourish? Two HKU scholars see an optimistic future. FINDING A NEW GROOVE Hong Kong’s great asset is no longer just its people. Our open economic system and global networks, our legal system and logistics system and low tax regime, are also assets. Professor Yue-chim Richard Wong The late economist Milton Friedman declared in 1990 that Hong Kong was the best example in the world of a free market economy. Its combination of entrepreneurialism, rule of law and a government that mostly refrained from meddling in the market, set free a can-do spirit and dynamism that were the envy of many. Today Hong Kong feels rather different. Although still ranked the world’s freest economy (by the US think tank, the Heritage Foundation), and a leading centre of international finance, the city’s raw energy has become more tamed, its economy a little more regulated. Competitors from the Mainland and the West are snapping at its heels. Can Hong Kong recapture some of its old dynamism? Professor Yue-chim Richard Wong, Philip Wong Kennedy Wong Professor in Political Economy, and Professor Douglas Arner of the Department of Law have each been involved in recent studies looking at Hong Kong’s future economic prospects. Professor Wong led HKU’s contribution to a major study on Hong Kong’s start-up ecosystem involving San Francisco-based research firm Compass and local firm Innofoco. Professor Arner is the project coordinator of a Theme-based Research Scheme (TRS) project entitled ‘Enhancing Hong Kong’s Future as a Leading International Financial Centre’, a five-year undertaking that also involves the Chinese University of Hong Kong, Hong Kong Polytechnic University and Oxford University. Both scholars see opportunities waiting to be seized, from the chance to be a hub that supports start-ups, to advancing Hong Kong’s position as a regional and international finance centre. But first, the city needs to get out of the doldrums and adopt the right mindset. Glory days Hong Kong’s economic reputation was built on two things: entrepreneurship and entrepôt, one related to its people, the other to its position as the gateway to China. As Professor Wong has outlined in his forthcoming book, Rekindling Hong Kong’s Magic and the Challenge of Inequality , the city’s post-war success was driven by a huge influx of refugees fleeing revolutionary China. They brought not only their labour and strong work ethic, but businesses ranging from banking to garment manufacturing to shipping to movie-making. And they were highly entrepreneurial. The baby-boom generation that followed similarly focussed on making money and experienced extraordinary opportunities from being in the right place at the right time in the early days of globalisation and China’s opening. Three generations in and the situation is quite different. People are wealthier but events such as the 1997 Asian financial crisis have led to more inequality. Hong Kong has prospered from its connections with China but now faces more competition from there. Hong Kong also has one of the world’s lowest birth rates, meaning there are fewer young people around and therefore fewer entrepreneurs to drive economic growth (young people are more likely than their elders to become entrepreneurs). Moreover, said Professor Wong, today’s youth appear to be less willing to risk setting up their own business than their parents and grandparents were at the same age. “Hong Kong did well in the past, but it started on a low level,” he said. “Its people had a lot of ideas for making money and an environment was created to support those ideas. But the world has changed, the people have changed. If Hong Kong is to move forward, we cannot just embrace the past. “Hong Kong’s great asset is no longer just its people. Our open economic system and global networks, our legal system and logistics system and low tax regime, are also assets.” These assets are particularly useful in an area that harks back to Hong Kong’s entrepreneurial past – that of start-ups, which have become a leading source of economic growth and job creation around the world. As Professor Wong puts it, Hong Kong does not necessarily have to create its own start-ups to be a start-up hub because it already has the strong supportive environment and global connections that other San Francisco-based research firm Compass, HKU and local firm Innofoco released a report on the Hong Kong Startup Ecosystem. The forum was attended by the Honourable Mr John Tsang (centre), the Financial Secretary of the HKSAR Government. 06 | 07 The University of Hong Kong Bulletin | May 2016 Cover Story