1. Developing New Economic Pillars Presentation by Head, Central Policy Unit At the Fourth Meeting of the Task Force on Economic Challenges on 3 April 2009

2. 2 Industries explored 1. Testing and certification 2. Medical services 3. Innovation and technology 4. Cultural and creative industries 5. Environmental industry 6. Educational services

3. 3 Analysis Strengths and opportunities Existing Government policies/initiatives Constraints Potential development directions

4. 4 Testing and certification: Strengths and opportunities With the progressive setting of legal standards of harmful substance in food and the commencement of nutrition labelling requirements in July 2010, the demand for testing services by the food trade would increase substantially Hong Kong’s strength and opportunities:  Robust accreditation system in place – Hong Kong Accreditation Service provides accreditation services for laboratories, certification and inspection bodies located in Hong Kong  Hong Kong’s reputation and independence boosts confidence of overseas buyers  Geographical proximity to growing market in Mainland

5. 5 Testing and certification: Existing policies/initiatives Food and Health Bureau encourages and supports the food traders to engage private laboratories to conduct testing of their food before they were put on market shelves Hong Kong Accreditation Service (HKAS) under the Innovation and Technology Commission (ITC) provides standard setting and accreditation service for private laboratories Government Laboratory outsources regular food surveillance testing work to the private sector so as to provide more business opportunities for the private laboratories (e.g. outsourced some 22,000 tests in 2008-09; will increase to at least 77,000 in 2009-10) Additional amount of $1.6 million per year will be provided to HKAS/ITC to strengthen staffing support and for promoting and enhancing accreditation service connected with food tests

6. 6 Testing and certification: Constraints Existing industry scale is small, limiting market size and cluster effect High inspection and testing charges, making certification less accessible to SMEs Technology, capital and expertise intensive New resources needed for HKAS to provide new accreditation services for certification for food manufacturing process and product safety, such as automobile spare parts

7. 7 Testing and certification: Potential development directions Develop the food testing industry by –  Assisting private laboratories to upgrade their standards  HKAS introducing new accreditation service for food testing and step up promotion and training for industry  Government increasing outsourcing of regular food surveillance testing to and sharing of expertise with the private sector Encourage the industry to test food and product safety before putting products on market shelves Enhance regulatory framework and upgrade standards of certification of proprietary Chinese medicine in Hong Kong Government to encourage Mainland enterprises to utilize testing, certification and consultancy services of Hong Kong private laboratories

8. 8 Medical services: Strengths and opportunities Asian countries such as Thailand, Singapore, India have been actively promoting medical tourism, which combines medical care or rehabilitation services and travelling Hong Kong’s strengths and opportunities:  Competitive advantage in advance technology and highly specialised multi-disciplinary professional inputs  Quality personnel and professional ethics  Potential for attracting overseas medical experts to provide service in Hong Kong  Potential market for Mainlanders to receive treatment in Hong Kong

9. 9 Medical services: Existing policies/initiatives Government policy “to consolidate and enhance Hong Kong’s position as a prime medical centre in the region… by encouraging and facilitating development of private hospitals,… attracting talent from around the world to enhance competence of our healthcare personnel;… promoting public-private partnership;… and establishing medical centres of excellence” (2008-09 Policy Address) 4 suitable sites have been identified for the development of private hospitals

10. 10 Medical services: Constraints Existing healthcare services heavily reliant on public sector; scale of private sector comparatively small (e.g. 11% for Hong Kong vs. 28% for Thailand or 27% for Singapore (Note) ) Cannot compete over costs with other economies in the region Priority to increase overall capacity of healthcare system for benefit of local community amid ageing population Require support of hardware (e.g. land for private hospital development) and software (e.g. training and professional development) (Note) Estimates by number of hospital beds provided

11. 11 Medical services: Potential development directions Focus on specialised medical services with lower risks and higher return and a competitive edge Expedite process of making available sites for development of private hospitals Facilitate entry of overseas experts Develop theme-based resorts to attract high- yield medical tourists

12. 12 Innovation and technology: Strengths and opportunities Development of Hong Kong’s high-tech industries mainly focused on applied R&D, commercialisation and trade in high-tech products Overall R&D expenditure, in particular for the business sector, lag behind other economies Hong Kong’s strengths and opportunities:  High standards of universities and R&D personnel  Robust intellectual property right protection regime  Open and flexible business market; trading, financing and Mainland expertise  CEPA an advantage to meet the demand of the growing Mainland market

13. 13 Innovation and technology: Existing policies/initiatives Strong government support over the years through infrastructure (e.g. Hong Kong Science and Technology Park, ASTRI, Cyberport) and funding (e.g. Innovation and Technology Fund or ITF); R&D Centres to serve emerging technological areas; internship programme to nurture local talent, etc. Cooperation with the Mainland at various levels:  Mainland and Hong Kong Science and Technology Cooperation Committee with the Ministry of Science and Technology  Guangdong-Hong Kong Technology Cooperation Funding Scheme with Guangdong  Shenzhen-Hong Kong Innovation Circle

14. 14 Innovation and technology: Constraints Small domestic market for high-tech products R&D culture still not strong in private sector Progress in commercialisation and technology transfer Land constraints and lack of special incentive schemes (e.g. tax holiday/concessions) may hinder foreign investments

15. 15 Innovation and technology: Potential development directions Optimise funding support for applied R&D through ITF Infrastructural support to strategic technological areas such as life sciences, medical equipment, IT, logistics, and digital entertainment through Science Park Phase II (biotechnology) and Phase III Flexible use of industrial estates and other available sites/buildings as incubator of high-tech startups and companies Promote partnership between SMEs and universities through support and incubation schemes Promote development of home-grown technology through government-led procurement of high-tech/green technology or services, and promote them to overseas markets Enhance technology cooperation with the Mainland

16. 16 Cultural and creative industries: Strengths and opportunities Creative industries bring substantial economic benefits and employment opportunities to countries over the world, and there is room for Hong Kong to unleash the economic potential of the industries (e.g. estimates of contribution to GDP: 8% for UK (2003), 8.7% for South Korea (2008), 5.7% for Singapore (2008) vs. 3.9% for Hong Kong (2007)) Hong Kong’s strengths and opportunities:  Blending of Eastern and Western cultures; biliterate and trilingual environment receptive to new developments and exploration of global trends  Large pool of creative talent with innovative and creative thinking  High technology capabilities in fields of digital entertainment and computer animation, etc.  Robust intellectual property rights protection regime  Sectors that Hong Kong has an edge: motion picture, television, design, architecture, animation and comics, advertising and digital entertainment, etc.  Opportunities brought by the development of West Kowloon Cultural District

17. 17 Cultural and creative industries: Existing policies/initiatives Continued policy support since 1997 in a wide range of categories such as film, design, performing arts, digital entertainment, computer software, etc. Set up by mid-2009 a new dedicated office “Create Hong Kong” (CreateHK) under the Commerce and Economic Development Bureau to drive the development of creative industries in Hong Kong; preliminary development areas and strategy identified A new $300 million “CreateSmart Initiatives” (CSI) to provide funding support to initiatives Riding on our share cultural background, further develop the Mainland market for Cantonese opera and other forms of performing art, through the Greater Pearl River Delta Cultural Cooperation Framework (GPRD framework) for exchange between Guangdong, Hong Kong and Macao, as well as other standing working groups there under

18. 18 Cultural and creative industries: Constraints Intensive competition from other economies in the region Small domestic market for products or services Lack of professional training and a learning and living environment that encourages creativities May lose focus given diverse range of areas categorised as “creative industries” Limited support for creative individuals or SMEs/startups

19. 19 Cultural and creative industries: Potential development directions Focus on the development of areas that Hong Kong has an edge: design, advertising, software/digital design, film and video, etc.; and on the Mainland market given our shared cultural background Further funding support for aspiring individuals/SMEs, e.g. low- interest loans, tax incentives. Enhance promotion of Hong Kong creative products overseas and in the Mainland and assist SMEs/individuals to expand their markets, e.g. create the brand for “Hong Kong’s design, Mainland’s production” and market it overseas Enhance the element of creative thinking in school curriculum

20. 20 Environmental industry: Strengths and opportunities Hong Kong’ strengths and opportunities:  Local enterprises have rich experience in pollution prevention and control, in particular, project management and operation of waste infrastructure  They are adept at commercialising environmental technologies and providing tailor ‑ made solutions to customers  Hong Kong has the legal framework for provision of environmental management and consultancy services  Proximity and ease of access to the Mainland market  Opportunities for environmental technologies are in the Mainland - investment in environmental infrastructure in the Mainland, notably municipal solid waste, sewage treatment facilities and desulphurization equipment in power plants, will be substantial

21. 21 Environmental industry: Existing policies/initiatives Over the last few decades, Hong Kong has put in place many world class environmental infrastructures, hence drawing a strong presence of consultants and contractors with international partners on application of the latest environmental technologies and management expertise Cooperation arrangements with Guangdong such as the development of PRD into a Green and Quality Living Area, Cleaner Production Partnership Programme, CEPA liberalisation measures for the industry, etc.

22. 22 Environmental industry: Constraints Direct financial support from the public sector, which is a norm for development of high-tech environmental industries overseas, is lacking R&D investment by the private sector in environmental technology is lacking Land is short in supply and premiums high Transportation and labour costs are high Local market for green products is small

23. 23 Environmental industry: Potential development directions Enhance co-operation with Guangdong in the following areas, which have been included in the PRD Reform and Development Plan Outline:  Encouraging wider use of and research in renewable energy  Promoting co-operation in the development of the infrastructure and supply of cleaner energy, and drawing up a longer term plan to jointly increase the use of cleaner energy  Promoting the development of circular economy  Enhancing cleaner production in the region Promote wider use of electric vehicles (EV) in Hong Kong Promote energy efficiency and environmental performance of both Government and private buildings

24. 24 Educational services: Strengths and opportunities Many overseas economies competing in “exporting education” to attract more non-local students, resulting in both additional economic benefits and talent Hong Kong has made heavy investment in tertiary education, resulting in high quality teaching and R&D personnel and facilities, attracting international students and teaching personnel to come to Hong Kong Hong Kong’s biliterate and trilingual environment suits the needs of non-local students, particularly those from the Mainland

25. 25 Educational services: Existing policies/initiatives Government committed to investing heavily in education Government implemented in 2008 a basket of initiatives to promote Hong Kong as a regional education hub, e.g. increasing non-local student quota, providing government scholarships to quality local and non-local students, relaxing employment restrictions for non-local students and relaxing immigration restrictions for non- local graduates Government also implemented measures to support the development of local self-financing degree-awarding institutions

26. 26 Educational services: Constraints Scarcity of land continues to be a prime concern, both for provision of teaching facilities and student hostels High costs of education in Hong Kong may deter some less-well off economies Debate over non-local students competing for education resources with local students Possible calls for additional resources for institutions for building of teaching and accommodation facilities, conducting overseas promotion and providing government scholarships Competition from other economies for quality non-local students

27. 27 Educational services: Potential development directions Work with institutions to broaden the geographical base of their non-local students Explore joint overseas promotion/exhibition activities with assistance of say, Hong Kong TDC Explore signing of bilateral agreements in support of universities’ overseas promotion efforts Facilitate the development of self-financing degree- awarding institutions through provision of land and other resources

28. 28 Ends