An Economic Model for
21st Century Hong Kong
Speaker: Mrs. Regina Ip
Chairperson of Board of Governors,
Savantas Policy Institute
08/12/2006
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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
Current development of Pu Dong(浦東), Shanghai
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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
08/12/2006
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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
08/12/2006
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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
08/12/2006
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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
08/12/2006
Savantas Policy Institute
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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.)
Innovation
Intellectual Property (IP)
50%
Applications (Mkt. & Standards)
40%
System Integration (Archit., …)
30%
Engineering (Design, ODM,..)
Manufacturing (Process, OEM)
Consumer recognition
Outsourcing
Trend
Values/Profit Margins
Brand
Core competency
Source: Savantas Policy Institute
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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 & Answer
session
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