An updated version of presentation titled: What got us here will not get us there!

1. It does not take a miracle
to turn Hong Kong into a Knowledge-based Economy
In Israel, they say,
if you do not
believe in
miracles you are
not realistic.
It does not take
a miracle to turn Hong Kong
into a Knowledge-based
Economy, some
small adjustments
will do.
(Source: Sharon Gal Or)
InnoTech

2. Realizing Hong Kong’s
knowledge-based economy
potential as part of
a rising Chinahttp://www.slideshare.net/AlanLung/realising-hks-knowledgebased-economy
Paper P001 (E) prepared by:
Dr. Gordon McConnachie
Former Technology Transfer Manager, Dow Chemical Europe
Founding Chairman of Scottish Intellectual Assets Centre and
Chief Technology Officer of Asia Pacific Intellectual Capital Centre
Mr. Alan Lung
Director & General Manager of Asia Pacific Intellectual Capital Centre
THE EIGHTH ANNUAL CONFERENCE OF
THE ASIAN STUDIES ASSOCIATON OF HONG KONG
P001 (E) Session 9A: Business Sector in Hong Kong
16.30-18.00 , Saturday 9 March 2013
Lady Ivy Wu Lecture Theatre, The Hong Kong Institute of Education

3. Zhejiang
University
Hangzhou
Beijing Academy of Science &
Technology
PECC Beijing Conference
Jinan University Guangzhou
Hong Kong SAR Government Office in Beijing
IPR2 Beijing Office
Hong Kong Science &
Technology Park
NDRC & SIPO Beijing
Links to Scotland, USA & Europe
EU in HK & Beijing
About:

4. John Tsang’s speaker
luncheon titled:
Hong Kong as a knowledge-
based economy and its role
in China's economic
development
(31 May 2010)
http://www.hkdf.org/newsarticles.asp?
show=newsarticles&newsarticle=272
Carrie Lam’s
speaker luncheon titled:
Policy priorities of this term of
Government - Population Policy
(4 February 2013)
http://www.hkdf.org/newsarticl
es.asp?show=newsarticles&newsarticle=324

5. HKSAR Government
targets economic
development
• “This Government places as much
emphasis on economic development –
both the speed and the quality of
economic development – as we do on
livelihood issues …”
• Tell me: “If Government could do
1,2,3,4,5 for us, then the following
will happen and this would be good
for Hong Kong’s economy and
therefore good for the Hong Kong
society …”
Chief Executive C.Y.Leung’s remarks at
The first meeting of the Economic
Development Commission
13 March 2013
http://www.news.gov.hk/en/record/html/
2013/03/20130313_121636.shtml?pickList=highlight
http://www.info.gov.hk/gia/general/201301/17/P201301170324.htm

6. Hong Kong has always been
about free trade …
THE BRITISH came ashore on Hong Kong Island in 1841 on a rising imperial tide. They worked
to create a bustling business community convinced that in trade … lay the future of their world.
“The Governors of HONG KONG “ by Russell Spurr
Sir Henry Pottinger,
First Governor of
Hong Kong
(1841-1844) and
Chris Patten, Last
Governor of Hong
Kong (1992-1997)

7. Hong Kong has always been about
land transaction revenue too!
Tea Act of the British Parliament and
the Boston Tea Party (1773) which
eventually led to the American War of
Independence (1775-1782) taught the
British not to impose extra-territorial tax
British Hong Kong original fiscal
foundation (since 1841):
•Trade and free port
•Opium related revenues
•Land transaction revenues
•Other revenues
Income tax was not introduced to
Hong Kong until 1947:
•Trade expanded
•Opium tax faded
•Land revenues remain
Source: The Foundations of the Hong Kong Revenue Regime, Civic Exchange report,
Prof. Richard Cullen and Antonietta Wong,Civic Exchange Publication, 2008

8. Hong Kong’s potential as a
knowledge-based Economy …

9. In a classical economy:
Factors of production:
• Land
• Labour
• Capital ($)
Intangible factors of production:
• Enterprise or Entrepreneurship

10. In a Knowledge-based Economy:
Factors of production:
• Creativity
• Innovation
• Wealth Creation
Complementary business assets:
• Manufacturing facilities
• Distribution capacity
• Sales force

11. Hong Kong does not
have any choice …
•As a high-cost economy, Hong
Kong must follow the examples of
OECD and EU in climbing up the
economic ladder;
•Hong Kong should try to
understand what it takes to build a
Knowledge-based Economy.

12. Rise of China … and finding
a new role for Hong Kong
• China does not want to
remain a low and mid-
end “assembler” of
goods;
• To get there, China can
make good use of Hong
Kong’s “soft power”:
rule of law/rule-based
society, general integrity
and trust etc.

13. Silicon Valley has a solid
industrial base:Strong manufacturing
capacity, R&D, creativity and presence of grateful
entrepreneurs … Steve Jobs used US$150 million
from Bill Gates to restart Apple in 1997.
Driving Hong Kong to
become a Knowledge-
based Economy is not
the same as central
economic planning …

14. Meso-economic: the political economy* and
how government chooses to use public resource
to drive economic development
(*rules, institutions, supporting systems and regulations)
• Andrew Sheng and Xiao Geng of
the Fung Global Institute caught the
attention of the World Economic
Forum :“The new economics: Meso
and Meta” http://forumblog.org/2012/10/the-
new-economics-meso-and-meta/
• “ … today’s mainstream micro-
and macroeconomic models are
insufficient”;
• “… Meso-economics studies the
institutional aspects of the
economy”.

15. Political-economy lesson from South Korea
From “Catch-up” to “Creative”
mode of economic development
• A key political economy lesson
Hong Kong could learn from South
Korea is an on-going policy shift
away from a “catch-up” mode to a
“creative” mode of development.
• Essentially, it is a shift away from
very focused support of “chaebol”
(large family-owned
conglomerates) to a focus on
strengthening the innovation
capacities of SMEs.
Top right: Korean women donating
gold to support a bankrupt Korean
economy in 1998.
Bottom: Students joining dock
workers strike in Hong Kong in
2013.

16. Hong Kong’s Innovation Eco-system?
• South Korea: KIST (Founded 1966), Ministry of Future
Planning and Science (2013, Park Geun-hye’s economic
liberalization and “creative” mode of development initiatives)
• Singapore: Economic Development Board, A*STAR,
IP Academy of Singapore (Since 1965, Lee Kuan-yew)
• Taiwan: ITRI (工研院), Hsinchu Industrial Park,
network of statutory bodies (Since 1973, Chiang Ching-Guo)
• Europe/Scotland: Lisbon Agenda (March 2000),
Enterprise Europe Network, EEN-Scotland
• Finland: TEKES, The Federation of Finnish
Technology Industries (Finland’s “Old Money” for new industries)
• Hong Kong: Innovation & Technology Bureau?
Under Secretary CEDB? Grateful entrepreneurs?
朴槿惠
李光耀
蔣經國

17. Innovation is more than R&D …
Innovation includes: organization
changes, training, testing, marketing and
design.
• New or significantly improved product: a
new process, or a new organsiation
method etc.
• Must contain a degree of novelty: new
to the firm, new to the market, or new to
the world;
• Clearly broader than R&D: influenced by
factors that include government policy;
can occur in any sector of the economy –
including government service, healthcare
and education.

18. Investing in technology alone?
• A policy of investing in technology
alone without knowing how to
extract economic value from it has
no future.
• Hong Kong must learn how to
manage its Knowledge Capital.
• Hong Kong must have a policy and
an Eco-system that support the
commercialization of technology.
InnoTech

19. Hong Kong as a bridge and gateway
Gordon McConnachie, CTO of APICC and major tech-transfer units from around the
world in Beijing (ITTN 2012 International Technology Transfer Conference, 26 March 2012)
AUTM (USA)
Tsinghua (China) Association of University
Technology Managers (USA)
Enterprise Europe Network
DG Enterprise and Industry, European
Commission (Marshall Hsia & Alan Lung in Beijing)

20. Lessons to be learnt from the
Oresund Region
• 1991: the governments of
Denmark and Sweden agree to
build the Oresund bridge
• 1999: The report ”Øresund –
the creation of a region”
concludes that the greatest
barrier to integration in the
Oresund region is lack of
communication between
citizens, businesses and public
administration
• 2000: The Oresund bridge
opens and Oresunddirekt is
launched

21. Historical relations between Denmark and Sweden
Historical relations between Guangdong and Hong Kong
This type of economic development is often based on:
Historical economic and cultural ties
that happen gradually over time
... but often with some degree of government facilitation

22. Hong Kong needs to be
“innovation driven”
not
“basic requirement”
or “efficiency” driven.
•Hong Kong’s Overall
Ranking: 9(+2) (China:29 (-2))
• HK is at “Stage 3” of economic development (i.e.
innovation driven) – along with Japan, Singapore,
South Korea and Taiwan
• Basic Requirements: 3(-2)
(institution, infrastructure, macroeconomics
environment, health & primary education)
• Efficiency Enhancers: 3(-1)
(of which HK ranks no. 1 in the world in
“Financial Market Development”)
• Innovation &
Sophistication Factors: 22(+2)
HK is below 0ECD’s average while China is improving steadily:
(China:31 (+3))
Hong Kong needs to be
“Innovation” driven,
not
“Basic Requirements” or
“Efficiency” driven

23. The proposed BJ-GD-HK Knowledge Corridor
Maximizes BJ-GD-HK’s External Economy of Scale
and integrates “Expertise Cluster”, “Regional
Cluster” & “Industry Cluster” policies
BJ, GD and HK on their own do not have
all the success factors needed to build a
“Silicon Valley” type of economy:
• Beijing: R&D is 5.5% of Beijing’s GDP
(4 times the national average);
50% of China’sTech-transfer;
• Guangdong: 37.7% of China’s high-tech
manufacturing export;
(Source: OECD Review of Innovation Policy – China, OECD 2008)
• Hong Kong: built on a tradition of free
market and ‘good law, well administered’;
HK uses English as a business language and
is seamlessly connected to
the West.

24. The proposed BJ-GD-HK Knowledge Corridor
A strategy for China to move from “Sustained
Development” to “Sustainable Development”
A strategy that combines European
expertise, China’s strengths in
science and technology and high-
tech manufacturing; and Hong
Kong’s service capacity to facilitate
economic transitions:
• China’s “Sustained Development”
(through investment by the State) to
“Sustainable Development” (through
values created from Technology
Transfer and Technology
Commercialization);
• Hong Kong’s narrow industry base
and over-reliance on the financial
and property sectors.

25. 產
業
政
策
A compelling economic reform
argument and a coherent
intellectual framework still missing:
Free Market Economy, rule of law,
freedom of information and the need to
develop high value-added industries
acknowledged by CY Leung; however:
•“Service Economy” or “Manufacturing”?
• Current status of “Six New Industries”?
•“Sector Neutral” or
”Sector Biased”?

26. Sir John
Cowperthawaite,
Financial
Secretary of
Hong Kong
17 April 1961 –
30 June 1971
John Tsang, Financial Secretary
(since 1 July 2007)
Sir John
Cowperthwaite
Financial Secretary
(1961-1971)
• In a free market economy,
government cannot predict the
winning industries and where the
next burst of economic growth
might come from.
• However, Hong Kong does not
seem to fully understand
Cowperthawaite’s philosophy as
one of the requirements of
“positive non-intervention” is
the “positive” part – that
government must not stand still
and must do as well as it possibly
could to facilitate.
• Indecisiveness and inaction is not
equal to prudent financial
management.
“Free Market”
versus
“Economic Planning”

27. Prof. LAU Siu-kai, former head of Central Policy Unit
(CPU), HKSAR Government at the environmental friendly Beitou
Public Library during CPU’s Study Trip to Taiwan, 27-30 June 2011
• “… Government’s role in economic
development has been changing since
the “Laissez-faire” days of
Cowperthwaite and Haddon-Cave”;
• “… people are unlikely to oppose
HKSAR Government’s economic
development initiatives”.
(Prof. Lau Siu-Kai’s closing brief to delegates of the
Taiwan Study Trip on 30 June 2011)
• Hong Kong has always thrived on
new way of thinking and doing – not
hanging onto past success.
“ HKSAR Government is
unlikely to be dogmatic
on the subject of Free
Market versus Economic
Planning ” Prof. LAU Siu-kai

28. Strategies of innovation:
“Eureka” – discovery of new frontiers of
knowledge is not necessarily the only strategy
• “Battle for Architecture”,
“System Breakthrough”, “New and
Improved”, “Mass Customization”
and “Pushing the Envelope” are
some of the alternative strategies.
• Assisting SMEs to acquire
knowledge, knowhow and
technologies and;
• assisting knowledge-
intensive SME start-ups will
have most support from the
community.
http://www.cae-acg.ca/documents/Dpliant_Innovation_Reinvented_v4.pdf

29. ICM Gathering* of the USA:
(*Intellectual Capital Management Gathering)
A group of ~ 30 companies, )sophisticated in the management of their intangibles. The
frameworks and methods for extracting value from intangible assets were created by the
companies themselves and not by academics or consultants
SMEs need to learn the “trade secrets” of MNEs
through industry-specific Knowledge-based
Economy Expert Groups (ICMGs)
http://www.slideshare.net/AlanLung/what-is-intellectual-capital-management-apicc-whitepaper-2
Dr Patrick
Sullivan
USA started in the early 1990s

30. The proposed BJ-GD-HK Knowledge Corridor:
Build “Expertise Clusters” in Technology-
transfer and Technology-commercialization
BTEC/ITTN in Beijing and APICC in
Hong Kong will jointly apply for
Enterprise Europe Network (EEN)
membership as EEN-Beijing and EEN-
Hong Kong in late 2013 (for approval
and implementation in 2014):
• EEN is the largest technology
transfer network in the world; EEN is
owned by the European Union;
• Enables Tech-transfer and Tech-
commercialization know-how to be
imported from Europe;
• EEN-Beijing and EEN-HK will receive
coaching from EEN-Scotland, a unit of
the Scottish Government.

31. Knowledge-based economy is a proven strategy …
not a novelty in OECD Countries
OECD acknowledges:
• The link between Knowledge-based
Economy and creation of high-wage and
high-quality employment;
• Productivity of developed economy is
largely determined by the rate of knowledge
accumulation and technical progress;
• The importance of government policy and
support systems.
(Source: The OECD Innovation Strategy: Getting a Head Start on Tomorrow,
OECD 2010)

32. Hong Kong: well placed in two-and-a-half of the
Four pillars of the Korean knowledge economy
• Economic incentive and institution
support: good economic policies and
institutions, efficient resource allocation that
support dissemination of knowledge ;
• An educated and skilled labour force:
willing to continuously upgrade and adapt itself
to create and use knowledge;
• An effective innovation system: of
firms, research centre, universities, consultants
and others to keeps up with global knowledge
system;
• A modern information infrastructure:
that facilitates effective communication,
dissemenatation and processing of information
and knowledge.
(Source: OECD Reviews of Innovation Policy:KOREA 2009)

33. Hong Kong: well placed in two-and-a-half of the
Four pillars of the Israeli knowledge economy
An analysis of the innovation eco-system of Israel
reveals essentially the same success factors as South
Korea’s innovation eco-system:
• Economic incentives and institutional support:
Hong Kong probably rates very quite well in the area of providing
economic incentives.
• Availability of financial capital and an effective
innovation system: Venture capital typically plays a very
limited role in Early-stage Technology Development Funding (ESTD)
around the world, particularly in Hong Kong.
• Supply of human capital: Hong Kong shortcoming is
compensated by Hong Kong's international outlook, links to Mainland
China under "One Country, Two Systems" and other skills in
commerce and finance.
• Access to information and a modern
information infrastructure: Hong Kong scores well in the
access to information factors. Press freedom, a liberal political
environment and use of English as the primary business language are
important but fairly under-rated competitive advantage.
(Source: “Building an Innovation Economy, Public Policy Lessons from Israel”, Jonathan Avidor,
Northwestern Law School and Kellogg School of Management, May 2011)

34. How’s Hong Kong doing?
How Israel and the rest
of the world are doing it
Left: Shimon Peres, former Israeli Prime Minister helping Shai Agassi of Better Place to close a deal with the
President of French automaker Renault-Nissan, Carlos Ghosn. Right: Peres with Zuckerberg of Facebook.

35. European SMEs are keen to use Hong Kong
as a gateway to do business with China …
“SMEs make up more
than 98% of all
companies in Europe …
more importantly, they
are considered the
chief source of
creative ideas and
technological
innovation …”
South China Morning Post 8 May 2013
Vincent Piket, Head of EU-HK & Macau and Simon Galpin, Head of
Invest Hong Kong (Page A4, South China Morning Post, 8 May 2013)
InnoTech

36. The 1,2,3,4,5 steps of
Knowledge-base economy implementation:
in reality a lot of work must start in Hong Kong first
Hong Kong needs to brand itself as a Knowledge
City and build an Innovation Eco-system:
1. Invest in and implement a “Fully Examined Patent System*”
in co-operation with SIPO** and the world’s IP systems;
(*Target implementation date according to IPD of HKSAR Government:2016/2017)
(**State Intellectual Property Office of China)
2. Support the business side of innovation – including the
expertise behind commercialization of technology;
3. Support all industries – not one industrial sector at the
expense of other sectors (the current practice of requiring
partially funded quasi-government agencies to compete
against private sector service providers should stop);
4. Liberalize the economy – learn how Europe (particularly
Finland) screen, incubate and support knowledge-intensive
start-ups through very open and transparent systems;
5. Have a clearly stated policy and co-ordinate the fragmented
support measures now offered through various government
and quasi-government agencies -- even in the absence of an
Innovation and Technology Bureau.
enterprise
china
network

37. “Hong Kong is losing its competitive edge…”
Beijing warns! Hong Kong disagrees!
“Development is the only
hard truth … only when the economy
continues to thrive will livelihoods improve.
Everything else is empty talk. Like a boat
sailing down-stream if it does not forge
ahead …” Politburo Standing Committee Member
Zhang Dejiang at a meeting with the
Business and Professional Alliance
in Beijing on 17 April 2013
Prof. Chan Ka-keung
Secretary for the Treasury
and Financial Services
disagreed … the city’s
advantages are in our own hands,
citing the legal system and
financial market.
Tom Holland of South China
Morning Post also
disagreed … far from losing its
edge, HK is more competitive than
ever ... the Chairman of NPC is
talking out of his hat on Hong
Kong’s competitiveness.
Who right? Who’s wrong?
What do you think?
Q&A:

38. The president has spoken … it now up to us,
but it will not be just implementation!
Support from
the Hong Kong
community,
from industries, consensus building, a clearly stated
policy and practical implementation support from
the HKSAR Government now needed.
“It’s the Implementation!”
Xi said Leung's policy idea, seeking change
while maintaining stability, has been widely
recognized by Hong Kong citizens. He urged
Leung and the Hong Kong SAR government
to fully implement the idea.
(18 March 2013 in Beijing)
Bill Clinton’s
widely quoted
1992 campaign
slogan:
“It’s the
economy
stupid!”
http://www.chinadaily.com.cn/china/2013-
03/18/content_16317997.htm
InnoTech
Thank you!

39. List of references:
References
1. “Hong Kong and the Knowledge-Based Economy: Developments and Prospects”,
Alan Ka-lun Lung, Asian Education and Development Studies, Vol. 1 Iss: 3,
Emerald Group Publishing 2012
http://www.slideshare.net/AlanLung/hong-kong-15789787
2. “Hong Kong’s Innovation and Technology Role in Mainland China’s 12th Five Year
Plan”, APICC Whitepaper #7, March 2011
http://www.slideshare.net/AlanLung/h-ks-innotechrolein125
3. “Policies and Practices for Hong Kong as a Knowledge Economy and the Proposed
Innovation and Technology Bureau”, APICC Whitepaper #8, July 2011
http://www.slideshare.net/AlanLung/innovation-technology-bureau-for-hk-2572011
4. “Proposed: Guangzhou-Hong Kong Knowledge Corridor”, Samson Tam Wai-ho,
China Daily Asia Pacific Edition, 6 July 2012
http://www.chinadailyapac.com/article/proposed-guangzhou-hong-kong-knowledge-
corridor
5. "Innovation Reinvented -- Six Games that Drive Growth", Miller and Cote,
University of Toronto Press, 2012
http://www.cae-acg.ca/documents/Dpliant_Innovation_Reinvented_v4.pdf
6. “The politics and specifics of knowledge-based economy implementation
in Hong Kong”, by Gordon McConnachie, Alan Ka-lun Lung & Sharon Galor
(unpublished APICC Whitepaper)

40. About the authors of
“Realizing Hong Kong’s knowledge-based economy potential as part of a rising China”
Dr. Gordon McConnachie, B.Sc., Ph.D
Dr Gordon McConnachie is the founding Chairman of the Scottish Intellectual Assets Centre (2003--
2007) and Chief Technology Officer of Asia Pacific Intellectual Capital Centre. He is a chemical engineer
by training and he spent most of his working career with Dow Chemical where he grew up together with
the innovation and technology transfer systems of the world as we know them today. At Dow Chemical
Europe (1989 - -1999), he invented the IP and Intellectual Assets Management System for the worldwide
company together with Phil Barnett and Gordon Petrash. The system was later modified and applied
across the global company, where Gordon transferred technologies from companies and universities into
Dow Europe which brought him into intimate contact with the EU Innovation Relay Centres (now
Enterprise Europe Network). From 1999 to 2002 Gordon directed the European Intellectual Asset
Management Services of PricewaterhouseCoopers. In 2009, 2010, 2011 and 2012 Gordon was placed on
the Global IAM 250 list of leading IA Strategists, one of only a handful of experts on the list from China
and the ASEAN Nations. Dr Gordon McConnachie can be contacted at: gmcconnachie@apicc.asia
Mr. Alan Lung Ka-Lun
Alan Lung Ka-lun was born and educated in Hong Kong. He was also educated at the University of
Wisconsin in the USA and Wilfrid Laurier University in Canada. He spent the formative years of his
working career with international advertising and public relations agencies, including an overseas
posting at Ogilvy & Mather Singapore. He now chairs the Hong Kong Democratic Foundation
(www.hkdf.org ), a political and public policy think tank founded in 1989. Alan is skilled in converting his
knowledge of governments and public policies into practical steps to move forward “Knowledge
Economy” initiatives. He is a member of the Innovation and Technology Advisory Committee of the Hong
Kong Trade Development Council (HKTDC) and he has been promoting innovation and technology
practices in Hong Kong, Guangzhou and Beijing through the Asia Pacific Intellectual Capital Centre
(www.apicc.asia) (where he is Director and General Manager), since 2006. Alan Lung Ka-Lun can be
contacted at: alanlung@apicc.asia