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Hong Kong has achieved a remarkable rate of economic growth in the last half of the twentieth century, and is widely acknowledged as an important driver of development in South China. The territory occupies a unique position as an international trade and financial hub on the Chinese border, in which capacity it has been well served by the entrepreneurial drive and resilience of its population. Extensive exploitation of technology and innovation in the organization of international production networks have fueled Hong Kong's economic success--but the risks associated with these features of the innovation system also threaten to undermine the territory's future growth. This paper discusses the nature of the global and regional linkages characterizing Hong Kong's innovation system--particularly its integration with a rapidly developing innovation system in China--and its move towards an innovation hub status.
KEY WORDS
Hong Kong; China; Pearl River Delta; innovation hub; innovation system
INTRODUCTION
Hong Kong has lately resumed its traditional position as the key transit point for the exchange of goods and services between China and the international economy. Sophisticated and reliable intermediary services occupy a key role in maintaining this status, but Hong Kong's future depends on the capacity of its intermediaries to retain and expand market share both within Asia and worldwide (Meyer 2000: 247).
Hitherto, however, the question of technological innovation in Hong Kong's developmental experience has gone largely ignored. The few studies that have addressed the issue have emphasized the laissez faire policies that have characterized the industrialization process in Hong Kong (e.g. Hobday 1995). To be sure, Hong Kong's entrepreneurs have adroitly exploited available technology, but they have not generally carried out research and development (R&D) for the purposes of creating proprietary technology (Davies 1999; Yu & Robertson 2000). For this reason, technological innovation has only recently attracted serious attention in Hong Kong, where the government has launched a new strategy in pursuit of knowledge-intensive economic growth. R&D investment in industry has been gradually rising, however, and continuing public support of efforts to generate new technologies are transforming Hong Kong into an innovation hub with global links to and from China.
Our point of departure in this paper is the proposition that a system of innovation has been emerging in Hong Kong during the past century, conditioned by major economic and political upheavals at the global level as well as by gradual institutional change at the local level. The maturation of the system of innovation has accelerated lately, as the influence of economic and political forces have re-asserted themselves through the return of Hong Kong to Chinese sovereignty and the Asian financial crisis of the late 1990s.
It must be acknowledged that Hong Kong's constantly shifting position in the global and regional political and economic landscape has been--and continues to be--a fundamental influence on its innovation system. Many critical factors are situated in political environments that reach beyond the local (or 'national') scale. For example, the influence of global networks has often directly affected regional economies, underscoring the need for local and regional development. Although Hong Kong's government has enjoyed relative autonomy through British colonial rule and now the return to Chinese sovereignty--with a level of authority similar to that of a national government--the international context and indeed the ideology of the government itself (which has generally espoused a laissez-faire economic policy) have left the regulation of business in Hong Kong largely to market forces. Consequently progress in the development of Hong Kong's innovation system converges at three distinct spatial levels: local, regional, and global. In other words, what we observe in our analysis of the innovation system reflects causal relationships that transcend 'national' dimensions. Indeed, linkages with economic or innovative activities that occur outside the borders of the Hong Kong Special Administrative Region (HKSAR)--which have enjoyed increasing public policy support--have transformed the competitive strategies of business firms in the territory.
In the remainder of this paper, we introduce the concept of an innovation hub and discuss how an innovation hub might develop on the foundation of a trade and financial hub; review the historical background from which current developments have emerged; examine the integration of Hong Kong's economy with that of the Pearl River Delta Region; and assess Hong Kong's prospects for finally emerging as a key innovation hub in China. In this respect we sketch both optimistic and pessimistic scenarios in the concluding section.
INNOVATION HUB: A CONCEPTUAL DISCUSSION
From a literal viewpoint, the word 'hub' refers to the central part of a wheel from which spokes radiate. Common usage of the term extends to a 'hub' denoting a central point or main part of activity and interest. Qualifying adjectives can be added to the common definition of 'hub' to further narrow the usage of this term. Our concept of an innovation hub envisions a center of exchange that builds on the foundation of a 'trade' or 'financial' hub. Although the term 'trade hub' is a recent coinage, it can easily apply to a long history of precedents in the emergence and decline of commercial centers. Commercial cities such as Venice occupied important positions in the European economy of the Renaissance as it acted as the central node for trading activity that permeated much of continental Europe. Later, the key status of a world city shifted to Amsterdam and London, and while these centers increasingly commanded the flow of goods in international trade, they also became important hubs of financial transactions (Braudel 1986). The ability to consolidate financial or trading activity is, therefore, a key characteristic in making a city or region a 'hub'. When a city is termed a 'world city,' therefore, it is typically because of its ability to act as a hub for a certain activity (i.e. finance, trade or even tourism) or a number of activities, combined. Additionally, from within this city or region, the specified activity which has made it a hub usually extend beyond its immediate borders into neighboring cities, regions or countries. At the very least, the effect of its hub activity is felt beyond its borders.
The term 'innovation hub' closely follows from the earlier usage of the hub phraseology--trade hub, financial hub and transportation hub. In particular, it refers to an area with two intertwined characteristics. First, innovative activity predominates within the region as compared particularly to neighboring regions and second, there are strong linkages and knowledge flows via the primary region into neighboring regions. The term of an 'innovation hub' is not completely new as it has been variously utilized to designate a science park initiative in South Africa and to advertise various Internet Websites promoting high technology business. In the case of the South African science park, the area in question is distinctly sub-national, and indeed smaller than the city-level (located in Gauteng province, South Africa). In the second example, the hub is virtual in nature, promoting businesses in cyberspace.
Under the concept of an 'innovation hub' that we apply in the present paper, we conceptualize the innovation hub--Hong Kong--as a distinctly 'physical' city-space located at the mouth of the Pearl River Delta in Guangdong province, PRC. Furthermore, we consider that Hong Kong can perform the functions of an innovation hub by leveraging its facilitator capabilities in the domain of innovation. The functions served by an innovation hub entail not only spending increased indigenous resources on innovative activities in a greater commitment to R&D but also and just as importantly, effectively applying new knowledge produced elsewhere to enhance value-added inputs to the production chain. We envisage an innovation hub to transcend the confines of a local cluster--as in a science park--and contribute with an extensive network of linkages and value-added activities to the generation and flow of knowledge.
Given this point of departure, there are four concrete ways of demonstrating the existence of an innovation hub or the efficacy of government measures directed towards achieving such a status. First, we would expect an innovation hub to have a wide network of linkages facilitating the flow of knowledge and technology. In the case of Hong Kong, these linkages overlay those that have been developed through Hong Kong's historical status as a trade and finance hub. Occupying this latter role, Hong Kong has traditionally been the throughput node for trading and financial activities between China (particularly in the Pearl River Delta region and Guangdong province) and the rest of the world. Additionally, over the last decade, Hong Kong has provided an increasingly attractive alternative to Western finance centers, allowing Chinese firms to access international sources of equity. In both cases, the key idea has been that the flow of goods, services and capital through Hong Kong is essential to the territory's competitiveness. Hong Kong firms have facilitated this flow by capitalizing on their expertise in logistics, supply chain management, transportation and a favorable environment for the movement of capital.
Secondly, we believe that actors in an innovation hub should devote substantial resources to innovative activities. That is, we expect to see major expenditure increases on R&D in public as well as private organizations. As firms are the locus of innovative activity within an innovation systems framework, they must be inculcated with an 'innovation culture' or 'ethic' if they are to upgrade their innovative and technological capabilities and also recognize and seize opportunities arising from the effective implementation of innovation and technology produced elsewhere. In Hong Kong's case, the government has implemented measures to increase the amount spent on R&D. The point is to leverage Hong Kong's position as a gateway linking China and the world, which the government has recognized as its greatest historical and present-day competitive advantage. Most notable among these measures was the establishment of the 'Innovation and Technology Fund' (ITF), set up in 1999 with HK$5 billion (approximately 500 million Euros/US Dollars 650 million) earmarked to provide funding for projects that contribute to innovation and technology upgrading in both new and established industries. The Innovation and Technology Commission (ITC) was also set up to spearhead Hong Kong's drive to become a worldclass knowledge-based society. As far as the private sector is concerned, innovative activity has mainly been increasing among large firms (defined as non-manufacturing enterprises with more than 50 employees and manufacturing enterprises with more than 100 employees).
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