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LCQ12: Development of data centres in Hong Kong

     Following is a question by the Hon Frederick Fung and a written reply by the Secretary for Commerce and Economic Development, Mr Gregory So, in the Legislative Council today (February 11):


     At present, operators of data centres who intend to set up data centres in the Industrial Estates (IEs) owned and managed by the Hong Kong Science and Technology Parks Corporation (HKSTPC) must obtain the approval of HKSTPC, and the accommodation values in IEs are far lower than the market prices. In this connection, will the Government inform this Council:

(1) whether it has reviewed if the existing procedure of HKSTPC for vetting and approving applications for setting up data centres in IEs has sufficient transparency, and if unfair competition has been created between data centres set up in IEs and those set up in other places; of the measures put in place to enhance the transparency and fairness of the vetting and approving procedure (such as introducing appropriate monitoring and making public the relevant approval criteria and marking schemes);

(2) whether it knows what monitoring mechanism HKSTPC has put in place to prevent operators of data centres in IEs from letting or sub-letting the lands granted to them to third parties; whether such cases were uncovered in the past five years; if so, of the details, and how HKSTPC handled such cases; and

(3) whether it will comprehensively review the existing policies and measures for supporting data centres, so as to create for the industry a business environment with a lower start-up threshold, conducive to fair competition and with highly transparent systems; whether it will make reference to overseas practices and construct a large-scale data centre park, so as to lower the costs of establishing and operating data centres through resources sharing?



     My reply to the three-part question is as follows:

(1) The Hong Kong Science and Technology Parks Corporation (HKSTPC) has a well-established system for approving applications for sites in the Industrial Estates (IEs). Applications for data centre and other industrial purposes are processed according to the same criteria and procedures. Generally speaking, the basic admission criteria to IEs are as follows:

(a) the project cannot be accommodated in ordinary multi-storey industrial or commercial buildings;

(b) the operation is not classified as offensive trade under Government regulations (e.g. tanning of leather); and

(c) the project is not engaging primarily in storage and warehousing.

     In assessing the applications, HKSTPC also makes reference to relevant factors of the project, including:

(a) new or improved products or services;

(b) new or upgraded technology;

(c) high added value based on the use of local material and manpower;

(d) products or services for which there is strong demand from local industry;

(e) substantial contribution to Hong Kong's exports;

(f) significant investment particularly in new machinery and equipment; and

(g) employment at a higher level of skill.

     All applicants are required to submit the investment details, business model and estimated schedule of development to facilitate the assessment of applications. All projects are assessed by HKSTPC staff and then submitted to the Business Development and Admission Committee under the Board of HKSTPC for approval. Information on vacant sites open for application and the above admission criteria are available at HKSTPC's website for reference by applicants. As vetting of applications involves sensitive commercial information of other applicants, HKSTPC will only inform the applicants of the result of their applications.

(2) All successful applicants for a land grant are required to sign with HKSTPC a lease agreement, which stipulates that only approved operations or other operations agreed in writing by HKSTPC can be carried out in the premises, and that subletting of the premises to other parties is not allowed. In view of the unique operation model of data centres, grantees engaging in high-tier data centre managed services (e.g. Internet connectivity and networking services, managed and outsourcing services on facilities, cloud computing and storage management system, data centre management and system management) are also required to draft a proforma service agreement to be used for their service clients, specifying the service level and scope, security and access arrangements to the data centre, etc. The proforma service agreement is subject to the approval of HKSTPC and its designated solicitors to ensure that no subletting of the premises to the clients is involved. The grantees and their service clients must adopt the proforma service agreement without making any unauthorised alteration to the clauses. Any subsequent amendments are subject to further approval by HKSTPC.

     As the management authority of the IEs, HKSTPC conducts site inspection of the premises on a regular basis to note the operation therein. If a grantee is found to be in breach of the terms and conditions of the lease agreement, actions will be taken according to the lease conditions, including charging an additional premium and demanding the grantee to cease the breach. If the breach is not rectified, HKSTPC may initiate the re-entry procedure according to the lease agreement.

     HKSTPC has previously conducted investigations into some suspected cases of letting or subletting the premises to a third party. Individual grantees which were substantiated to be in breach of the terms and conditions of the lease have rectified the breach upon follow-up by HKSTPC. HKSTPC will continue to monitor the operation of data centres in the IEs and take follow-up actions according to the lease agreement as appropriate.

(3) Data centres are essential infrastructure to sustain continuous economic development and entrench Hong Kong's position as a trading and financial centre. Having regard to the unique requirements of data centres, the Government has implemented a number of facilitation measures to promote data centre development in Hong Kong, including:

(a) Providing land for data centre use — The Government has earmarked land in Tseung Kwan O outside the Industrial Estate for high-tier data centre development. The first one-hectare site was disposed of through public tender in October 2013. We are now working with relevant government departments to make available the second one-hectare site for public tender in 2016. In addition, HKSTPC has provided over 19 hectares of land in IEs for data centre development. The Tseung Kwan O Industrial Estate now accommodates a cluster of 11 high-tier data centres established by a number of multinational enterprises, which is the largest data centre cluster in the Asia Pacific region.

(b) Encouraging the use of industrial buildings and industrial lots for data centres — The Government has launched two incentive measures since June 2012 to encourage the conversion of eligible industrial buildings for data centre use and development of high-tier data centres in industrial lots. As at January 2015, we have received a total of 13 applications (11 for conversion and two for development). Ten conversion applications and one development application have already been approved.

(c) Implementing support measures to cater for the unique requirements of data centres — The Office of the Government Chief Information Officer (OGCIO) established a Data Centre Facilitation Unit (DCFU) in July 2011 and launched a thematic data centre portal to provide useful information to the data centre industry, e.g. land available for data centre use, power supply for data centres, ancillary measures on water cooling and energy efficiency, etc. DCFU also works with relevant government departments on measures to address the unique operational requirements of data centres, e.g. reducing the goods vehicle parking requirements, conversion of vacant parking spaces to transformer rooms where necessary, calculation of floor area for data halls with high headroom, etc.

(d) Providing one-stop support services — DCFU also provides one-stop support and advisory services to enterprises interested in setting up data centres in Hong Kong. Since its establishment, DCFU has handled over 350 enquiries from enterprises of various sizes within and outside Hong Kong.

     We review the effectiveness of existing policies and measures from time to time, and introduce continuous improvements in light of feedback from the data centre industry, so as to foster an environment conducive to the development of data centres. We have no plan to develop data centre park.

Ends/Wednesday, February 11, 2015
Issued at HKT 17:22