Speeches and Presentations

SCED's speech at business luncheon on "Gold Rush in Asia: Quest for the 'Invisible Gold'" in Silicon Valley

Following is the speech by the Secretary for Commerce and Economic Development, Mr Gregory So, at the business luncheon on "Gold Rush in Asia: Quest for the 'Invisible Gold'" in Silicon Valley, the United States (US), on June 13 (San Francisco time):

Distinguished guests, ladies and gentlemen:

I am delighted to be here in Silicon Valley. It is great to see so many people here today. Thank you for your keen interest in Hong Kong. A couple of days before I left Hong Kong to come here, my bureau, through one of our departments, Invest Hong Kong, hosted a reception to launch our new platform Start Me Up, which aims to attract global entrepreneurial talents and help innovative ventures develop their global businesses through Hong Kong.

I was met with an overwhelming response from a great number of young start-ups in Hong Kong, many of whom migrated from here just recently. They are happy to find their new home in Hong Kong, which is a great city to live, enjoy and thrive in as entrepreneurs.

In the next few minutes I will tell you why this is the case. More importantly, I will convince you that Hong Kong is an indispensable springboard for US businesses to reach out to the huge Asia-Pacific market, in particular that of Mainland China.

First, US entrepreneurs choose Hong Kong because they know how the system works, and they know how to work the system. It is a system familiar to the US, a system based on a free flow of capital, goods and services. A system that is open to new ideas and an unfettered exchange of information. It is a system based on international standards and a level playing field for all, where local companies, Mainland enterprises and foreign firms compete side by side.

Secondly, Hong Kong is a premium showcase for American firms to promote their high-quality goods and services in our part of the world. We are the trend-setter and have a prime location in East Asia and strong connectivity with the rest of our region. We also welcome tens of millions of visitors to our city each year. Last year alone, 48 million people visited Hong Kong, of whom about 35 million were from the Mainland of China. Many come to shop for the latest brands and fashions from the US and other Western markets. In other words, a ticket to Hong Kong is also a ticket to the vast China market for the "Made in USA" label.

Thirdly, we have a great working model. Since Hong Kong's return to China in 1997, we have been able to preserve and enhance our unique corner of the country under the principle of "One Country, Two Systems", under which we continue to maintain our own currency. The Hong Kong Dollar is fully convertible and has been linked to the US Dollar since 1983. We have no restrictions on the flow of capital. We also maintain our own tried and trusted common law system with an independent judiciary. And we have our own low and simple tax regime.

Fourthly, in terms of financial connectivity, Hong Kong ranks alongside London and New York as a leading hub for finance. Importantly for us, we are also designated by the Central People's Government in Beijing as China's global financial hub.

So we have a very high stake in, and a huge commitment to, promoting international financial stability and, at the same time, leading the smooth process of financial liberalisation in the Mainland of China, the second largest economy in the world after the US.

With a transparent regulatory regime, free capital flows, the rule of law and international connections, Hong Kong is a testing ground for the internationalisation of the Mainland currency, the Renminbi.

What's more, we know that up-and-coming tech guys like you have been following the world trend and know that you cannot afford not to pay more attention to Asia, the fastest growing region of the globe. You may already know these data, but let me just highlight a few points on the intellectual property (IP) landscape.

Over the last two decades, IP use has intensified. According to the World Intellectual Property Organization, annual global demand for patents has risen from 800,000 applications in the early 1980s to 2.14 million in 2011, with the subsequent filings abroad one of the key drivers of growth. Trademark applications worldwide jumped from about 1 million a year in the mid-1980s to 4.2 million in 2011.

Another trend is the changing geographic balance of demand for IP rights. In a span of 15 years, the share of global patent applications from the United States, Europe and Japan together dropped from 77 per cent to 59 per cent. At the same time, China's share alone has grown from just 1.8 per cent to 17 per cent. Also, China's share of trademark applications worldwide has risen from less than 10 per cent to over 25 per cent, at the expense of advanced economies. China's State Intellectual Property Office overtook the United States Patent and Trademark Office in 2011 to become the largest patent office in the world.

A third key observation is the increased tradability of IP across borders. Take, for example, international royalty and licensing fees. In nominal terms receipts increased from US$2.8 billion in 1970 to some US$229 billion in 2011. Many new market intermediaries are emerging, such as IP brokerages, auctions, clearinghouses and exchanges. They use new ICT (information and communications technologies) and business models to match IP buyers and sellers and to monetise IP rights. Knowledge is for sale, innovative sale.

With innovation firmly in the driver's seat of economic development, these trends in the IP landscape are likely to continue, translating into huge business opportunities for first movers who have the foresight to overcome challenges in the nascent knowledge markets.

Following their Western counterparts, Chinese firms are increasingly seeing IP as a core business asset that should be built, managed, valued and leveraged strategically to drive innovation and growth. They have a great appetite for IP obtained from indigenous research and development efforts as well as acquisitions from abroad. The combined retail market size of IP creation, trading and exploitation in the Mainland of China was US$2.85 trillion in 2011. The Chinese IP market offers enormous market potential for IP trading, both in terms of quantity and quality.

All this makes the IP trading market in Mainland China a rich source of "Invisible Gold" waiting to be unearthed in a reliable, trustworthy and fair manner.

OK, you probably already knew what I have just told you, but you may be still a little concerned. For a starter, you are unfamiliar with China, plus you are concerned that you may not be able to:

* Gain a full understanding of the new market and all its offerings;
* Find the right business partner to exploit the IP you bring over;
* Get the best possible terms in a place with very different history, culture and business protocol;
* Shop for ancillary services that would support your business venture;
* Protect your IP from competitors and free riders;
* Enforce your rights in case of troubles; and
* Work with a supportive government and public sector.

Here is where Hong Kong comes in. This is also why so many of your friends have moved to Hong Kong.

Remember that in the beginning of this talk I explained to you how "One Country, Two Systems" works. Hong Kong is part of China. Yet Hong Kong is at the same time operating within a supportive environment that is familiar and similar to yours. I need not repeat what I have said earlier in this talk.

Hong Kong has long played an indispensable, strategic role as a premier gateway to Mainland China. Market forces have already set a rapid pace for IP trading activities in Hong Kong. As a regional platform for technology transfer, Hong Kong exported US$1.1 billion worth of technology to Mainland China in 2010, the sixth highest in the world. And our role will only exponentially expand in the future.

We have a deep and broad pool of bilingual and experienced professionals who provide a comprehensive range of IP services and are adept at meeting changing market demands. We have put in place a robust IP regime to protect the fruits of creativity and innovation, in full compliance with the requirements of international IP treaties.

We are a global financial hub in the Asian time zone. We also have our own common law legal system which is underpinned by an independent judiciary. We have a free media, uncensored Internet and open borders, and our minds are open to new ideas.

This, together with decades of experience and knowledge of the Mainland China markets, makes Hong Kong a new frontier in the evolving IP landscape.

Allow me to highlight four areas where Hong Kong's unique characteristics can facilitate IP trade within our region:

1. First, an IP middleman: As a metropolis and an international business and financial centre with the Mainland as its hinterland, Hong Kong has unparalleled experience in connecting overseas buyers and sellers to partners in China and across Asia.

2. Second, a sourcing platform: Hong Kong stages a number of international trade shows every year and many of them involve IP trade. These shows provide a platform for business matching and trading in the IP industry.

3. Third, an intermediary service provider: Hong Kong supplies one-stop service in IP trading. We have traditional market intermediaries such as agents of patents and trademarks, lawyers and accountants. We also have new collaborative mechanisms and IP intermediaries that can provide services ranging from IP management, trading mechanisms and portfolio building to IP licensing, financing, valuation and arbitration.

4. Fourth, an IP modifier or customiser: Hong Kong serves an important role facilitating the import of overseas IP to the Chinese Mainland. Via Hong Kong IP can be modified and customised to suit special needs of Chinese Mainland buyers.

All this backup support is available to anyone, whether they are individuals, small firms or multinationals, who has a great idea to bring to the China and Asian markets.

Ladies and gentlemen, I have outlined some of the ways that Hong Kong is working to fine-tune its position as the shortest and most effective route for business, finance, ideas and innovation between the US and Asia, including the Mainland of China.

We are building an ecosystem where overseas and local entrepreneurs can meet, discover synergies and access markets, capital and talents together.

Hong Kong has all the ingredients for entrepreneurs like you to turn innovative ideas into commercialisation of new products and services for the local, Mainland and global markets, and to become a leading innovation and entrepreneur hub.

Thank you for this opportunity to meet you all here in Silicon Valley and I hope that you will come to visit us in Hong Kong soon. You really cannot afford not to.

Friday, June 14, 2013