Major Speeches, Presentations and Press Releases

LCQ17: Measures to enhance competitiveness of Hong Kong

     Following is a question by the Hon Jimmy Ng and a written reply by the Secretary for Commerce and Economic Development, Mr Gregory So, in the Legislative Council today (June 28):


     According to the World Competitiveness Yearbook 2017 (Yearbook) recently published by the International Institute for Management Development in Lausanne, Switzerland, Hong Kong is ranked the world's most competitive economy for the second consecutive year. However, Hong Kong's ranking in "Economic Performance", one of the four competitiveness factors, has fallen from the fifth place of last year to the 11th of this year, while in one of the sub-factors (i.e. Prices), Hong Kong is even ranked the second last among 63 economies. On the other hand, the World Digital Competitiveness Ranking 2017 published by the same organisation shows that Hong Kong's digital competitiveness is ranked the seventh in the world, which is far lower than Singapore's first ranking, while Hong Kong is even ranked the 24th and the 18th in the two sub-factors of "Scientific Infrastructure" and "Technological Infrastructure" respectively. In addition, a recent survey shows that in respect of the cost of living for expatriate employees, Hong Kong is the highest in the Asia-Pacific region and the second highest among cities around the globe. In this connection, will the Government inform this Council:

(1) as the Yearbook has pointed out that the rents of apartments and offices in Hong Kong are respectively 1.86 times and 1.97 times higher than the average levels, and Hong Kong's cost-of-living index is also 64.1 per cent higher than the average level, whether the authorities will introduce measures to lower the cost of living in Hong Kong (e.g. increasing the supply of apartments and offices); if so, of the details; if not, the reasons for that;

(2) whether Invest Hong Kong received any views relayed by foreign-funded enterprises in the past three years about the high cost of living in Hong Kong for expatriate employees; if so, whether it knows if such enterprises reduced the scale of their investments in Hong Kong as a result; if the enterprises did, of the number and details of such cases;

(3) of the long-term measures put in place to enhance Hong Kong's digital competitiveness, especially in respect of scientific infrastructure and technological infrastructure; whether such measures include (i) further promoting the tripartite co-operation among industries, scientific research institutions and tertiary institutions, and (ii) progressively increasing the percentage of the overall expenditure on scientific research in the gross domestic product of Hong Kong from the current 0.76 per cent to the level of 2 per cent so as to be on a par with Singapore; if so, of the details; if not, the reasons for that; and

(4) whether the tax policy unit which the Financial Services and the Treasury Bureau is preparing to set up will, in collaboration with the newly established Committee on Innovation, Technology and Re-industrialisation, review sections 39E and 16EC of the Inland Revenue Ordinance (Cap. 112) to enable manufacturers to be entitled to tax allowances in respect of machinery, equipment and intellectual property products used in their production procedures located outside Hong Kong, thereby encouraging manufacturers to use products of scientific researches and enhancing the competitiveness of Hong Kong's industries; if so, of the details, if not, the reasons for that?



     Having consulted the Economic Analysis and Business Facilitation Unit, Development Bureau, Financial Services and the Treasury Bureau and Innovation and Technology Bureau, my reply is as follows:

     The Government attaches great importance to enhancing Hong Kong's competitiveness, in order to adapt to the world's ever-changing economic environment and secure the healthy development of Hong Kong's economy in the long term.

     The global economy slowed further in 2016, inevitably affecting the economic performance in Hong Kong. The external environment was particularly austere in the first quarter, and the slowdown of inbound tourism also put an additional drag. Yet, with the global economy gradually improving and inbound tourism stabilising over the course of the year, Hong Kong's economic growth picked up successively in tandem, from 1.0 per cent year-on-year in the first quarter of 2016 to 3.2 per cent in the fourth quarter. Nevertheless, our Gross Domestic Product (GDP) expanded by 2.0 per cent in real terms in 2016 as a whole, still somewhat lower than the 2.4 per cent growth in 2015. This affected our ranking in "Economic performance" in the World Competitiveness Yearbook 2017 (Yearbook), down from 5th to 11th. It should be noted that as the global economic conditions continued to strengthen this year, our growth picked up further to 4.3 per cent in the first quarter of 2017, the fastest year-on-year growth in the last six years. Barring unfavourable shocks from the external side, the Hong Kong economy should fare better this year than last year.

     Amongst all the factors and sub-factors assessed in the Yearbook, we noted that Hong Kong only ranked 62nd in the "Prices" sub-factor. The low ranking of Hong Kong in this sub-factor is mainly due to our low score in "Office rent", while "Apartment rent" is only used as background information and is not included as one of the assessment indicators in the Yearbook. For the indicator on "Cost-of-living Index", the Yearbook used the expenses of expatriate employees as the reference for assessment, which cannot represent the actual situation for the Hong Kong community as a whole. In fact, Hong Kong's underlying consumer price inflation has receded successively in the past five years, from 5.3 per cent in 2011 to 2.3 per cent in 2016. Consumer price inflation remained rather modest in the first five months of 2017, with the underlying rate averaging 1.6 per cent.

     My reply to the four parts of the question is as follows:

(1) The Government will continue to increase land supply and build up a land reserve under the multi-pronged approach, so as to meet the housing, economic and social development needs of Hong Kong.

     On increasing housing land supply in the short to medium term, by way of changing existing land uses and increasing development intensity, which involve some 210 housing sites identified through land use reviews, Kai Tak Development Area, Diamond Hill Comprehensive Development Area, reuse of three quarry sites, railway property developments, urban renewal projects, etc., a total of over 380 000 residential units can be provided. In fact, the projected supply from the first-hand private residential property market for the coming three to four years is approximately 96 000 units, while the estimated public housing production for the five-year period from 2016-17 to 2020-21 is 94 600 units. In the medium to long term, various New Development Areas (NDAs) and new town extensions (including Kwu Tung North (KTN) and Fanling North (FLN) NDAs, Tung Chung New Town Extension (TCNTE), Hung Shui Kiu (HSK) NDA and Yuen Long South (YLS) Development), as well as potential railway property development projects being planned (including Siu Ho Wan Depot and Pat Heung Depot), can provide over 220 000 residential units.

     In addition, the continued supply of economic land is essential to facilitate the development of different economic activities and maintain Hong Kong's competitiveness. Initiatives include relocating some Government offices away from the core business district (CBD), converting suitable "Government, Institution or Community" sites and Government properties into commercial uses, and continue to forge ahead with the development of Kowloon East into another CBD and the development of the Kai Tak Development Area, etc., with a view to providing land and supporting hardware for economic uses in a sustainable manner. For the five-year period from 2012-13 to 2016-17, the commercial, business and industrial sites sold by the Government had a capacity to provide over one million square metres of floor area. Large commercial sites expected to be available for disposal in the coming few years are capable of providing over 1.1 million square metres of floor area. In the medium to long term, it is estimated that NDAs and new town extensions such as KTN, FLN and HSK NDAs, YLS Development and TCNTE will provide over 8.6 million square metres of industrial and commercial floor area. In support of the development of "bridgehead economy", the Government is conducting studies on the Boundary Crossing Facilities Island of Hong Kong-Zhuhai-Macao Bridge, including the topside development, for uses such as retail, catering, hotel, office and logistics.

(2) In choosing a location to set up business, investors will take into account a host of factors, such as business environment and opportunities, tax system and tax rate, free flow of information, rule of law and judiciary independence, operating costs and cost of living, etc.

     Some foreign-funded enterprises have indicated that the cost of living in Hong Kong is on the high side. However, in the past three years, Invest Hong Kong has not come across any cases of foreign-funded enterprises reducing their scale of investment in Hong Kong due to high living costs for their expatriate employees in Hong Kong.

(3) To raise Hong Kong's competitiveness, the Government is determined to developing innovation and technology (I&T), investing over $18 billion to formulate a series of measures. These include increasing basic infrastructure for research and development (R&D), funding universities in conducting midstream research and commercialising R&D results, promoting "re-industrialisation", subsidising the industry's adoption of technology to upgrade and transform, supporting start-up developments and nurturing R&D talents, etc.

     Regarding R&D, the Innovation and Technology Fund finances projects that contribute to I&T upgrading and development in manufacturing and services industries in Hong Kong. As at end-March 2017, the Fund supported over 3 100 R&D projects, involving about $9 billion. The Midstream Research Programme for Universities launched last December encourages universities to collaborate with leading research institutions worldwide to conduct more midstream research in focused technology areas, so that more research outcomes could be made available for further downstream research work or product development.

     In addition, the Technology Start-up Support Scheme for Universities supports university teams to establish technology start-ups and facilitates the commercialisation of R&D outcomes. The five R&D centres of the Government drive and co-ordinate applied R&D in selected focus areas. The R&D centres also work closely with the industry, with a view to encouraging investment in R&D, promoting applied research, as well as driving the commercialisation of R&D results.

     The Government is committed to promoting "re-industrialisation", developing high-end manufacturing industries that are based on new technologies and smart production but do not require too much land, with a view to identifying a new area of economic growth for Hong Kong and creating more quality and diversified employment opportunities. In this connection, the Government has adjusted the industrial estate policy to attract high value-added technology industries and manufacturing processes. The Hong Kong Science and Technology Parks Corporation is building a Data Technology Hub and an Advanced Manufacturing Centre in the Tseung Kwan O Industrial Estate, which are expected to be completed by 2020 and 2021-22 respectively. In addition, we will develop the "Hong Kong-Shenzhen Innovation and Technology Park" in the Lok Ma Chau Loop, setting up a base for scientific research involving top-tier enterprises, research institutions and higher education institutions, which can connect upstream and midstream research to downstream market, further enhancing the collaboration among the industry, academic and research sectors. The key base for scientific research in the Park, coupled with the industrial strength of Shenzhen, will help promote commercialisation and industrialisation of R&D results.

     The Government has adopted the nine key performance indicators put forward by the Advisory Committee on Innovation and Technology in its Report of the Advisory Committee on Innovation and Technology, including increasing Hong Kong's Gross Domestic Expenditure on R&D as a percentage of the GDP from 0.76 per cent in 2015 to 1 per cent (i.e. around $30 billion), reversing the ratio of public and private sector expenditure on R&D from 56:44 to 45:55, and reversing the declining trend of the manufacturing sector as a percentage of GDP by 2020. We will continue to work with all stakeholders in promoting local I&T development.

(4) The Committee on Innovation, Technology and Re-industrialisation, led by the Financial Secretary, co-ordinates I&T development and re-industrialisation in Hong Kong through a higher-level and inter-bureau approach. The Committee will advise the Government on matters relating to the promotion of I&T development and re-industrialisation in Hong Kong, and will put forward appropriate development strategies and work priorities to enhance co-operation and co-ordination among stakeholders. The Innovation and Technology Bureau will work with the Tax Policy Unit on the overall promotion of local R&D.

     In studying tax proposals suggested by different stakeholders, the Government has to carefully consider important factors such as whether the proposals are consistent with the fundamental taxation principles of our prevailing tax regime, including "territorial source" and "tax symmetry", and whether the proposals would easily give rise to tax avoidance loopholes.

Ends/Wednesday, June 28, 2017
Issued at HKT 14:38