Reindustrialization needs a supportive ecosystem

Michael Heng warns that sky-high costs will keep entrepreneurs away from Hong Kong; they must have their own space to thrive

Reindustrialization of Hong Kong appeals to many who prefer to work with their hands and walk around rather than be glued to a chair and desk. One huge hurdle standing in the way of realizing this attractive idea is the exorbitant rent on office space here. Moreover, as a result of the high cost of housing, most people live in matchbox homes. There is no garage startup when a garage costs HK$1 million upwards. Apple Computer would not have happened under the existing conditions.

The government has in the past tried to create technology centers. The Cyberport on Hong Kong Island and Science Park near Sha Tin were supposed to help local startup companies with subsidized office space and to transform the city into a technology hub. As it turned out,big companies ended up occupying the space. And they used the cheap office premises for low-value business activities such as storage and back-office work. At the same time, promising and genuine small startup entrepreneurs just cannot afford the time and lack the special skills to deal with the proverbial red tape. The hardworking civil servants in charge were obviously ill-equipped to maximize the space's utilization as originally envisioned. This is a classic case of unintended consequence of social actions - how an inspired program conceived at the top has the tendency to become pretty distorted in the process of implementation.

However, there is light at the end of the tunnel. In the past two years, following feedback on how under-utilized these technology centers had become, the Hong Kong government now requires research and development work as a pre-condition in application for these premises.

Another hurdle is restrictive regulations. Perhaps a small example can help illustrate the nature of the problem. In Singapore, you can see people riding all sorts of electric bikes, skate boards, etc. But you will not see this in Hong Kong because you need to apply for license for electric vehicles such as electric bikes. The regulations here are restrictive, even if you just want to ride them in a park. So, if you want to develop small electric bikes, you are discouraged by the very restrictive use of your end-product.

The key challenge is to provide an ecosystem that leverages the competitive advantages of Hong Kong such as its ready pool of talent, research universities, proximity to the Pearl River Delta region, innovative culture, risk-taking habits and can-do spirit while taking into consideration its dense population and the high cost of office space. Such an ecosystem cannot be designed top-down, least of all by bureaucrats who do not have hands-on commercial experiences in establishing entrepreneurial startups. Such experiences are much more pertinent than doctoral degrees from world-class business schools or professorships. Let us not forget that Bill Gates and Steve Jobs were not products of business schools.

As has been noted elsewhere, Hong Kong has its fair share of talents. But just as happens on Wall Street, some talents have been vacuumed up by the financial sector to design products that serve only to increase the profit margins of banks but do not add value to the real economy, let alone to society at large. What should we make of financial innovations which are designed to milk their customers? This is perversion of liberal economic practice. It is creativity of a destructive kind.

Another example of destructive creativity is exhibited in the property market. Here is an example. Developers want to create a rising market for new properties but also to corner the market by keeping out secondary units. So they came up with a clever plan. They build 200-square-foot micro flats so people can just afford them, jack up the price per square foot for new properties by 30 percent, then give a 30 percent discount plus financing package. New flats are now selling like hot cakes even though the price per square foot is so high. But it is difficult to sell in the secondary market because micro-flat owners cannot provide finance for the buyers.

Apart from a few award-winning innovations done at universities, it is quite clear that Hong Kong has so far failed to cultivate, nurture or grow the kind of ecosystem that is conducive to reindustrialization. A broad, inspiring vision is necessary but not good enough. As the cliche goes, the devil is in the details.

It is incumbent on the government, business community, universities and public-minded Hong Kong people with the right set of skills to take up the challenge. They would do well to take a long-term view to design the ecosystem needed for reindustrialization. It will be a difficult journey of continued learning, of trial and error. But the fruits of their labor would be immense.