An Economic Model for 21st Century Hong Kong

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An Economic Model for 21st Century Hong Kong
Speaker Mrs. Regina Ip Chairperson of Board of
Governors, Savantas Policy Institute
08/12/2006
Savantas Policy Institute
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Former Governor Pattens Predictions in 1992

• By 1997, our GDP per head will have reached US
  30,500, comparable to Italian and Dutch national
  income levels today, and within 12 percent of
  France
• The value of our total foreign trade will be US
  548 billions, equivalent to the total external
  trade of France today, and substantially more
  than that of Italy and the Netherlands

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Per capita GDP of selected economies
Source Government Economist K. C. Kwok
08/12/2006
Savantas Policy Institute
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Hong Kongs restructuring driven by

• Information technology driven global economy
• Rise of China as economic superpower

Current development of Pu Dong(??), Shanghai
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Todays economy is bit-driven

• Value added comes from new ways of organizing
  bits of information in formulas, software code,
  and images and less from the physical
  manipulation of materials to make tangible goods.

Peter B. Evans, UC Berkeley
08/12/2006
Savantas Policy Institute
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Characteristics of the Political Economy in the
Digital Era

• Knowledge, particularly theoretical knowledge, is
  essential to contemporary economy
• Distinctive form of organization emerging in the
  digital era the learning organization
• (distinct from traditional categories of craft,
  Taylorist, or lean production)

John Zysman, UC Berkeley
08/12/2006
Savantas Policy Institute
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Twin drivers of change global and digital

• Wintelism
• (Windows operating system and Intel processors)
• Cross national production networks (CNPNs)

John Zysman, UC Berkeley
08/12/2006
Savantas Policy Institute
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CNPNs foster the following changes

• Disintegration of the industrys value chain into
  constituent functions that can be contracted to
  independent producers
• Permit an increasingly fine division of labor
• Wintelism chip-based systems given
  functionality by software core skills shift
  from mechanical to electronic

John Zysman, UC Berkeley
08/12/2006
Savantas Policy Institute
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CNPNs Wintelism

• Commodification of production
• Modularization constituent elements of product
  become modules and production becomes modularized
  as the knowledge about the elements and
  connection becomes codifiable
• Value resides in intellectual property (IP) based
  monopolies or standards

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Chinas Economy Tomorrow

• Current per capita GDP US 1,730
• By 2025, Chinas aggregate GDP to exceed the then
  aggregate GDP of Japan
• By 2040, aggregate Chinese GDP may reach the same
  level as aggregate US GDP per capita GDP lags

Prof. Lawrence Lau, Vice-Chancellor, The Chinese
University of Hong Kong
08/12/2006
Savantas Policy Institute
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Guangdong restructures and upgrades

• Its economy during 10th 5-year Plan
• Trends toward heavy-industrialization,
  digitization and replacement of labor-intensive
  industries by capital-intensive industries
• In future, it moves away from heavy reliance on
  externally-owned IP assets, entailing heavy
  expenditure on royalties on proprietary
  technologies, components and brands
• Accelerate upgrading of economy, i.e. increase
  value-creation

Prof. Feng Bangyen of Jinan University
08/12/2006
Savantas Policy Institute
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Guangdongs New Economic Model Under 11th 5-year
Framework

• Change existing growth model
• Enhance autonomous innovation capability
• Move toward internationalization and innovation
  of organizational structure
• Foster balanced urban and rural development
• Build green Guangdong
• Promote harmonious social construction

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Impact on Hong Kong

• Accelerating infrastructural development (ports
  and airports) in the mainland affects Hong Kongs
  position as a transport and shipping hub
• Migration of low value-added, labor-intensive,
  environmentally polluting industries puts strains
  on demand for Hong Kongs trade-related and
  logistics services

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The Value Hierarchy (B.M.)
Intellectual Property (IP)
Applications (Mkt. Standards)
50
System Integration (Archit., )
40
Values/Profit Margins
Engineering (Design, ODM,..)
30
Outsourcing Trend
Manufacturing (Process, OEM)
Consumer recognition
Core competency
Source Savantas Policy Institute
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Prerequisites for Hong Kongs Continuous Robust
Development in 21st Century

• Reposition itself in global value-creation chain
• Reposition itself in Chinas development
  generally and that of Guangdong specifically

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To compete successfully in digital, global
economy, Hong Kong must

• identify new, clear strategies for creating value
• distinguish between strategies for creating
  products, commodities, and differentiated assets
  (which create the basis for premium price,
  distinctive sales advantage, or cost advantage in
  production or distribution)

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Creation of Differentiated Assets hinges on

• Branding and design
• Experiments in new business strategies (branding,
  design, versioning, production
  re-organization and knowledge management)
• Digital approaches to segmenting the market and
  then attacking specific segments with
  functionally varied, and for the most part
  distinctively branded products
• Digitally rooted online sales and marketing and
  supply chain management

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Government actions required

• Provision of talented, trained, educated, skilled
  people and centers of technology development and
  diffusion
• Provision of necessary infrastructure
• (both physical and digital) that connects Hong
  Kong to Mainland Chinas and world markets
• Reconfiguration of packages of social protections
  to support experimentation and adjustment

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Thank you very much !
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Question Answersession
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