It has been a while since I wrote my last blog. As I get busy with my bread-and-butter work during the year, non-imminent work such as writing was unfortunately sidelined. But at the back of my mind, there’s been an ongoing contemplation regarding a particular subject. As Hong Kong’s capital and real estate markets enter a significant downturn this year, it begs the question — is this time different? Is it just a cyclical downturn, or is there something more permanent that makes the current downturn more profound than the cycles of the past?
I have talked to several friends about this and they seem to agree that this is not “just another cycle”. As Hong Kong grapples with geopolitical tensions, economic headwinds, and a shifting global landscape, the need for another transformative leap seems imminent. Much like the city’s historical shifts from a manufacturing powerhouse to an international financial center, the winds of change once again beckon Hong Kong to reinvent itself, this time into a science and technology hub.
In the ever-evolving narrative of Hong Kong’s success stories, it has never stopped reinventing itself in the past. The call to become a technology hub resonates not only as a response to current challenges but as a poignant continuation of the city’s legacy of adaptability and resilience.
The Historical Evolution of Hong Kong
Let’s embark on a brief journey through Hong Kong’s economic progress since the post-war era. In the 1950–60s, Hong Kong emerged as a bustling manufacturing hub. Thanks to an influx of Chinese immigrants who brought in fresh capital and manufacturing know-how, Hong Kong became a manufacturing powerhouse, specializing in textiles, electronics, and other light industries. Its business-friendly environment and efficient port infrastructure further fueled the industrial boom.
As time goes by, Hong Kong faced intensifying competition from other Asian economies with lower labor costs. Additionally, the city encountered challenges related to limited space for industrial expansion and environmental concerns. The 1980s marked a turning point as manufacturing activities began shifting to Mainland China, where ample land availability and lower production costs attracted businesses large and small. This transition marked the rapid decline of Hong Kong as a manufacturing hub.
Meanwhile, Hong Kong emerged as a global trading and shipping powerhouse in the 1970s and 80s. A confluence of strategic advantages, including a natural deep-water harbor, a central geographic location in East Asia, and efficient infrastructure, made Hong Kong an ideal maritime gateway for international trade. The city became a focal point for global trade, offering a gateway to China as an intersection between East and West.
However, as regional economies developed and direct trade access to China expanded, Hong Kong faced growing competition from neighboring ports. While the city continued to be a significant trading hub, the rise of other regional ports and the evolution of China’s own ports altered the dynamics. Nevertheless, Hong Kong continued to navigate the changing landscape, and leveraged its strategic advantages to re-position itself as an international financial center.
International Financial Center
As the world entered the 1990s, Hong Kong underwent another pivotal shift, solidifying its status as an international financial center. Boasting a business-friendly environment, free markets and a robust regulatory framework, the city attracted a myriad of financial institutions, becoming one of the nerve centers for global finance. The iconic skyline you see across the Victoria Harbor proudly shows off the regional headquarters of HSBC, Bank of China, AIA, JP Morgan, and other well-known financial giants.
The city became a major hub for offshore US dollar transactions in Asia, facilitating banking and investment activities on a global scale. The city’s strategic location in the Asia-Pacific region, coupled with its robust financial ecosystem and a stable currency, made it an international financial center. Coinciding with China’s stellar economic growth in the 2000s, Hong Kong also became the world’s top IPO and listing center, as well as Asia’s premier asset management center.
Concurrently, the post-war era witnessed the ascension of Hong Kong’s real estate sector as a central economic driver. Driven by an escalating population and robust economic growth, developers raced to meet the insatiable appetite for residential and commercial spaces. While there were notable ups and downs, for example the painful deflationary period from 1997 to 2003, Hong Kong’s real estate market has shown remarkable resilience and property values have generally maintained a robust upward trend.
However, the winds of change are blowing once again as Hong Kong faces new challenges unlike those from before.
The Need for Tech Transformation
In the bustling landscape of Hong Kong’s economy, two significant headwinds are looming over the horizon. The first, a geopolitical tug-of-war between China and the US, is affecting how the West sees the city. As tensions persist, Hong Kong finds itself caught in the crossfire, grappling with the repercussions of geopolitics and the ebb and flow of international investments.
The second headwind is China’s underwhelming economic recovery post-Covid, together with a painful unraveling of its real estate sector. The ripple effects are felt keenly in Hong Kong, a city which economic success is intertwined with the rise of China.
Undoubtedly, Hong Kong’s economy is navigating choppy waters. As China is also navigating its own structural transition into high quality growth, Hong Kong’s erstwhile model as a conduit of foreign capital into China’s economic old guards such as the real estate sector is now in question.
The above economic headwinds are not just passing storms but structural challenges demanding a strategic recalibration. Finance and real estate are still important, but Hong Kong can no longer purely rely on these traditional modes of economic development. The city recognizes the imperative to break free from this reliance and diversify its economic portfolio to withstand the persisting geopolitical tensions and navigate China’s evolving economic landscape. A new economic transformation is needed.
The call to pivot towards becoming a technology hub is gaining resonance in Hong Kong. This shift signifies a departure from the established norms, urging the city to harness its potential in tech and innovation, which will not only help the city weather current challenges but also carve a sustainable economic future.
In my view, the magnitude of this transformation is no less significant than Hong Kong’s historical shifts from a manufacturing hub to a trading juggernaut and eventually an international financial center. Just as the city showcased resilience and adaptability in the face of changing global dynamics in the past, the current call for transformation signals a new chapter in Hong Kong’s economic evolution. Embracing this change is not just a response to external pressures but an assertion of Hong Kong’s ability to reinvent itself and carve out a vibrant future amidst the complexities of the 21st-century economic landscape.
Hong Kong’s Future as a Technology Hub
I believe that Hong Kong can re-position itself as a technology hub of Asia, serving as a critical nexus between global/Western technologies and the booming innovation landscape in China. With its many qualities, Hong Kong has the potential to become an attractive destination for both established tech giants and ambitious startups.
To make this happen, the city will need an agglomeration of 1) tech talents and 2) capital directed to the sector, as well as 3) a technology transfer, which I will explain below.
Talents: Hong Kong is known to have a deep bench of financial talents, but how about tech? Probably not yet, but it has the potential to. Its former role as a crypto capital of the world attests to its potential to attract enough global talents to become a force of its own. With the right policies and strong attractions in place to bring in talents, there is no reason it cannot become an Asian hub for tech talents in web3, biotech, fintech, software, and others. Last time I checked, Hong Kong’s latest Top Talent Pass Scheme has already attracted 100,000 new talents into Hong Kong, although not all are tech-related.
Capital: In the past, Hong Kong’s tech capital was no more than hot money chasing rich Chinese tech stocks, which were unfortunately humbled by a shift in global capital flow and the reckoning of certain technological shortcomings. Nevertheless, over the past two decades, Hong Kong’s Government has done a lot to nurture the homegrown tech sector via supportive policies and various incubation/acceleration programs including HKSTP and Cyberport, with decent achievements to show. Notwithstanding, conducive market forces such as a strong homegrown VC ecosystem and a tech-friendly domestic capital base are still nascent, and I certainly hope everyone in the ecosystem can help grow the pie together.
Technology transfer: This point warrants some explanation. As complex and intricate as today’s technologies, no city or nation can develop advanced technology from scratch. There must be somewhere to start. For example, the former Soviet Union boosted its technology level partly through US assistance during WW2, as well as obtaining some of Nazi Germany’s advanced technologies such as the V-2 rocket (note: so did the US). In turn, the technology transfer from the Soviet Union into China during the 1950s and early 1960s had laid the foundation of New China’s science and technology. There is no difference for Hong Kong. To become a tech hub, some form of tech transfer (on top of what it already has) will be very helpful.
Chinese tech companies are now recognizing the strategic advantages of setting up bases in Hong Kong. The city’s unique position as a bridge between China and the global market provides these companies with a platform to expand their international presence. Tech names like CATL, ByteDance and an electric car company have entered Hong Kong’s tech scene as these company set up regional offices in Hong Kong (even Astra Zeneca has joined the party). As these enterprises bring tech talents into the city, so will their technologies and know-how.
Conclusions
The story of Hong Kong’s post-war economic evolution is one of resilience, adaptability, and strategic foresight. Each phase has left an indelible mark on the city’s identity. Its latest call to pivot towards becoming a technology hub resonates with its past transformations, signifying not just a response to external pressures but an affirmation of Hong Kong’s capacity to reinvent itself.
Hong Kong’s aspiration to become a technology hub is also a strategic move to re-position itself as a key player in the increasingly complex technological landscape. The city’s many qualities provide a lot of potential for nurturing tech talents and fostering innovation. What it needs to do now is to remain committed and double down — double down on talents, capital, and the will to reinvent itself.
I have barely scratched the surface of this big topic. But the earlier we collectively recognize that this is the way to go for Hong Kong, the earlier the city can overcome the current challenges and achieve greater heights.
