What is the ITB and what does it mean for business in Hong Kong?

In his 2016 Policy Address, the Chief Executive dedicated a chapter to innovation and technology in Hong Kong.  Clearly an area of focus and concern for his administration.

The Innovation and Technology Bureau (“ITB” or the “Bureau“) aims to develop Hong Kong into a knowledge-based economy and an innovation hub for technology and its application in the region.

What does that actually mean and how is this really going to be achieved?

What is the ITB?

The Bureau is a led by Nicholas Yang (pictured above), the Secretary for Innovation and Technology. It comprises an Innovation and Technology Branch and oversees the operation of the  Innovation and Technology Commission and the Office of the Government Chief Information Officer.

The ITB is responsible for government policy matters on the development of innovation and technology and information technology.  “We aim to create a vibrant ecosystem for the government, industry, academia and research sector to interact under a favourable environment with excellent software and hardware support for developing and applying innovation and technology.”  The ITB website claims that this is achieved by:

  • strengthening support for the innovation and technology sector;
  • facilitating development of the information and communications technology industry;
  • strengthening cooperation among stakeholders and create greater synergy;
  • encouraging private sector participation in R&D and commercialisation of R&D results;
  • coordinating inter-bureau policy efforts in R&D and technology matters;
  • strengthening collaboration with other economies to promote scientific and technology exchanges;
  • enhancing support for nurturing of innovation and technology talents; and
  • fostering development of innovation and technology to promote development of high-end manufacturing industry.

Big plans.  Big money.

The ITB is not just about ideas.  It has managed to garner the financial support of the government.

“We put big money where the mouth is, which illustrates the Government’s commitment and determination to develop innovation and technology in Hong Kong,”  says Yang.

HK$2B Innovation and Technology Venture Fund

HK$2 billion has been earmarked to set up an Innovation and Technology Venture Fund for co-investing in local innovation and technology start-ups with private venture capital funds on a matching basis. The ITB will make open invitations to private venture capital funds with the stated aim of encouraging “smart money” into Hong Kong, boosting investment in local innovation and technology start-ups.

We will partner with private venture capital funds with an investment ratio of 1:2 to co-invest in projects they identify. The “smart money” will also bring in the expertise and business network of the venture capital funds, which will help improve the start-up ecosystem in Hong Kong.

HK$2B Midstream Research Fund

HK$2 billion has been earmarked to set up a Midstream Research Fund to support University Grants Committee-funded universities to carry out midstream and translational theme-based research. The Innovation and Technology Commission will invite the Research Grants Council and experts in the field to participate in the assessment process.

HK$500M Innovation and Technology Fund for Better Living

HK$500 million has been set aside to establish an Innovation and Technology Fund for Better Living.  This fund will finance projects that make use of innovation and technology to improve daily life.  The fund will be open to applications from non-governmental organisations, public service organisations and private companies, all of which will need to submit investment proposals setting our how their venture will improve the daily live of people.  “As the fund will cover a wide range of areas, we will invite the related bureaux to assist in the vetting process as necessary” said Yang.

HK$200M Cyberport Macro Fund

HK$200 million has been allocated to launch the Cyberport Macro Fund for investment in the Cyberport’s information and communications technology start-ups. This fund will be managed directly by Cyberport.

HK$4B to Finance the Science Park

The ITB considers the Science Park to be Hong Kong’s flagship innovation and technology infrastructure facility.  The  ITB has agreed to inject and underwrite a total of about HK$4 billion to finance the expansion of the Science Park. To promote re-industrialisation, the Hong Kong Science and Technology Parks Corporation will also develop high-efficiency multi-storey buildings in industrial estates to support smart production.  The ITB has identified sites near Liantang/Heung Yuen Wai in the New Territories for developing the next phase of the Science Park as well as other industrial estates.

Double Free Wi-Fi

More free Wi-Fi!  With respect to digital development and other smart city initiatives, Yang says that the ITB “will progressively expand the coverage of free Wi-Fi services by doubling the number of hotspots within three years”.  These are hotspots under the Wi-Fi.HK brand.  The Government will also offer free Wi-Fi services at all youth service centres and study rooms, and work with schools to improve the quality of their Wi-Fi services in order to support e-learning.  “We will formulate a digital framework and standards suitable for development of smart city in Hong Kong. We will also formulate policies on big data application and continue to encourage public service bodies and commercial organisations to open up more data”, said Yang.

  • As at December 2015 over 3 000 Wi-Fi hotspots under GovWiFi brand installed at ~600 government premises;
  • 17 000 hotspots under the Wi-Fi.HK brand (in collaborated with industry). Users enjoy at least 30 minutes’ free Wi-Fi without prior registration;
  • Progressive expansion of the coverage of Wi-Fi.HK to 34 000 within three years;
  • Progressive doubling of Wi-Fi connection speeds.

Source: Letter from Yang to Jeffrey Lam

What are the objectives of the ITB?

Despite the big plans and big numbers, what is the ITB doing to promote innovation and technology in Hong Kong?  Yes, it provides startups with access to additional funds, but only if they are either (i) already raising money from a venture capital firm, (ii) are involved in mid-stream research at a university, (iii) are involved in designing technology and solutions for better living, or (iv) are seeking funding from the Cyberport.  Outside these 4 specific categories, there is no mechanism whereby the ITB can free up funds to invest in start-up businesses.  This is a problem.

In many ways it makes sense that the government would rely on private enterprise, the universities, the Science Park and the Cyberport to determine what is or is not a good investment – managing investment funds and picking winners is not something that government departments do or should be relied upon to do well. But why contribute public funds to a Venture Fund for businesses that are already able to raise money from the private sector?

What exactly is the government’s objective with the Innovation and Technology Venture Fund?  Is it to generate a return on investment by supporting businesses that have already obtained financing, or is it to support startup tech companies with promising ideas that otherwise can’t raise funds?

The ITB should be investing in companies that cannot otherwise raise money.  Small businesses are the job creation engine in the economy, but most of these companies struggle to find the financing they need to create those jobs.  What these companies, and the overall economy, need is another possible avenue for showcasing their businesses and for raising money.  Taxpayer-funded investment schemes should be designed to support businesses that can’t or don’t already have support from other sectors of the economy.

Not to be scoffed at.

Don’t get us wrong.  We’re big supporters of the programs on offer at Universities, the Science Park and Cyberport.  These programs include offering startups important non-monetary support such as subsidised rent, work spaces, common facilities, sponsorship, and support for marketing and business development.  The programs also provide capital investment at important stages in the life of a startup without needing to raise expensive money from venture capital funds.  This is more than most countries can boast and is something Hong Kong should be proud of.  It’s also something that can be expanded if there are more funds available.

Conclusion.

The ITB has big plans and has managed to garner support from the Chief Executive and his government.  This is good for small businesses in Hong Kong.  But our advice to Yang is to dispense with the Innovation and Technology Venture Fund.  Use that money to further bolster the ITBs objectives and the investment programs on offer at Universities, the Science Park and the Cyberport.  Let the private sector manage the private sector.  It doesn’t need government money supporting it’s investments, and likely doesn’t want it either.