Generation 40s – 四十世代

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Hong Kong needs to throw more caution to the wind when it comes to backing start-ups

The biggest problem is an acute shortage of angel investors and seed money available, even before any venture capital money becomes involved – we need to take unconventional risks to succeed

The Hong Kong government is trying to transform the economy from its traditional to a new innovative economy, but doesn’t realise that creative failure rather than cautious success will lead the way.

Last week, Hong Kong launched its HK$2 billion (US$256 million) Innovation and Technology Venture Fund (IVTF) to encourage investment in local innovation and technology start-ups in an effort to improve economic activity.

The government is inviting venture capital funds to apply to become co-investment partners of the new fund, said Nicholas Yang Wei-hsiung, the Secretary for Innovation and Technology. The government will only make investments alongside VC funds.

The government is risk averse even though it needs to take more risks to build Hong Kong’s new economy. It does not want to directly and autonomously choose which investments to make because historically, civil servants do not want to take responsibility for losses.

Yet successful venture-capital investing requires the ability to accept and learn from losses. So the IVTF is depending on venture capitalists to do the due diligence and cover the bureaucrats’ collective reputations.

Matching funds are the easy way out for the government because this assumes that venture capitalists in Hong Kong are actually effectively serving the unique needs and problems of the city’s start-up ecosystem. Instead, the government needs to take on the most difficult part of kick-starting a new economy – tech or otherwise.

The biggest problem in funding start-ups in Hong Kong is that there is an acute shortage of angel investors and seed money available before venture money.

VCs prefer to invest minimum amounts of about US$3 million and more. Then, there is so much private equity available globally that private companies like Uber can be valued at US$60 billion and still be funded by private money. VC has grown so big that you can’t tell the difference from private equity.

And that tends to crowd out investment at the smaller, seed levels. As high net worth investors would prefer to make bigger investments in bigger, non-listed companies.

But, the problem in Hong Kong’s funding channel is that many start-ups are looking for less than a million US dollars, more like US$500,000 to roll out their product after a few years of development, or angel money of US$100,000 to begin a business.

Start-ups can attract investments of US$3 million and up if they demonstrate revenue or profits, or have completed a desirable technology. But Hong Kong’s relatively new world of new-economy start-ups require more support at an earlier stage. And only the government has the resources.

Hong Kong entrepreneurs have less experience in developing start-ups and even fewer have the initial capital. Even the GoGoVan founders had to desperately scrape together HK$20,000 each seven years ago. Lack of capital and experience are major problems in Hong Kong.

Incubators in Hong Kong tend to rent or give out shared office space; some may render business advice, but few are capable of actually funding start-ups.

Start-ups and their founders also tend to require lots of attention from their investors. Business plans rarely go according to plan. And turnaround strategies rarely turn around, since so much guidance and intervention is required.

The start-up game requires a tolerance of low-level failure. Using a VC expression, this means it is important to “fail early and fail often”.

The success rate is low for start-ups. And most people should be working for someone as employees rather than running their own business. It takes tremendous self-confidence and determination to launch a business. Historically, it has been much easier to flip property.

Local Hong Kong investors tend to ask start-ups the wrong questions. They ask, “How does it make money?” The right question is “ What problem does this solve?” There’s a big difference in mentality and mission.

It is difficult to raise VC money in Hong Kong. Many of them are interested in businesses that can scale outside Hong Kong, into mainland China and internationally. They are looking to turn a 10-million dollar company into a billion-dollar company in a few years. Mainland China is the only place in Asia where this can happen quickly.

I detect a natural prejudice against Hong Kong Chinese-founded start-ups. Most VCs think Hong Kong Chinese cannot operate successfully in China and are treated like foreigners in China as they need to take on a mainland joint venture partner.

This is especially risky in terms of divergent management attitudes or outright intellectual property theft or misappropriation.

The entire government and local financial community needs to take on more risk if it wants to transform the Hong Kong economy away from property development and traditional industries.

Hong Kong’s financial industry professionals are still divided over how they can remake the city’s stock exchange. Many of the conservative, traditional stockbrokers think the proposed start-up board is too risky in terms of regulation.

But we will need to take unconventional risks to succeed.


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香港理工大學工商管理學院 副院長(學務統籌)

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How our innovative youth can make Hong Kong even greater

South China Morning Post
Comment›Insight & Opinion

Tony Chan

Tony Chan says the city needs new engines of growth, and investment in science and technology is one way to diversify the economy to benefit the next generation

A decade ago, an ambitious young man named Wang Tao attended Hong Kong University of Science and Technology as an undergraduate student with a dream to develop his own flying machine. Despite having few means, he took his chance and started his own company in Shenzhen. That company, DJI, has turned into the world’s No1 drone maker, and is now believed to be worth billions of dollars.

This success story serves as proof that innovation can indeed be nurtured in Hong Kong. But there will always be sceptics who wonder whether Hong Kong should make innovation, and just as importantly, science and technology, a priority. Some will argue that Hong Kong would be better off focusing on its finance and professional service industries. Some will say Hong Kong will only become a talent farm for other competing cities (Shenzhen or Silicon Valley, for example), or for multinationals, which brings little benefit to the local community. Some say that science and technology are high-risk industries and their children would be better off pursuing a stable career such as medicine or law.

These are fair points, which should be addressed. A recent report released by the Legislative Council found that the four pillars of our economy, namely, financial services, professional and producer services, tourism, and trading and logistics, are all slowing and saw their contribution to GDP drop to 58.3 per cent, a trend that began in 2007. That means we must seek new engines of growth, and investment in science and technology will be one way to diversify our economy. Singapore, Japan, Taiwan, and South Korea are all spending much more than Hong Kong in science and technology’s research and development. We must change course if our city is to maintain its competitive edge in the world.

I see no reason to fear that Hong Kong will become a talent farm for multinationals and bring little back to the community. The cities of Boston and Pasadena, where the world-renowned Massachusetts Institute of Technology and the California Institute of Technology are located respectively, would never ask what these schools would do to benefit their community. Their very existence and reputation benefit not only the US, but indeed the world. Ideas are generated in Silicon Valley and products are manufactured elsewhere; that is an example Hong Kong can follow. Instead of fearing an impending brain drain, the right question to ask would be what we can do to bring more world-class company headquarters here to utilise our people’s talent.

The time has come for our society to accept that our children’s career choices may well be different from ours. Americans, much like us, also embrace the security that comes with a stable job, yet still some dare to try something different.

The likes of Steve Jobs, Elon Musk and Mark Zuckerberg did not take the path of an ordinary office worker; they wanted to make a difference, had a dream to change the world, and they did just that. US students look at these entrepreneurs as role models who make lots of money and are cool at the same time.

The success of Chinese entrepreneurs such as Jack Ma, Pony Ma and Wang Tao will only bring more inspiration to Hong Kong and mainland students alike to dream and make a difference on their own.

The recent push by the Chinese government to make innovation a catalyst for economic growth will only work in Hong Kong’s favour: we have all the elements aligned to shine as the new innovation hub for China. The city already has world-class infrastructure, highly regarded rule of law, low tax, a skilled bilingual workforce and excellent universities; our prime geographical location allows us to tap easily into the wealth of resources in mainland China. A number of mainland technology enterprises have already recognised these benefits and opened research and development laboratories in Hong Kong recently, including Huawei, BGI, TCL, Lenovo and DJI. There is no better time to start building science and technology as a cornerstone for our economy.

Hong Kong’s younger generations are more ready than ever to embrace this challenge. Mounting evidence shows they are now more eager to take risks and work on their own instead of following their parents’ advice to secure a stable career. When Jack Ma came to Hong Kong to host a forum on entrepreneurship in February, more than 8,000 youngsters showed up to listen to him. Co-working spaces, where young people meet and pitch their ideas to venture capitalists, are booming in Hong Kong, and applications for entrepreneurial funding are at an all-time high. A sea change is looming.

As older citizens, it is our responsibility to create an environment where the talents of our young can flourish. The establishment of the information and technology bureau will be an important first step. It should not aim to become a government-owned venture capital establishment betting on risky projects; its mission, I believe, should be to provide long-term planning and infrastructure for the development of science and technology, set policies and incentives to attract talent and investments, as well as inspiring young people in Hong Kong who want to pursue their dreams. A key task is to spearhead programmes for collaboration between Hong Kong and the mainland.

The world renowned MIT Media lab came up with a new motto recently: “Deploy, or Die”. That captures the essence of embracing innovation: some of the ideas will succeed; some will fail. But we must not fault our young people for daring to try and having a “can-do” attitude. Let us all have confidence in our young people. We made Hong Kong a great city. They will make it even greater.

We must take fate into our own hands and act. As our financial secretary recently said, quoting Albert Einstein: “If you do what you always did, you’ll get what you always got!”

Professor Tony Chan Fan-cheong is president of the Hong Kong University of Science and Technology

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More R&D spending a smart investment for Hong Kong

South China Morning Post
Comment›Insight & Opinion

Paul Yip

Paul Yip says tapping big budget surpluses would be a good way to increase funding and boost competitiveness

The recent Times Higher Education World University Rankings revealed that all Hong Kong universities have been slipping down the table. The University of Hong Kong ranked 43, against 35 in 2013. Yet, the National University of Singapore moved up, from 29 to 25.

Nevertheless, for the social sciences discipline, HKU ranked 29, the same as the National University of Singapore. And HKU still ranks above other institutions in Hong Kong. It is important to know that more than 60 per cent of its weighting relates to research performance – the number and impact of publications; 30 per cent to teaching and learning; and, the rest to industrial income and international reputation (including the number of exchange students).

And it is only a ranking; if others have improved at a faster rate, we can still be slipping behind. At the end of day, it is a comparison and a competition and sometimes we might take it too seriously. Such criteria might not be the most appropriate to best capture the contributions and relevance of universities. Nevertheless, it is still a reflection of how our universities are perceived in the local and international communities.

Universities should be places to nurture innovation, creativity and talent, extending knowledge and making a difference to the world. That all takes time to build up. It is unfortunate that our community (the government and business sectors) has not invested enough in higher education because it has a direct impact on the city’s future.

Innovation and technological advancement lag behind our neighbours’. Long-term investment by business in technology is rare. In 2013, the government spent about US$2 billion on research and development – just 0.73 per cent of GDP. Singapore, by comparison, spent US$5.8 billion, or 2 per cent of GDP. The University of Singapore has been strategic in boosting its ranking, recruiting experts from overseas with generous packages. We are losing out in the international market for high-calibre academics due to high living and education costs.

Shenzhen, meanwhile, has spent US$9.3 billion, or about 4 per cent of its GDP on R&D. This former fishing village is now a manufacturing, technological and innovation hub with a population of more than 10 million. It provides an attractive environment for individuals and companies with matching support and start-up funds.

Hong Kong clearly needs to re-examine its R&D policy to become more competitive. We should not undermine our own advantages of a solid legal system, which protects intellectual property, something yet to be established on the mainland. We need to nourish our local talent and attract foreign talent, too. One can complement the other. With a rapidly ageing population, it is urgent that we invest in innovation and technology to make up the workforce shortfall.

On the human capital front, the government has spent considerable resources to train research students in universities. Unfortunately, there is a mismatch in manpower and opportunities for graduates. According to the latest projections, there is a surplus of workers with postgraduate qualifications because the economy has not been transformed and realigned quickly enough to respond to rapid technological changes. There is a shortage of opportunities in higher education institutions and research centres. We are losing our students abroad after they get their PhDs.

The Macau government is also using tertiary institutions to recruit students from the mainland and overseas. There are 10 post-secondary institutes for only half a million residents in Macau; they hope some overseas students might stay after graduation.

Hong Kong has nearly full employment but only 6.9 per cent are employed in R&D per 1,000 of our working population. The figure is 11.75 per cent in Singapore, and 20.99 per cent in Taiwan.

Over the past few years, Hong Kong has run budget surpluses running into billions of dollars and expects to continue to do so. Yet we are still failing to improve our R&D capacity to prepare for the future. The HK$5 billion innovation fund announced in the budget is a good start but committed efforts and strategic investment are needed to make Hong Kong competitive. Despite limited investment in R&D, HKU still manages to remain in the top 50 global universities. We can do better with more R&D funding. Investing in R&D can certainly make Hong Kong more competitive and attractive.

Paul Yip is professor of social work and social administration at the University of Hong Kong

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Hong Kong Economic Journal
B04 | 專家視角 | 經濟3.0 | By 曾國平 |

書的第一頁歪歪斜斜的寫下了一行字:「1998 年8 月旺角世界書局」,那是中學會考過後的暑假,我拿着書單到書局買教科書,捧回家一本又一本的用包書膠保護好,等待新學年的到來。記得新書的氣味,記得書都很厚,不像中學生會讀得懂的書。

是十五年前的事了。那一年的特首是董建華,財政司是曾蔭權,而梁振英只是行政會議成員。那時,沙士還未爆發,中港未有衝突,每年7 月1 日未有遊行的「習俗」。十五年前的香港不一樣。

書單上有一本莫名其妙的書,名叫《交易與生產》(Exchange and Production),作者是艾智仁(Armen A. Alchian)和艾倫(William R. Allen),1983 年第三版,不夠500頁,是經濟科的參考書。





艾智仁和艾倫如是說:第一次修經濟科,都先有一個合理的疑問: 「學經濟,要懂多少數學?」只要算術,加上一點閱讀圖表、理解經濟數量之間的量化關係的能力。(A natural question to ask atthe outset of one’s first course in economicsis, “How much mathematics do I need to know to understand economics?”Only arithmetic, and some ability to read charts and graphs and to interpret quantitative relationships between economic magnitudes.)




艾智仁和艾倫如是說:我們想說,懂經濟學會令你賺多一點,但作為服務的賣家(課本作者本是如此),我們不保證經濟知識帶來經濟利益,但我們相信真有其事。﹝ (We) would like to say that understanding economics will help you earn more, but as sellers of a service -which is what textbook authors are – we do not promise that economic learning means economic earning, but we believe it does.﹞



課本在30 年前出版,早已絕迹市場,難得在網上找到的二手貨,價錢都不便宜。課本買不到,如何開課?找不到出版課本的公司,發現原來已被另一家出版社收購。幾經轉折下找到出版社負責人,請求為幾十個學生「合法翻印」課本。負責人說沒有問題,但要我先得到作者同意。