24 February 2016

Hong Kong's Budget heavy on innovation to seize opportunities in a new economic order

Hong Kong's Financial Secretary, John Tsang, unveiled the 2016-17 Budget on February 24, saying that the city should act swiftly to identify new development opportunities as a result of a new economic order being driven by breakthroughs in IT and the increasingly influential role of emerging markets in the global economy. Tsang said Hong Kong should build on its strengths, leveraging on Hong Kong people's flexibility, resourcefulness and market acumen, to find its place in the new economic order.

He cited robotics, healthy ageing and smart city initiatives as areas in which Hong Kong could apply and commercialise research and development (R&D) results. "With an ageing population and a shrinking workforce, the application of smart production technologies, in particular robotics, is vital," he said.

He said the Hong Kong Science and Technology Parks Corporation (HKSTP) was considering promoting smart production and research in the Tseung Kwan O Industrial Estate - where there are already many data centres - using robotics and IT to drive the development of the entire value chain, from product R&D and design to production, testing, marketing and branding. The project would cost HK$8.2 billion, with completion expected in 2021-22.

Funding schemes will be introduced, or enhanced, to encourage more private enterprises to invest in R&D and applied technology, and to translate outstanding local R&D achievements into products and services with commercial value.

They include a HK$2 billion Midstream Research Programme for Universities to encourage post-secondary institutions to do more midstream and applied research projects in key technology areas. Cash rebates under the R&D Cash Rebate Scheme will be increased to 40% to encourage private enterprises, small and medium enterprises (SMEs) in particular, to put more resources into R&D work. The Public Sector Trial Scheme will be extended to cover the incubatees of the Cyberport and the Science Park, while the scheme to fund technology transfer work of six universities will be extended to 2018-19.

Hong Kong has emerged as one of the world's most popular startup hubs, Tsang noted, saying that the government shall continue to offer comprehensive support to startups in various areas, including business incubation, financing, business expansion and office space. The Cyberport will earmark HK$200 million to invest in its startups, while the HKSTP will continue to support startups through its Corporate Venture Fund and incubation programmes. Tsang added that the government will set up a HK$2 billion Innovation and Technology Venture Fund, investing in local technology startups with private venture capital funds on a matching basis.

The Science Park, he continued, will expand in stages, providing an additional floor area of 70,000 sq m for startups and other technology companies by 2020. The estimated HK$4.4 billion cost is to be shared by the government and the HKSTP.

Fintech, the application of technology to the financial services sector, also offers long-term opportunities for Hong Kong. Mr Tsang said the Government would follow up on measures recommended by the Steering Group on financial technologies, which he set up last year to examine the direction of fintech in Hong Kong. A dedicated team under Invest Hong Kong will organise international events and encourage fintech startups, investors and R&D institutions to set up in Hong Kong.

The Enterprise Support Scheme, under the Innovation and Technology Fund, will also assist startups and financial institutions. The Cyberport will in addition set aside a dedicated space for fintech startups, and roll out a programme to support up to 150 fintech startups over the next five years. It will also arrange for 300 university students to join fintech training camps at overseas universities.

Tsang said creative industries are part of the new order, and that Hong Kong would continue to support their healthy growth. This includes according priority to assisting startups and nurturing talent through a HK$400 million injection into the CreateSmart Initiative. Initiatives will also be launched or enhanced, to promote the fashion, design and film industries.

Tsang pointed to emerging markets as the other major force in the new economic order. "In view of this trend we need to expand our trading ties with the rest of the world and develop more markets for Hong Kong enterprises," he said. This can be realised thanks to Hong Kong's unique advantages under "one country, two systems", he said.

Tsang observed that emerging markets along China's Belt and Road routes are likely to become the new impetus for the future development of Hong Kong, and that the government will continue to deepen understanding of these new markets among Hong Kong business. The inaugural Belt and Road Summit jointly organised with the Hong Kong Trade Development Council will be launched in May.

The government will continue to pursue trade and investment agreements to expand commercial and trading networks, creating more favourable conditions for Hong Kong enterprises. Tsang noted that negotiations for a free trade agreement (FTA) between Hong Kong and the Association of Southeast Asian Nations (ASEAN) would likely be concluded this year, and that the Government would seek to participate in the FTAs that have been, or will be, concluded between mainland China and other countries.

The government will strengthen Hong Kong's commercial connectivity to maintain the city's position as an aviation and maritime centre and support the development of high value-added logistics services. The Airport Authority Hong Kong (AA) is pressing ahead with the implementation of the three-runway system. 

Turning to financial services and new markets, Tsang said the Government is also looking to attract more multinational and mainland China enterprises to establish corporate treasury centres in Hong Kong. To that end, the Government has introduced a bill into the Legislative Council (LegCo) that would, among other things, reduce the profits tax of qualifying corporate treasury centres by 50%. The government also submitted a bill into the LegCo to provide a legal framework for introducing an open-ended fund company structure to further diversify the fund domiciliation platform in Hong Kong.

Many senior citizens are looking for investment products with steady returns. To encourage the sector to tap into the immense potential of this silver market, the Government will launch a pilot scheme to issue Silver Bonds this year and next year, targeting Hong Kong residents aged 65 or above. In addition, another iBond issue, of up to HK$10 billion, would be launched in due course, following the success of five previous issuances since 2011 under the Government Bond Programme.

Tsang pointed out that Hong Kong's 320,000 SMEs employ 50% of the private sector workforce. He said he would reduce profits tax for 2015-16 by 75% subject to a ceiling of HK$20,000. This proposal will benefit 130,000 taxpayers. Business registration fees will also be waived for 2016-17 to benefit 1.3 million business operators. To stabilise the employment market and help SMEs tide over liquidity needs, Tsang introduced three measures:
  • Extend the application period for the "special concessionary measures" under the SME Financing Guarantee Scheme to February 28, 2017;
  • Reduce the annual guarantee fee rate for the measures by 10%; and
  • Remove the minimum guarantee fee for the measures.
To enhance the long-term competitiveness of SMEs, a Pilot Technology Voucher Programme under the Innovation and Technology Fund will be launched to subsidise the use of technological services and solutions to improve productivity and upgrade or transform business processes. The three-year pilot programme will provide, on a matching basis, a maximum subsidy of HK$200,000 for each eligible SME. 

Measures to help the tourism industry, which contributes 5% of GDP and employs 270,000 people, included help for small and medium-sized travel agents to make use of information technology to enhance the competitiveness of the industry, and new conference facilities above the proposed Exhibition Station of the Shatin-to-Central Link.

Salaries tax and tax under personal assessment for 2015-16 will also be slashed by 75%, subject to a ceiling of HK$20,000. 

Randstad believes the policies will drive talent trends in specific growth industries, and key supportive measures will enable better utilisation of the talent available in Hong Kong.

Kieran Sim, Associate Director for Randstad Technologies, said: “In today’s competitive world, companies in Hong Kong are pressed to innovate and be technology savvy in order to capitalise on the fast-changing industry trends. The Financial Secretary’s push for advanced manufacturing industries and intelligent systems will strengthen the demand for IT sales managers who are able to sell ‘super computers’ with artificial intelligence as a business solution.”

“As Hong Kong’s startup scene continues to thrive on the back of the InvestHK initiatives, the need for IT project managers will rise. Roles in basic IT functions, especially infrastructure and creative developers, will see the greatest demand for fresh graduates.”

“As public and private enterprises increasingly embrace and capitalise on the e-commerce boom, this trend will continue to drive demand for front- and back-end web developers, especially those with experience in building mobile applications in Hong Kong and mainland markets. Competitive junior web developers will earn up to HK$40,000 a month.

“Cyber security specialists will also be sought after, due to the increase in cyber attacks alongside the growing popularity of e-commerce. Competitive security specialists will earn up to HK$65,000 a month.”

“In addition, the HK$500 million fund to broaden the public WiFi network in Hong Kong will drive demand for architects, 4G network engineers and security specialists higher than ever. This trend – coupled with the shrinking population of IT fresh graduates – will intensify the war for talent in the IT and telecommunication industry to a new height.”

Yuna Li, Manager for Construction, Property & Engineering, Randstad said: “With Hong Kong’s public spending on infrastructure maintained at high levels – and the key major infrastructure projects, such as the Guangzhou–Shenzhen–Hong Kong Express Rail Link and Hong Kong–Zhuhai–Macau Bridge, are still ongoing – civil engineers, mechanical & electrical engineers, design, safety, and project managers with infrastructural project experiences are in high demand.”

“The third runway and hospital projects announced today will further strengthen the demand. On average, project managers can expect to earn HK$45,000 to HK$50,000 per month, while senior engineers can expect HK$35,000 to 40,000 a month. At this rate, professionals in construction, property and engineering will see their annual salary increments at up to 10% within the same company, and up to 20% when changing jobs.”

Randstad Technologies' Maggie Li, Associate Director for Banking & Financial Services, said: “Ranging from the push for the exchange-traded fund (ETF) market, profits tax exemption initiatives, further plans to issue sukuk, to the new Hong Kong Monetary Authority office to finance projects on the back of the One Belt One Road strategy, the financial services sector is set to benefit from the Government’s initiatives and see growth in various areas such as corporate treasury.”

“Particularly, the expected launch of the Shenzhen-Hong Kong Stock Connect and the plans to roll out additional channels for two-way cross-boundary RMB fund flows will drive demand for bankers and portfolio managers who are experienced in cross-border RMB trade settlement. Junior portfolio managers with relevant experience can expect up to HK$100,000 a month, while mid-level portfolio managers will earn up to HK$150,000 a month.”

Michael Smith, Managing Director for Randstad Hong Kong, Malaysia and Singapore, said: “As Hong Kong faces an increasingly stiff war for talent, the additional 3,800 places of Extended Hours Service for eligible childcare centres and the Low-income Working Family Allowance Scheme will encourage mothers to return to the workforce, broaden the talent pool and increase gender diversity in the workplace.”

“We also welcome the ASEAN Internship Scheme, the Scheme for Cross-boundary Study Tour and the other initiatives that will provide overseas exposure and contribute to a competitive training ground for local talent. They will equip the next generation of workers with the relevant vocational and business-ready skills that will broaden their exposure to jobs in the market.”

“Besides, the subsidy schemes for talent development in various industries will help industry efforts to address the city’s manpower shortage, innovate in order to remain competitive and ensure the workforce is well trained to take advantage of the opportunities when arise.”