Paper for the PLC
Panel on Trade and Industry

Helping development of industries

Purpose

This paper informs Members of Government ' s measures to help the development of our manufacturing and services industries in Hong Kong.

Our fundamental principle

2. The Government ' s industrial support policy is to create within the framework of a free market, the most conducive environment for our manufacturing and services sectors to develop and prosper. We are committed to providing the necessary physical, human and technological infrastructure, to supporting applied research and development, to facilitating technology transfer and upgrading, and to maintaining the most business-friendly government regime. In short, we assume the role of a basic service provider and a facilitator. We believe that business decisions are best left to industrialists and businessmen who risk their own capital to forecast the nature and trends of market demand. We therefore do not pick winners or save losers and do not seek to determine the pace and direction of our industrial development

Promoting the growth and development of the manufacturing sector

Physical infrastructure

3. We strive to ensure that there is an adequate supply of fully serviced industrial land through appropriate zoning in the Outline Zoning Plans. We conduct regular reviews of the planning guidelines and design parameters for industrial areas and premises to cater for the changing needs of both industries. In order to help our manufacturers and services sector remain competitive in the high-value added and high technology marketplace, we are committed to providing them with the necessary physical infrastructure. Amongst other things, we will set up a Science Park, the second Industrial Technology Centre and the fourth industrial estate. The progress updates of our work are as follows-

The Fourth Industrial Estate

4. Through the Hong Kong Industrial Estates Corporation (HKIEC), we offer developed land at cost to industries with new or improved technology and processes which cannot operate in ordinary multi-storey factory buildings. The HKIEC currently manages three industrial estates in Tai Po, Yuen Long and Tseung Kwan O respectively with a total area of 214 hectares. There are 124 companies operating in the three industrial estates.

5. The total balance of uncommitted land is about 47 hectares. It is estimated that HKIEC ' s current land bank will be fully taken up by 2004. We have identified Tuen Mun Area 38 as the site for the fourth industrial estate. The HKIEC has commissioned a feasibility study to look at the planning, environmental and infrastructure issues. The study will soon be finalised and considered by the Board of the HKIEC. Subject to the initial findings of the study, the HKIEC will commission a detailed engineering feasibility study to examine the infrastructure plans, designs, cost estimates and development programme of the estate. If the findings are acceptable to the Board of the HKIEC, we shall help HKIEC obtain the land by means of land grant.

The Second Industrial Technology Centre

6. The Hong Kong Industrial Technology Centre (HKITCC) is a statutory body set up by the Government in 1993 to promote technological innovation and application of new technologies in Hong Kong. The Industrial Technology Centre, completed in August 1994, was purpose-built to provide office accommodation for established high-tech companies, facilitate technology transfer through organising seminars and exhibitions and disseminating information on technological developments, and most importantly, administer an incubator programme to offer supportive services to start-up companies in their critical initial years.

7. The incubation programme which assists technology-based start-ups by offering reduced rents, financial support services and other professional support such as marketing, management and technology transfer, is very well-received. At present, 31 companies have joined the programme.

8. As the Centre has been a great success and is already 100% leased out, the HKITCC is planning for a second centre. A site in Kowloon Tong has been identified for the establishment of the second Industrial Technology Centre. The land use proposal will be submitted to the Metro Planning Committee of the Town Planning Board for consideration in September and subsequently to the Kowloon City District Board for consultation. At the same time, the Corporation has set up a Building Committee to undertake the planning and preparation work for the project. The timing of the project completion will depend on the progress of land allocation, site conditions and finalisation of the architectural design. It is estimated that the construction of the centre, after completion of the above works, would take about three years.

The Science Park

9. As part of our continuing effort to improve the physical infrastructure in Hong Kong, we are now actively planning for a science park in Hong Kong. By bringing together companies from other economies, researchers in our tertiary institutions and local enterprises with technological competence, the science park will help nurture indigenous, technology-based companies and other businesses, promote technology transfer by attracting foreign companies to invest in Hong Kong and enhance regional co-operation in technological development. We have identified a site at Pak Shek Kok in Tai Po for the science park. A Planning Committee on Science Park was set up in January this year. It will finalise its recommendations on the planning parameters in end September/early October. We plan to seek the necessary funding to establish Phase 1 of the Science Park from the Finance Committee in early 1998. Subject to approval of funds, we will set up a limited company to start the development works.

Business Park

10. We are exploring the feasibility and desirability of establishing a business park in Hong Kong. The business park concept originates from a recommendation in a land use and planning related consultancy study commissioned by the Planning Department. According to the consultancy study, the setting up of a business estate in Hong Kong can help meet the changing operational requirement of the manufacturing sector which has become increasingly service-oriented, and serve as an additional marketing tool to attract inward investment.

Human Resources Development

11. We recognise that a well-trained and technologically competent workforce is vital to the further development of our manufacturing and services sectors. At present, a comprehensive system of technical education and vocational training is available from various bodies. They include -

1. eight degree-awarding tertiary institutions under the University Grants Committee, providing every year more than 20 000 graduates of various disciplines;

2. the Vocational Training Council (VTC), which is a statutory body established in 1982, providing technical education and industrial training programme relevant to the changing needs of Hong Kong. In 1995/96, the Council provided technical training to 43 100 full-time and 61 800 part-time students;

3. the Hong Kong Productivity Council (HKPC), which is a statutory body established in 1967, offering a wide range of job-related training courses and consultancy services on computing, management techniques, new technologies and human resources development, etc. In 1995/96, 604 training programmes were conducted and attended by 15 320 participants;

4. the Clothing Industry Training Authority (CITA), which is a statutory body established in 1975, providing training for employees in the clothing industry; and

5. the Employees Retraining Board (ERB), which was set up in 1992, providing training for workers to acquire new skills or upgrade their existing skills, so that they may adapt to the changing needs of the economy.

12. We facilitate technical training by means of direct financial assistance. At present, expenditure for scientific research and payments for technical education related to the trade or business of the company are deductible expenses items in the calculation of profits tax. In addition, the VTC administers two training schemes to upgrade the technology level of our workforce. They are -

1. the New Technology Training Scheme. The Scheme was introduced in 1992 to provide matching grants to employers to train their staff, either locally or overseas, in new technology useful to Hong Kong industry. The Scheme was improved in February this year, with the amount of training grants raised from 50% to 75% of the total training cost and removal of the maximum grant ceiling. Since inception, over 2 600 applications for grants have been approved. The cumulative grants approved amounted to HK$11.6 million; and

2. the Engineering Graduate Training Scheme which was introduced in 1983. By subsidising the salary of trainees ($5,500 per month for engineering graduates and $3,300 per month for students in sandwich course) for a period of up to 18 months, the Scheme enables engineering students and graduates to complete their training and to attain professional status. Each year, the Scheme provides about 300 training places.

13. In addition, we introduced a specific tax deduction in 1996-97 to allow taxpayers to claim as a deductible expense fees for training courses attended at approved institutions.

Technological infrastructure

14. We consider it important to enhance Hong Kong ' s research and development base if our manufacturing and services sectors are to remain competitive globally. In order to support applied research and development of products/processes and to facilitate technology transfer and upgrading, we introduced the Industrial Support Fund (ISF) for the manufacturing sector in 1994 to fund projects which are beneficial to the industrial or technological development of Hong Kong. The selection of these projects is determined by a vetting committee comprising business representatives, professionals and scientists. Since its introduction in 1994, the ISF has approved a total of 262 projects (in the areas of biotechnology, electronics, information technology, textiles and clothing, etc.), amounting to $920 million.

15. Furthermore, we run two venture capital programmes, the Applied Research & Development Scheme (ARDS) and the Co-operative Applied Research & Development Scheme (CARDS), to fund up to 75% of the fundable costs of the approved applied research and development projects to enhance the technological capability and overall competitiveness of the local manufacturing sector. The funding takes the form of either equity investment or interest-bearing loans. Through these two programmes, we induce more companies to engage in applied research and development, and to nurture and upgrade the technological capabilities of the workforce. So far, 19 projects amounting to $56 million have been granted under the Applied Research & Development Scheme and six projects amounting to $32 million have been granted under the Co-operative Applied Research & Development Scheme.

16. Technology-based companies, which have long been perceived as a business of higher risk, often experience more difficulties in raising capital. Apart from the two venture capital funding programmes run by the Government, the HKITCC administers an Innovation Loan to assist technology-based companies who experience financial difficulties associated with starting a new business. The programme was introduced early this year and has just approved HK$5 million to 16 start-up companies for conducting research and development projects. The HKITCC also operates the Early Technology Business Capital Loan Scheme for its incubatees whose products or services can enhance productivity growth, facilitate quality improvement, promote product innovation and increase competitiveness. One loan application involving $1 million was approved in May 1997.

17. For established companies, the Stock Exchange of Hong Kong is presently examining the case of setting up a venture board in Hong Kong to assist technology-based companies to raise capital.

18. We promote excellence in manufacturing through the annual Hong Kong Awards for Industry. Technology achievement has recently been included as one of the seven award categories. A total of 209 entries have been received for the 1997 HK Awards for Industry, which is a record high figure representing 40% increase over that of last year.

Promoting the growth and the development of the service industry

19. Our services industry has assumed an increasingly important role in our economy. We are committed to creating a business-friendly environment to facilitate the development of Hong Kong as a world-class services sector. This includes the cutting of red tape, elimination of over-regulation, reduction of compliance cost to the business sector and enforcement cost to the Government, etc. Since August 1995, the Financial Secretary has chaired a Task Force on Services Promotion. An action agenda for 14 leading service industries was produced. In addition, a Helping Business Programme was launched in 1996. Some of the new services initiatives introduced include the putting up of 300 most popular public forms on the Internet, and the launching of the Business Licence Information Centre (BLIC) in the coming September. The BLIC located in the Industry Department will serve as a one-stop free enquiry centre providing information on all Government licences, permits and operating conditions to businesses.

20. To maintain the momentum, the Government has set up a new Business and Services Promotion Unit to take forward both the Helping Business Programme and the Services Promotion Programme. The Unit has initiated in-depth discussions with the business sector on ways to further facilitate their development.

21. We have also set up a Services Support Fund (SSF), with an initial allocation of $50 million in 1996 to provide financial support for projects which can contribute to the overall development and the competitiveness of Hong Kong ' s services sectors. Since the inception of the Fund, 27 projects have been approved, with a total funding commitment of $50 million. These projects cover a wide spectrum of services e.g. information technology, wholesale and retail services and professional services.

22. The new Hong Kong Awards for Services Scheme, which is made up of five award categories, namely innovation, customer services, tourism services, productivity and export marketing, was launched in December 1996. A total of 102 entries have been received. The awards will be made in end 1997.

Support to the small and medium enterprises

23. We attach great importance to small and medium enterprises (SMEs) which account for more than 95% of the firms of local industry. We appreciate that in face of international competition, SMEs have specific needs different from those of the large enterprises. We therefore established a SMEs Committee in July 1996 to identify issues affecting the development of SMEs and to suggest ways to address their problems. The Committee comprises representatives from SME, major industrial support and trade organisations, government officials and other individual members. The Committee will organise a large-scale SMEs Conference on 10 December 1997 to discuss in greater detail the four main areas of concern to SMEs, viz. information access, market access, technology and human resources. Furthermore, we will publish a Directory on Services and Facilities Available to SMEs in September 1997 to assist them in gaining access to the various support services available to them in Hong Kong.

24. We recognise that compared with larger enterprises, SMEs face more difficulties in obtaining financing due to the lack of sufficient capital assets as collateral and long credit record to prove their credit worthiness, and the unwillingness of lending institutions to make small loans, etc. We are now examining the feasibility of introducing a pilot credit guarantee scheme whereby the Government would guarantee a certain percentage of their loan application. We hope that, through shouldering a portion of the non-payment risk, lending institutions would be more willing to make loans to SMEs. The proposal is still very much at the conceptual stage. But, if such a pilot scheme is introduced, its scope should be manageable and there should be an upper limit to the amount of money to be guaranteed by the Government for each individual case and for the aggregate total. As a pilot scheme, our intention is to limit the scope to pre-shipment/pre-export guarantee. The risk of non-payment should be shared amongst Government, the lending institution and the borrowing company. The Government ' s guarantee would only extend to those firms whose credit-worthiness is assessed to be acceptable to lending institutions and would otherwise be able to obtain the loan if not for reasons such as the lack of collateral. In other words, firms which are badly-run or engaged in high risk adventures would not be the target of the proposed scheme. We have been involving the SMEs Committee and seeking advice from experts of the banking sector in our examination process. We hope to be able to come up with a detailed proposal soon.

Conclusion

25. The Government is firmly committed to our policy of minimum intervention and maximum support. Within the framework of free market, we have a pro-active industrial support policy aimed at sustaining and promoting the productivity and international competitiveness of our industry. We will continue with our efforts to ensure a successful partnership between the Government and the industries.

Trade & Industry Bureau
September 1997