Research and Development in Hong Kong: The Way Forward

• INTRODUCTION
• EDUCATION
• RESEARCH & DEVELOPMENT(R&D)
• RESEARCH SCIENTISTS AND ENGINEERS
• CONCLUSIONS AND RECOMMENDATIONS
• BIBLIOGRAPHY
• APPENDIX I

In 2000, the Hong Kong Institution of Science (HKIS) had conducted a comparative study on the development of science and technology in Hong Kong and other regional economies. The findings are summarized in a report "Research and Development in Hong Kong: The Way Forward". Education, investment in research and development, human resources and technological evolution of the economies are discussed. HKIS also put forward some recommendations. The report had been released during the Annual Conference of HKIS on 4 November 2000. Subsequently in May 2001, the report was revised to include a discussion on the issue of defense R&D expense.

1. INTRODUCTION

A measure of the standard of living (if not the quality of life) in a regional economy is the Gross Domestic Product (GDP) per capita. By this measure, Hong Kong advanced rapidly in the 1980's and through the early 90's and achieved a GDP/capita of US$25,000 by 1995, approaching that of the US (Fig. 1). However, Hong Kong's GDP/capita took a downturn in 1997 as a consequence of the general malaise in the Asian economies, while that of the US continued unabated. In his 1997 Policy Address and that of 1998, the Chief Executive projected a vision for Hong Kong. He advocated strengthening Hong Kong's economic base by increasing and diversifying industrial development especially in the knowledge-intensive and technology-based sectors, in order to enhance Hong Kong's industrial and service competitiveness. How does Hong Kong get from where we are today to where we want to be? The Hong Kong Institution of Science (HKIS) argues that education and R&D are essential facilitators.

2.EDUCATION

HKIS supports the Final Report of the Education Commission and recognizes the need for a fundamental change in the way we educate our young people.

Hong Kong needs secondary school graduates who are creative and innovative, with a solid, broad base of knowledge in the liberal arts, science and culture, who can communicate effectively, and who are motivated to engage in lifelong learning. This can be one of Hong Kong's competitive advantages.

Thus HKIS supports the proposed educational reforms, notably the reduced emphasis on early aptitude testing, banding and streaming. HKIS strongly supports the elimination of Form 7 and the move towards 4-year university programs. In particular, in higher education, HKIS supports that there should be a balance between depth and breadth in the curricula so that students will receive a well-rounded education.

HKIS also recognizes the importance of raising the technical literacy of Hong Kong's workforce through continuing education. The doubling of tertiary education places for secondary school graduates within the next 10 years, as projected by the Chief Executive in his 2000 Policy Address, is most commendable as long as the quality of education provided is maintained or enhanced.

Education is one of the best long-term investments that a society can make. Hong Kong, as a society, must commit the resources necessary to educate our young people effectively because we will all benefit in future years from the wealth and standard of living created by an appropriately educated populace. HKIS therefore welcomes the initiatives taken over the past three years and recognizes that spending on education has now reached 4.25% of GDP, but noting that many economies invest over 5% of GDP. HKIS urges a sustained commitment to education at all levels. In the immediate future, we cannot expect parents and the private sector to shoulder the financial burden of raising Hong Kong's education to world standard; it must be society's responsibility through government funding.

3. RESEARCH & DEVELOPMENT(R&D)

One measure of the technological health of an economy is the investment in R&D by the public and private sectors, the sum of which is usually represented by the Gross Expenditure on Research and Development as a percentage of Gross Domestic Product (GERD/GDP). This index is one of the leading indicators of the state of world economies, as used by the Organization for Economic Cooperation and Development (OECD).

Using this index, Hong Kong's technology development can be examined from two angles:

(a) by comparing Hong Kong's position with those of other economies in 1998 (the most recent year for which data is readily available);

(b) by comparing the growth in Hong Kong's R&D expenditure over the last two decades with those of two technologically-advanced economies in the region, namely Singapore and Taiwan.

3.1 GERD/GDP in 1998

Table 1 provides information on R&D expenditures in different economies grouped according to their sizes. It is noteworthy, from this data and that in Figure 2, that Hong Kong's expenditure in R&D, which was reported by OECD at 0.25% of GDP, is very low compared with those of most developed and many developing economies.

3.2 A Look at Singapore and Taiwan : A Study on Technological Evolution

Figures 3and 4 show how the R&D expenditures from both the public and private sectors have evolved over recent years in Singapore and Taiwan, respectively.

In 1998, Singapore and Taiwan invested 1.80% and 1.98% of GDP in R&D, respectively, compared with Hong Kong's reported figure of 0.25%.

Data recently released by the Census and Statistics Department (CSD) from surveys indicates that the private sector is investing more in R&D than what appears in the OECD Reports. In 1998, CSD has estimated that the private sector spent 0.11% of GDP on R&D. Adding this to the 0.25% spent by the public sector (essentially all in universities) raises Hong Kong's GERD/GDP ratio to 0.36%, i.e. into the #39 slot between Poland and Mexico in the international table of R&D expenditures of Figure 2.

The time-line data for Singapore and Taiwan shows a common trend. Early in the time series, public sector investment in R&D leads that of the private sector. This is the situation in Hong Kong today. As time progresses, the public/private balance shifts as private sector expenditures in R&D increase and gain leverage from public sector investment.

3.3 Implications for Hong Kong

HKIS is of the opinion that, to develop a technologically sophisticated economy, the Government must lead the way by making a substantial investment in R&D and by establishing an environment that is conducive to private sector investment in R&D. This suggests a long term trend of total investment in R&D as shown in Figure 5. The approximate positions of Hong Kong, Singapore and Taiwan in 2000 are indicated. The way in which the latter two economies have evolved suggests that it took at least 10 years to get from where Hong Kong is today to where Singapore and Taiwan are today, in terms of investment in R&D. To summarize, the comparative R&D expenditures in 1998 are:

	Private GERD/GDP	Public GERD/GDP	Total GERD/GDP
Taiwan	1.25%	0.73%	1.98%
Singapore	1.11%	0.69%	1.80%
Hong Kong	0.11%	0.25%	0.36%

Clearly, Hong Kong is lagging in both public and, as a later consequence, private sector investment in R&D.

3.4 The Issue of Defense/military R&D Expenditure

Some people may argue that R&D expenditure in Hong Kong is much lower than in other economies because Hong Kong does not need to fund research in defense or for military applications. This issue is addressed by comparing Hong Kong with the situation at USA, Taiwan and Singapore (refer to Appendix I for details).

In USA, despite the significant amount of military or defense-related R&D expenditure, the non-defense R&D budget per capita of the Federal Government in 1999 was a factor of 15 higher than that of the Research Grants Council of Hong Kong.

In Taiwan and Singapore, economies much closer to that of Hong Kong, the percentage of R&D expenditure on defense is small relative to that in USA. From the following comparison for the year 1998, it is evident that Hong Kong's total R&D expenditure (expressed in GERD/GDP) is very low compared with that for non-defense purposes in those two economies.

	Total GERD/GDP	Non-defense GERD/GDP
Taiwan	1.98%	1.74%
Singapore	1.80%	1.62%
Hong Kong	0.36%	0.36%

4. RESEARCH SCIENTISTS AND ENGINEERS

An economy cannot reasonably and effectively increase its R&D investment by a big step in a short period - it needs to grow gradually but steadily.

A bridge between education and R&D is the human resource trained to do research and able to use R&D investment effectively. Another leading OECD indicator is therefore the stock of human resources for R&D, generally measured as Total R&D Personnel (RDP) per 1,000 people.

The data for RDP per 1,000 people for different countries is included in Table 1. Figure 6 should show where Hong Kong stands relative to other economies in this regard. However, such data seems to have been unreported. A generous estimate for Hong Kong in 1998 is 1.50, placing us at #30 in this ranking. m

5. CONCLUSIONS AND RECOMMENDATIONS

A There is a growing consensus of opinion on what Hong Kong must do to regain and sustain the growth of its standard of living - it must diversify its economic base by the development of knowledge-intensive, technology-based industrial and service sectors. To achieve this, both education and investment in R&D are vitally important. The Government must lead the way by investing in primary, secondary and tertiary education. It must also invest in basic and applied R&D in tertiary institutions and in mid-stream R&D activities. This will increase the stock of trained research scientists and engineers and encourage the private sector to increase its investment in R&D.

Hong Kong is clearly a follower rather than a leader in this regard. But with vision and commitment, we can catch up and capitalize on our competitive advantages.

The Hong Kong Institution of Science recommends that:

1. the Government R&D budget be increased substantially over the next decade, in order to catch up with Hong Kong's peer economies;

2. the commitment to and investment in education be sustained over the long term. In order to achieve a diversification of Hong Kong's economy by the growth of a technology-based industrial sector, Hong Kong need to increase the supply of skilled human resources through the expansion of tertiary education, particularly at the postgraduate level, and the admission of overseas talent.

HKIS further recommends that:

3. Hong Kong should have multiple funding sources in order to strengthen our infrastructure and capabilities in science and technology: the Research Grants Council should eventually become an independent funding agency focussing on competitively-awarded up-stream research, while other related agencies, perhaps associated with specific Bureaux or Departments, should focus on R&D activities of a more strategic nature to address specific issues and opportunities for Hong Kong;

4. the Government create a high-level office to develop and advise on science and technology policy for Hong Kong and to coordinate the programs of existing and new R&D funding agencies to focus on :

- building a strong institutional infrastructure for science and technology;

- strengthening Hong Kong's capability to undertake up-, mid- and down-stream R&D;

- the growth of the high technology industrial and service sectors;

- ensuring that all sectors of Hong Kong's economy benefit from R&D, trained human resources, and the implementation of appropriate technology.

Bibliography

China Statistical Yearbook, 1998, 1999 Learning for Life, Learning through Life: Reform Proposals for the Education System in Hong Kong, Education Commission, September 2000 National Survey of R&D in Singapore 1998, National Science & Technology Board Official web-sites of individual regional economies Organisation for Economic Co-operation & Development (OECD), Main Science & Technology Indicators, No. 1, 1999 Research and Development Statistics for Hong Kong's Private Sector, 1995-1997, Hong Kong Monthly Digest of Statistics, February 2000, FA-2/10 Taiwan: Statistical Yearbook 1999 World Competitiveness Yearbook, 2000, International Institute for Management Development (IMD), Lausanne m

APPENDIX I

The Issue of Defense/military R&D Expenditure Some people argue that R&D expenditure in Hong Kong is much lower than in other economies because Hong Kong does not need to fund research in defense or for military applications. This issue is addressed by examining the trend of R&D expenditures in three different economies with and without defense funding.

The first case study is USA. Table A1 shows the US federal R&D budget. It is true that a decade ago, a large part of the federal R&D budget in US was spent by the Defense Department. However, a significant portion of such military or defense-related R&D expenditure was actually spent on basic research, from which the private sector benefited by technology transfer and diffusion processes. Furthermore, there is a clear trend from Table A1; the R&D expenditure in defense has not increased during the last ten years, while the non-defense portion of the R&D budget has grown steadily from US$23.9 billion to US$36.5 billion over the same period. In 1999, the non-defense R&D budget accounted for almost half of the total federal R&D budget in the US.

How does the non-defense federal R&D budget of USA compare with that of Hong Kong? This comparison is shown in Table A2. In Hong Kong, the Research Grants Council (RGC) is the major funding source for basic and applied research. In 1999-2000, the funding of RGC amounted to HK$68.6 per capita. By comparison, the non-defense R&D budget by US Federal Government was HK$1,054.4 per capita, a factor of 15 higher. In fact, the funding for bio-medical research alone (i.e. budget of the National Institutes of Health) was HK$514 per capita. So, even if only the government's R&D expenditure on non-defense areas is considered, Hong Kong's commitment to R&D is far below that of the US Federal Government.

The second case study is Taiwan. The percentage of R&D expenditure on defense is small in Taiwan relative to that in USA. Table A3 shows the R&D expenditure in Taiwan from 1994 to 1997. It is clear that the non-defense R&D expenditure accounted for a large fraction of the total R&D expenditure in Taiwan. For example, in 1997, the total R&D expenditure was 1.88% of the GDP, while the non-defense R&D expenditure portion accounted for 1.74% of the GDP.

An attempt has been made to obtain similar information for Singapore. However, this economy does not differentiate defense and non-defense spending in its R&D expenditure data. From reliable sources, it is found that investment in R&D for defense/military purposes is very small - and most of this is directed towards customization of defense equipment and facilities. About 10% of the R&D expenditure is considered to be the upper limit of such spending.

Finally, the comparison of R&D expenditure for Taiwan, Singapore and Hong Kong, with the addition of non-defense spending on R&D as a percentage of GDP (repressed in GERD/GDP) in 1998 (the most recent year for which comparative data is available), is tabulated in Table A4. Even noting the qualifications, it is evident that Hong Kong's total R&D expenditure is very low compared with that for non-defense purposes in other advanced economies.