Hong Kong's Digital Economy Needs Further Boosts

Consultant Report Recommends Seven Key Measures to Accelerate Development of Hong Kong's Digital Infrastructure

 

Hong Kong's urgent need for digital infrastructure development has been highlighted by a report released today (18 Jun) by the Federation of Hong Kong Industries (FHKI) and Hong Kong Science and Technology Parks Corporation, which commissioned PricewaterhouseCoopers Advisory Services Limited to conduct a four-month consultancy study on the current state of digital infrastructure in Hong Kong.  The study found that Hong Kong's digital economy trails behind other major economies, and government policies could play a crucial role.  The consultant report recommends seven key policy measures to accelerate the development of Hong Kong's digital infrastructure to invigorate the digital economy.  FHKI calls on the Government to consider these recommendations so as to seize the opportunities presented by the digital age.

The study was conducted in consultation with 30 stakeholders in Hong Kong's digital infrastructure, including the city's four major telecommunications companies, international data centre firms, and cloud service providers. In addition, a survey was conducted with 60 operators, service providers, and users on issues such as data networks, digital devices, data storage, and data protocols.  Meanwhile, the study conducted eight case studies of other economies, including the Mainland, the United Kingdom, and Singapore, to compare with Hong Kong's situation.

Although Hong Kong ranked 2nd place overall globally in the World Digital Competitiveness Ranking 2021, Hong Kong ranked 6^th, 14^th and 17^th respectively in the three sub-factors of talent, scientific concentration and IT integration, and such rankings were lower than those of Singapore (i.e., respectively 2^nd, 11^th and 7^th).  While Hong Kong's digital economy contribution to the city’s GDP is not available yet, the case studies in the report revealed that the contribution of the digital economy in the Mainland’s first-tier cities can attain a magnitude as high as 30.5% (Shanghai at 13%, Beijing 21.1%, and Shenzhen 30.5%),  United Arab Emirates at 9.7%, Singapore at 8.0%[1], South Korea at 5.1%, and the United Kingdom at 4.6%.  According to the World Bank's estimate in 2021, the contribution of digital economy to global GDP is about 15.5%.

The consultant report reveals that government policies can play a pivotal role in driving the development of digital economy and digital infrastructure, based on models observed in other regions.  The report also highlights the need for development plans and roadmaps regarding funding sources, operational models, supportive policies and promotions and project delivery in integrating hard-infrastructure and soft-infrastructure in a coordinated and seamless manner.  In light of these findings, the report proposes seven recommendations for the development of digital infrastructure to establish Hong Kong as a leading digital economy as well as to enhance the city's competitiveness in the global market.

Hard-infrastructure Plan data and power network connection ahead to prevent high later-on excavation costs; Build data transmission centre to promote data-crossing with GBA cities; Assign dedicated department to oversee the planning and development of its data centre infrastructure; Soft-infrastructure Establish use cases for smart devices and Internet of Thing; Review the data-sharing legislation and establish data protocols; Establish regulatory oversight of 'Soft Infrastructure' in Web3.0 to develop the market; Statistical Tools Improve the annual CSD survey to measure the contribution of digital economy

 

Hard-infrastructure

1. Plan Data and Power Network Connection Ahead to Prevent High Later-on Excavation Costs

Hong Kong's telecom operators and power operators currently face high costs when laying their respective cable pipelines underground in the city's high-rise buildings and these costs are ultimately transferred to the end users.  To reduce these expenses, the Government is recommended to refresh the town planning and relevant ordinances to require the provision of electricity sub-station and fixed/mobile network connections in all future commercial and residential buildings, thereby avoiding the need for future costs of station build-up or excavation.  Additionally, guidelines, service models, and implementation arrangements should be established for public facilities such as cable installation pre-built conduits in new development areas. Shared cables and pipelines should also be set up for all telecom operators to use, thus lowering unnecessary data and power network deployment costs.

2. Build Data Transmission Centre to Promote Data-crossing with GBA Cities

Hong Kong needs to strengthen cooperation with various city governments in the Greater Bay Area to promote "data crossing" and encourage data sharing.  Both sides could first establish a "whitelist" of data sharing to test the feasibility of relevant measures and identify future improvement directions. In addition, the Government should consider establishing a data transmission centre to promote data sharing between the two places and establish standards related to data sharing, such as encrypted data and privacy protection.  Given the development of data sovereignty, artificial intelligence, and other emerging technologies, the current data regulations need to be reviewed to stay abreast with the latest developments of cross-border data exchange.

3.Assign Dedicated Department to Oversee the Planning and Development of its Data Centre Infrastructure

The report reveals that the current data centre capacity in Hong Kong will be keeping its growth at least before 2030.  However, there is no central coordination within the Government for the development of data centres and attracting relevant investors.  The current building regulations also do not apply to data centre operations. The report recommends that a dedicated unit to be established by the Government and refresh the Building Ordinance to make it applicable to data centres.  Suitable land and infrastructure support, including submarine and underground pipelines and high-voltage substations could be better coordinated to accelerate the development of digital infrastructure by the industry and investors.  Moreover, to aid Hong Kong in achieving its net zero goals, data centres would have to be more eco-friendly with low PUE[2].  In addition, the Government could prioritize or even provide incentives to the development of more advanced data centre infrastructure such as tier-3 or higher[3] data centres supplemented with high-end network, higher security systems, and cloud-based high performance computing service support so as to attract top data centre and digital operators to Hong Kong.

Soft-infrastructure

4. Establish Use Cases for Smart Devices and Internet of Things

Although Hong Kong's IoT market lags behind other regions, it has already been applied in property management, manufacturing, and logistics industries.  The report suggests that by launching Smart City applications, the Government can create more IoT or smart device use cases in Hong Kong, for example, by installing optical or environmental smart sensors to collect data for traffic enhancements.  The report also recommends expanding the multifunctional smart lamppost pilot scheme, accelerating the installation of smart meters for electricity and water, and installing IoT or smart devices in Government buildings to save energy, which can be converted into carbon credits for trading. Accelerating the installation of smart devices can provide public data for industry players to expand the data market and build a smart city.

5.Review the Data-Sharing Legislation and Establish Data Protocols

The Faster Payment System (FPS) settlement system can be seen as the best example of the Government promoting data agreements.  The project clearly defines data exchange standards and participation requirements, and it is commercially feasible.  The Government's recently developed digital identity authentication protocol and technology, iAM Smart, also helps mobile service providers verify the identity of their customers.  Despite having rich data, digital infrastructure operators and suppliers in Hong Kong still have untapped potential due to legal restrictions and fragmented data.  Therefore, the Government can moderate the review of relevant regulations on data privacy based on the principles of open data and data sharing and assist all parties in establishing data protocols, including data standards and requirements, data usage requirements and restrictions, to encourage stakeholders in the data market to create more services and products.

6. Establish Regulatory Oversight of 'Soft Infrastructure' in Web3.0 to Develop the Market

The market for Web 3.0 is growing at a compounded annual rate of 43.7% and is driving development in industries ranging from banking and financial services to online gaming and the arts.  Hong Kong's advantageous low tax rates, international fundraising capabilities, and rule of law make it an attractive hub for Web 3.0 platforms looking to establish a physical presence, positioning the city as a pivotal player in this space.  The report suggests that the Government could enact clear regulations to manage digital asset property rights and define the permissibility for Web 3.0 activities in both Hong Kong and the Mainland, particularly for assets generated by artificial intelligence. Establishing a robust framework for virtual asset companies would strengthen Hong Kong's position as the premier hub for the digital asset industry.

Statistical Tools

7. Improve the Annual CSD Survey to Measure the Contribution of Digital Economy

The development of the digital economy requires accurate statistical data to formulate policy objectives.  The Census and Statistics Department is recommended measuring the GDP contribution by the digital economy and its contribution to employment, and to improve the questionnaire design of the annual survey to obtain more information about the digital economy.  For example, data on the revenue generated by enterprises from e-commerce sales, expenditure on electronic products and services, and the proportion of full-time employees engaged in digital technology-related work.  This will enable the Government to make informed decisions to support the development of the digital economy.

FHKI is pleased to see that the Government has shown a continuous commitment to the development of the digital economy and digital infrastructure.  Last year, the Government established the Digital Economy Development Committee to provide advice on the development of the digital economy to the Government.  This year's budget also announced the feasibility study on the establishment of an artificial intelligence supercomputing centre.  FHKI appeals to the administration to catch up with the development of the digital economy by adopting the recommendations of the consultant report, enhancing departmental collaboration and coordination, and accelerating the development of digital infrastructure to become a strong supporter for Hong Kong's transition to an international I&T hub.

The executive summary of the study is available here.