Presentation by Mrs. Regina Ip,Presentation by Mrs. Regina Ip,Legislative CouncilorLegislative Councilor

at Business and Professionals Federation of HKat Business and Professionals Federation of HK dinner discussion on 11 May 2009dinner discussion on 11 May 2009

Per capita GDP (nominal) figuresPer capita GDP (nominal) figures

20000

22000

24000

26000

28000

30000

32000

97 98 99 00 01 02 03 04 05 06 07 08

Per capita GDP (nominal) inUSD

Gini CoefficientGini Coefficient

0.476

0.5180.525

0.533

0.44

0.46

0.48

0.50

0.52

0.54

1991 1996 2001 2006

Classic Economic Growth FormulaClassic Economic Growth Formula

YYtt = A = Att F( N F( Ntt , K , Ktt ) )

YYtt = Output in year t = Output in year t

AAtt = Index of = Index of overalloverall productivity in year tproductivity in year t

NNtt = labour in year t = labour in year t

KKtt = capital in year t = capital in year t

• Technological advances have led to a Technological advances have led to a continual increase in total factor continual increase in total factor productivity(Aproductivity(Att))− a a continual rise in national income continual rise in national income

for each unit of inputfor each unit of input

• MIT Professor Robert Solow estimated MIT Professor Robert Solow estimated in 1956 that technological progress in 1956 that technological progress has accounted for 80% of the long-has accounted for 80% of the long-term rise in US per capita incometerm rise in US per capita income

““If economic growth could be achieved only by If economic growth could be achieved only by doing more and more of the same kind of doing more and more of the same kind of cooking, we would eventually run out of raw cooking, we would eventually run out of raw materials and suffer from unacceptable levels materials and suffer from unacceptable levels of pollution and nuisance. Human history of pollution and nuisance. Human history teaches us, however, that economic growth teaches us, however, that economic growth springs from better recipes, not just from more springs from better recipes, not just from more cooking.”cooking.”

““If economic growth could be achieved only by If economic growth could be achieved only by doing more and more of the same kind of doing more and more of the same kind of cooking, we would eventually run out of raw cooking, we would eventually run out of raw materials and suffer from unacceptable levels materials and suffer from unacceptable levels of pollution and nuisance. Human history of pollution and nuisance. Human history teaches us, however, that economic growth teaches us, however, that economic growth springs from better recipes, not just from more springs from better recipes, not just from more cooking.”cooking.”

A useful metaphor for production in an A useful metaphor for production in an economy comes from cooking --economy comes from cooking --

Paul Romer, Senior Fellow , Hoover Institution, Stanford UniversityPaul Romer, Senior Fellow , Hoover Institution, Stanford University

Birth of New IdeasBirth of New Ideas

• IndivisibleIndivisible

• InappropriateInappropriate

• UncertainUncertain

Investments in R & D leading to basic Investments in R & D leading to basic scientific discoveries arescientific discoveries are

• Many Many appliedapplied ideas have to be ideas have to be developed before any basic scientific developed before any basic scientific discovery yields any commercial valuediscovery yields any commercial value

• For this reason, most economists For this reason, most economists support government funding for basic support government funding for basic scientific researchscientific research

- Product or process engineeringProduct or process engineering

- Development of new business modelDevelopment of new business model

- Creation of new marketsCreation of new markets

- Policy innovationPolicy innovation

Innovation can be in the form ofInnovation can be in the form of

In Hong Kong, we need a new In Hong Kong, we need a new economic model which privileges economic model which privileges the importance of ideas, the importance of ideas, knowledge and innovation as the knowledge and innovation as the key drivers of economic growthkey drivers of economic growth

Current Economic StrategyCurrent Economic StrategyInfrastructureInfrastructure-The South Island -The South Island LineLine

Current Economic StrategyCurrent Economic StrategyInfrastructureInfrastructure-LMC Loop-LMC Loop

Current Economic StrategyCurrent Economic StrategyInfrastructureInfrastructure-Hong Kong – Zhuhai – Macao Bridge-Hong Kong – Zhuhai – Macao Bridge

Current Economic StrategyCurrent Economic StrategyTourismTourism

-Pearl River Delta One Hour Circle-Pearl River Delta One Hour Circle--珠三角一小時生活圈珠三角一小時生活圈

Current Economic StrategyCurrent Economic StrategyFinancial SectorFinancial Sector-Under severe stress from global Financial -Under severe stress from global Financial MeltdownMeltdown

Current Economic StrategyCurrent Economic Strategy

InfrastructureInfrastructureMore of the More of the SameSame

New-found emphasis on New-found emphasis on CreativeCreative IndustriesIndustries reveals the same age-old reveals the same age-old adherence to a sectoral approach, and adherence to a sectoral approach, and failure to grasp the importance of new failure to grasp the importance of new ideasideas

TourismTourism

Financial ServicesFinancial Services

Creative Industries Creative Industries embrace all those embrace all those activities/enterprises which rely on activities/enterprises which rely on innovationinnovation, , creativitycreativity and and cultural cultural content content to create value. They may or to create value. They may or may not involve the use of may not involve the use of technologytechnology

Fashion DesignFashion Design

Digital EntertainmentDigital Entertainment

Ceramics from FoshanCeramics from Foshan

• Use of technology (such as digital tools)Use of technology (such as digital tools)

• Branding and design, leading to the creation of Branding and design, leading to the creation of an identity for a product or set of productsan identity for a product or set of products

What is Value?What is Value?Value = Price - CostValue = Price - Cost

Value = Technology + DesignValue = Technology + Design

Two ways to create value in the era of digital, Two ways to create value in the era of digital, globalized economyglobalized economy

New Opportunities for Developing New Opportunities for Developing New IndustriesNew Industries

- Knowledge-intensive, technology-Knowledge-intensive, technology-driven enterprisesdriven enterprises

- Creative IndustriesCreative Industries

Thanks to New Land Becoming Thanks to New Land Becoming Available at-Available at-

- Lok Ma Chau LoopLok Ma Chau Loop

- North East New Territories(Ping Che/Ta North East New Territories(Ping Che/Ta Kwu Ling)Kwu Ling)

Source: Planning Department

Common CharacteristicsCommon Characteristics

- Locational advantage – proximity to Locational advantage – proximity to ShenzhenShenzhen

- Cross-boundary productionCross-boundary production

- Leveraging the competitive Leveraging the competitive advantages of Mainland(especially advantages of Mainland(especially Shenzhen) and Hong KongShenzhen) and Hong Kong

Source: Planning Department

Possible of LMC LoopPossible of LMC Loop

Higher EducationHigher Education

Possible of LMC LoopPossible of LMC Loop

Convention and ExhibitionConvention and Exhibition

Possible of LMC LoopPossible of LMC Loop

Technology-based enterprisesTechnology-based enterprises

Thank you!Thank you!