Inno-tech integration ‘key catalyst’ for growth SAR’s mega Northern Metropolis plan is hailed as a visionary move to ease city’s housing woes and speed up integration with Greater Bay Area development. 6 5 By oswald CHAN D uring his inspection tour of the SAR last month, Xi pledged the central government’s full support for Hong Kong to align itself with national development strategies, particularly, the 14th Five-Year Plan (2021-25), the Guangdong-Hong KongMacao Greater Bay Area and the Belt and Road Initiative which reinforce Hong Kong’s potential in innovation and technology. The president visited the Hong Kong Science Park and urged Hong Kong to collaborate closely with other cities in the Greater Bay Area in strengthening and creating synergies among research and academic institutions, industries and finance, and building a global highland for scientific, technological and innovation advancements in the 11-city cluster. Business chambers, professional services bodies and global business advisory firms in Hong Kong say that integrating Hong Kong’s innovation and technology sector with the Greater Bay Area will be a key catalyst for growth. Therefore, the SAR should adopt a full-fledged approach in cementing its inno-tech ecosystem. First, Hong Kong should employ P.22 Connecting GBA with RCEP a comprehensive strategy to bolster integration with other Greater Bay Area cities, with a focus on harmonizing different institutional systems. “Hong Kong should ac tively collaborate with the central government in implementing more preferential arrangements to strengthen the flow of people, capital, goods and information,” said Chinese Manufacturers’ Association of Hong Kong Chairman Allen Shi Lop-tak. The business chamber would like to see the 11-city cluster become a “special commuting zone”, with some tax exemptions related to “days of presence” for Hong Kong and Macao residents who regularly live and work in the Greater Bay Area’s mainland cities. For example, if Hong Kong and Macao residents enter and leave the Chinese mainland through the Greater Bay Area’s boundaries within a specific time limit, their stay should not be counted as a “day of presence”. “We urge the Hong Kong authorities to coordinate with their counterparts to provide policy suppor t and business facilitation measures, such as streamlining the approval process for Hong Kong products to be registered and sold in the Greater Bay Area, strengthening intellectual property protection o f Ho n g Ko n g brands, promoting mutual recognition of testing reports in Hong Kong and on the mainland, and introducing insurance services for domestic sales,” said Shi. Hong Kong has cemented various inno-tech infrastructures to drive the industry’s growth. The San Tin Technopole, under the Northern Metropolis Development Strategy, which is expected to pool the resources of research institutions, universities and technology companies, can be an ideal platform for synergistic research and development and knowledge spillover. “The Northern Metropolis can be the perfect testing ground for prototyping and pilot production before proceeding to mass production in plants in adjacent cities in the Greater Bay Area. If they succeed in turning ideas, inventions and breakthroughs into commercially viable produc ts, the Nor thern Metropolis can become the link for startups with supply chain expertise/ downstream demands in the Greater Bay Area cities,” said Deloitte China’s TMT Industry Southern Region Leader Chan Yiu-bong. Under the Northern Metropolis development plan, Hong KongShenzhen Innovation and Technology Park and the areas around Lok Ma Chau/San Tin will be consolidated to form the San Tin Technopole, which will have an estimated 240 hectares of land for innovation and technologyrelated use. The technopole, together with the Shenzhen Innovation and Technology Zone, will form the Shenzhen-Hong Kong Innovation and Technology Cooperation Zone with about 540 hectares. The first batch of eight buildings of the HSITP in the Lok Ma Chau Loop will be completed in phases from late 2024. Shi urged the HKSAR to cooperate with Shenzhen in establishing a “pilot-plant” platform in the Northern Metropolis to achieve a win-win situation. “The platform, on one hand, can raise the success rate in the transformation of local R&D achievements by leveraging the Greater Bay Area’s land resources and strong manufacturing base. The platform can also serve as a gateway for information and technology
enterprises in the Greater Bay Area in going global and attracting foreign investment and global talents,” he said. Procurement and funding Meanwhile, Hong Kong should introduce a pro-innovation procurement policy with priority for local inno-tech products and services to set an example for private enterprises. Chan from Deloitte China cited Singapore, which introduced the concept of dynamic contracts, allowing suppliers to offer new products and services to the government instead of waiting for their contracts to expire. Another innovative solution in Singapore is the use of spiral contracting, with companies contracted in stages as a project progresses, and each step dependent on the success of the previous one. Besides procurement, funding is another financial lifeline for technology startups. The HKSAR should enhance co-investment programs by increasing risk appetite or introducing alternative models, and channelling funding into high-risk, high-impact and scalable startups more aggressively. “By expanding the eligibility of its funding programs to cover more startups, the government can stimulate more funding from private investors and share the risk by providing guarantees or co-investing in joint funds. It can also actively seek new co-investment partners to increase the number of deals, for example, by expanding the type of co-investment partners to include mature startups,” Chan suggested. Hong Kong saw its number of startups almost quadruple from about 1,000 in 2014 to 3,755 last year, while venture capital investment surged from HK$1.2 billion ($153 million) to about HK$41.7 billion during the same period, according to government data. Hong Kong has witnessed the birth and development of 18 unicorns in the technology and innovation sector, including high-end manufacturing, robotics and financial technology. Attracting talent Moreover, Hong Kong should attract and retain global talent and build a sustainable pipeline of local talent. Albert Wong Kwan-butt, Greater Bay Area committee member at CPA Australia, said Hong Kong should be aware of the number of talents and skillsets required in formulating talent policy. “If there are not sufficient local talents, the government should consider importing talents that are badly needed. Startup entrepreneurs want to be sure whether Hong Kong has sufficient required talents to support their operations.” As for skillsets, expertise in data science, Last but not least, the importance of policy support in propelling the growth of the inno-tech ecosystem should not be underestimated. Policies should focus on formulating a clear industry formula, positioning Hong Kong’s technology startups’ business acumen, and supporting the traditional manufacturing sector. “Hong Kong does not have a policy to promote high-growth industries. The government should do the stocktaking to know what kind of industries Hong Kong should support. Sticking to the levelplaying field may not be a good strategy in the inno-tech age,” Wong said. “When Hong Kong has a clear industry policy, it will then create supply and demand. Elderly care, manufacturing medical devices, biotech and gerontech are industries the government can focus on.” The second kind of policy support required is that the SAR government, the Hong Kong Science Park and the Cyberport should cooperate with their counterparts in the Greater Bay Area to be a “technology solution architect” — sourcing different technology solutions provided by startups, and integrating them into a comprehensive solution to solve a particular business problem. “Enterprises now face various complex business problems and need technology solutions that require the bundling of various technologies. In this aspect, Hong Kong may have to consider playing the role of some kind of a technology solution broker,” said Wong. A vibrant inno-tech startup ecosystem does not concern just the inno-tech industry. Although many Hong Kong manufacturing enterprises have relocated their production lines to the mainland, their headquarters and support bases remain in Hong Kong, and they are important application venues for local inno-tech startups. “ We belie ve Hong Kong should strengthen its role as the region’s manufacturing coordination hub and encourage more advanced manufacturing processes to take place, in order to drive further development in technology startups and have a far-reaching impact on our economy. Hong Kong can continue playing a pivotal role in the regional manufacturing value chain by engaging in R&D and producer services, while (other cities in) the Greater Bay Area remain the commercialization and production base for companies,” said Federation of Hong Kong Industries Chairman Sunny Chai Ngai-chiu. He hopes the HKSAR government can support and upgrade local producer services to give technology startups more room for growth and development. “The government should review its existing industrial policy and include Hong Kong-invested manufacturing enterprises on the mainland as the beneficiaries of various industrial and innovative subsidy schemes. Traditional manufacturing industries can therefore utilize government funding to realize transformation and upgrading, while inno-tech startups can have more business opportunities,” Shi from the Chinese Manufacturers’ Association of Hong Kong reckoned. The business chamber suggested that the new Innovation, Technology and Industry Bureau should promote a twotrack system of innovation and technology and industrial development, and formulate long-term, clear, macro industrial policies to enable the integration of manufacturing industries with industries related to innovation and technology. A cross-border government collaboration and policy coordination system to promote cooperation among research institutes, as well as inno-tech and manufacturing sectors in Hong Kong and Guangdong province, should be set up to form an inno-tech upstream, midstream and downstream industrial chain and turn the Greater Bay Area into an international inno-tech hub, it added. The HKSAR’s fifth-term administration had pledged to raise the R&D expenditure ratio to 1.5 percent of the city’s GDP between 2017 to 2022, and had invested more than HK$130 billion in the past five years to develop the inno-tech industry. However, the ratio was only 0.99 percent in 2020 — still lower than the Organization for Economic Cooperation and Development countries’ R&D intensity ratio of 2.7 percent — according to Hong Kong’s Census and Statistics Department. The Global Innovation Index 2021, published by the World Intellectual Property Organization, ranked Hong Kong among the top 15 of some 130 economies. XXXXXXXXXXXX robotic machines and material science is needed, along with the ability to use animation to deliver virtual experience in the metaverse, according to Wong. Hong Kong is leveraging its strengths in life and health sciences to fit into the 14th Five-Year Plan (2021-25). The HKSAR government has proposed setting up an InnoLife Healthtech Hub at HSITP in the Lok Ma Chau Loop, with the 16 life and health-related laboratories in the InnoHK research clusters and the eight State Key Laboratories in life and health disciplines as the basis, to focus on research and development of biomedicine, chemistry, physics, engineering and artificial intelligence. These can be applied in disease prevention, diagnosis, pathology tracking, medicine, surgical micro-robots, as well as advanced treatment and rehabilitation of patients. In Wong’s view, Hong Kong should not just mull attracting talents to work in technology startups, but find ways to lure more startup entrepreneurs to start their careers in Hong Kong. “The SAR government, the Hong Kong Science Park and the Cyberport should have another set of business facilitation measures, such as administrative support, tax incentives or direct financial subsidies, to lure global innovative talents to start their technology careers in Hong Kong. With more startups in the city, there would be more jobs for technology workers,” he said. Connecting GBA with RCEP P.23
Startups off with a bang Hong Kong’s bid to be a world technology hub, favorable policies and Greater Bay Area integration have spurred a dramatic surge in the number of startups in the city in the past few years. By Zhang Tianyuan and Liu Yifan T he Hong Kong Special Administrative Region has forged a robust entrepreneurship and innovation ecosystem in the past 25 years — with promising prospects and blessed with an abundance of talent, proximity to the Chinese mainland market, funding programs and favorable policies. Riding high on its goal of becoming an international technology hub, Hong Kong has seen the number of startups in the city having almost quadrupled to 3,755 last year from about 1,000 in 2014, while venture capital investment surged to HK$41.7 billion ($5.3 billion) from HK$1.24 billion during the same period, based on official data. Hong Kong has witnessed the birth and development of 18 unicorns across the technology and innovation sector, including high-end manufacturing, robotics and financial technology. The 2021 Global Innovation Index, published by the World Intellectual Organization, ranked Hong Kong among the top 15 of some 130 economies. Hong Kong’s low tax structure and supportive policies are favorable for the growth of tech startups, said Terence Chong Tai-leung, an associate professor at the Chinese University of Hong Kong’s Economics Department and executive director of the Lau Chor Tak Institute of Global Economics and Finance. “Free capital flow is also attractive as it makes it convenient for these companies to expand their cross-border operations,” he said. Jonathan Cheung, co-founder and CEO of startup Inovo Robotics, said Hong Kong has sufficient academic talent to support the development of innovation and technology as the city is home to five of the world’s top universities. Five academies from Hong Kong’s tertiary educational institutions — the University of Hong Kong, the Hong Kong University of Science and Technology, the Chinese University of Hong Kong, City University of Hong Kong and the Hong Kong Polytechnic University — were listed last year among the world’s top 100 universities, according to QS World University Rankings. Strong incentives Cheung said he was attracted by the SAR’s geographical proximity to cities on the mainland, as well as its efficient supply chain, low-cost manufacturing, and the city being a “visible market with great potential”. Inovo Robotics, headquartered in the United Kingdom, opened an office in Hong P.24 Connecting GBA with RCEP Kong as its Asian base, offering automotive tools that can perform repetitive tasks for various kinds of businesses. Ricky Chiu Yin-to, founder and CEO of Hong Kong-based Phase Scientific International, agreed that Hong Kong has a “strong foundation in academia”, with the Guangdong-Hong Kong-Macao Greater Bay Area offering all the elements a startup needs to thrive. Eyeing the opportunities in the Greater Bay Area, Chiu said Hong Kong still isn’t the end point of his medical diagnostic products company. The HKSAR government has injected more than HK$150 billion into the innotech sector since 2017 through diversified initiatives. The city’s 2022-23 Budget said the government would allocate HK$10 billion for the Future Fund to support businesses with growth potential and HK$16 million for local universities’ research and development. Wang Jun, CEO of Hong Kong-bred unicorn GeneHarbor, recalled that when the company was founded in 2004, he already had the technology resources to develop their products from the Innovation and Technology Fund provided by the Innovation and Technology Commission. “Our company had also benefited from the Research Talent Hub during the early stages of its growth, as well as the Elite Programme,” he said. The Research Talent Hub grants direct funding of up to HK$32,000 to each eligible professional working in a startup, while the Elite Programme, sponsored by Hong Kong Science and Technology Parks, offers fastgrowing enterprises with funding of up to HK$21.5 million to spawn their businesses in the international market. The direct funding programs in marketing and highly-skilled professionals have enabled the anti-aging products producer to use much of the capital on research and development, according to Wang. Innovation ecosystem With the aim of making itself a global innovation and technology hub, Hong Kong is ramping up efforts to bolster technology applications in various sectors. A landmark was reached in 2020 as eight virtual banks went into full operation, delivering financial services entirely online with no physical branches by virtue of emerging technologies. Backed by Hong Kong’s vibrant innovation and technology landscape, virtual banks have gained momentum in business expansion, said Ari Zhou Ming, executive director and chief executive of Fusion Bank — one of Hong Kong’s eight licensed virtual banks. Headquartered in Hong Kong, Fusion Bank has become a favorite business project among private investors. Apart from Shenzhenbased internet giant Tencent Holdings, other shareholders include Hong Kong Exchanges and Clearing and property tycoon Adrian Cheng Chi-kong. The Hong Kong Monetary Authority rolled out the “Fintech 2025” strategy last year to spur the city’s financial sector to comprehensively adopt technologies, such as artificial intelligence, blockchain, cloud computing and big data. Hailing the “multi-pronged measures” Hong Kong has taken so far, Zhou said he is confident about the city’s business prospects. “The SAR government had set up InvestHK — the official body responsible for attracting foreign direct investment. This has helped Hong Kong carve a place in the national fintech ecosystem that will further consolidate its position as a world financial center.” With Hong Kong’s rapid integration with other cities in the Greater Bay Area, and the expansion of cross-border investment channels, there are abundant opportunities for technological innovation in the future, said Zhou. Apart from creating official bodies like the Innovation, Technology and Industry Bureau, the HKSAR government established Hong Kong Science and Technology Parks Corp and Cyberport as incubators of startups to accelerate technological innovation and commercialization. Given its well-established innovation landscape and status as a leading financial center, Hong Kong is seen as a popular tech hub to develop businesses, according to a report released by the FinTech Association of Hong Kong, which surveyed more than 70 tech-related companies involved in activities that include artificial intelligence and big data. Up to 70 percent of the respondents regard Hong Kong as their top market, with more than 80 percent of them planning to increase their headcounts in the city. Hong Kong Financial Secretary Paul Chan Mo-po is beaming with confidence, saying Hong Kong’s innovation ecosystem has become increasingly mature and is ready to contribute more to the city’s economy and competitiveness in the next few years.
Boom time for startups Hong Kong’s finance sector, particularly trade and supply chain financing, as well as global capital markets, will see strong growth potential offered by the Regional Comprehensive Economic Partnership, and Hong Kong should strive to be a key financial link between the Chinese mainland and other RCEP economies. By Liu Yifan H ong Kong’s private equity and venture capital landscape has made strides in driving startups and their scale-ups, paving the way for the city to foster its innovation and technology ecosystem. The amount of venture capital investment surged to around HK$41.7 billion ($5.34 billion) last year from HK$1.24 billion in 2014, according to data from the city’s 2022-23 Budget. The special administrative region’s private equity market, with more than $190 billion of assets under management as of June, is the secondlargest in Asia after the Chinese mainland. Besides bank loans and initial public offerings, private equity and venture capital are crucial financing channels for companies’ business development, particularly in their infancy. “With Hong Kong as one of the world’s financial centers, it means we have fundraising capabilities throughout the value chain of a startup,” says Jayne Chan, head of StartmeupHK at InvestHK — the SAR government’s agency tasked with promoting foreign direct investment and helping foreign enterprises to expand in the city. Convenient access to abundant funding is one of the major business fundamentals that has helped Hong Kong forge a robust startup ecosystem, says Chan. According to official figures, the number of startups had gone up fourfold — from about 1,000 in 2014 to some 4,000 in 2021 — while 18 companies have become unicorns, including artificial intelligence company SenseTime, on-demand logistics and delivery firm Lalamove and digital lender WeLab. Currently, Hong Kong is also Asia’s largest and the world’s second-largest fundraising hub for biotechnology. “A strong investment landscape is an important part of building a robust innovation and ecosystem. Where there is money, opportunities and talent will follow,” says Aldous Mak, chief financial officer at Hong Kong Science and Technology Parks Corp. “In recent years, we have seen an increase in venture capital firms, and the number of family offices in Hong Kong is at an all-time high,” Mak adds. “The investments we are seeing from private equity and venture capital funds symbolize confidence in startups that we have the capital to match their ambitions.” HKSTP Venture Fund is among numerous corporate venture capital funds in the SAR that combine private funding resources to nurture early-stage businesses. From its inception in 2015 to March last year, the fund had invested HK$203.5 million in 19 technology companies. At present, it has more than HK$600 million in assets under management, in which every HK$1 invested by the corporation draws an external investment of HK$16 to support local startups at different stages of funding. “A strong investment environment creates a virtuous cycle supporting startups and value creation within the innovation ecosystem which will, in turn, attract investors to land at Hong Kong Science Park,” says Mak. The increasingly diverse and rich funding landscape also dovetails with the city’s goal of developing into a global innovation hub. In the past five years, the SAR government has plowed more than HK$150 billion into the innovation and technology sector and set up a HK$5-billion Strategic Tech Fund to invest in technology enterprises. HKSTP and Cyberport are helping to identify technology enterprises that are of strategic value to Hong Kong, as well as investment opportunities conducive to enriching the ecosystem. Wang Jun, CEO of Hong Kong-bred unicorn GeneHarbor, says the company was one of the beneficiaries of the Research Talent Hub under the Innovation and Technology Fund during the early stages of its growth, as well as the Elite Program sponsored by HKSTP. The Research Talent Hub grants direct funding of up to HK$32,000 to each eligible professional, while the Elite Program offers fast-growing enterprises funding of up to HK$21.5 million to expand their businesses in international markets. These direct funding programs for highly-skilled professionals and business expansion have enabled the biotechnology firm to use much of its capital on research and development, says Wang. Cross-border boost The red-hot expansion of Hong Kong’s early-stage fund pool is showing no signs of easing. For one thing, the SAR’s deeper integration into the development of the Guangdong-Hong Kong-Macao Greater Bay Area is a welcome boost. In September, the SAR government and the Qianhai Authority of Shenzhen jointly promulgated 18 measures to support the linked development of Shenzhen and Hong Kong venture capital investments in Qianhai. The measures complement Hong Kong’s “three-step strategy” for developing the private equity fund market — introducing a limited partnership fund regime; offering tax concessions for carried interest distributed by eligible private equity funds; and establishing a mechanism to attract foreign funds to redomicile in Hong Kong. As for fostering the free flow of capital between the two places and channeling funds from around the world to the Greater Bay Area, numerous measures will be taken, including expanding the investment scope and streamlining the application process of Qianhai’s Qualified Foreign Limited Partnerships pilot program, which allows Hong Kong institutional investors to conduct private equity and venture capital investment in mainland cities of the Greater Bay Area. The linked development of the private equity markets of Shenzhen and Hong Kong will also be promoted via a regulatory “sandbox” mechanism for cross-border financial innovation. Secretary for Financial Services and the Treasury Christopher Hui Ching-yu calls the joint policy package a “breakthrough and an innovation in the mechanism”, reflecting the two authorities’ determination to support the development of private equity and venture capital funds. “It is believed that with the wide-ranging measures in place, more private equity and venture capital funds will use Hong Kong as a base for investing on the mainland,” Hui says. Taking it a step further, as Mak says, there will be more early-stage investment in the Greater Bay Area to develop frontier technologies, spurred by the joint development of and mutual access to the private equity markets across the border. “It will ultimately contribute to the creation of an international innovation and technology hub in the Greater Bay Area,” he says. Connecting GBA with RCEP P.25
Mulling over a future with ‘blank checks’ Hong Kong’s new listing regime for special purpose acquisition companies has drawn a slow but encouraging response amid global geopolitical uncertainties. Market pundits say the regime will attract high-quality enterprises to go public in the SAR with the city’s strict listing rules. Zhang Tianyuan reports from Hong Kong. By Zhang Tianyuan H ong Kong is well up to the mark in trying to get special purpose acquisition companies (SPACs) aboard the city’s bourse in its efforts to beef up its status as a world market for raising funds, as well as a global financial hub. Since the Hong Kong Stock Exchange launched its SPAC listing regime in January, 12 SPACs have submitted prospectuses with a view to raising a total of HK$12 billion ($1.53 billion) in their IPOs. The new listing regime — an alternative to traditional IPOs — is to allow so-called blank-check companies, which do not have commercial operations, to get listed initially and then acquire or merge with an existing private enterprise. HKEX made the move despite global headwinds created by market uncertainties arising from the COVID-19 pandemic as well as growing inflation and supply-chain disruptions that have taken a heavy toll on capital markets worldwide. Market experts are split in their views on the international financial hub’s SPAC listing regime, with some convinced that it will attract more high-quality investors to Hong Kong in the long run. The Year of the Tiger — the Chinese zodiac year for 2022 — saw HKEX welcome the first SPAC in its listing history on March 18. Aquila Acquisition Corp, backed by an affiliate of Shenzhen-based China Merchants Bank Co, debuted on the main board, raising $128 million in its IPO. The company’s stock price is traded at HK$9.3 — below its offering price of HK$10. It was followed by 11 other SPACs that have presented formal documents to HKEX about their flotation plans to stock market investors. An HKEX spokesperson said the new P.26 Connecting GBA with RCEP listing framework aims to provide another route for businesses to raise funds in Hong Kong and allow more companies from the Chinese mainland, Southeast Asia and beyond to go public in the special administrative region. Singapore — Hong Kong’s financial-market archrival in the region — has so far completed three SPAC listings in the city-state. The three firms are Vertex Technology Acquisition Corp, Pegasus Asia, and Novo Tellus Alpha Acquisition Corp, which raised a total of $334 million in their respective IPOs. Edward Au, southern region managing partner at Deloitte China, said he expects to see up to 20 SPACs listed in Hong Kong this year. The trend will be partly dictated by geopolitical tensions, as well as the performance of other SPAC listings that follow. Mary Leung Ka-yan, head of advocacy for Asia-Pacific at the CFA Institute, said global uncertainties are wreaking havoc on many fundraising plans, and SPAC listings, like traditional IPOs or secondary offerings, are impacted. “Investors are displaying a high level of caution amid such volatility”. Statistics from Refinitiv — a US-British provider of financial market data — show that the amount of funds raised in IPOs for listings on the HKEX main board shrank by 90 percent year-on-year in the first quarter of 2022. As of March 28, only 11 companies had raised a total of $1.72 billion — the lowest since the first quarter of 2013. “Activity will remain subdued until there’s a clearer picture of the global and regional growth outlook,” Leung said. Some financial pundits are upbeat, saying that Hong Kong’s SPAC listing regime, which follows that of the United States and Singapore, is attractive and competitive for overseas investors with the support of the mainland marke t in the long run. This will have a positive effect on the development of Hong Kong’s capital market. Dramatic shift A SPAC offers a new way of making merger and acquisition deals. A shell company listed on the stock exchange usually has a two-year period to seek a targeted private company and then merge with it to go public; otherwise, the funds raised would be returned to investors. Compared with the traditional IPO, the process of going public via a shell company would take a shorter period as negotiations to clinch a deal can be done directly between investors of the private firm and SPAC sponsors. SPACs stirred a frenzy in the US market in 2020, with a record 248 SPAC IPOs raising $83.4 billion in gross proceeds, according to SPAC-tracking company SPACInsider. However, the US SPAC market has cooled significantly since 2022, with just $7.1 billion raised in the first three months of this year, according to data compiled by Bloomberg. It indicates that investors are becoming wary of funding companies with little revenue or inexperienced management teams. The US Securities and Exchange Commission has tightened scrutiny of the SPAC sector to address issues about insufficient protection for investors. Research conducted by financial scholars at the University of Hong Kong showed that the reputation, experience and quality of SPAC sponsors with a powerful network in the private equity and venture capital industries are key to the success of SPACs as investors rely on them in choosing what company to merge with. Louis Lau, a partner with the capital markets advisory group of KPMG in China, said, “The focus of sponsors’ due diligence work for the private company is not on an operations or business model as in a traditional IPO, but on transaction agreements and the profile of SPAC promoters.” Several SPAC promoters have a remarkable reputation and strong quality among shell companies filing for an IPO on HKEX. Among them are former Olympic gymnast and sportswear entrepreneur, Li Ning, who holds a 33 percent stake in Trinity Acquisition Holdings; Adrian Cheng Chi-kong, CEO of New World Development Company and A SPAC (HK) Acquisition; Lawrence Ho Yaulung, chairman of Macao casino operator Melco Resorts & Entertainment and Black Spade Asia Acquisition; and Norman Chan Tak-lam, former CEO of the Hong Kong Monetary Authority, who holds 51 percent of the shares in HK Acquisition Corp. Targeted SPAC acquisition firms in Hong Kong cover a wide range of sectors, including new energy, healthcare, biotechnology and green finance. Eden Wong Yi-dung, president of CPA Australia Greater China Division, said companies in these fields are growing rapidly and their valuations have been less affected by the public health crisis. Peng Qian, director of the Tanoto Center for Asian Family Business and Entrepreneurship Studies at the Hong Kong University of Science and Technology, said that SPAC promoters like Cheng and Ho are from renowned business families that have gained extensive experience in handling SPACs from their family office operations and managing private wealth investments. The reputation of their families and their investing experience are beneficial to their SPAC listings, she said. In Lau’s opinion, a SPAC is just a way to get its target companies listed. Essentially, it’s the Hong Kong IPO market that attracts private companies to go public. Au said Hong Kong has a maturing ecosystem for innovative and new-economy companies to develop and thrive, and this will continue to be a powerful magnet for those enterprises, US-listed firms, SPACs and potential targeted businesses. Hong Kong has maintained its ranking as the world’s top IPO market in seven of the past 12 years. The SAR is also the largest biotech fundraising venue in the Asia-Pacific region
Into a heritage metaverse Technological advancement i s play i n g a key role i n preserving and promoting cultural heritage assets that are at risk of extinction or destruction. Su Zihan reports from Hong Kong. By Su Zihan A s new infrastructure continues to proliferate Hong Kong amid massive redevelopment, many of the city’s old buildings have faded into oblivion. To name a few, the former Star Ferry Pier at Edinburgh Place; the old General Post Office Building on Pedder Street, Central; Club Germania on Kennedy Road; and the “Crane’s Nest” — the Kowloon Tong home of late kung fu icon Bruce Lee — have all vanished from the scene, although they are a collective memory for Hong Kong people. It may not be possible to re-create these lost structures in the real world. But today, as technology continues to progress, the option of visiting virtual renditions of real-world locations is becoming viable, allowing such heritage that have been removed from the urban landscape to venture into the digital space. “What if the historical architectures demolished from the city’s landscape get to relive their moments?” This is a question posed on the website of the (un)lost architecture NFT project. Launched by Charles Lai Chun-wai, who holds a doctorate in architectural history from the University of Hong Kong, the project is to digitally re-create Hong Kong’s demolished historical buildings in the metaverse. The first batch of the (un)lost architecture series consists of five NFT (non-fungible token) projects — Club Germania, the old Star Ferry Pier at Edinburgh Place, the thirdgeneration General Post Office, the secondgeneration Queen’s Pier, and the old Peak Tower. Buyers can now view those lost places in the virtual world and own architectural models. Many of these meaningful historical buildings in the special administrative region are known to younger generations through old photographs or videos. However, Lai says, from an architectural point of view, relying on photographs alone doesn’t allow one to feel the volume and design of any of the buildings itself, or its three-dimensional aesthetics as a building from different angles. “The project is thus aimed at re-creating lost historical buildings digitally and raising funds for research and the preservation of Hong Kong’s old buildings,” says Lai. The project was launched in December 2021 at a price of 0.02 ethers (about HK$225, or $28.6) per NFT. It has already achieved its expected sales target, with 80 percent of the NFTs sold so far. The project will enter its second phase, in which augmented-reality features will be added to enable users to “revisit” the lost buildings in their locations, according to Lai. While the current stage of the project is more like an NFT artwork, he hopes to bring a better interactive experience to buyers later, making more people cherish and preserve local historical buildings. ‘An unrestricted form’ As technology continues to advance, the option of accessing virtual renditions of realworld locations is becoming more feasible, enabling users to immerse themselves in reallife simulations that are difficult or impossible to visit in real life. Just walk along To Fuk Road and Rutland Quadrant in Kowloon Tong before turning into Cumberland Road and keep walking until you reach No 41. After opening the dark yellow gate, you will find a cobblestone path that winds through the lawn of the courtyard to a two-story townhouse. The courtyard is flanked by greenery on both sides of the house, alongside which is parked a vintage red Mercedes. This is the original site of Bruce Lee’s Crane’s Nest, which was demolished in 2019. The rebuilt heritage preservation project now extends into the virtual world through the metaverse. Visitors are able to step inside again with a VR headset and remote-control handle. People can even own it in the near future as an NFT. To commemorate the 49th anniversary of the martial arts superstar’s death, the Bruce Lee Club has partnered with local digital marketing company Prizm Group to re-create the actor’s former home in Kowloon Tong through VR technology, hoping to reclaim memories and cultural preservation by leveraging Web3 and blockchain technology. Using advanced 3D imaging technologies, three students from the Hong Kong Institute of Vocational Education (Sha Tin), with the assistance of two professors from the School of Design of Hong Kong Polytechnic University and computer graphics artist Shannon Ma Fu-keung, accurately digitalized the site, preserving the building’s historical value in its entirety in the metaverse for future generations to visit and have an immersive experience in the virtual mansion and garden. “It’s remarkable to achieve the successful restoration of Lee’s home in a virtual world with advanced technology,” says Bruce Lee Club Chairman Wong Yiu-keung. He hopes that such a virtual preservation project will pass on the superstar’s spirit from generation to generation in an unrestricted form. Bruce Lee spent his final years in the Crane’s Nest with his family before his sudden death on July 20, 1973, at the age of 32. The mansion was initially transformed into a hotel, and was once planned to be converted into a memorial hall. The special administrative region government had discussed with the owner the possibility of turning the two-story house into a museum in 2008, but no agreement was reached. Despite a decadelong campaign by fans of the late kung fu legend to preserve the building, it was torn down in September 2019. “We did a lot of research into the preservation project and, by putting it in the metaverse, we managed to digitalize some hard copies and make them ‘live’ longer”, says Prizm Director Jeffrey Hau. “Bruce Lee was an icon, a bridge between East and West, and a role model for millions of people. Preserving his old home in the metaverse is a symbol of reviving the prime time of Hong Kong culture,” he says. Hau believes it’s a great demonstration of what technology can achieve, making it possible to revive more disappearing buildings, events and attractions in the metaverse, and let young people understand their background, where they came from and cultivate the culture. He hopes the project will reintroduce Bruce Lee to the younger generation, revive traditional culture, pass on the superstar’s spirit, and serve as a showcase for other cultural preservation and branding projects. Prizm provides mainly digital marketing support for the project via channels such as websites, social media and blockchains. Creating new stories The Crane’s Nest project will be made fully available across the globe on July 20, 2023 — the 50th anniversary of Lee’s death. At present, visitors can only make some simple interactions in the virtual Crane’s Nest by wearing VR headsets and handles, walking around the garden or searching for hidden postcards with Lee’s handwriting. In the future, the two-story townhouse will be open to the public, featuring Lee’s living room, dining room and training room. They will be able to access all the activities, including gamelike interactions and events. Anthony Kong Pui-keung, assistant professor of the School of Design at the Hong Kong Polytechnic University, and program leader of the school’s Master of Science in Multimedia and Entertainment Technology program, is involved in the virtual reconstruction of Lee’s home. He envisages re-creating the mansion in the metaverse in three stages — reproducing the virtual architectural scene, creating a sensory perception of people in the metaverse, and telling the stories or collective memories created by visitors in the virtual world. As advances in space capture technologies, such as photogrammetry, 3D modeling and spatial mapping, have given metaverse architecture many photorealistic virtual Connecting GBA with RCEP P.27
15 Global art sales shift online, NFT prices soar COVID shutdowns cancelled physical art auctions and exhibitions through 2019, forcing auction houses online — rebounding the global art market. In 2020, Hong Kong ranked second in art sales globally, behind New York. The NFT craze delights artists, dazes experts, and adds a younger clientele to art auctions. By Wang Yuke H ong Kong overtook London in 2020 to be the world’s second largest contemporary art auction market after New York, even though the COVID shutdowns cancelled physical Art Basel Hong Kong and the Hong Kong Arts Festival. The global sales of art and antiques contracted by 22 percent from 2019 and public auction sales declined by 30 percent, according to the Art Basel and UBS Global Art Market report published in March 2021. But Hong Kong bucked that downward trend. In the first eight months of 2020, Hong Kong’s global art market share rose to 26 percent, from 20 percent for the full 2019, recording $314.6 million in auction sales, beating London’s $303.5 million, according to ArtTactic, an art market data analysis company. The three major art auction houses in Hong Kong, Christie’s, Sotheby’s and Phillips, all realized a bumper year, with Asian buyers accounting for a third of all bids by value, in global sales. Christie’s projected $7.1 billion total sales in 2021, a 54 percent rise from P.28 Connecting GBA with RCEP Global online art and antique sales Unit: $ billion 12 Source: The Art Basel and UBS Global Art Market Report Percentages in brackets represent the share of online sales in the whole art market 9 6 3 3.1 4.4 4.7 4.9 5.4 6.0 6.0 12.4 (9%) (25%) 2019 2020 0 2013 2014 2015 2016 2017 2018 Median spending on art worldwide by generation in 2020 Millennial: born between 1981 and 1996 Gen X: born between 1965 and 1980 Boomer: born between 1946 and 1964 Source: The Art Basel and UBS Global Art Market Report Boomers Millennial collectors Gen X peers $109,000 $122,000 $228,000 Higher ratio of HK millenials among art buyers spending over $1 million in 2020 WHAT’S NEXT UK HKSAR • ake art a compulsory subject from M 32% 21% elementary school onwards US 16% • und more art exhibitions and F performances for public enjoyment Chinese mainland 11% • ntroduce art appreciation I France documentaries on social media • stablish a task force to grow a E Global 9% 18% healthy NFT ecosystem Source: The Art Basel and UBS Global Art Market Report 2020 and the highest in five years. Its auction sales in Hong Kong reached $1.03 billion for 2021, with a record season in the fall. Phillips saw a 32 percent increase in global sales for 2021, from 2019. Hong Kong contributed significantly to Phillips’ record auction sales with $269.8 million, nearly double that of 2020. Sotheby’s Asian auction sales for 2021 reached a record high, at over $1.1 billion, with 90 percent sell-through rate in both auction and private sales. Magnet for collectors The city is steeped in the trading of Chinese antiques and fine art, from the last century. Its Chinese antiques trading reputation has made it a magnet for international collectors and dealers. Local auction sales “see a balance of Eastern and Western art collectors”, says Francis Belin, Christie’s Asia-Pacific president. Christie’s confidence in the Hong Kong art market prompted it to hold public education programs and landmark shows in Hong Kong during the pandemic, which brought a host of collectors, said Belin. The Basquiat Show held in May afforded the public a rare exposure to the late graffiti pioneer artist Jean-Michel Basquiat’s oeuvre. Hong Kong is the “Southern Gate” to the entire Chinese market and the only city in China that operates under a common law legal system familiar to most international investors. It is the
HNWI 205,144 7 Total trade value of artworks, collectors' pieces and antiques in HK 7.50 Unit: $ billion 6 2020 279,090 5 0 100,000 200,000 4.75 4.31 300,000 4 2015 2020 0 3,408 UHNWI Digital copyright risk 3.12 3 5,042 2 1,000 2,000 3,000 4,000 5,000 6,000 2.69 2.45 1.71 2.22 1.99 1 HNWI: high net worth individuals possessing over $1 million UHNWI: ultra-high net worth individuals possessing over $30 million 0 Source: Knight Frank perfect catalyst and value-adding facilitator between buyers and sellers at home and abroad, says Nicholas Chan, partner at Squire Patton Boggs Hong Kong, a leading global law firm. Stakeholder trust There is considerable trust in the city’s wellestablished contractual, private property, and copyright laws. All the stakeholders in art sales secure trust and transparency in transactions, notes Chan. “We have strong data privacy laws, Global 100 law firms operate in Hong Kong, and top lawyers reside here.” Hong Kong boasts a healthy art milieu, buttressed by blue-chip global galleries, sophisticated wealthy collectors, and seminal global art fairs, such as Art Basel, says art advisor Jehan Chu. Cultural institutions like the M+ Museum, Hong Kong Art Museum, Asia Art Archive, and Parasite Art Space, nurture its art environment. “Hong Kong has all the supporting legs of the stool,” says Chu. “Its strategic location makes it easily accessible for clients from the APAC region and beyond; and the city’s proximity to Chinese mainland increases its accessibility to the expanding Chinese economy and rising number of collectors,” observes Nathan Drahi, managing director of Sotheby’s Asia. Jonathan Crockett, Asia chairman of Phillips, says that as traditional investment in financial markets is highly uncertain, ultrahigh net worth individuals, or UHNWI, with over $30 million in assets, are diversifying their portfolios. The appreciation potential of art appeals to them. There were 5,042 UHNWI in the city in 2020, a 13 percent increase over 2019, according to real-estate consultancy Knight Frank’s 2021 report. Online momentum The COVID-induced travel restrictions and social distancing forced art sales online. Global online sales of art and antiques in 2020 doubled the 2019 figures, accounting for a record 25 percent share of market value, according to the Art Basel and UBS Global Art Market report. For Phillips, online sales in 2021 soared 417 percent above 2019 levels and by 68 percent over 2020 levels, with half of the lots being sold via live auctions. The pandemic has accelerated the process and will have far-reaching impact on the art market, with “more online activities happening”, says Crockett. But physical auctions won’t go obsolete, because bidding online doesn’t allow people to “read the room,” notes Crockett, “where 2012 2013 2014 the dynamism, and bidder-bidder and bidderauctioneer interactions are vital stimulants”. NFT dynamic The NFT cult which began in 2014 as non-fungible tokens, fermented serious interest in recent years after over-the-roof prices for NFT artworks by artists like Beeple (Mike Winkelmann), Mad Dog Jones, and Kevin McCoy. NFT digital collectibles, such as drawings, images, videos, music, films, and games, use blockchain technology as authentication for a unique digital signature permanently attached to the work. That creates scarcity which fuels collector and investor momentum. Christie’s first ever NFT auction in Hong Kong last year helped the auction house shatter the $100 million ceiling in its NFT sales worldwide. “NFT has brought a new ecosystem of creators and collectors into fine art and collectibles. While it represents a different aesthetic and medium, NFT demands the same level of interest and commitment at the collecting level,” says Drahi of Sotheby’s Asia. It unlocks a new world for creatives to play with artistic possibilities to compose NFT artworks, by transplanting digital content onto traditional artworks, or giving it a virtual reality or augmented reality twist, on metaverse, says Johnny Hon, founder of the Global Group of Companies. Metaverse is the next Web 3.0 evolution. NFT is a proof of ownership that cannot be copied, and the rules for changing the ownership are embedded in the computer program, which ensures that “each time the NFT changes hands, the artist will have to get paid. The coin won’t be released unless that condition is fulfilled,” Hon says of the financial security that NFTs promise creators. NFTs unlock a new venue for Hong Kong artists to increase their reach and visibility, reckons Chu. It’s a boon particularly to homegrown budding artists to bypass galleries, and go directly to the public and collectors. Many local artists have made their first NFT foray, Chu says, and “in some cases, it’s the most expensive piece these artists have ever sold”. Crockett says 90 percent of NFT collectors are new to Phillips and they are not only active in the NFT domain, but have started investing across categories. “It’s no secret that some great ‘Crypto Whales’ are interested in NFTs,” he says. “Crypto Whales” are entities, individuals, or Exchanges, holding significant percentages 2015 2016 under-appreciated. NFTs as a digital medium embraced by young collectors, can help reintroduce and reinvigorate the interest in Renaissance and medieval art, believes Chu. 2017 2018 2019 2020 of a cryptocurrency, to engineer a fall in value, or buying frenzy, by triggering the herd stampede of small investors. They thereby acquire massive additional holdings cheap, or lock-in significant profits. In the Bitcoin world, Whales typically hold 1,000 Bitcoins or more. Youth grasp NFT The majority of NFT bidders or buyers at auction houses are newcomers to the brands. For Christie’s, 74 percent of NFT buyers were newcomers. Sotheby’s 78 percent of NFT bidders were new clients, more than half below age 40. “It’s the entry point to invest in not only digital art, but also traditional contemporary art,” notes Chu. Buying an NFT is a much easier and less intimidating alternative, to bidding at auction houses, or buying in galleries. NFTs normalize art collecting and investment. Crypto-art sweeps the youth, especially the millennials, as these digital nomads are already used to buying art on social media, Chu observes. Guillaume Cerutti, CEO of Christie’s adds that the boom in NFTs piques the interest of traditional collectors who are becoming aware that physical art and digital art are overlapping. “It demonstrates how NFTs and digital art are permeating the pre-existing market as a growing movement with real staying power,” concedes Drahi from Sotheby’s Asia. In Hong Kong and other Asian regions, where a storage room is a luxury with humidity risk all year round, NFTs offer a sweet spot for art collection — you own it, but don’t have to rent a space for it, or worry about deterioration in storage. Drahi identifies two major trends driving the Asian preference: First, demand for Western art by collectors in the region remains strong and keeps growing, as reflected by the $334 million record sales of Western art in 2021. Second, there’s been rigorous demand for contemporary art by young Asian artists too. Among the most favored genres of fine art across Asian collectors is contemporary art, Chu figures, because the themes and ideas are relatable. “Since Sotheby’s began offering Western art in Hong Kong five years ago, the art market has quickly evolved, and the shift in taste is largely driven by the influx of a new generation of collectors,” he says. While artworks by old masters are returning to the spotlight gradually, Chu regrets that they remain overlooked and NFTs cannot be a significant factor in the art market if laws and regulations to safeguard creators’ intellectual property lag. Katarina Feder, vice president of the Artists Rights Society says that “although we have become increasingly adept at monitoring the digital landscape, by confronting illicit use of copyrighted images by issuing take-downs or retroactive licenses, it’s still impossible for any person or entity to police all infringements”. Therefore, the Society is resorting to community-based solutions, “through a system of stakes and rewards — the collective is incentivized to monitor and report infringements”. The Society is also educating the creators on what copyright is, and how to protect ownership. It is a challenge to find the missing pieces of the NFT puzzle and put them together. With 40 years’ experience in the art industry, Fabio Rossi, co-president of Hong Kong Art Gallery Association detects a dichotomy of collectors — those buying art as a financial investment, and those treating art as cultural value. The former invests largely for monetary reasons, while the latter treat art collection as an exploration of humanity, cultures, personal growth, and connectedness of the past, present and future. “The two groups both grow, like two parallel universes,” notes Rossi. XXXXXXXXXXXX 2015 8 Art promotion Art lovers in Hong Kong are well catered to by local galleries engaging the public. Artspace K, established in 2020, holds at least one monthly event, of lectures, workshops, and performances. Most are free. “By joining the event, the public develops a deeper understanding of the exhibits, stimulating their love for art,” says Liz Pong, communications and development manager at Artspace K . Rossi finds some collectors’ fixation on the monetary aspect of art frustrating because “they are missing the intrinsic value of art, which is the connection with the artists, curators, and themselves”. If there are more art academies, and more support from government for local artists, there will be more meaningful dialogue on art — not just from a financial viewpoint, asserts Rossi. Although Hong Kong has dedicated ample resources for the public to appreciate art, Chu argues that art education should start from the formative years — that art education be included in the compulsory school curriculum. Belin of Christie’s says it will continue engaging audiences digitally, through optimized virtual presentation of art lots and hybrid sale formats. He is positive about the Asian market, particularly driven by the Chinese mainland’s affluence and youth. Connecting GBA with RCEP P.29
Inno-tech integration ‘key catalyst’ for growth SAR’s mega Northern Metropolis plan is hailed as a visionary move to ease city’s housing woes and speed up integration with Greater Bay Area development. 6 5 By oswald CHAN D uring his inspection tour of the SAR last month, Xi pledged the central government’s full support for Hong Kong to align itself with national development strategies, particularly, the 14th Five-Year Plan (2021-25), the Guangdong-Hong KongMacao Greater Bay Area and the Belt and Road Initiative which reinforce Hong Kong’s potential in innovation and technology. The president visited the Hong Kong Science Park and urged Hong Kong to collaborate closely with other cities in the Greater Bay Area in strengthening and creating synergies among research and academic institutions, industries and finance, and building a global highland for scientific, technological and innovation advancements in the 11-city cluster. Business chambers, professional services bodies and global business advisory firms in Hong Kong say that integrating Hong Kong’s innovation and technology sector with the Greater Bay Area will be a key catalyst for growth. Therefore, the SAR should adopt a full-fledged approach in cementing its inno-tech ecosystem. First, Hong Kong should employ P.22 Connecting GBA with RCEP a comprehensive strategy to bolster integration with other Greater Bay Area cities, with a focus on harmonizing different institutional systems. “Hong Kong should ac tively collaborate with the central government in implementing more preferential arrangements to strengthen the flow of people, capital, goods and information,” said Chinese Manufacturers’ Association of Hong Kong Chairman Allen Shi Lop-tak. The business chamber would like to see the 11-city cluster become a “special commuting zone”, with some tax exemptions related to “days of presence” for Hong Kong and Macao residents who regularly live and work in the Greater Bay Area’s mainland cities. For example, if Hong Kong and Macao residents enter and leave the Chinese mainland through the Greater Bay Area’s boundaries within a specific time limit, their stay should not be counted as a “day of presence”. “We urge the Hong Kong authorities to coordinate with their counterparts to provide policy suppor t and business facilitation measures, such as streamlining the approval process for Hong Kong products to be registered and sold in the Greater Bay Area, strengthening intellectual property protection o f Ho n g Ko n g brands, promoting mutual recognition of testing reports in Hong Kong and on the mainland, and introducing insurance services for domestic sales,” said Shi. Hong Kong has cemented various inno-tech infrastructures to drive the industry’s growth. The San Tin Technopole, under the Northern Metropolis Development Strategy, which is expected to pool the resources of research institutions, universities and technology companies, can be an ideal platform for synergistic research and development and knowledge spillover. “The Northern Metropolis can be the perfect testing ground for prototyping and pilot production before proceeding to mass production in plants in adjacent cities in the Greater Bay Area. If they succeed in turning ideas, inventions and breakthroughs into commercially viable produc ts, the Nor thern Metropolis can become the link for startups with supply chain expertise/ downstream demands in the Greater Bay Area cities,” said Deloitte China’s TMT Industry Southern Region Leader Chan Yiu-bong. Under the Northern Metropolis development plan, Hong KongShenzhen Innovation and Technology Park and the areas around Lok Ma Chau/San Tin will be consolidated to form the San Tin Technopole, which will have an estimated 240 hectares of land for innovation and technologyrelated use. The technopole, together with the Shenzhen Innovation and Technology Zone, will form the Shenzhen-Hong Kong Innovation and Technology Cooperation Zone with about 540 hectares. The first batch of eight buildings of the HSITP in the Lok Ma Chau Loop will be completed in phases from late 2024. Shi urged the HKSAR to cooperate with Shenzhen in establishing a “pilot-plant” platform in the Northern Metropolis to achieve a win-win situation. “The platform, on one hand, can raise the success rate in the transformation of local R&D achievements by leveraging the Greater Bay Area’s land resources and strong manufacturing base. The platform can also serve as a gateway for information and technology
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