Following is a question by the Hon Duncan Chiu and a reply by the Secretary for Innovation and Technology, Mr Alfred Sit, in the Legislative Council today (June 1):
A study has pointed out that for many years, Hong Kong’s gross domestic expenditure on research and development (R&D) as a percentage of the Gross Domestic Product (R&D expenditure percentage) has been substantially lagging behind those percentages of the Mainland cities of the Guangdong-Hong Kong-Macao Greater Bay Area (Greater Bay Area). Regarding the development of innovation and technology in Hong Kong, will the Government inform this Council:
(1) given that the Government set a goal in the 2017 Policy Address to increase the R&D expenditure percentage to 1.5 per cent by the end of the current Government’s term of office, whether the Government has formulated a roadmap and reviewed annually the implementation situation of the relevant work; whether the R&D expenditure percentage of last year achieved the aforesaid goal, and whether the Government will raise the target in respect of the share of the industrial and commercial sectors in the R&D expenditure, and provide incentives to encourage such sectors to spend more on R&D;
(2) of the respective numbers of tax deduction applications in respect of expenditures on qualifying R&D activities which were received and approved by the Government in the preceding year of assessment, with a breakdown of the number of such approved applications and the amount of tax deduction involved by the expenditure type (i.e. Type A and Type B) and the science and technology fields involved; and
(3) as a survey has found that over 90 per cent of the domestic-funded enterprises in the Mainland cities of the Greater Bay Area have never used Hong Kong’s high and new technologies, whether the Government will review the strategies for promoting Hong Kong’s scientific research achievements to such domestic-funded enterprises, and discuss with the Mainland authorities the lowering of the thresholds for Hong Kong’s scientific research achievements to enter the markets of the Mainland cities of the Greater Bay Area?
I am grateful to the question raised by the Hon Duncan Chiu. Innovation and technology (I&T) is the work focus of the current-term Government. Since inauguration of the current-term Government, we have been proactively promoting I&T development in the eight major areas set forth by the Chief Executive in 2017. Various policies and initiatives have achieved good progress. The overall I&T ecosystem in Hong Kong is also becoming more vibrant. For example, the number of start-ups and venture capital investment in Hong Kong have substantially increased over the past few years, during which we have also witnessed the birth of more than 10 unicorns. Hong Kong is currently Asia’s largest and the world’s second largest fundraising hub for biotechnology companies. Hong Kong’s I&T development has also been internationally acclaimed. For example, Hong Kong is ranked first in Asia and second worldwide in the World Digital Competitiveness Ranking 2021.
Research and development (R&D) is the foundation of I&T. Hong Kong has strong capabilities in scientific research, with five world top-100 universities and many scholars and experts winning top awards, who are well recognised both nationally and internationally. Hong Kong has 16 State Key Laboratories and six Hong Kong Branches of Chinese National Engineering Research Centres up till now. In recent years, the Central Government has made available national R&D projects and funding schemes to researchers in Hong Kong.
My reply to various parts of the question raised by the Hon Duncan Chiu is as follows:
(1) and (2) The Government has set a goal in 2017 to increase the gross domestic expenditure on R&D (GERD) as a percentage of the Gross Domestic Product (GDP) to 1.5 per cent in 2022 and to progressively increase the ratio of R&D expenditure of the private sector. Despite the impact of social unrest, complicating geopolitical landscape and the COVID-19 pandemic in recent years, the GERD still rose from around $21.3 billion in 2017 to around $26.5 billion in 2020 and the GERD as a percentage of GDP also went up from 0.8 per cent to 0.99 per cent during the same period.
Although the statistics for 2021 can only be available by the end of 2022 the earliest, we foresee that it will be challenging to meet the target of 1.5 per cent in 2022 due to the impact of the pandemic in the past two years. In any event, the Government will continue with its endeavour to develop I&T and further promote R&D. Over the past four years, the current-term Government has invested over $150 billion in I&T development, with one-third in promoting R&D, introducing various initiatives in areas such as capital, talent and infrastructure.
In terms of providing funding support and capital, we set up the InnoHK research clusters to promote global research collaboration in Hong Kong; through the Innovation and Technology Venture Fund co-invest with venture capital funds in local I&T start-ups; inject funding into the Research Endowment Fund to increase the research funding for post-secondary institutions. We also encourage private enterprises to invest in R&D and production transformation through funding schemes under the Innovation and Technology Fund. For instance, the Enterprise Support Scheme provides funding to companies conducting in-house R&D projects. The Research and Development Cash Rebate Scheme encourages private companies to enhance co-operation with local public research institutions. The Re-industrialisation Funding Scheme subsidises manufacturers to set up smart production lines in Hong Kong.
In addition, enhanced tax deduction has been introduced for qualifying R&D expenditure incurred by enterprises on or after April 1, 2018. The tax deduction is 300 per cent for the first $2 million of the relevant aggregate expenditure and 200 per cent for the remaining expenditure, without a cap on the amount of tax deduction. Among the profits tax returns received up to the end of April 2022, there were 181 applications for tax deductions of R&D expenditure for the year of assessment 2020/21. The R&D expenditure incurred was about $2.51 billion, which comprised Type A expenditure and Type B expenditure of around $0.98 billion and $1.53 billion respectively. Due to the influence of the aforementioned social unrest, geopolitical and pandemic factors, the relevant statistics may not fully reflect the effect of the initiative. The relevant applications involve three major areas including (1) electrical engineering, electronic engineering, information engineering; (2) mechanical engineering; and (3) computer and information sciences, with the share in the total amount of tax deductions applied being 49.1 per cent, 25.8 per cent and 13.9 per cent respectively. Due to tax confidentiality reasons, the Inland Revenue Department could not provide breakdown of the applicant organisations.
(3) The National 14th Five-Year Plan, for the first time, incorporated the Shenzhen-Hong Kong Innovation and Technology Co-operation Zone (Co-operation Zone), comprising the Hong Kong-Shenzhen Innovation and Technology Park and the Shenzhen Innovation and Technology Zone, as one of the four major platforms of co-operation in the Greater Bay Area (GBA). The Hong Kong Special Administrative Region Government will actively facilitate the effective flow of innovative elements with the Mainland, continue to make good use of the GBA platform and seek to strengthen the I&T co-operation with various provinces and municipalities.
For the development of the Co-operation Zone, the governments of Hong Kong and Shenzhen have signed a co-operation agreement in September 2021 to put forward a joint policy package covering support measures on facilitating flow of talent and scientific research resources etc, as well as to kick-start the establishment of Hong Kong Science Park Shenzhen branch. The Hong Kong Science and Technology Parks Corporation (HKSTPC) will also launch the GBA InnoAcademy and the GBA InnoExpress in July this year to enhance training and exchange for I&T talent from both sides and to provide business development support services for I&T enterprises in Hong Kong and Mainland respectively. The HKSTPC will also work with the local universities which have campuses in the GBA to establish incubator networks, so as to support local start-ups to develop in the GBA.
The HKSTPC also collaborates with partners in the GBA to provide integrated services to I&T enterprises covering industry chain establishment, R&D collaboration, and R&D product commercialisation, etc. As for the subsidiary institution set up by the Hong Kong Productivity Council in the Mainland, it provides a platform of integrated support services and exchange for small and medium, as well as start-up enterprises in the GBA, so as to promote the adoption and commercialisation of Hong Kong’s technological outcomes in GBA.
On the other hand, the five R&D centres set up by the Government also co-operate with the Mainland on various fronts. For example, the Hong Kong Applied Science and Technology Research Institute has promoted its R&D results to Mainland enterprises in the GBA through various channels, leading to successful cases in integrated circuits, next generation communications technologies, smart manufacturing, health technologies, etc. The Nano and Advanced Materials Institute has jointly developed and transferred various technologies with partners with production lines located in the GBA. Examples include long lasting battery for high power Internet of Things devices.
At the same time, the Hong Kong Trade Development Council also provides Hong Kong enterprises with consultation services, industry-related updates and business matching to assist Hong Kong enterprises in understanding the Mainland’s market, regulations, policies, concessions and institutions, with a view to enhancing their capabilities in developing the Mainland market.
Thank you again for the question of the Hon Duncan Chiu. I am eagerly looking forward to more exchange and co-operation with LegCo Members in promoting I&T development together. Thank you, President.