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By Xu Hongqiang, Research Department of Foreign Economic Relations

Research Report Vol.17 No.2, 2015

Shenzhen and Hong Kong share the same strong need for accelerating technology innovation. With different advantages in innovation resources, they have already laid a solid foundation for cooperation. Through the implementation of policies in promoting exchange and cooperation in science and technology, the construction of Shenzhen/Hong Kong Innovation Circle and the world-class technology innovation center will provide new and sustainable incentives to the economic development in the two cities as well as in the region, uplifting China’s status in global innovation and value chain of manufacturing industry.

I. The meaning of constructing Shenzhen/Hong Kong Innovation Circle

Driven by the need for innovation and aiming at developing the world-class technology innovation center, Shenzhen/Hong Kong Innovation Circle is promoted by the governments of Shenzhen and Hong Kong as well as non-governmental initiatives. This circle is created by pooling together innovation resources, industry chains and innovation regimes of the two cities. It is a cross-city, highly aggregated regional innovation system and industrial agglomeration which will lead, support and enhance regional strength for independent innovation. Specifically, it means that through coordinating the management of innovation resources, Shenzhen and Hong Kong will implement favorable policies for technological personnel to facilitate their cross-border work, life and activities in an attempt to share innovation resources in research workforce, funds, preferential tax policies, markets, advanced equipment and R&D platforms. It will help Shenzhen and Hong Kong establish the world-class highland for technology innovation, push forward the upgrading of industrial and economic structure of Shenzhen, Hong Kong and the Pearl River Delta, and to enhance regional competitiveness.

II. The strategic significance of building Shenzhen/Hong Kong Innovation Circle

Based on the following three reasons, it is of great strategic significance to build Shenzhen/Hong Kong Innovation Circle. First, facing economic restructuring, Shenzhen-Hong Kong area has a pressing need for technology innovation. Second, domestic economy is in a desperate need for a technology innovation center with international competitiveness. Third, Hong Kong requires a new engine for economic growth. 1. Promote the transformation of Shenzhen’s economic structure and increase the industrial competitiveness of the Pearl River Delta

After 30 years of development, Shenzhen has made great achievements in economic construction, ranking the 4th in economic scale among large and medium-sized cities in mainland China, only next to Shanghai, Beijing, and Guangzhou. However, in the process of rapid economic development, Shenzhen is also facing a complex situation with interwoven problems and increasing dilemmas. Economic structural contradictions are still prominent. Other problems include tightened rigid constraints like land resources and environmental capacity, relatively lagging-behind social construction and institutional obstacles blocking scientific development.

In 2014, Shenzhen initiated the strategic conception of constructing the Bay Area economy with a focus on creating Bay Area industrial clusters of Tai Shan Bay, Shenzhen Bay, Dapeng Bay and Daya Bay, an effort of which results in the gradual formation of a regional innovation system mainly based on Guangzhou, Shenzhen and Hong Kong. Constructing Shenzhen/Hong Kong Innovation Circle and making the scientific and industrial advantages of the two cities complementary to each other will promote the transformation of Shenzhen’s economic structure and improve the industrial competitiveness of local and surrounding areas. It will also enhance the construction of the Bay Area economy, push forward the construction of regional innovation system, and realize the sustainable economic development of the two cities and the region.

2. Give full play to Hong Kong’s advantages in technological resources, and bring in new driving forces for economic growth

Hong Kong boasts strong advantages in technological resources. Strengthening the cooperation within Shenzhen/Hong Kong Innovation Circle will help make full use of such advantages, turn them into industry and business opportunities, and enhance new driving forces for economic growth.

The Global Innovation Index (GII) jointly issued by Cornell University in the United States, the European Institute of Business Administration (INSEAD) and the World Intellectual Property Organization (WIPO) shows that Hong Kong has always been among the top regions, list of which is available in the table below. However, during the recent four years, Hong Kong has experienced a declining trend on the list, indicating that Hong Kong encountered some obstacles in the development of its innovation capacity.

Global Innovation Index

Note: Global Innovation Index is jointly issued by Cornell University of the United States, the European Institute of Business Administration (INSEAD) and the World Intellectual Property Organization (WIPO). Universities in Hong Kong are among the best in Asia according to the Academic Ranking of World Universities, the QS World University Rankings, and many other acknowledged rankings for world universities. The 2014 Academic Ranking of World Universities shows that City University of Hong Kong and Hong Kong University of Science and Technology ranked the 24th and 39th in engineering in the world. The 2014 QS Asian University Rankings shows that the University of Hong Kong, Hong Kong University of Science and Technology, and the Chinese University of Hong Kong stood at the 3rd, 5th, and 6th places respectively.

3. Build the highland for technology innovation with world competitiveness, and uplift China’s status in global value chain

China has become the world’s biggest power in products manufacturing and trade. However, China sits at the production links with low added value in the labor division of the global industry chain. As the main area of processing for export in China, the Shenzhen-Hong Kong area, to a large extent, reflects China’s position in world production network. Presently, high-tech products (mainly information technology products) have accounted for about 1/3 in China’s export products. However, this does not mean that China has become a developed country in high-tech industries, for most of these high-tech products are low-end manufacturing products with low technical content and added value. The research and development of core technology, brand marketing, and other sectors of high added value in high-tech industries basically lie in the hands of multi-national corporations. Through strengthening cooperation between Shenzhen and Hong Kong, and facilitating the commercialization of research deliverables and the development of high-tech industries in the two cities, we will be in a better position to build the world-class technology innovation circle and a number of high-tech enterprises with international competitiveness. We are expected to have independent control over the value chain including the links like R&D, core technologies and brands. It will also accelerate the industrial upgrading and restructuring of Shenzhen and the surrounding areas, and help China promote its status in global value chain.

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