Exclusive Interview with David Chung

Hong Kong Government Seeks Market-Led Innovation


The merging of the Hong Kong SAR Government’s Efficiency Unit into the Innovation and Technology Bureau was part of a refreshed approach for a more efficient government, David Chung, Under Secretary for Innovation and Technology, told Innovation Hong Kong on the sidelines of the StartmeupHK Festival 2018.


The move, announced in an October policy statement, aims to tackle two important areas: effective delivery of public services; and enhancement of the city’s economic system in order to take advantage of recent digital technology advances achieved locally and globally, said Mr Chung.


He indicated that in Hong Kong, the general approach of government is that delivering change via public policy is most effective when it works in concert with the efforts of the market and of industry. One of the largest fields of change for Hong Kong is upgrading its already strong finance and professional services sectors to maximise the benefits and opportunities created by digital technology.


Carrie Lam Cheng Yuet-ngor, Hong Kong’s Chief Executive, said in the government’s 2017 Policy Address that the administration wished to see the contribution to the city’s annual gross domestic product of the innovation and technology sector more than double from its 2016 level of 0.7 percent.


“A lot of people say, ‘Oh, the Hong Kong government should regulate more’. But we are not [on that path]. We take the approach ‘let industry thrive’,” Mr Chung said.


To that end, the city’s government has for some years been trying to help local firms working in innovative sectors of the economy such as digital technology, by lowering barriers to public-sector procurement of their goods and services.


“We have something called the Public Sector Trial Scheme…  such that if a government department wants a solution from a local start-up, we will pay for that trial,” Mr Chung pointed out.


According to the Hong Kong Government’s Innovation and Technology Commission website, the Public Sector Trial Scheme provides “funding support for production of prototypes or samples and conducting of trial schemes in the public sector,” to promote the “realisation and commercialisation” of research and development resulting from projects supported by Hong Kong’s Innovation and Technology Fund.


Confidence level


This means a public department can “get a feeling” about a particular product, before they move to the formal procurement stage,” Mr Chung told Innovation Hong Kong.Typically, the main barrier to trying new suppliers “is the confidence level” of the procurer, he noted.


With the scheme, a government department can test out some of the local solutions and then “if they are comfortable… we can also have some relaxation on the procurement,” Mr Chung explained.


He added the government is looking at other policy adjustments that might have the effect of embedding the concept of support for innovation even more firmly in the public sector’s procurement activities, but that idea also had to be weighed against the notion of good value for the taxpayers.


“For procurement, I think the major concern is whether we should add ‘innovation’ as one of the weightings [criteria]. That would not necessarily be the cheapest option,” Mr Chung stated. “We are in the process of reviewing our so-called marking scheme regarding how we can add an innovation element, and also how we can benefit start-ups.”


A key function of the Innovation and Technology Bureau is to provide enough funding for the various government bureaus or departments, if they are interested to use technology to improve their work processes, Mr Chung said.


“In the past, if government departments wanted to do something in this area, they had to bid for resources,” in competition with other parts of the public service, indicated Mr Chung.“That required a long process, so we wanted to cut down this time frame,” he noted.


Under the merged effort of the Efficiency Unit and the Innovation and Technology Bureau, the latter will support improvement of processes in public departments.“This is about fixing some of the so-called ‘pinch points’ which departments may have, in providing government services to citizens,” said Mr Chung.


High-tech economy


The government official also addressed the wider issue of upgrading the city’s economy.“For us [as the government] we need to set the technology agenda, but we [Hong Kong] cannot do everything. The technology field is wide and very deep. We have to do what we are good at. So basically, we did some soul-searching. We tried to map out four key sectors in which we believe we have strength: our universities; our talent pool; our market; our industry,” said Mr Chung.


The first, he said, is for Hong Kong to become a ‘smart city’. “We need technology to help us to manage our city better, in order to have efficiency and sustainability,” said Mr Chung.


He added: “The second is fintech – finance – no one will argue against Hong Kong being good at finance. But are we technology savvy? Can we leverage on technology?”


He said the third area for development was artificial intelligence (AI) and robotics, driven in part by Hong Kong’s good fortune of having an unemployment rate below 3 percent. “That’s amazing…. but we need to improve efficiency through AI, through robotics,” he explained.


The fourth area for development, said Mr Chung, was biotech.“The Hong Kong population is ageing; we have more old people [as a percentage of the population]; but at the same time, we have very good medical care, very good medical schools. We believe if Hong Kong can improve its healthcare industry it will really be of benefit: not just to Hong Kong, but to the Greater Bay Area… and to Asia.”


Mr Chung said additionally that the government wants to start discussing this plan with the universities and the “top-notch” research and development centres, “to make Hong Kong one of the hubs for their research”.


ICO controversy


Innovation Hong Kong asked Mr Chung about the government’s attitude to blockchain technology, and about a recent statement from Hong Kong’s Securities and Futures Commission (SFC) regarding initial coin offerings (ICOs) for cryptocurrencies, and the operation of cryptocurrency exchanges in Hong Kong. In September, China’s central bank, the People’s Bank of China, banned any further ICOs on the mainland.


Mr Chung said: “With cryptocurrency or blockchain, if it hits [affects] some consumer issues, it will raise more of an alarm. But as long as it really benefits industry, then underlying technology like blockchain we will foster further.”


“With ICOs, if they are within the SFC regulatory framework, then we will leave things.”Hong Kong’s SFC said in an advisory note on February 9: “ICOs are essentially crowdfunding by blockchain start-ups. ICO issuers are typically assisted by market professionals such as lawyers, accountants and consultants for advice to structure the offering as utility tokens to fall outside the purview of the Securities and Futures Ordinance and to circumvent the scrutiny of the SFC.”


The note added the SFC had sent letters to seven cryptocurrency exchanges in Hong Kong or with connections to Hong Kong warning them that they should not trade without a licence those cryptocurrencies defined as securities under the terms of the Securities and Futures Ordinance.


The SFC said some investors had complained to it that they had been unable to withdraw fiat currencies or cryptocurrencies from their accounts opened with cryptocurrency exchanges.“Some complainants claimed that cryptocurrency exchanges had misappropriated their assets or manipulated the market, or that technical breakdowns of the exchanges’ platforms caused them significant losses,” said the Commission, adding “several complaints against ICO issuers alleged unlicensed or fraudulent activities.”


Julia Leung, the SFC’s executive director of intermediaries, added in the statement: “If investors cannot fully understand the risks of cryptocurrencies and ICOs or they are not prepared for a significant loss, they should not invest.”The securities regulator also warned: “The SFC may take further action where appropriate, in particular against cryptocurrency exchanges which disregard the provisions of the Securities and Futures Ordinance and those which are repeat offenders.”