The End of « Made in Hong Kong » ?-DeIndustrialisation and Industrial Promotion Policy in Hong Kong

This article explores spatial aspects of Hong Kong's deindustrialisation, related both to the development of closer cross-border ties and to Hong Kong's evolution as a global city. Industrial promotion has always had its place in the generally non-interventionist economic policy ofthe government. However, under the new political and economical conditions industrial promotion has moved up on the agenda. In particular, the promotion of high-tech industries is given special governmental attention. The author wams that the plans for re-industrialising Hong Kong may be based on an obsolete view of the city: the city as an isolated entity rather than as the cross-border economic agglomeration that it is growing into. The aim should be to develop a strong and productive industrial base with intraregional co-operation for the whole agglomeration instead of just for Hong Kong.


Introduction
Not long ago the label «made in Hong Kong» was omnipresent in many countries around the world.In the 1960s through to the 1980s, Hong Kong was among the Newly Industrialised Economies of Asia supplying tex- tiles, plastic products and toys to the world market (Buchholz 1986: 513ff).Now it would be more appro- priate to refer to Hong Kong as a Newly De-industrialised Economy, a place where manufacturing decline is seen as a problem.The objective of this article is to describe the process of de-industrialisation in Hong Kong and the policies of industriell promotion, taking changes in political and economic conditions into con¬ sideration.The process of de-industrialisation is documented using the official industrial employment statistics on the lev¬ els of both board districts and tertiaiy planning units.The analysis of the statistics refers to figures from Hong Kong and from a part of the Cheung Sha Wan district, an area greatly affected by de-industrialisation.The cur¬ rent debate in Hong Kong on appropriate counter-measures focuses on the role of the State in the economy.However, the spatial integration of Hong Kong into its Chinese hinterland is a crucial element of Hong Kong's economic policies and should not be forgotten.Both as¬ pects are discussed in the last chapter.
2 De-industrialisation in Hong Kong The extent of de-industrialisation in Hong Kong is re- flected in the share of manufacturing in employment dropped from 42% in 1980 to 8% in 1997 (Informa¬ tion Services Department 1998).Since 1986, the absolute number of people employed in manufacturing has also declined (Tab. 1).Despite the negative employ¬ ment trends, manufacturing has not lost its importance for Hong Kong: From «made in Hong Kong», business has turned to «made by Hong Kong» (Berger & Lester   1997).While workers in the manufacturing industries in Hong Kong have been retrenched over the last 15 years, new jobs have been created by Hong Kong companies in mainland China, in particular just across the border in Shenzhen (Taubmann 1996: 688ff).The number of jobs created by investors from Hong Kong in the Pearl River Delta Region nearby are estimated at 3 to 5 mil¬ lion (Shen 1995: 63; ENRiGHTetal. 1997: 19).Primari¬ ly labour intensive production has been transferred across the border.Known as outwardprocessing, indus- 1996 «Unclassifiable» also includes agriculture/fishery, mining/quarrying and electricity/gas/water.
tries make the best of both worlds: low labour and prop¬ erty costs in mainland China and established manage¬ ment, marketing and finance in Hong Kong (Sit 1989,  1995: 172ff).
Li et al. (1995: 9) investigated 20 electronics and 28 plastic manufacturing firms with regard to outward processing.Once these companies had built a total of 61 factories in mainland China, their overall number of staff expanded by a factor of 4 and 4.6 respectively.
The number of staff in Hong Kong on the other hand shrunk to 18% and 11% respectively.Amsden (1997:  336ff) in a similar study of 23 electronics firms makes the Observation that in 1996, out of an average of 6260 jobs, 460 were located in Hong Kong and 5800 in the mainland.Those located in Hong Kong covered predominantly the fields of development, marketing, Con¬ trolling and accounting.From the example above, it ap¬ pears as if electronics, as a largely knowledge-based industry, is less affected by de-industrialisation through outward processing than plastic manufacturing.In fact, the latter is next to the garment industry among those suffering most from retrenchment processes in Hong Kong (Tab.2).
The development to-date clearly indicates two trends: a greater specieilisatiem on business Services at the expense of the less productive manufacturing industries, and a closer integration with industrial development in the surrounding Pearl River Delta Region of China.
3 Spatial effects in Hong Kong

Employment
The spatial impact of the current de-industrialisation process is geographically unevenly distributed.It is most acute in the traditional industrial areas of New Kowloon, which from 1991 to 1997 lost nearly two thirds of its workforce in manufacturing (Fig. 1).For example, in Sham Shui Po, the number of people employed in this sector feil from 69 700 to 25 062 and in Kwun Tong from 123 330 to 46 800 (Census & Statis¬  tics Department 1991, 1997).Strongholds of indus¬ trial employment are still to be found in the vicinity of the port and airport.However, airport Operations having been shifted to Chek Lap Kok in 1998, one of the last strongholds is bound to disintegrate as well.
A more detailed study in the area with the most marked drop in employment, Cheung Sha Wan in Sham Shui Po district, shows the following trends for five selected in¬ dustries (Fig. 2): Wearing apparel (garment): The industry which was traditionally the strengest in the area, is being hit the hardest by employment losses.
Metal products: The decrease in employment is with¬ in the ränge ofthe other manufacturing industries, but less than in the garment and textile industries.
Printing and Publishing: Due to this segment's close association with the tertiary sector, this is the only in¬ dustry in the secondary sector with a positive em¬ ployment balance.Import and export: Employment in foreign trade shows the most marked increase -widely through companies which have moved their manufacturing lines to the mainland, and are now in fact importing and exporting their own products.Business Services and banking: Although not expand- ing as fast as in the rest of Hong Kong, this segment is the second strongest growth industry in the area.
On the whole it may be said that any gains in employ¬ ment are a long way from compensating the losses in the study area.  .2 Industrial property Demand for industrial property has been affected quantitatively as well as qualitatively by de-industrialisation.
The quantitative effect is again most striking in New Kowloon.The number of businesses in the manufactur¬ ing sector dropped from 4907 (1991) to 2304 (1997) in Sham Shui Po and from 7343 (1991) to 4046 (1997) in Kwun Tong.Although the number of businesses dropped rapidly. the figures are not in relation to the decrease in employment.This can be explained by many companies having moved only part of their Opera¬ tions to the mainland and not disposing of all their premises in Hong Kong.The buildings are now underused or to large extent used as storage or office space.
This is particularly so in the traditionally high-density industrial areas with their high-rise buildings (Fig. 4).
De-industrialisation has also led to dwindling property prices an high vacancy rates, averaging over 10% for industrial premises in Hong Kong (Ko 1998).
The qualitative effect of outward processing on the de¬ mand structure for industrial property can be summarised as follows (Li et al. 1995: 12): more demand for property comprising storage, exhi-  greater importance given to Connectivity because of cross-border production structures greater importance given to centrality of location due to increasing management functions.
Despite the developments to date, planning authorities prefer not to re-zone redundant industrial areas for resi¬ dential or office use in order to keep space for possible re-industrialisation.Instead they have introduced «I/O» (industrial/office) as a new land use category.I/O build¬ ings are required to have an industrial layout, but may be used for office space (Yeh 1997: 36ff; Kaye 1997).
Since 1997, even industrial buildings are allowed a greater share of office and exhibition space (Ko 1997).
Rezoning is still limited to exceptional cases, such as on Tsing Yi Island, upgraded by the new airport railway (Li 1996).A comprehensive concept for the redevelopment of old industrial areas is still pending, but the continuos decline of industrial activity makes it clear that swift action is necessary, if the areas concerned are not to fall apart.

Resulting problems
Unlike the process of urban de-industrialisation in Eu¬ rope and America, de-industrialisation in Hong Kong has not caused a considerable increase in unemploy¬ ment Despite a growing population, losses were compensated for, at least until  ly decaying areas in Kowloon, on the other hand be¬ tween Hong Kong with the front Offices and Guangdong with sweat shops and back Offices.These disparities, typical for global cities, are aggravated by the mainland border doubling as a wealth-barrier.Other negative consequences of economic specialisation are a higher dependence on extemal trade and a greater vulnerability to regional and sectoral crises.Furthermore, the qualifications demanded by the labour market are changing quickly, making flexibility and a readiness to be retrained essential for the people affect¬ ed.For these reasons, voices from the political, eco¬ nomic and academic fields are calling for governmental action to counteract prevailing tendencies.
4 Industrial promotion policy 4.1 «Positive Non-Intervention» until 1997   The colonial government, contrary to the governments of other newly industrialised countries in Asia, largely refrained from promoting businesses by loans or subsidies or from raising taxes.The responsibility of the State was in theory restricted to providing an infrastructural framework, an efficient civil service and keeping law and order.Although in reality Hong Kong's government played a more active role (Yeh & Ng 1994:  Biswas 1997: 1977ff, Hamer 1997: 288), the colony was frequently described as having one of the least re- strictive economies in the world (O'Driscoll, Jr. et al.   1999).
The policy of «Positive Non-Intervention» already included many aspects directed at promoting industries in Hong Kong (Fig. 3): The Industry Department monitors the adequacy of industrial infrastructure, addressing constraints for industrial investment.It works together with local trade and industrial organisations and the Industrial and Technology Development Council, with representatives from business, governmental and academic spheres (Yeh & No 1994: 461ff).For over 25 years, the government-funded Productivity Council in Kowloon Tong (Fig. 5) has sought to enhance the productivity of Hong Kong's companies (Yeh & Ng 1994: 460ff).
Since 1977, a public body has been setting up indus¬ trial estates in the New Territories.The three estates situated next to the new towns of Tai Po, Yuen Long and Tseung Kwan O hosted in 1997, 147 businesses providing more than 33 000 jobs (South China Morning Post 1997).A fourth industrial estate is currently under construction near Tuen Mun.Since 1994, the Hong Kong Industrial Technology Centre, located in Kowloon Tong next to two universities and the Productivity Council (Fig. 5), have been giving start-up aid to high tech firms.In 1998, they received governmental subsidies of HKS 250m.(CHF 50m).A second industrial technology centre is planned (Government of the Hong Kong SAR 1998, §21).Also planned before 1997 were various business and science parks.While industrial estates are built spe- cifically for factories, both business parks and busi¬ ness estates provide for a mix of office, factory, exhibition and storage space as well as hoteis and apartments.The first location has been chosen next to the new airport (Sito 1997).The first science park aimed at high tech companies is planned next to the Chinese University near Shatin.It will be built be¬ tween 2001 and 2013 to eventually host about 6000 jobs on an area of 22 ha.HK$ 3.64bn (CHF 700m) of public funds have been granted for the first stage (Kan 1998).The government's above mentioned policy towards industrial areas not used to their füll capacity can also be considered as a measure directed at promoting in¬ dustries.

Development after 1997
When in 1997, the hand-over of Hong Kong coincided with a general regional economic crisis, there was a qualitative increase in State Intervention.In August 1998, the government spent HKS lOObn (CHF 19bn) at the stock exchange to protect the currency against speculators (Yiu 1998), and in June 1998, a HKS 44bn (CHF 8.5bn) rescue package comprising tax reductions, loans and a temporary freeze of land sales was passed (Saunders & Yeung 1998).These governmental inter¬ ventions have been interpreted in the context of Hong Kong's political integration into China.While China's declared aim is to turn its socialist planned economy into a «socialist market economy», Hong Kong has been seen by some to be on the way to a «capitalist planned economy» like Singapore or Malaysia (a fact that could help the integration anyway).However, the change cannot be explained solely by this factor.Other reasons lie in Hong Kong's business-friendly new elite, in the abolishment of colonial type decision-making processes and, above all, in the exceptional challenges posed by the economic crisis.The new economic policy has boosted industrial promo¬ tion, with special focus on the high tech sector.In 1998, this sector was directly subsidised by three funds with together more than HKS 6bn (CHF 1.1 bn).Additional-ly, HKS 630m (CHF 120m) were allocated for promot¬ ing information science at schools (Government of the Hong Kong SAR 1998, § 101).In 1999, the pro- posals made by a government-appointed commission added further momentum to these promotion policies (Chief Executive's Commission on Innovation and Technology 1999).New projects have been un- veiled: A HKS 13bn (SFr 2.5bn) «Cyberport» telecommunications and media park next to the University of Hong Kong on Hong Kong Island has been designed to Start Operation in 2002.They will eventually provide up to 12 000 newjobs (Governmentofthe Hong Kong SAR 1999, § 57ff); a «Silicon Harbour» production site for micro chips is planned for the New Territories (Hui 1999).and an «Incubator» in North Point has begun to offer premises for shares to start-up high tech compa¬ nies (Sun Hung Kai Properties Ltd. 1999).These projects are partly initiated.partly subsidised.by the government.Of interest is the involvement of Hong Kong's traditionally strong real estate industry, aiming to diversify its portfolio.In Hong Kong the discussion concentrates on promot¬ ing promising new industries, not supporting old and unprofitable ones.Hong Kong's research and develop¬ ment (R&D) lags far behind regional competitors, such as Singapore, Taiwan or South Korea, with more proactive industrial and technological promotion policies (Yeh & Ng 1994, Amsden 1997: 343ff, Röpke 1997: 101 ff).Yet it is in particular the capital-intensive, inno¬ vative and high value-added industries which are best suited for a re-industrialisation of places like Hong Kong with its high wage levels.Studies propose the pro¬ motion of, for example, the fashion industry, electro¬ nics, information and communication technology as well as manufacturing of traditional Chinese medicine (Berger & Lester 1997).The government takes such advice very seriously (Government of the Hong Kong SAR 1998,  § 19ff).Chief executive Tung Chee Hwa places high expecta- tions on information technology and on a co-operation with America's Silicon Valley.In California, in 1999, a business association named HongKong-SV.comwas founded to promote this co-operation.The background of this is that about 25% of all high-tech firms founded in Silicon Valley between 1980 and 1998 are run by Asian immigrants, the majority of them being Chinese (Saxenian 1999: 23).There is much hope that a con¬ siderable number of the American Chinese executives and engineers might thus be induced to renew ties with their home country and invest in Hong Kong.
However, the government's industrial promotion policy is challenged on several grounds: Objections to «picking winners and losers» and to giving special attention to supposedly promising in¬ dustries are raised.Examples of failed international projects are quoted publicly, for example the highly subsidised high speed aircraft «Concorde» (van der Kamp 1999).
Others stress the costs for public coffers and emphasise Hong Kong's good experience with the Positive Non-Intervention policy (Enright et al.: 231 ff).
Warnings dampening the hopes set in the high tech industry are also expressed.This industry segment faces world-wide aggressive competition and Hong Kong has not much experience to offer in this partic¬ ular field.
Another issue being raised is Hong Kong's increase of productivity in the past.which was much higher than in countries solely backing the high tech sector.In 1993, the value added per employed person in business Services and finance in Hong Kong was about three times higher than in manufacturing.al¬ though the latter had quadrupled between 1983 and 1993 (Amsden 1997: 321).On the basis of the above.
it is argued that Hong Kong would do better to con¬ centrate on the Service sector, i.e. to invest in the most efficient application of telephones and ATMs, and not in their development (Davies 1996: 685).
More attention in this debate should be paid to Hong Kong's regional set-up.According to the Sino-British Joint Declaration, the border between the Hong Kong SAR and mainland China will remain unchanged until 2047.Nevertheless, the city must be seen as part of an emerging cross-border conurbation: Pearl City.Against this backdrop, the development from a manufacturing to a Service economy looks rather like the transforma¬ tion of an enclave into a metropolis with a hinterland (Enright et al. 1997: 25).The question «made in Hong Kong» or «made by Hong Kong» turns into «made in Hong Kong» or «made in Pearl City», with the conurba¬ tion as a whole being far from de-industrialised.In fact, Pearl River Delta Region has taken over the lead in the high tech segment in China.This sector, accounting for about one third of both the region's manufacturing pro¬ duction and its total GNP (Miller 1999.Yau 1999), has profited greatly from Chinese and foreign Invest¬ ment, the interrelation with Hong Kong remaining weak.The developments in the Pearl River Delta Re¬ gion should be taken into consideration when drafting an industrial promotion policy for Hong Kong.It can be argued, that analogous to Silicon Valley's location in Santa Clara County outside the City of San Francisco, Hong Kong's new Silicon Harbour might be better lo¬ cated in Shenzhen, if Hong Kong were in a position to benefit from cross-border co-operation.

Conclusion
This article has shown the extent and spatial distribution of de-industrialisation in Hong Kong.The main reason for the radical change of the economic structure has been outward processing by Hong Kong companies in mainland China.Despite positive consequences like economic specialisation enhancing productivity, there are also several negative aspects.Good reasons to diversify Hong Kong's economy exist.The government is ready to take a more proactive role than in the past, focusing primarily on the high-tech sector.This seems to be the only viable strategy, as the high wages in Hong Kong rule out re-introducing traditional manu¬ facturing.Yet it is important to reconsider Hong Kong's comparative advantages in the light of ils regional integration.Hong Kong's new spatial pattern.a financial, business and Service centre with a highly industrialised hinter¬ land.promises to be of financial benefit for the whole region.Cross-border interactions are also smoothing the path for integration with the rest of China.In terms of spatial, economic and political effects it would be wise for both Hong Kong and the new high-tech region in the Pearl River Delta to foster regional co-operation.
When designing projects such as «Science Park», «Cy¬ berport» and «Silicon Harbour».the proximity of the Pearl River Delta Region should be kept in mind.as Hong Kong can benefit from a clear definition of opera- tional fields instead of competing in sectors where its new hinterland has the upper hand.Such operational fields are selected links of the value added chain (e.g.R&D, production, marketing).Using Hong Kong as an example, this article highlights the influence local factors may have on a viable indus¬ trial promotion policy.In the case of Hong Kong.the policy has been affected by political changes as well as economic crises, local political and economic tradi¬ tions, a broad field of actors (including academics) and last but not least, the geographical Situation i.e.Hong Kong's location directly on the border to the mainland.Because of Hong Kong' complex Situation, policies planning future development will have to be revised continuously, with little help to be expected from mod¬ eis derived from other places.Hong Kong's border loca¬ tion, for example, contains new and to some extent unique problems, but also opens up exciting perspec¬ tives, which should be given the utmost attention when drafting new industrial policies.This article explores spatial aspects of Hong Kong's de- industrialisation, related both to the development of closer cross-border ties and to Hong Kong's evolution as a global city.Industrial promotion has always had its place in the generally non-interventionist economic pol¬ icy ofthe government.However, under the new political and economical conditions industrial promotion has moved up on the agenda.In particular, the promotion of high-tech industries is given special governmental at¬ tention.The author wams that the plans for re-industrialising Hong Kong may be based on an obsolete view of the city: the city as an isolated entity rather than as the cross-border economic agglomeration that it is growing into.The aim should be to develop a strong and productive industrial base with intra-regional co-operation for the whole agglomeration instead of just for Hong Kong.

Fig. 2 :
Fig. 2: Changes in the number of people employed in selected industries in Cheung Sha Wan 199I-1997 Veränderung der Beschäftigtenzahl ausgewählter Wirtschaftszweige 1991-1997 in Cheung Sha Wem Chenage de nombre d'employes dans quelques branches industrielles 1991-1997 in Cheung Sha Wan (Data: Census & Statistics Department 1991.1997: base map: Lands Department) Fig. 3: Locations of manufacturing industries and industrial promotion institutions in Hong Kong Standorte der Industrie und Industriefördereinrichtungen in Hong Kong Endroit d'industries et d'institutions pour la promotion industrielle ä Hongkong (Layout: W. Breitung, cartography: L. Baumann)

Fig. 5 :
Fig.5: Industrial promotion institutions in the university environment (Kowloon Tong) Hochsclutlnahe Wirtschaflsfördereinrichtungen in Kowloon Tong Institutions pour la promotion economique situees pres de l'universite ä Kowloon Tong Yiu, E. (1998): HKMA spee tops USS 8b.-In: South China Morning Post 22.9.1998.Summary: The End of «Made in Hong Kong»?-De-Industrialisation and Industrial Promotion Policy in Hong Kong People employed in selected manufacturing industries in Hong Kong 1991 and 1997 Beschäftigte in ausgewählten Industriezweigen Hongkongs 1991 und 1997 Employes par Industrie parficuliere ä Hongkong 1991 et 1997 (Sources: Census & StatisticsDepartment 1991, 1997) 1997, by economic growth and the ascent of Hong Kong to global city Status with regional as well as global command and control func¬ tions (van der Knaap & Smits 1997: 3ff).Employ¬ ment in finance and business Services expanded be¬ tween 1992 and 1997 by just under 115 000 jobs (from 334 161 to 448 938 people employed), an increase of about 34%.However, 41 207 of these jobs -or over one third -were concentrated in the Central and Western Districts (Cen¬ sus & Statistics Department 1992, 1997).The result was a greater traffic chaos and exploding property pric-