Hong Kong E-Commerce

Hong Kong's current role as the central intermediary between China and the West may or may not be threatened as the Internet enables China's provinces to participate directly in the global economy, but right now Hong Kong's laissez-faire attitude is giving it an advantage over the mainland, in terms of the Internet as much as in other ways. Beijing's repressive attitude towards the Internet just helps this along, but the CEPA (Closer Economic Partnership Agreement) which came into effect in 2004 is eating away at barriers between the two partners.

At a conference in April 2004, 200 business representatives from both Hong Kong and mainland China attended an e-business seminar in Hong Kong which aimed to explore how efficiency and costs can be improved, and how both regional and international market access can be expanded. Speaking at the opening of the seminar, the Permanent Secretary for Commerce, Industry and Technology (Communications and Technology), Mr Francis Ho, commented:

"The CEPA (closer economic partnership agreement between Hong Kong and China) has provided enormous business opportunities for Hong Kong's goods and service industry. If we are to maintain the competitiveness of our goods and services in the international market, we must not lose sight of the important role of e-business in today's global economy.”

"The Mainland has launched various informatisation, e-Government and e-business programmes in recent years,” he continued, adding: “These programmes will not only help drive the long-term development of the information technology industries and the overall economy of the two places, but will also foster greater co-operation between the local and Mainland enterprises on a mutually beneficial basis, so as to make full use of the cross-border potential of e-business to facilitate trade and investment.”

The city is trying through the "Digital 21" policy initiative, citywide broadband implementation, and the new Cyberport constructed by Pacific Century CyberWorks to lead Hong Kong into the digital future. Hong Kong, with its low taxes and its established position as a trade hub for Asia, is also trying to become a centre of E-Commerce development.

The Economist Intelligence Unit reported in May, 2007, that while e-readiness continues to improve around the world in 2007, achieving it is becoming more complex. To reflect this, the EIU has "raised the bar" of e-readiness by modifying its ranking methodology.

This change in methodology, along with underlying improvements in individual countries, has led to changes in the league table. Several countries, particularly in Asia, have seen their positions improve, while others have experienced (mostly slight) declines. At the same time, the fundamental tenets of e-readiness remain unchanged, and the leaders in 2006 were still leaders a year later — nine of the previous year’s top ten countries remained in that bracket.

Denmark and the US retained their number one and two spots in the rankings (with Sweden also tied for 2nd), but Hong Kong (4th), Singapore (6th), South Korea (16th), Taiwan (17th) and Japan (18th) have experienced a boost in 2007 in both scores and ranks. This was due in no small part to their governments' vision and commitment in pushing digital development, and to continued progress in adoption of broadband and other advanced infrastructure, the EIU said.

The EIU noted that Hong Kong's improvement was attributable to "innovative development of e-business services, a positive legal and policy environment and advances in mobile services".

The economies were ranked based on six criteria, including infrastructure, business environment, consumer and business adoption, social and cultural environment, legal and policy environment, and supporting services.

PCCW is one of the SAR's major players in terms of e-commerce development. In January, 2004, it emerged that PCCW was planning to move into China's on-line gaming market in association with South Korea's NHN Corporation.

On-line gaming is booming on the mainland, with annual growth rates of 30% or more, and represents a natural target for PCCW, which is investing heavily in broadband offerings around the world. The problem for PCCW is content, however, and the alliance with NHN will allow it to offer the latter's Hangame interactive entertainment platform in China. In South Korea Hangame already supports more than 50 internet games. Even though on-line gaming is growing very fast in China, it is a highly competitive sector, and likely to become more so. There is also the piracy problem - recent assurances from the Chinese government that they are cracking down on software piracy have so far done little to dent pirate activities in one of the world's wildest market-places.

The Digital 21 initiative, a collaboration between the Information Technology and Broadcasting Bureau (ITBB) and the Information Infrastructure Advisory Committee (IIAC), is a package of initiatives through which government, business, industry and academia can work together to make Hong Kong 'a leading digital city in a globally connected world.'

The Cyberport, a private-public venture masterminded by Richard Li of the Pacific Century Group, aims to provide the office and residential space for high tech ventures and their employees in a single environment.

The government is also pursuing proposals (not very laissez-faire!) for a Digital Trade Transport Network (DTTN) to co-ordinate multi-modal trading flows, commissioning a HKD5m study from consultancy firm Accenture, although a coalition of the SAR's trading and logistics firms is offering an alternative it says would be cheaper and quicker to develop. Accenture's study is thought to recommend a 'green-field' solution built from scratch, while the trading consortium says it can build on existing components and systems.

The technical infrastructure for e-commerce development will therefore be in place, but it is less clear that Hong Kong has a business structure that is ideally suited to e-commerce. More than 90% of Hong Kong's businesses are small, family-owned firms, most of them forming part of business supply chains, although most manufacturing by now is done elsewhere. Hong Kong businesses are masters at building highly flexible supply networks that allow them to produce goods better, faster, and cheaper than anyone else in the world. Though information technology such as the phone, fax, and e-mail are indispensable to these networks, many Hong Kong businesses have been slow to invest in more advanced technologies.

In addition, Hong Kong's fiscal structure, which taxes local source income, means that e-commerce operations in the SAR would need to avoid entering contracts locally, which in turn might mean that servers would have to be located elsewhere. This is not ideal. 16.5% tax (2008/9) on profits is not high, but it is a lot higher than nil, which can be achieved quite easily in many other low-tax jurisdictions.

On the other hand, there is no doubt that Hong Kong's legal regime is ideal for e-commerce development, and its professional support services are excellent. Hong Kong is therefore a player in the competition taking place between a number of low-tax jurisdictions, to offer the most advanced e-commerce environment to businesses seeking a tax-efficient base for part or all of their operations. Hong Kong would claim to be one of the preferred jurisdictions in this competition, and it is a fact that the government has installed good e-commerce legislation alongside its other support measures.

Hong Kong's stated goal of becoming a global e-commerce leader is ambitious. The world, both onshore and offshore, is full of countries which have said they mean to become global e-commerce leaders. The UK may have shot itself in the foot with its misconceived 'RIP' legislation and its general slowness, but Ireland, Bermuda, Malta and the Isle of Man are just four of the more advanced 'low-tax' competitors. In the Far East the authorities in Manila have earmarked the equivalent of USD250 million to create a computer mini-city which they hope to establish as the global 'capital' of E-commerce, while Singapore and Dubai are also forces to be reckoned with.

By November, 2003, Hong Kong Director of IT Services Alan Wong Chi-kong was able to tell the 9th Joint International Computer Conference in Zhuhai that the government had provided e-options for 86% of public services amenable to electronic delivery and was confident of achieving its aim of 90% by the end of the year. Mr Wong said that the smart identity card launched in June 2003 was a major component of e-government strategy. Offering increased security and various value-added applications, the new ID card supports e-business and e-government transactions.

"The government plans to join up a number of related cross-departmental services with a view to providing the public with more direct access and better search functions. Projects under study include the Business Entry Portal, the Property Information Hub and the Integrated Criminal Justice System," Mr Wong said.

To foster the growth of the wireless and mobile communications industry in Hong Kong, the government is setting up a Wireless Solutions Development Centre at the Cyberport where software developers can test their products and obtain industry news.

"The government has always supported the use of IT in commerce and industry to enhance productivity and operational efficiency," Mr Wong said.

To encourage IT vendors to participate in government IT projects, the government has adopted a vigorous outsourcing strategy. Information and business-matching services are also offered via supporting organisations to help vendors expand into overseas markets.

With the signing of the Closer Economic Partnership Arrangement, 18 sectors including telecommunications services will enjoy closer trading ties with the Mainland. The Commerce, Industry and Technology Bureau is discussing with the industry a mechanism to strengthen co-operation between the IT and communications industries on both sides of the boundary.

But after spending billions of dollars on IT projects, the Hong Kong government said in September, 2004, that it was planning to adopt stringent new guidelines to try to control the effectiveness of future projects and focus the minds of officials on 'return on investment' and other such market-driven ideas.

The Finance Committee of the Legislative Council is the approving authority for e-government projects that cost more than HKD10 million; for smaller projects, authority is delegated to the GCIO's (Government Chief Information Officer's) Department.

The new policy will be drawn up by an e-government steering committee to be headed by Financial Secretary Henry Tang Ying-yen and supported by the Office of the GCIO. "We would like all the government bureaus and departments to be aware of the government's new expectations of their performance. We don't want to adopt IT for the sake of adopting. We want IT to be a cost-saving device. We want IT to enhance our productivity. There is certainly room for us to do better," said GCIO Alan Wong Chi-kong.

Mr Wong said the next wave of e-government initiatives - as outlined in the 2004 Digital 21 Strategy - must set "utilisation targets". The government has created many electronic services, which it says are used by about 70% of internet users, of whom more than 60% rate the electronic options as "very good" or "quite good". Some of the most popular electronic options are payment of government bills, marriage appointment booking and submission of trade-related documents.

Still, Mr Wong said the ratio of transactions to the number of government services put online - more than 1,200 at that time - remained "less than we desired". The government is planning a phased substitution of manned counters in departments with electronic services, such as 24-hour call centres. As part of a business process re-engineering, Mr Wong said the government would like to see more departments working together to streamline processes.

Geographically Hong Kong is well-placed both as a stepping stone into Asia and at a crossroads of the world's communications network - though such advantages are probably more psychological than practical. In theory at least, cyberspace knows no boundaries and the global nature of E-commerce allows it to be conducted anywhere.

In September, 2006, the Hong Kong authorities announced that a new one-stop online portal, GovHK, had been launched in order to offer a comprehensive range of online government information and services to the community.

Government Chief Information Officer Howard Dickson revealed that GovHK has adopted a "citizen-centric approach", to provide the most popular online government information and services, focusing on the public's needs and interests.

The new portal aims to serve three broad user groups - residents, businesses and trades, and non-residents.

For the 'residents' user group, there are 11 subject-based clusters covering key areas of public interest. The clusters are:

Communications & Technology;
Culture, Leisure & Sports;
Education & Training;
Employment;
Environment;
Government, Law & Order;
Health & Medical Services;
Housing & Social Services;
Immigration Services;
Taxes & Duties; and
Transport & Motoring.

Information related to doing business in Hong Kong and the Mainland is available in the portal's 'Business & Trade' section.

Non-residents interested in visiting, investing, studying, working and living in Hong Kong can find the information and services they need in the 'non-residents' section.

This section of the Hong Kong site explores how e-commerce and e-business operations can take full advantage of the advantages the SAR has to offer.

HONG KONG: E-COMMERCE

Hong Kong The Legislation

Hong Kong The Facilities

Hong Kong Tax Efficient E-Commerce