Professor Li, Professor Chang, Ladies and Gentlemen,

Let me first apologise for the absence of Mr C H Tung, the Chief Executive, who cannot be here today to speak to you. As you know, this is because Mr Tung is on an official visit overseas at the moment. It therefore falls upon me to talk to you at this conference. I feel honoured to have the opportunity to address such a distinguished audience on the science and technology policy of the Hong Kong Special Administrative Region.

The scientific and technological development of a community is inseparable from its economic development. To talk about our science and technology policy, therefore, I will have to start by saying a few words about our economy.

Restructuring of Our Economy

Since the 1950's, manufacturing industry has been the backbone of our thriving economy. From wigs and plastic flowers to garment and electronic products, Hong Kong manufacturers have continually adapted and upgraded their production. This enables Hong Kong to maintain its position as a highly competitive manufacturing centre in the world.

However, some people may point out that Hong Kong's manufacturing sector has declined in importance in the past decade. Its share of the economy as measured by the Gross Domestic Product (GDP) has fallen from 24% in 1980 to around 9% in 1995. Its share of Hong Kong's total workforce has also fallen, from 46% in 1980 to 15% in 1995. By contrast, the services sector has grown significantly, accounting for almost 84% of our GDP and nearly 80% of our workforce in 1995.

I would say that such comparisons are simplistic and present too narrow a view of the dramatic restructuring of our economy over the past decade. In fact, the apparent decline of the manufacturing industry in Hong Kong has been a result of a massive relocation and expansion of production activities to the mainland of China and other areas in the region. By 1996, Hong Kong-based manufacturing firms employed some 5 million workers in the Pearl River Delta and hundreds of thousands elsewhere in the region. While the labour-intensive mass assembly production activities have been so relocated, Hong Kong has retained and expanded on higher value-added and knowledge-intensive activities such as design, engineering and product development. These activities are essential for the overall improvement in the competitiveness of Hong Kong products, defined broadly as products manufactured in Hong Kong-owned and managed factories wherever they are based.

In short, Hong Kong has become the centre of a production network spanning the Mainland and countries near and far. And the services sector in Hong Kong has also grown and developed significantly in response to and in support of this globalised production network controlled from and by Hong Kong. Thus, the decline of the importance of the manufacturing industry to Hong Kong's economic well being is more apparent than real.

In this structural transformation of the economy, Hong Kong firms have continually upgraded their scientific and technological capacity so that they can be better-equipped to perform this new role in the production process. They also have to apply new technologies, particularly information technology, to function properly as the centre of their global production network.

Given the importance of science and technology to the continued growth of this globalised production network and hence our economic well-being, we have given its development a high priority in the Government's industrial support policy. Lest there should be any misunderstanding, by industrial support, we do not mean subsidies to some individual sectors chosen by bureaucrats. This would not be consistent with our proven policy of "minimum intervention, maximum support". We firmly believe that market forces provide the best way to determine the allocation of resources in the economy. We also firmly believe that a free market provides the best environment for businesses to thrive and hence generate wealth for the community as a whole. Thus, we do not try to pick winners or rescue losers. Rather, within the framework of a free market, the Government has a pro-active industrial support policy aimed at facilitating our overall productivity and international competitiveness. In particular, we are committed to enhancing the development and application of science and technology so that Hong Kong's globalised production network will be able to maintain its competitive edge.

Of course, we should not be focusing only on the manufacturing industry. With the restructuring of our economy, we have become an international financial and services centre. We are therefore also committed to enhancing the development and application of science and technology so that Hong Kong will remain as a leading financial and services centre in the world.

In ensuring that Hong Kong upgrades its science and technology capacity, the Government has adopted a three-pronged approach: first, provision of suitable physical infrastructural facilities, second, investment in human resources and third, support for research and development activities. I wish to say a few words on each of these three areas.

Physical Infrastructural Facilities

On physical infrastructural facilities, the Government has set up a number of public organisations to promote the development and application of science and technology in both the manufacturing and services sectors. Twenty years ago, the Hong Kong Industrial Estates Corporation was set up to provide formed and serviced land at cost to companies with new and improved technologies and processes which cannot operate in multi-storey factory buildings. There are now three industrial estates located in Tai Po, Yuen Long and Tseung Kwan O respectively, providing much-needed infrastructural support for technology-based industry. As all the available land in the three existing estates is expected to be taken up by the year 2004, the Corporation is actively planning for a fourth industrial estate at Tuen Mun.

The Hong Kong Industrial Technology Centre Corporation (HKITCC) was set up in 1993 to promote technology innovation, and to assist technology transfer and application in Hong Kong. The Centre provides an incubation programme and accommodation for technology-based companies. At present, there are 31 incubatees and 32 tenants in the centre. With such a good response from industry, the Centre is now 98% leased out. We are therefore planning to establish a second Industrial Technology Centre.

There are also a number of other organisations which were established by funding from the Government or the Jockey Club to help improve local scientific and technological know-how and research capabilities. Some notable examples include the Hong Kong Productivity Council, the Telecommunications Technology Centre Company Limited and the Hong Kong Institute of Biotechnology which is located right here in the Chinese University of Hong Kong.

The Government is also actively planning for the development of a science park in Hong Kong. By bringing together companies from other economies, researchers in our tertiary institutions and local enterprises with scientific and technological competence, the science park will provide a major impetus for the development of indigenous science and technology-based companies in Hong Kong. It will also promote technology transfer by attracting overseas investment and enhance regional co-operation in scientific and technological development.

Investment in Human Resources

Mere provision of physical infrastructure is of course not enough. We recognise that Hong Kong's competitiveness rests heavily on its people. A well- trained and technologically competent workforce is vital for the further development of our manufacturing and services industries. We are therefore committed to providing a comprehensive system of education and vocational training to help develop the full potential of our young people and to equip our workforce with the necessary knowledge and skills.

We now have eight degree-awarding tertiary institutions with 63,000 students. Among them, 25,000 students are pursuing under-graduate education in science and technology related courses. In money terms, in the past three academic years, we have invested more than $31 billion in tertiary education, of which about $11 billion, or 35%, went to the development of science and technology-related teaching and research programmes.

Professor Li referred, a moment ago, to anticipated cut-back in the funding for the universities. Let me make it very clear that this is not the proposal from the Finance Bureau. However, I think, as Professor Li and probably many of you would know, the reason is the University Grants Committee felt that there should be scope for efficiency savings. And in fact some of these savings will be ploughed back into the universities to allow them to develop centres of excellence. So I think all is not lost.

At the sub-degree level, the Vocational Training Council provides a wide range of technical education and industrial training programmes to meet the changing needs of our economy. The Council also administers a New Technology Training Scheme which aims to facilitate the adoption of new technologies beneficial to Hong Kong's industry. The Scheme provides grants to help companies to send their employees to acquire skills in new technologies, either locally or overseas. Since its inception in 1992, the Scheme has provided grants of about $13 million for more than 2,630 trainees.

In addition, to encourage individuals to continue to improve themselves, we introduced a specific tax concession in 1996-97 to allow salaries taxpayers to claim as a deductible expense fees for training courses attended at approved institutions.

Support for Research & Development

Academic research

Research and development is essential if we want to foster scientific development and upgrade our technology. And, the Government has made substantial investments in this area, especially through supporting research work in local tertiary institutions. A strong research base in our institutions will help provide new knowledge and ideas which may ultimately be turned into applied technology. And of course, research is not just a means to meet our economic needs. Indeed, research and teaching are complementary to each other in higher education. A strong research portfolio will help the tertiary institutions to attract, train and retain high calibre staff and students. It would also enable our tertiary institutions to play a more active and constructive role in the international academic community.

As an important part of our initiatives to upgrade Hong Kong's research activities, we established the Research Grants Council (RGC) under the aegis of the University Grants Committee (UGC) in 1991. The role of the Council is to advise the Government, through the UGC, on the needs of tertiary institutions in the field of academic research, with an aim to develop a research base adequate to maintain the academic vigor and pertinent to the needs of Hong Kong.

The Research Grants Council helps the tertiary institutions to develop their research culture and infrastructure through various ways. It allocates funds to UGC-funded institutions to support research projects and to acquire major research facilities which could not otherwise be afforded by one institution. It also encourages collaboration in research and technology transfer between the institutions and the industry, and cooperation between the institutions in Hong Kong and overseas.

To underline our support for academic research by our tertiary institutions, we have increased funding through the UGC for this purpose. During the 1988- 91 triennium, in addition to the general grants to the tertiary institutions which already allowed for some academic research, we provided earmarked research grants totalling $120 million to the tertiary institutions. We increased the earmarked research grants by more than four times to $540 million in the 1992- 1995 triennium, and to $1,000 million in the 1995-1998 triennium. Apart from this source of funding, the tertiary institutions also have access to other sources of research funding from public and private organisations, such as the Hong Kong Jockey Club and the Industry and Technology Development Council.

As a result of our increased investment in research work, we have achieved a significant improvement in the research capacity and output of our tertiary institutions. The number of research postgraduate places has increased by four times from 780 in 1990-91 to 3,300 in 1996-97. The number of on-going research projects conducted by the UGC-funded institutions have increased by almost three times from 3,529 in 1991 to 8,914 in 1995. The average grant per project has also increased from $153,000 to $234,000 over the same period. Furthermore, the research base has expanded and there has been a general move towards larger projects, especially in the medicine and engineering fields.

The research output of our tertiary institutions is impressive not only in quantity but also in quality. According to the Research Grants Council, about 14% of the research proposals submitted in 1996 were of such a high quality that they would be able to secure funding in any competitive environment in the world. Of the 217 completed RGC projects that had been assessed by international experts, more than 95% have been rated at least "Satisfactory" and 16% "Excellent".

Applied research

Much as academic research plays an important role in the discovery and development in science and technology, it is vital to ensure that our economy will be able to benefit from their application and commercialisation. The Government has therefore set up various funding schemes to provide financial incentives for local industry support organisations and companies to carry out their own research and development programmes.

The Industrial Support Fund was set up in 1994 to provide funding support for projects which are beneficial to the industrial or technological development of Hong Kong. To date, over $900 million has already been committed for over 260 projects. The Government has also set up an Applied Research Council which is now operating two funding schemes totalling $250 million. The schemes provide financial assistance in the form of preferential interest loans to, or equity investment in, local companies to help them to undertake science and technology- based commercial ventures, either on their own or in collaboration with organisations in the Mainland.

Apart from these two funding programmes, the Hong Kong Industrial Technology Centre Corporation (HKITCC) also administers an Innovation Loan to assist technology-based companies which experience financial difficulties associated with starting a new business. The programme was introduced early this year and has just approved HK$5 million to 16 start-up companies for conducting research and development projects. The Corporation also operates the Early Technology Business Capital Loan Scheme for its incubatees whose products or services can enhance productivity growth and increase competitiveness. One loan application involving $1 million was approved in May 1997. Besides, expenditure for scientific research and payments for technical education in relation to trade and business are fully deductible expenses for the calculation of profits tax of the company.

We consider it important to give due recognition and encouragement to the entrepreneurs who help enhance the technology capacity of Hong Kong. Technology achievement has therefore been recently included as one of the seven award categories of the annual Hong Kong Award for Industry.

In addition, with the growing importance of the services sector, we set up a Services Support Fund in 1996 to provide financial support for projects which inter alia could enhance technological advancement and productivity in the services sector.

Intellectual property protection

Another important ingredient for the promotion of research and development is intellectual property (IP) protection. In order to promote creativity and scientific innovation and technological development, we have to ensure that there is a robust regime for the protection of intellectual property rights so that creators and researchers can protect and exploit economically the fruits of their endeavours. To achieve this goal, we have recently enacted new legislation in the areas of patents, industrial designs and copyright to ensure that we maintain standards which are in line with the prevailing international standards of intellectual property protection.

Cooperation with institutions in the Mainland

As a Special Administrative Region of China, we are particularly well- placed to take advantage of the opportunities presented by closer cooperation with academic and research institutions in the Mainland, many of which are at the leading edge in the field of science and technology. We are exploring means to foster greater collaboration with the Mainland so that we would be able to leverage on their technological advantages. For example, the Hong Kong Productivity Council and the Hong Kong Institute of Biotechnology have teamed up with the Chinese State Science and Technology Commission in two collaborative studies to explore the opportunities of cooperation in the fields of information technology and biotechnology. I am sure that our industrial and business leaders will see similar collaboration opportunities as an effective means to enhance their competitiveness.

Conclusion

To conclude, the development of science and technology has played, and will continue to play, an increasingly important role in ensuring that Hong Kong remain a competitive manufacturing and services centre in the global market. The Government fully recognises the importance of this. Through the three- pronged approach I have just described, we will continue to enhance and upgrade our scientific and technological capacity on all fronts.

I note that this conference will provide an excellent forum for discussion of the development of science and technology in Hong Kong and elsewhere, well into the 21st century. I wish you all a very fruitful conference today. Thank you.