Air quality is a growing concern to public officials and private investors alike, but it has not stopped Hong Kong from attracting substantial IT investment. Cyberport is Hong Kong's flagship IT development, a sprawling complex on 59 acres (24 hectares) that will be home to a strategic cluster of about 100 IT companies – most specializing in digital content development – and 10,000 IT professionals. Cyberport is an example of how the Hong Kong Special Administrative Region is investing in projects to keep Hong Kong on the cutting edge of Asia's high- tech industries.

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ong Kong's manufacturing activity may have moved out years ago, but residents and workers in the Special Administrative Region (SAR) can hardly forget where it went. The smokestack industries that went north into China's Pearl River Delta are compromising Hong Kong's quality of life with pollution that gets worse as Shenzhen and other industrial cities on the mainland continue to grow at breakneck pace. So far, foreign investment has remained robust, but the smog is a growing problem. As much as 80 percent of the SAR's pollution comes from the PRD; a fifth is locally generated.
   But those charged with luring investment into Hong Kong have a solid case for attracting smog- free service- sector industries, including financial services and high- tech R&D operations. They simply point to Hong Kong's business- center attributes – access to China, transaction transparency, intellectual property protection and a solid legal framework based on U.K. law, to name a few – and it's a fairly easy sell.
   Hong Kong's research and development sector in particular is flourishing. Since 1997, the government has been investing in key facilities that support high- tech R&D leading to commercialization; this was not the case prior to the historic handover of Hong Kong to the Chinese that year. Examples of this investment include Cyberport, a public- private enterprise built to support companies' development of digital content. Tenants include reinsurance and financial services company Swiss Re, which is building an in- house investment platform at Cyberport, and Federal Express, which is managing logistics operations there.
   Another example is the Hong Kong Science & Technology Parks (HKSTP), a 22- hectare (54- acre) complex of facilities in the New Territories designed for knowledge- based enterprises seeking to collaborate with other companies and with university experts (it is next door to the Chinese University of Hong Kong) and share technology infrastructure resources in a campus- like setting. IT design, biotechnology and photonics development are among the disciplines supported at the complex, where a second phase of development is under way. A third phase, when complete, will bring HKSTP to 330,000 sq. m. (3.5 million sq. ft.) of space. The park intends to become one of the top 10 science parks for design, new product development and applied research in Asia.
   One tenant is AppoTech Ltd., a designer and developer of integrated circuit technology with operations in the U.S., China and Taiwan. "We are in China, because it has the biggest and fastest- growing integrated circuit market in the world," says Chuck Cheng, president and CEO. "These days, being right next to your consumers is very important in order to provide them the best technical support."
   But why Hong Kong, and not Shanghai or Shenzhen? "Hong Kong is very unique in that it has the best intellectual property [IP] protection in all of China," he explains. "It has the laws and business practices that protect IP. It is also the place to access capital and to find financing. When a company is ready for its IPO, it is very easy to do that in Hong Kong." Cheng adds that the cost structure in Hong Kong is better than

Chuck Cheng

in the United States, where the company maintains an office in Silicon Valley.
   As for HKSTP, Cheng says the key benefit to AppoTech is access to the technical infrastructure needed for integrated circuit design, such as testing equipment. "Those machines are very expensive," he explains, "and it is very difficult for a company like ours to buy this equipment, so this location allows us to access it on a time- share basis. That lowers our capital investment a lot."    Despite evidence of some workers relocating to other locations in Southeast Asia due to the pollution, the business attributes listed earlier on balance are winning the day. Midway through 2006, Invest Hong Kong, the SAR's economic development agency, had completed 156 new projects, compared with 144 at the same point in 2005 – an 8- percent increase. And according to the U.N. Conference on Trade and Development, Hong Kong retained in 2006 its position as Asia's second largest destination for foreign direct investment, second only to mainland China. Still, the government feels compelled to make clear to incoming companies that it is aware of the air- quality issue and is taking steps to address it.
   "Around 20 percent of our air pollution is domestically generated," noted Donald Tsang, Hong Kong's chief executive, at a reception last July for new foreign and mainland investors. "We aim to eliminate or reduce about half of that in our negotiations with the power companies over renewal of the schemes of control.

Hong Kong Quick Facts    • Hong Kong places no restrictions on investments, either inward or outward.    • More than 90 percent of Hong Kong's re- exports originate from or are destined for the Chinese mainland.    • A Pan- PRD cooperation initiative involving nine south China provinces, Hong Kong and Macau seeks to develop an integrated regional economy with a population the size of the European Union's and a GDP comparable to that of the Association of Southeast Asian Nations.    • The unemployment rate for August to December 2006 fell to 4.5 percent, the lowest level since the second quarter of 2001.    • Hong Kong's GDP gained momentum in the third quarter of 2006, expanding by 6.8 percent, following 5.5 percent growth in the second quarter.    • Hong Kong's consumer price index rose 2 percent in October 2006, slightly less than September's 2.1- percent increase.

Most of the balance is from vehicular emissions, and our Environment, Transport and Works Bureau is working actively on options to reduce it."
   Tsang says his administration has established "solid working relations" with authorities in southern China – by far the leading source of pollution – and that officials there, too, are concerned about the health implications for its work force. A joint air quality management plan already is in place between the SAR and China's Guangdong province with ambitious targets scheduled to be achieved by 2010.
   "Guangdong is accelerating adoption of higher motor vehicle emissions standards and fuel standards," noted Tsang at a November conference in Hong Kong where he endorsed a Clean Air Charter drafted by two environmental groups, Project Clean Air and Action Blue Sky. "Over 10,000 megawatts of coal- fired generating units in the Pearl River Delta have been retrofitted to reduce sulphur dioxide emissions by more than 150,000 tons each year. Two oil- fired power plants were converted to use natural gas this year," he added, and highly polluting cement plants are being closed down, eliminating thousands of tons of particulates.
   Still, much of the work is for private industry to do, because about 70 percent of the PRD plants are owned by or associated with Hong Kong businesses. By late November, only 500 of Hong Kong's 300,000 businesses had signed onto the Clean Air Charter.
   "With the strong presence of our business community in the PRD, I am sure that the intervention can help reinforce the work we have been pursuing with Guangdong at the governmental level," said Tsang. "In concrete terms, that means our businesses should adopt the same high environmental standards for their PRD operations as they do in Hong Kong. If every Hong Kong company working in the PRD were to sign and abide by the Clean Air Charter, it would clean up most of the polluting operations."