Session 2 HK PRC Industrial Policy 2024

Hong Kong & PRC Business Environment Session

Lecture Overview

  • Focus on Hong Kong & PRC Industrial Policy: "Intervention or Non-Intervention?"

  • Lecturer: David Roper (dgroper@gmail.com)

Industrial Policy Defined

  • Definition: Strategic state efforts to facilitate economic transformation by enhancing productivity activities across sectors.

  • Selective Intervention: Refers to government policies that alter production structures to favor sectors with better growth prospects (Pack and Saggi, 2006).

Types of Industrial Policy

1. Neutral (Generic) Industrial Policy

  • Purpose: Improve market framework, reduce market failure.

  • Activities:

    • Reduce transaction costs and enhance competition.

    • Promote education and labor mobility.

2. Accelerative Industrial Policy

  • Objective: Speed up innovation through financial support to promising firms and technologies.

  • Example: Industrial Reorganisation Corporation (UK) and Japan's Ministry of International Trade & Industry.

  • Challenges: Difficulties in anticipating market trends and choosing firms for support due to uncertainty.

3. Re-vitalizing Industrial Policy

  • Justification for support to failing firms to avoid negative economic impacts (e.g., AIG and GM bailouts).

Goals of Industrial Policy

  • Objectives Include:

    • Enhancing national security and self-sufficiency in key industries.

    • Supporting inclusive job growth and reviving manufacturing.

    • Achieving international competitiveness.

    • Addressing economic dependencies on China.

Economic Sectors Overview

1. Primary Sector

  • Involves extraction of raw materials (e.g., agriculture, mining).

  • Decline in workforce proportion over time in developed countries.

2. Secondary Sector

  • Produces finished goods from primary sector materials.

  • Includes manufacturing industries like automotive and textiles.

3. Tertiary Sector

  • Known as the service industry; includes retail, hospitality, finance.

  • Growth in workforce participation in developed nations.

4. Quaternary Sector

  • Intellectual activities driving technological advancement (e.g., education, IT).

5. Quinary Sector

  • Involves high-level decision-making and essential services, including government and non-profit sectors.

Historical Economic Development in Hong Kong

  • Periods:

    1. Industrialization (1952-1974): Growth of textile industry and influx of labor due to refugees.

    2. Diversification (1974-1980): Shift to real estate and service industries.

    3. Economic Integration with China (1980-Present): Resurgence of entrepot trading and service-oriented economy.

Government Role in Economic Development

  • Limited industrial policy focus; reliance on private sector for R&D.

  • Infrastructure provision and responsive investment in public goods.

Nature of Goods and Services

Public Sector

  • Delivers public services and controls economic activities (education, health).

Private Sector

  • Dominated by profit-maximizing enterprises, characterized by flexibility and responsiveness.

Government Interventions

  • Internal Triggers: Regulation, infrastructure investment, anti-monopoly measures, and social equity concerns.

  • External Triggers: Global economic changes and technological advancements influencing government policies.

Trade Policies

  1. Protectionism: Regulatory measures to protect domestic industries from foreign competition.

  2. Tariffs: Taxes on imports making them costlier, shifting consumption to domestic products.

  3. Quotas: Limits on the quantity of imports, affecting pricing dynamics.

  4. Export Subsidies: Government financial support to enhance export levels.

Conclusion

  • Hong Kong's government maintains a cautious, minimal intervention approach, historically influenced by colonial governance.

  • The ongoing discussion reflects the balance between government facilitation and market-driven economic growth.