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Hong Kong: The Digital Silk Road Super-Hub

This consultancy study – commissioned by the Hong Kong Trade Development Council and conducted by the project team led by AMTD Fintech Centre of PolyU Faculty of Business with two PolyU research centres, namely the University Research Facility in Big Data Analytics and the Smart City Lab – aims to identify, from a macro perspective, Hong Kong’s strength and positioning in the Digital Silk Road Initiative.

Building a Digital Economy

The current era of digital transformation is not another dotcom bubble but a megatrend that brings fundamental changes to human society. Without overstating, it will be the name of the game in the future. The Digital Silk Road (DSR) Initiative aims to take the lead on this historic transformation for the betterment of the whole world. Through establishing a digital ecosystem for connection, inclusion, disintermediation and co-sharing along the Belt and Road countries, the DSR is set to reduce trade friction and increase efficiency, contributing tremendously to an inclusive growth of the global economy.

Hong Kong’s Unique Role and Advantages

Hong Kong has a unique role in the DSR initiative. The city started its development as an entrepot, and has a long successful history as a bridge between mainland China and the rest of the world. Hong Kong can continue to play its super-connector role but, this time, it will play out on the digital superhighway, helping to bring China’s digital technology to DSR countries, while also helping them to tap into mainland markets. As such, Hong Kong could become the digital gateway of the DSR.

Hong Kong’s Positioning

Based on Hong Kong’s strength, this study has identified the following areas in which the city has the potential to develop further as the digital gateway of the DSR for policy makers and companies to consider. Yet it should be noted that the history of Hong Kong’s success is built on the agility and flexibility of its enterprises to spot business opportunities and quickly adapt to change, and not on specific instructions from the top. Hence, the identified areas should be viewed as general propositions.

1. As a Cloud Data Centre/Platform

   A huge amount of data is generated each day worldwide with tremendous value if organised and structured well for use. Recent technology developed to protect confidentiality and data privacy uses homomorphic encryption developed by MIT scientists, which enables computations to be carried out in an encrypted environment. As such, analytics can be performed on encrypted data.

   Hong Kong can consider building up a cloud data platform to encourage the sharing and use of data among DSR countries. Hong Kong will be in the best position to host a DSR cloud centre giving it full control of the data and information and upholding its integrity. The city can also get more involved with the Open Data Institute to come up with data standards. While a cloud centre involves huge investment, a government-backed (either government-owned or operated via a public-private partnership) centre for DSR is deemed to be important.

2. As a Digital International Financial Centre

   Without dispute, Hong Kong is already an international financial centre. It can draw international capital to support its start-ups and innovative projects as well as capital investment for digital infrastructure along the DSR. To move to another level of being a Digital International Financial Centre (DIFC), there are at least four aspects to work on. First, a DIFC should naturally be a fintech centre providing fintech-based financial services. Second, Hong Kong can be an offshore RMB settlement and clearance centre for DSR online and mobile payments. Third, a DIFC should have an exchange to trade digitised assets, which become a new class of asset generated in the digitisation process. This will also help move Hong Kong into a “token economy”. Lastly, being the digital gateway of the DSR, Hong Kong would have a unique opportunity to launch a cryptocurrency to support DSR transactions.

3. As a DSR Arbitration Centre

   Given the credibility built on the common law and an independent judiciary, and being the digital gateway of the DSR, Hong Kong is in one of the best positions to become the DSR arbitration centre. Digital technology itself will transform the arbitration process. E-arbitration and online arbitration could become possible, for instance. Yet there are difficulties in implementing standards for online dispute resolution in different legal environments across DSR countries, and Hong Kong should move fast to define best practices and create a workable environment.

4. As a Smart Entrepot

   Hong Kong has been an important entrepot with well-established logistics infrastructure and port facilities. Uplifting the handling power and efficiency of Hong Kong’s seaport and airport for cargo delivery through transforming our already world-class port into a smart port empowered by cutting-edge digital technology is the natural way to go. With the blockchain technology to empower supply chain financing and minimise the heavy documentation work in import-export trade, Hong Kong can digitally transform itself from a traditional entrepot to a full-blown smart entrepot.

   Along these lines, Hong Kong should work on strengthening the hyper-connected network in the GBA and connections with other neighbouring markets to create a highly efficient logistics and supply chain – in particular, to support the growing expectations for on-demand delivery amid the rapid development of e-commerce markets in the region.

5. Smart City, Smart Economy

   Smart city development per se is a key objective of every government to deal with various difficult urban problems. Hong Kong should develop into a smart city, as a showcase to ASEAN countries and others along the DSR.

Conclusion

For the DSR to succeed, it needs both the technological infrastructure and the superstructure of mutual benefit among DSR countries. This gives Hong Kong a unique role to play as a super-connector and the digital gateway of the DSR, given its strong ties and credibility with mainland China and the DSR countries. Leveraging such a unique advantage, Hong Kong faces a once-in-a-lifetime opportunity to contribute to this era of global digital transformation. If Hong Kong gets it right, it could fundamentally transform itself and make a quantum leap towards a completely new level of economic growth as a “smart economy”.

Click here for the full report.