HKPC announces the key findings on the Hong Kong AI Industry Development Study

49% of AI enterprises expressing difficulties in recruiting technical talent HKPC provides nine major recommendations for establishing Hong Kong as a well-recognised “International AI and Data Industry Development Hub”

HONG KONG SAR - Media OutReach - 10 November 2023 - Hong Kong Productivity Council (HKPC) released the key findings on their "Hong Kong AI Industry Development Study" today, focusing on the status of Hong Kong's artificial intelligence (AI) industry development, domestic and overseas competition and local corporate utility. HKPC also provided nine major recommendations for establishing Hong Kong as a well-recognised "International AI and Data Industry Development Hub". As one of the highlights of "2023 Policy Address", the HKSAR Government has stated "AI and data science" as one of the three focuses of new industrialisation development. Upon receiving LegCo funding a few years ago, Hong Kong now hosts 14 cross-industry AI research laboratories and three universities ranking in the world's top 30 universities with AI-related subjects and research, the HKSAR Government will also establish a "Digital Policy Office" to accelerate the construction of a high-performance computing (HPC) data centre, which is slated to complete in 2024-2025 and is already gradually applying AI technology into its public services. In order to build Hong Kong into an "AI and Data Industry Development Hub", how should enterprises and governments respond? In light of this, HKPC collaborated with the Hong Kong Institute of Economics and Business Strategy (HIEBS), HKU Business School at The University of Hong Kong to conduct a "Hong Kong AI Industry Development Study" in mid-2023 to explore the various needs, opportunities and challenges the industry is currently facing. A total of 216 AI-related enterprises participated in the survey, and the key findings of the research are as follows: Overview of the development of Hong Kong's AI industry: 49% of participants expressed encountering difficulties in recruiting technical talent Among the AI ​​enterprises interviewed, 25% are large companies, and 75% are small and medium enterprises (SMEs). Of these, 17% said they are developing at all three levels (basic layer, technology layer and application layer), and 22% said they intend to extend their development to other layers in the future. 55% of the companies are looking to expand their businesses into both international and local markets. In comparison, 14% and 11% of companies will choose to focus their businesses in Hong Kong and the Mainland, respectively. Financial overview:

• 51% of large companies stated that they are currently profitable, with 31% of overall enterprises claiming to be profitable.
• Funding sources: 43% of companies report receiving funding from the HKSAR Government, while 19% received funding from venture capital/angel investors.
• Cumulative investment amount: 49% of companies invested less than HK$1 million, while 21% invested between HK$1 million and HK$5 million, 6% of companies invested between HK$5 million and HK$10 million, 5% of companies invested between HK$10 million and HK$100 million, and 4% of companies invest over HK$100 million.

Industry development overview:

• 48% of companies are solely developing AI for one industry, while 16% of companies target two industries and 15% of companies target three industries at the same time.
• Targeted industries: 29% telecommunications and information technology services, 24% medical/clinical and health equipment, health products, pharmaceuticals, 23% education, nurturing/training, 22% manufacturing, and 21% Government organisations.
• Main sources of income: 63% from Hong Kong, 19% from the Mainland, and 15% from overseas.

Current major challenges in the industry – insufficient HPC processing power and data, and difficulties in recruiting technical talent:

• Insufficient processing power: 44% of enterprises express having difficulties securing enough processing power, and 71% cover the shortfalls through cloud computing services, of which 31% choose HPC data centres in the Mainland while 26% choose HPC data centres overseas.
• Insufficient data: 44% of companies are having difficulties collecting data, and 16% say it takes a long time to collect sufficient data. Meanwhile, 8% reported that they have no relevant data.
• Recruitment difficulties: 49% of companies are having difficulties recruiting, and some even reduced their hires of technical talent in Hong Kong. 77% of companies reasoned that it is due to Hong Kong's high operating costs, and 41% expressed that Hong Kong lacks relevant technical talent. Nevertheless, 45% of companies still plan to increase the hiring of Hong Kong technical talent.

Overview of domestic and overseas AI ​​industry development: Governments worldwide are promoting the development of AI-led industries. In the Mainland, the Chinese Government is actively promoting the development of AI, and the AI industry has already reached significant scale. While Shenzhen's Pengcheng Cloudbrain II's HPC computer capabilities have successfully reached world-class level, Shanghai has also been constructing The Shanghai Supercomputer Center (SSC). Additionally, both cities have issued regulatory measures and policies to promote the development of AI industry, covering key elements such as human resources, HPC processing, data, algorithms, primary research, application scenarios, industry chains, industrial park service systems, fund groups, and servicing standard systems. With the Government taking lead in implementing AI, Shanghai focuses on industries such as manufacturing, finance, and shipping, while Shenzhen focuses on public services and urban governance. For the overseas market, Singapore launched its "National AI Strategy" in 2019, focusing on the interaction among Government, industry, academia and research sectors, as well as talent and data, with resources concentrated in areas such as finance, Government, healthcare and logistics. Singapore places special emphasis on nurturing local AI talent and supports the application of AI in local SMEs. Their AI Apprenticeship Program provides local talent with skills training and hands-on opportunities with a decent monthly allowance. The Singapore Government also provides AI readiness index assessment services, matching funding with projects, platform engineering teams, HPC cloud clusters, etc. for SMEs to promote their AI applications. As an international financial centre, New York provides an excellent financing ecosystem and environment for AI companies in the United States, and is home to several top-tier research centres for AI tech giants. The New York City Government is also committed to building a healthy AI ecosystem and continue to explore additional opportunities for public sector applications of AI and safeguard citizens' digital rights. Meanwhile, Switzerland's significant investments in research and education have created a first-class innovative environment for local AI development. The country has nurtured world-class innovative universities such as the Swiss Federal Institute of Technology Zurich, giving rise to local AI star companies and attracting numerous top-tier global technology companies to establish a presence in the country. These collaborations between public and private institutions have made significant contributions to AI technology research and industrialisation of research outcomes, which in turn drives development of AI in Switzerland. Concluding the situation in different regions, Governments worldwide have implemented policies to create a favourable development environment for AI to thrive. These trends indicate that AI has become a key focus for Governments around the world. Overview of Hong Kong enterprises' application of AI: 41% of Hong Kong enterprises are using or will use AI To understand the overall situation of Hong Kong enterprises' use of AI, this study has also collected additional data from 267 companies, of which 81% were SMEs, and 19% were large companies, covering multiple industries, including retail and catering, personal services, and professional service industries. Of all companies surveyed, 41% are or will be using AI, with 32% of them already applying the technology in multiple levels, such as marketing (58%), operations (44%), and internal management (33%). The average cumulative investment in AI has reached HK$830,000. For the remaining 9% of companies preparing to integrate AI technology into their business operations, their average investment budget is approximately HK$140,000. In terms of plans to expand the use of AI, 59% of companies that have already integrated AI stated that they will further expand their AI applications and increase their investment. 61% of them are considering to expand their investment by HK$300,000, and the average expected additional investment amount is as high as HK$1.22 million. Mr Edmond LAI, Chief Digital Officer of HKPC, said, "As a scientific research institution, HKPC has strong experience in AI applications and practical capabilities in developing AI. We are committed to promoting the development of the AI ​​industry and have successfully developed relevant technologies as we assist enterprises in upgrading and transforming their businesses. According to the latest data, 49% of companies that have applied AI believe that its effects are in line with their expectations, and 14% even pointed out that their investment have even exceeded their expectations. However, a small number of companies even said that their AI applications may need more work to achieve the targeted effects. Through this valuable data research, HKPC aims to further promote the application of AI across various industries, helping businesses optimise their operations and production processes, enhance efficiency, reduce costs, and facilitate the development of the AI industry in Hong Kong while providing practical recommendations." Professor TANG Hei-wai, Associate Director of HIEBS, concluded that, "AI has empowered the development of thousands of industries and brought in huge growth potential to the economy. This research focused on the AI policies and development of five distinctly different countries/regions: Singapore, New York, Switzerland, Shanghai and Shenzhen, and we have discovered that all regional Governments have introduced specific policies and measures to create a fostering development environment for AI technologies. Among them, Shenzhen even proposed to cooperate with Hong Kong to build an AI HPC centre. In addition, the report also reflects that a good number of Hong Kong enterprises intend to further develop their AI businesses or apply AI. The HKSAR Government can refer to the experience of other regions and analyse the current challenges faced by local enterprises to formulate targeted incentive measures to ensure that our city can seize the opportunities that AI brings. By injecting new impetus into the post-epidemic and digital economy, we can upgrade our industries and create new opportunities." Over the years, HKPC has made remarkable achievements in research and development (R&D) of AI technologies and promoted the development of AI ​​industry. Mr Edmond LAI continued, "HKPC established the Hong Kong Industrial Artificial Intelligence and Robotics Centre (FLAIR) at the Hong Kong Science & Technology Parks Corporation, dedicated to utilising AI to drive productivity by combining technical expertise, network, innovative R&D and patents. As the sole founding institution, we have jointly operated FLAIR with our partner, RWTH Aachen Campus in Germany, over the years. After years of hard work, FLAIR has become a member of HKSAR Government's world-class innovative platform 'AIR@InnoHK'. In addition to cooperating with international research institutions and key industry players, with the goal to assist enterprises in establishing AI applications, and effectively supporting Hong Kong's development into an international innovation and technology centre, FLAIR also developed the 'Hephaestus: Industrial Artificial Intelligence Application Platform', enabling industry professionals to store and access data storages, AI model storages and generate codes from their subsequent industries' database to develop, train and use various AI technologies. HKPC will continue to promote the development of innovative technologies, support new industrialisation in Hong Kong, and promote Hong Kong's rise as an 'International AI and Data Industry Development Hub'. In order to achieve this, we have put forward nine recommendations in their core segments, which may hopefully improve infrastructure development, accelerate industrialisation and expand our AI talent pool." Nine recommendations to promote Hong Kong's development as an "International AI and Data Industry Development Hub"Improve Infrastructure

• Construct an Asia-leading HPC centre: The Government invests in establishing a "public" HPC Centre and introduces preferential policies to attract local and foreign enterprises to build "private" HPC centres in Hong Kong and attract enterprises to carry out AI R&D in Hong Kong along with other public supercomputing resources (e.g. Universities).
• Establish an "International Big Data Hub": Develop data policies through the newly formulated "Digital Policy Office" and establish regulations to create a "privacy policies-free" environment. Further promote Government departments and Government-operated or funded institutions to provide "privacy policies-free" big data and APIs, and negotiate and implement data circulation with Mainland and overseas cities. This will facilitate the circulation of big data involving personal privacies (e.g. medical data), while at the same time safeguarding individual citizens.
• Formulate regulatory policies and guidelines for the development and application of AI technology: The Government must strike a balance between promoting the development of the AI ​​industry and safeguarding public interests, while enhancing the confidence of the industry and the public in the application of AI. We may refer to experiences and practices of other regions to stay in line with Mainland and overseas industry development.
• Strengthen cooperation with the Greater Bay Area and other countries to improve the AI ​​and data industry, while Hong Kong focuses on developing its advantages: AI chip design, algorithms, AI frameworks, AI application software, etc.

Accelerate Industrialisation

• Take the lead in promoting large-scale AI applications: In line with the development vision of smart city and smart government, the HKSAR Government should develop and launch large-scale AI applications by example to lead the development of the AI industry and attract AI companies to develop in Hong Kong.
• Empower industries in Hong Kong by upgrading and transforming with AI: Encourage industry chambers to cooperate with the AI ​​industry, share successful AI use cases, explore new application scenarios, utilise Government funding to provide AI training to employees, apply AI to help traditional industries upgrade and transform, accelerate the development of emerging industries, and create business opportunities for the AI ​​industry.
• Develop an "International Financing Centre for AI Companies": The Government should cooperate with relevant public and private institutions to promote and publicise the newly launched "Specialist Technology Company Listing Rules" (Chapter 18C) by the Hong Kong Stock Exchange, which allows pre-revenue, pre-profit specialised technology companies to list in Hong Kong, along with the new changes to HKEX's GEM board's listing rules. These reformed listing rules will attract more AI companies to list in Hong Kong and more venture capital funds to come to Hong Kong.

Foster an AI Talent Pool

• Popularise AI education and accelerate the fostering of interdisciplinary "AI+ talent": Universities and community colleges may incorporate AI education into their compulsory courses and in more disciplines, and secondary schools may also integrate AI education in multiple stages.
• Promote Hong Kong as "The Most Internationally Livable City for AI Talent": The HKSAR Government may promote the city's AI industry development plan and the convenience of being in an international city. Additionally, formulate preferential policies to encourage AI companies to relocate non-local AI tech employees to Hong Kong and attract AI talent from across the globe to develop in Hong Kong.

Please click here to view the key findings of "Hong Kong AI Industry Development Study" (Chinese only). The full report will be available for download from HKPC and HKU Business School website in due course. Please click here to download high-resolution pictures. Photo captions: At the media briefing of "Hong Kong AI Industry Development Study", Mr Edmond LAI, Chief Digital Officer of HKPC (left), and Prof TANG Hei-wai, Associate Director of HIEBS (right), announced that 49% of AI companies expressing difficulties recruiting technical talent. They have also put forward nine recommendations in three core segments hoping to establish Hong Kong as a well-recognised "International AI and Data Industry Development Hub". Hashtag: #HKPC

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About HKPC New Industrialisation

New Industrialisation is one of the eight major development focuses of the Hong Kong Productivity Council (HKPC). To support the goal of achieving new industrialisation as stated in the "Hong Kong Innovation and Technology Development Blueprint" promulgated by the HKSAR Government and promote high-quality and sustainable development of Hong Kong economy, HKPC New Industrialisation provides comprehensive technical support and training to move enterprises and industrial chains toward higher-end, smarter and greener transformation, achieving new industrialisation. The New Industrialisation Development Centre, established in mid-2023, provides an exchange platform for all sectors to learn about and master the latest technological solutions, with all-round services including testing and certification, certified new industrialisation courses and Government funding consultation, and more. This will drive and accelerate the realisation of new industrialisation in Hong Kong and other cities of the Greater Bay Area, speeding up the formation of new productivity. To promote the high-quality development of new industrialisation and the digital economy, HKPC New Industrialisation has also established "Celesphere", dedicated to combining metaverse, Industry 4.0, artificial intelligence and human-machine interface technologies to further promote industrial metaverse applications and their adoption, optimising product life cycles, enhancing enterprise productivity and competitiveness, and jointly driving and implementing new industrialisation. For more information, please visit HKPC New Industrialisation's webpage: https://u.hkpc.org/HKPC-NewInd-EN.

About the Hong Kong Productivity Council (HKPC)

The Hong Kong Productivity Council (HKPC) is a multi-disciplinary organisation established by statute in 1967, to promote productivity excellence through relentless drive of world-class advanced technologies and innovative service offerings to support Hong Kong enterprises. Being a key enabler of Industry 4.0 and Enterprise 4.0, HKPC strives to facilitate new industrialisation in Hong Kong, as well as bolstering Hong Kong to be an international innovation and technology centre and a smart city. The Council offers comprehensive innovative solutions for Hong Kong industries and enterprises, enabling them to achieve resources and productivity utilisation, effectiveness and cost reduction, and enhance competitiveness in both local and overseas marketplace. The Council partners and collaborates with local industries and enterprises and world-class R&D institutes to develop applied technology solutions for value creation. It also benefits a variety of sectors through product innovation, technology transfer, and commercialisation, bringing enormous business opportunities ahead. HKPC's world-class R&D achievements have been widely recognised over the years, winning an array of local and overseas accolades. In addition, HKPC offers SMEs and startups immediate and timely assistance in coping with the ever-changing business environment, and strengthens talent nurturing and Hong Kong's competitiveness with FutureSkills training for enterprises and academia to enhance digital capabilities and TechEd competencies. For more information, please visit the HKPC website: www.hkpc.org