Institutional breakthroughs needed in ‘Shenzhen-HK Loop’
This article appeared originally in the China Daily on 20 May, 2022.
Authors: Kenny Shui, Research Director and Head of Economic Development, and Arthur Tsang,Assistant Researcher at Our Hong Kong Foundation
In the Outline Development Plan (ODP) for the Guangdong-Hong Kong-Macao Greater Bay Area released by the central government three years ago, it is hoped that the GBA will become an international technology innovation hub. To achieve this, it stated clearly that Guangdong province, Hong Kong and Macao should build an open and interoperable regional innovation ecosystem with a clear pattern for collaboration.
At a time when Hong Kong has encountered many obstacles in the development of its tech innovation industry, the central government has indeed given timely recognition to Hong Kong’s leading role in driving the development of tech innovation in the GBA, and has proposed a number of measures to facilitate the interconnection and interoperability of the markets as well as the efficient and convenient passage of factors of production in Guangdong and Hong Kong. We believe that the GBA should make good use of the “Shenzhen-Hong Kong Loop” as a testing ground and implement industry-specific, and deeper and wider institutional breakthroughs to promote synergistic development in the GBA with greater vigor.
Synergy across the value chain: no longer "front shop, back factory"
Hong Kong’s universities have always been the cradle for technological breakthroughs. One of Hong Kong’s strengths is undoubtedly biotechnology — both of Hong Kong’s medical schools are ranked among the top 100 in the world, and many of the city’s anti-epidemic experts are among the world’s leading scientists. Hong Kong is also the second-largest biotechnology financing hub in the world, and is capable of providing substantial support for the tech innovation industry. However, the commercialization of research findings from Hong Kong’s universities has been unsatisfactory, and private funding has not shown much interest in the local tech innovation industry. Indeed, the pace of Hong Kong’s tech innovation development is clearly lagging behind that of its peers.
As stated in the ODP, deeper integration between the industry, university, and research sectors in Guangdong, Hong Kong and Macao is a priority. We believe such integration is clearly no longer the “front shop, back factory” model for division of labor among traditional industries, nor is it limited to the “front research, back commercialization” model — the widely lauded model for research in Hong Kong and commercialization in the GBA. We believe it should be a comprehensive and refined division of labor across the border specific for different tech areas. Take biotechnology as an example: With the outstanding clinical medical research in its universities, Hong Kong has also become an international clinical trial center and has an edge in the clinical engineering part of medical device development. Hong Kong has always played a role in different parts of the biotechnology value chain, transcending its leading role in university research, and is able to export such scientific research services to the world.
Therefore, the mode of collaboration among Guangdong, Hong Kong and Macao should be industry-specific and spanning across the value chain. If Hong Kong has to position itself along the value chains of different industries and develop in tandem with other GBA cities, the constraints of limited market size and incomplete industry chain must be overcome.
Market size and industry chain constraints must be overcome
“Innovation-driven and reform-led” is the first basic principle set out in the ODP. Over the past three years, governments on the mainland have actively implemented a number of institutional breakthroughs to bridge the institutional mechanisms of Hong Kong and Guangdong. Focusing on the biotechnology industry, regarding market entry, the central government promulgated the “16 Measures to Benefit Hong Kong” shortly after the launch of the ODP. The measures include the Hong Kong-Macao Pharmaceutical and Medical Device Access policy, which allows designated healthcare institutions in the GBA to access drugs listed and medical devices commonly used in Hong Kong to serve their urgent clinical needs.
To facilitate the passage of factors of production, regarding people flow, the Shenzhen municipal government awarded “senior titles” to 37 Hong Kong clinical research doctors from the University of Hong Kong-Shenzhen Hospital last year, giving direct recognition to their professional qualifications without having to assess their qualifications under the mainland title assessment structure.
In terms of flow of goods, the “16 Measures to Benefit Hong Kong” also allowed the passage of human genetic resources from the Chinese mainland to designated institutions in Hong Kong and Macao, which is extremely beneficial for Hong Kong to make use of the huge patient resources on the mainland for research activities.
In terms of capital flow, the central government allowed the sponsorship of Hong Kong research projects by mainland research funding at various government levels back in 2019, thereby benefiting many of Hong Kong’s top scientists.
In addition, in January this year, the central government promulgated the Certain Special Measures to Relax Market Access in Shenzhen, which set out to relax and improve market access provisions in various domains, such as supporting full-cycle clinical evaluation of pharmaceutical products and medical devices in Shenzhen, promoting the adoption of real-world data (Phase 4 data) for registration purpose, and exploring the establishment of a platform for the approval and management of human genetic resources.
The actual implementation of these policies is yet to be seen, but if implemented properly, they will help strengthen the Hong Kong-Macao Pharmaceutical and Medical Device Access and measures to facilitate cross-boundary passage of human genetic resources.
However, the above-mentioned innovative policies only benefit the passage of pharmaceutical products and medical devices, and are mainly targeted at grooming university research activities. To foster synergy between Hong Kong and Guangdong along the entire value chain, deeper and wider reforms are needed for the tech innovation industry. For instance, Hong Kong enterprises are still restricted by the National Development and Reform Commission and the Ministry of Commerce’s Negative List from investing in the development and application of human stem cell and genetic diagnostic and therapeutic technologies on the mainland, a restriction that has significantly negated the potential for commercialization of genomic research and genetic testing technologies, in which Hong Kong excels.
In addition, academia and the industry have reflected that it is difficult to obtain intellectual property rights on the mainland, and the registration and listing procedures for pharmaceutical products and medical devices with the National Medical Products Administration (NMPA) are complicated, which have also severely hindered Hong Kong’s tech innovation industry from exploring the mainland market.
Besides, the passage of factors of production has not been optimized. For instance, many expressed that the cross-border use of biological samples and data from the mainland should not be restricted to designated research institutions, but should be opened up to specific regions on a larger scale.
Of course, institutional breakthroughs should be made in a step-by-step manner. The Shenzhen-Hong Kong Loop can indeed serve as a pilot area for policy breakthroughs and an example to further spillover such reforms to the GBA. The ODP has in fact recognized the opportunity and supported the development of the Shenzhen-Hong Kong Loop’s “One Zone, Two Parks” as a testing ground for building an international business environment and facilitating the flow of factors of production for tech innovation. However, the governments of Shenzhen and Hong Kong have only released a Joint Policy Package for the first time in September last year to promote greater mobility of factors of production in the loop, yet the document does not contain any new institutional breakthroughs but largely restates policies that have been put into practice over the last three years.
Shenzhen-Hong Kong Loop as the testing ground for institutional reforms in the GBA
We believe the loop can surely address the above-mentioned barriers by introducing bold policy reforms. For example, in respect of market access, the central government can explore the possibility of allowing Hong Kong enterprises registered in the loop with Hong Kong residents as major shareholders to enter the mainland market directly and be exempted from the Negative List. This can fully exploit Hong Kong’s advantages in the development of genetic diagnosis and therapeutics; the National Intellectual Property Office can also set up a branch in the Shenzhen Loop to facilitate the vetting of patent applications by enterprises in the region. The office can even further explore the possibility of making reference to the re-registration system in Hong Kong and recognize original grant patents in Hong Kong, with the GBA as the pilot region for such recognition.
In addition, the NMPA’s GBA branch, which has already settled in the Shenzhen Loop, should have the authority to not only conduct whole cycle evaluation of product registration, but also handle the approval of applications for innovative pharmaceutical products and medical devices in the region. The branch should surely operate beyond merely acting as an intermediary for communication between the NMPA and research institutions.
Regarding cross-border passage of factors of production, the Human Genetic Resources Office of the Ministry of Science and Technology should also set up a branch in the Shenzhen Loop to optimize the mechanism for opening up human genetic data from the mainland to overseas units and the Hong Kong Loop; at the same time, the customs authorities of both Hong Kong and Shenzhen should also introduce the convenient clearance of biological samples across the loop under sufficient risk control measures of immigration inspection and quarantine.
Looking back on the three years since the release of the Outline Development Plan, many successful institutional breakthroughs have been made in the GBA, and are set to continue to bring positive impact to the region steadily. From now on, the two cities should make good use of the Shenzhen-Hong Kong Loop as a testing ground and continue to introduce deeper and wider institutional breakthroughs that are industry-specific, so as to harmonize the institutional mechanisms across the border and achieve synergistic development of the entire value chain of different tech industries in the Guangdong-Hong Kong-Macao Greater Bay Area.