Manufacturing evolution under passive industrial policy and cross-border operations in China: The case of Hong Kong

Abstract

This paper investigates the impacts generated by a passive industrial policy in Hong Kong on manufacturing, given an environment where outward direct foreign investment (DFI) opportunities are accessible for smaller businesses at the proximate regions, Taiwan, a Chinese-based economy also dominated by small/medium manufacturing firms with active industrial policy, was selected as a contrast. The industrial policy in Hong Kong was found to include mainly manpower policy, trade facilitation, and economic infrastructure provision with no public participation in business R&D. Given the much passive industrial policy and room for expansion of the production frontier, Hong Kong's manufacturing had remained labor-intensive with increasing labor productivity but decreasing in that of capital. Total exports were found growing, but the percentages of export composition in technology-intensive and hi-tech products were the lowest among the Asian NIC's. Further, the manufacturing sector had evolved into a service-oriented state of “manufacturing management” with production activities conducting over the border. The Hong Kong experience demonstrated the mixed outcome of implementation of a passive industry policy to be dominated by comparative advantages.