By: Paul Denlinger
More than 10 years ago, before the Internet bubble popped in 2000, Silicon Valley venture capitalists and technology professionals all looked to China as the goal of any leading Internet company. So big was the attraction of China that all of the leading companies to go public went out of their way to associate themselves with the China market. In 1999, the first China-play company to go public on NASDAQ, Chinadotcom (now CDC) went so far as to obtain the ticker symbol CHINA.
Companies based in Hong Kong went out of their way to associate themselves with Beijing and Shanghai, the two leading cities in China. Microsoft, Yahoo and later Google all sought to recruit engineering graduates from Tsinghua University in Beijing, China’s leading university for aspiring scientists (and political leaders), offering the best candidates competitive signing packages. Shanghai became home to China’s leading online gaming firms, lead by Shanda Online Entertainment, which went public in 2004 on NASDAQ and which now has a market cap of US$3 billion.
Compared to Beijing, Hong Kong did not have a high degree of technology talent. It did not have a Tsinghua University. It did not have the growth of the Shanghai region with its population of 100 million. The leading venture capital funds completely bypassed Hong Kong. Even its own best online technology and marketing talent left for Beijing and Shanghai, secure in the knowledge that they would be able to make more in VC-funded companies in mainland China instead of Hong Kong. Attempting to stem the talent flow, and to make Hong Kong more tech-friendly, the Hong Kong government spent millions to develop Cyberport, an ultra-modern tech campus with state of the art infrastructure and its own start-up incubator program. But for many years, the buildings were half empty.
Now though, the tide has turned. Cyberport is almost completely full, and there is a certain confidence in the air of being called a Hong Kong technology professional. What happened?
Broadly speaking, circumstances changed in the technology, business and political fields:
The hot area in software development is now mobile apps for the iPhone and Android platforms, both of which have very high penetration in Hong Kong. Hong Kongers are, for the most part, early adopters of new mobile technology. And mobile apps don’t need large, expensive development teams; most are developed by small teams of 2-3 persons using free development kits from Apple and Google.
The Web 3.0 emphasis on mobile means that even though wages and costs are higher than in mainland China, they are affordable. Break-even points are much lower than 10 years ago, and many smaller firms don’t even need venture capital financing; they can cover their costs based solely on mobile app sales. A small company can sell its apps to the world through the Apple and Google application stores, and collect payment without restriction. One local success story is Stepcase, maker of the popular Darkroom and Actioncam photo applications for the iPhone.
Hong Kong’s high population density makes universal wireless and broadband a reality, making U.S. broadband seem embarrassingly slow in comparison. 1000 MPS service is now advertised to homes.
Setting up a business in Hong Kong is much simpler and more straightforward than in mainland China. A new company can be registered and bank accounts opened in two days, compared to 30-60 days in China. Except for the Chinese yuan, which is non-convertible, payment can be received in any currency.
Another growth area for Hong Kong developers are Facebook gaming and Facebook apps. Facebook is very popular in Hong Kong. It is blocked in mainland China.
Unlike in mainland China, websites are not censored by the Chinese government’s Golden Shield, referred to by critics as the Great Firewall of China, or #gfw. Twitter and Facebook are freely accessible in Hong Kong, without the need for proxy servers as they are in mainland China.
In mainland China, the only three mobile operators are China Mobile, China Unicom and China Telecom. They all report directly to China’s State Council, China’s cabinet, and win their approval for major business decisions. This applies even to the introduction of new mobile services, making them political, not business decisions. In contrast, Hong Kong mobile operators are unregulated about when they can introduce new services for consumers. While mainland Chinese operators are held back waiting for political decisions, Hong Kong operators just charge ahead in the competition for consumers.
Because there is no Internet censorship, the services which are popular in the west are also popular in Hong Kong, such as Yahoo!, Facebook, Twitter and Google. Out of deference to Beijing, this is not widely publicized, though it is well-known among Hong Kong locals and industry insiders.
Over the past year, the Beijing government has implemented a tough policy of holding web publishers accountable for all content, including advertising and comments. Out of fear of losing their licenses, editors have clamped down hard on content. This has had a dampening effect on Internet development in mainland China.
For western companies in China, doing business is very hard. Most recently, Google shut down its Chinese search engine and redirected all China search traffic to… Hong Kong. Earlier casualties included Yahoo! and eBay. Again, deference to Beijing keeps Hong Kong investment officials from talking too loudly about this issue.
Since Hong Kong is the fourth largest capital market in the world, some of China’s leading Internet giants, including Tencent and Alibaba have chosen to list in Hong Kong instead of in New York.
Does this mean that Hong Kong is completely safe now as a technology center for Asia and for China? No. If for instance, China chose to completely lift content restrictions and chose to treat foreign companies completely the same as Chinese companies, and completely deregulate its mobile industry, Hong Kong would lose its advantage.
But that is not likely to happen soon. So for those smart enough to look harder, they can find very interesting options in Hong Kong, China.