Hanging Hong Kong's Future on...Biotech?

Given its diminished role as a gateway to China, one possibility the former colony is studying is becoming a life-sciences hub

By Bruce Einhorn

While much of Asia has already started recovering from the 2001 recession, Hong Kong's economy still seems to be stuck in neutral. The problem, of course, is that unlike some export-oriented Asian neighbors, Hong Kong's woes extend far beyond slumping demand for high-tech products in the U.S. (see BW Asian Cover Story, 3/25/02, "Asia: Is This the Rebound?").

Instead, Hong Kong is caught in an identity crisis. For decades, its role has been as intermediary between China and the rest of the world. But with China's entry into the World Trade Organization, the Middle Kingdom's manufacturers increasingly don't need an intermediary. Neither do the foreign companies that are pouring tens of billions of dollars into China.


  So with Hong Kong gradually losing its edge in traditional areas, people in the former British colony are looking for ideas about where the city should focus next. One solution that some have come up with is to make Hong Kong a hub for the biotech and life-sciences industries. In particular, to focus on things like traditional Chinese medicine. After all, biotech and life sciences seem to be up-and-coming industries, and Hong Kong enjoys a unique position to take advantage of greater interest in the herbal and other cures that Chinese have been using for centuries. Local industry advocates believe Hong Kong companies can help with research into how to expand the uses of traditional Chinese medicine.

But what recently brought Charles Hsu, a partner at the San Francisco-based venture-capital firm Walden International, to town was the talk about Hong Kong focusing more on modern biotech. Hsu, who is co-head of Walden's health-care and life-sciences practice, was in the city in mid-March to speak at a three-day conference on Hong Kong's role in the biotech business. Unfortunately for his hosts, though, Hsu isn't terribly optimistic about Hong Kong being a place to do actual research. He does believe that the city has an important role to play, albeit as a supporter rather than a prime mover.

To understand why, Hsu compares Hong Kong to New York. That's a comparison that Hong Kong's biggest boosters usually love to make, with many a local bigwig saying that the Special Administrative Region is to the Pearl River Delta as Manhattan is to the Tri-State Area. But for Hsu, the New York analogy explains why Hong Kong's future in the biotech business is limited.


  "New York in the 1970s and 1980s and beyond tried to encourage the growth of biotech," he says. "But they weren't able to do it. The infrastructure is not suited to it." Like New York, Hong Kong is a very crowded metropolis that has traditionally thrived on the ups and downs of the financial world. And in some very important ways, Hong Kong is even worse off than New York when it comes to the life-sciences business. For while New York has many world-class universities and research centers, Hong Kong has but a handful of universities, which are government supported and not renowned for their research.

With that in mind, Hsu cautions that "it would be unrealistic to expect Hong Kong to develop a biotech industry overnight -- or even over 20 years."

Before we write off the industry completely, Hsu says we should return to the New York analogy. Sure, not a lot of America's biotech and life-sciences R&D gets done in the city itself. But New York still has an important role to play -- as financier. Gotham companies, Hsu claims, own major stakes in American biotech players. That's the model that Hong Kong should be using. "Hong Kong is and can be a hub for trafficking in intellectual property, people, and money," says Hsu, who believes that the city's traditional strengths as a services hub can still be of value in this new industry.


  "The real opportunity in Hong Kong is as a gateway to China," Hsu says. While some Chinese manufacturers no longer need that Hong Kong gateway, for the biotech and life-sciences business, Hsu says the Hong Kong intermediary is still vital. "Banking, legal, intellectual property, accounting -- all of the infrastructure resources that we take for granted in the U.S., Hong Kong has all of that."

China, he suggests, doesn't. And for the mainland to develop a knowledge-intensive industry like biotech and life sciences, such an infrastructure is vital. "Silicon Valley is not just about entrepreneurs and venture capitalists," he says. "It's about lawyers, accountants, real estate people. Hong Kong has most of the pieces. The question is how to leverage that."

Many people in Hong Kong seem to be struck with Shanghai-envy these days, as they see the metropolis to the north booming (see BW Online, 11/19/01, "Hong Kong's Problem: Too Little Democracy"). Hsu doesn't deny that Shanghai is happening, especially for his industry. But he suggests that Hong Kong become realistic about the role it can play. Don't be envious of Shanghai, he says, and don't be afraid of it.

"Rather than competing with Shanghai," he advises Hong Kong business leaders and policymakers, "invest in it. Own a piece of it." Hong Kong's property tycoons have already become big investors in Shanghai's real-estate market. Let's see if they take Hsu's advice and start spending in biotech and life sciences, too.

Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online

Edited by B. Kite

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