The rise and fall of Hong Kong’s electronics industry: Can it rise again in the future?

"I remember that in 1959, I got my first portable atomic particle (transistor) radio. I was seven or eight years old at that time. I had a private radio, and I don’t know how many people envied me." This passage is selected from "Hong Kong Band Trends in the 1960s". The radio carries the memories of a generation of Hong Kong people.

Interestingly, in the book "Old Hong Kong's Common People's Customs", there is a chapter called "Radio in 'Aberdeen'", which is dedicated to the feelings of Hong Kong people about radio. It talks about: Since the 1950s, radio has played a great role in promoting the popularization of culture in Hong Kong, and has created the popularity of "Sky Novels" and a generation of singers.

Atomic radio advertisement in the 1960s (Photo: Hong Kong Trade Monthly (1965))

From a scarce commodity to an entertainment device that everyone plays with, the popularity of radios has also attracted businessmen to smell the scent of making money. In 1959, Japan's Sony (SONY) opened the first radio factory in the local area through a Hong Kong company, specializing in the production of transistor radios (locally known as atomic radios). The factory was founded by local industrialist Hu Xiaoqing and contracted Sony's manufacturing contract to produce 4,000 radios per month.

The beginnings of Hong Kong's electronics industry began here.

The radio business began to spread here. In 1960, there were three radio factories in Hong Kong. In 1961, the number increased to 12, and by May 1962, the number had increased to 14. This booming manufacturing industry was mainly carried out in small residential units, and only a few workers were needed to assemble hundreds of radios every day.

In addition, in the early 1960s, several well-known American electronics companies set up factories in Hong Kong to assemble discrete components such as magnetic core storage components, diodes, transistors and capacitors, which promoted the rapid development of Hong Kong's electronics industry. According to data, there were only 4 electronics factories in Hong Kong in 1960, but this number had increased to 230 in 1970, and the number of employed workers increased from 183 to 38,000.

During this period, Hong Kong electronics factories produced some electronic products for defense purposes for the United States, including wired and wireless televisions, rocket launch parts, and radar equipment.

In the 1970s, large-scale integrated circuits were introduced, and the production of computers and electronic watches grew rapidly. More foreign capital set up factories in Hong Kong, bringing more "treasures" - advanced technology and equipment for assembling integrated circuits, electronic watches, audio equipment, computers, televisions and other electronic products, which brought the first climax of the development of Hong Kong's electronic industry.

Radios made in Hong Kong in the mid-1970s. Source: "Common People's Customs in Old Hong Kong"

By 1980, the number of electronics factories in Hong Kong had increased to 1,316, with 93,000 employees. Exports reached HK$13.417 billion, accounting for 12.2% of Hong Kong's total exports, becoming Hong Kong's second largest industry. In 1981, the export volume of semiconductor radios exceeded that of the United States and West Germany, ranking first in the world.

In the 1980s, Hong Kong's electronics industry ushered in its second wave of development. American and Japanese technologies and equipment were introduced to Tai Po Industrial Village, and three integrated circuit factories, namely Hing Wah, Aika and Huake, were built. In 1989, the number of electronics manufacturers reached 2,009, with an export value of HK$55.818 billion. Hong Kong was no longer satisfied with the manufacture of simple radios, tape recorders, electronic watches, calculators and other products, and set its sights on microcomputers, personal computers, multi-layer circuit boards, computer peripherals, advanced communication equipment, and audio equipment.

Source: Hong Kong Industrial Structure Transformation

By the end of 1992, there were 1,305 electronics factories in Hong Kong, and the export value of electronic products rapidly increased to HK$60.291 billion, accounting for 25.8% of Hong Kong's GDP.

From the above series of data, you may find that Hong Kong plays a role in manufacturing and processing in the electronics industry. The reason why Hong Kong's electronics industry has developed rapidly during this period is entirely due to its own characteristics and "character": 1. Hong Kong is a free port, with no tax on imports and exports and preferential treatment; 2. Hong Kong has many channels and is well-informed; 3. There are many small factories, and large factories are all foreign-funded. This is very flexible. According to the book "A Century of Vicissitudes, Hong Kong's Past, Present and Future", "The manufacturing time of a new electronic product takes 8 months in the United States, 5 months in Japan, and less than 3 months on average in Hong Kong. Flexibility gives us an advantage in fierce international competition."

After the 1990s, Hong Kong began to discover that "guerrilla-style" electronic manufacturing had too many drawbacks. According to data from the book "Hong Kong Business and Legal Guide" published in the 1990s, 90% of Hong Kong's electronic components were imported at that time.

Moreover, although the scale of electronic factories is small and flexible, they are not big enough, which leads to a lack of funds and the inability to develop new technologies in the long term. In addition, the income of Hong Kong products is basically dependent on exports, and its production and sales are directly affected by the international economic situation. Moreover, Hong Kong is extremely short of electronic technical talents. With inflation, factory rents and workers' wages continue to increase, and component prices continue to rise, which is not competitive at all. Besides, how can it be as fun as speculating in real estate?

Can Hong Kong electronics rise?

In October 1998, the then Chief Executive of the Hong Kong Special Administrative Region proposed in his second policy address after taking office that Hong Kong should be revitalized through science and technology, and that Hong Kong should be developed into an international innovation and technology center. He also suggested building an electronic technology development zone called Silicon Harbour in Hong Kong.

However, Hong Kong still failed to rise, and the project was delayed. At that time, East Asia was taking on the semiconductor production demand transferred from Europe and the United States, and Taiwan's "Hsinchu Science Park" was built at that time. An article summarized the reasons for Hong Kong's failure. First, the government had little say in granting land, and second, the United States restricted the export of semiconductor equipment to Hong Kong.

What about Hong Kong? Will it just abandon electronics and semiconductors? Obviously not. The author saw some "stubbornness" when collecting information.

In 1999, Solomon Systech was established in Hong Kong and listed on the main board of Hong Kong in April 2004. In 2009, CEC became the largest shareholder of Solomon Systech, and Solomon Systech had a state-owned enterprise background. In 2015, Huada Semiconductor became the largest shareholder of Solomon Systech, holding 28.5% of the shares.

According to the official website, Solomon Technology provides display integrated circuit chips and system solutions to customers around the world. The group adopts a "fabless" business model, specializing in the design, development and sale of proprietary integrated circuit chips and system solutions, which can provide a wide range of display and touch applications in smartphones, tablet computers, TVs/monitors, notebook computers and other smart products, including wearable products, healthcare products, smart home products, and industrial equipment.

Image source: Solomon Technologies official website

IC design is definitely a very good idea. Your land is expensive? I have a small land. Moreover, in Hong Kong, the government has strong supervision over intellectual property (IP) protection, and has natural advantages in logistics, capital, and information exchange. In addition, the Hong Kong government has also formulated various preferential policies and set up special funds to support the local IC design industry, but will not interfere with IC companies that enjoy these preferential conditions.

At the 2018 China Integrated Design Industry Annual Conference, Hong Kong's IC design industry revenue growth rate was 132.89%, ranking first. The number of companies with revenue exceeding 100 million yuan also increased from 2 in 2017 to 4. This amazing data can indeed give Hong Kong hope.

In addition, the world's top 10 component distributors all have sales and customer support sites in Hong Kong, and there are countless small and medium-sized distributors in Hong Kong, which reminds me of Hong Kong in the 1970s. Small electronics factories have to cope with the rapid changes in the industry.

A research report concluded that Hong Kong is an important electronic parts trading hub in the Asia-Pacific region. Many products from the United States, Europe, Japan, Taiwan and South Korea are re-exported to mainland China through Hong Kong, and vice versa. Many multinational parts manufacturers have offices in Hong Kong and engage in sales, distribution and procurement activities in the region.

Hong Kong Electronics Export Performance

Some clues can be seen from the data. According to the latest data released by HKTDC Research in July this year, the electronics industry is Hong Kong's largest product export earning industry, accounting for 68.3% of Hong Kong's total exports in 2018. The industry's exports are mainly re-exports, and most of them are high-tech products, especially telecommunications equipment, semiconductors and computer-related products.