Hong Kong’s Startup Scene: All You Need to Know

The startup environment in Hong Kong has proven to be remarkably resilient, and despite the persisting difficulties caused by the pandemic, it continued to develop in 2022. The positive outcome is evidence of Hong Kong’s appeal to startup founders.

Why choose Hong Kong for a startup?

One of the world’s major financial hubs is Hong Kong. Low taxes, nearly unfettered port trade, and a firmly established global financial sector define the city’s service-oriented economy. All of that is the result of years of trade and business.

As far as economic freedom goes, Hong Kong tops the list. It’s simple and secure to launch a business. Startups are characterized by growth and disruption. Hong Kong has a special position that enables quick and great scalability. Its hyperconnected population can instantly test products. Being a part of the Greater Bay Area and being close to the Pearl River makes it simple to access supply and production facilities. Half of the world’s population can travel to Hong Kong within five Hours of flight time thanks to its advantageous location in the center of Asia.

Diverse ecosystem

Hong Kong is more than capable of creating a robust ecosystem for tech startups. It is listed as the startup ecosystem with the fifth-fastest rate of growth globally. The startup environment in the city is also extremely diverse in a number of ways:

• Startups are upending an enormous range of businesses and sectors, taking advantage of Singapore’s long history in international trade as a logistical hub and a financial center.
• 45% of entrepreneurs are women, which represents gender diversity.
• Hong Kong residents make up about 65% of startup founders, with the remainder of the founders being foreigners and mainland Chinese.
• The largest early-stage entrepreneurship frequency in Hong Kong is among young persons aged 25 to 34. The perception of entrepreneurship has generally improved, and more young people now consider startups to be long-term careers. In established companies, however, career changers in older age groups — those 45 and older — predominate. The following section will present different infographics, data, and numbers about the Hong Kong startup environment.

Proximity to China

On the supply side, the proximity to China undoubtedly plays a role. It takes about an hour to drive from the central region of Hong Kong to the manufacturing area of Shenzhen, which is located just across the border from Hong Kong.

Hardware-focused businesses frequently refer to Shenzhen as Nirvana. Simply unmatched in terms of product range and manufacturing speed. In other parts of the world, it can take three months to complete a task, but Shenzhen can complete it in just three. In less than a month, startups may move from prototyping to production.

The region is adjacent to the largest manufacturing hub in the world because it is a part of the Pearl River Delta. It makes Mainland China accessible and opens up a wide range of business prospects.

• Hong Kong-made goods and service providers with offices in Hong Kong, can more easily access the mainland markets thanks to the CEPA, or Closer Economic Partnership Agreement, between the mainland and Hong Kong.
• Foreign investors can collaborate with a licensed Hong Kong service provider to establish wholly-owned businesses on the mainland that provide a range of ICT services.
• In terms of contract value (2.6% of the total), Hong Kong was the sixth-largest supplier of technology imports for the Chinese mainland.
• In 2017, Hong Kong was the third-largest trading partner of the Mainland (after the US and Japan), and the value of their combined commerce made up 7.0% of the Mainland’s overall trade.

Taxation system

The majority of foreign investment comes to Hong Kong because of its advantageous tax system. Businesses operating in Hong Kong benefit from the territorial source concept because it enables them to avoid paying taxes on any gains they make outside of Hong Kong, saving them thousands of dollars. An foreign firm only has a few expenses, such as capital gains tax, to cover. The absence of sales tax, VAT, and withholding taxes on income from social security payments are further advantages of opening a business in Hong Kong.

The evolution of the startup scene in Hong Kong

According to a 2022 survey conducted by InvestHK, Hong Kong’s investment promotion agency, there were 3,985 startups in the city, +52% vs 2018. Entrepreneurs are particularly interested in Fintech and the Internet of Things, which are related to the city’s highly developed financial infrastructure and knowledge.

Most Hong Kong startups are at later stages of development, according to a survey by the Hong Kong Trade Development Council (HKTDC). Of those surveyed, 37% said they were at the market launch stage, and 28% said they were at the growth or expansion stage. Only 12 percent and 20 percent of respondents indicated that they were, respectively, at the prototype or testing stage and the concept development level.

A majority of Hong Kong startups, or roughly 52% of them, simultaneously prioritise business-to-business (B2B) and business-to-consumer (B2C) activities. Hong Kong is their primary target market; 87 percent of them identified it as such.

However, Asia and North America ranked first in terms of startup ambitions, with 56 percent citing the Chinese mainland, 49 percent putting Taiwan, and 41 percent listing the Americas and Canada. Japan, Hong Kong, and ASEAN were close behind with close to 40 percent each.

What you must know about startup ecosystem in Hong Kong?

The startup environment in Hong Kong is still very young, although it has expanded quickly in recent years. The city’s high rate of internet use, which has enabled increased acceptance of technological breakthroughs, attracts a lot of entrepreneurs. In addition, in response to rising competition from southeast China, the Hong Kong government has been vigorously encouraging efforts to boost entrepreneurship.

The closeness of Shenzhen, one of mainland China’s major hubs for tech startups, to Hong Kong has added dynamic factors, which has many implications for multinational corporations and foreign investors.

Government initiatives

In order to energize the startup ecosystem and garner attention, the government has launched several initiatives aimed at increasing cash available through venture capital funds and supporting colleges.

The government outlined its objectives to continue supporting entrepreneurs in the 2017 Policy Concern, including six distinct measures that address entrepreneurial applicability. By allocating HK$500 million to technology to enhance public services and encouraging the creation of a Common Spatial Data Infrastructure (CSDI) to share geospatial data for public and private sector cooperation on various smart city applications, the government outlined its initial plans to transform Hong Kong into a smart city.

The government increased its breadth and depth through a HK$2 billion Innovation and Technology Venture Fund last year in 2016. The Fund strives to provide private venture capital matches for investments in regional innovation.

Before this, the government-established Innovation and Technology Commission (ITC) launched the “Technology Startup Support Scheme for Institutions” (TSSSU), which gave six universities an annual financing of HK$4 million (US$515,000) apiece to support tech firms.

The Hong Kong and Shenzhen agreement to jointly develop the Lok Ma Chau Loop into the Hong Kong-Shenzhen Innovation and Technology Park, a contentious choice among both parties, was another significant statement made during the 2017 Policy Address.

The Park resolves a land ownership dispute between Hong Kong and Shenzhen, but it also highlights issues with the coexistence of the two cities, their respective legal systems, and environmental issues. If the Park is successful, it will mark a turning point in Hong Kong’s entrepreneurial history and become the region’s biggest innovation and technology hub.

Additionally, it shows Hong Kong’s readiness to work with the mainland more closely and take advantage of its improved access to the billions of consumers in mainland China. The relationship between the two cities has so far been more cooperative than competitive, with Shenzhen concentrating on manufacturing capabilities and Hong Kong specializing on access to talent from around the world.

Shenzhen has recently witnessed an explosion of startups. Many centered around hardware or cross-border e-commerce, sales, or localization, claims John Artman, Editor-in-Chief of Technode. Shenzhen’s recent past as a manufacturing hub gives startups access to a wealth of knowledge and resources in this field.

Implications for foreign investors

The development of a thriving startup culture and the expansion of cooperation with mainland China are two factors that have already made a significant impact on Hong Kong’s economy.

In order to support its plans to transform Hong Kong into a smart city, the Hong Kong government offers startups a number of support and funding initiatives. These initiatives should ensure their ability to prosper in the future.

Startup culture will continue to challenge established business paradigms because that is just how it is. The hotel, taxi, car rental, and bicycle industries have already undergone significant shifts (through AirBnB, Didi and Uber, and Mobike and Ofo, respectively). Other conventional sectors, like banking, logistics, and manufacturing, don’t have any incentive to remain idle for very long.

Thankfully, in each of the areas where they struggle, traditional business models and startups can work well together. For instance, startups’ new resources or technology, as well as the talent they build there, can be useful to multinationals and SMEs. Similar to established businesses, startups can use a well-organized corporate structure and the knowledge base built up by SMEs and multinational corporations to forge a steady course for growth.

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