Hong Kong Financial Secretary Paul Chan Mo-po proclaimed in a keynote address at a Singapore conference in March his vision that Hong Kong will become a regional hub for green technology and finance.
This is not only a hope — it is a virtual inevitability.
During China’s rise in the past 40 years as a global economic power, Hong Kong has played the leading role in intermediating the Chinese mainland’s economic miracle. Starting with little capital of its own, China needed enormous inflows of foreign direct investment (FDI) to facilitate its development. Although China has now amassed substantial capital, it is still insufficient to meet all the challenges; the inflow continues and must continue. In 2021, FDI into the Chinese mainland was $334 billion. According to the Hong Kong Special Administrative Region government’s Trade and Industry Department, in 2020 Hong Kong accounted for about 53.3 percent of the mainland’s realized FDI.
Most of that capital inflow has gone to develop China’s role as a low-cost manufacturer to the world. This was done at breakneck speed, with some damage to the country’s environment — damage that is slowly being repaired.
But now there is a new and more urgent challenge to the world: global environmental problems. Although there are other issues, such as the pollution of oceans with plastics, water shortages, and loss of ecological habitat and biodiversity, the most salient is the accelerating changes to the climate caused chiefly by the burning of fossil fuels and deforestation.
China has been the leading developer of technologies to address this problem. It has produced solar photovoltaic panels that have been exported on a massive scale to Europe and the United States, with unexpectedly steep cost reductions. It has recently installed more wind, solar and nuclear power — all fossil-energy-free technologies — on its soil, and restored more forestland than any other country.
But this is still only chipping away at the global problem. Contrary to some optimistic scenarios, the solution to the global problem is not at hand. It will require decades of concerted technological research, development, demonstration and implementation.
China is in the best position to pilot this technological development. China produces more STEM (science, technology, engineering and mathematics) graduates than any Western country and is virtually tied with India for first place in the world. It leads the world in patents. But patents alone are not developed technologies. For sprawling technological complexes like the electric power generation, transmission, distribution and demand management system, it is essential to experiment with the scaling up of technological innovations; technologies that, no matter how promising, can face the “valley of death” — a failure to make the risky investments required to cross over to scalability.
Hong Kong has done a smart thing to address this problem. It has provided incentives and urged wealth management offices of high-net-worth families to make a base in Hong Kong. These family offices often manage investment portfolios well over $1 billion — portfolios capable of undertaking large risks. They are the kinds of portfolios managed for, and by wealthy technology entrepreneurs like Bill Gates, who has a passion for investing in risky cutting-edge technology. If 200 of these family offices were to base themselves in Hong Kong, it would help provide capital to bridge the many “valleys of death” that are likely to open while developing new, innovative and improved technologies to combat climate change.
Furthermore, the kinds of scaling-up experiments that are needed for this purpose are better situated in China than in countries where the ossification of regulatory processes has made siting and development of large pilot projects difficult.
The challenge is made greater by the fact that the alternatives to burning fossil fuels that now provide 80 percent of worldwide energy, and are the main cause of climate change, are all highly capital-intensive. Most of their costs are on the front end. This includes building solar and wind farms, nuclear power plants, long-distance transmission lines, and various means of energy storage, most of which have not yet been developed to the point of being economical. The challenge is great. Governments must fund research and development at a very high level; private capital cannot do the job alone. Hong Kong’s and the mainland’s skills in innovative technology must be applied. But as technologies emerge that have only the glimmer of a prospect of commercialization, private risk capital can be applied to fund further steps. Many of these technologies will fail to reach commercialization. But some will succeed, enough to solve the problem of phasing out fossil fuels.
The energy transition of the previous century or century and a half — toward fossil fuels — was the most momentous event in the history of humankind’s development, with the possible exception of agriculture. It powered all of the measurable economic growth in recorded history virtually.
The next century’s energy transition away from fossil fuels and toward less environmentally damaging energy technologies will be the next momentous event in the history of human development. It will require even more technological skill, and more shifting of capital and labor than in the previous transition.
This is not the only challenge for humanity in the 21st century, but it is likely to be the one that underlies almost everything else in the long term. Hong Kong has signaled its willingness to play a key role in this, for example by issuing green bonds to fund some of its own energy savings and other environmental projects. But this is only the beginning. There is a great deal of technological innovation and research, experimentation, scaling up, large-scale implementation and reallocation of capital and resources to be done — much more perhaps, globally, than we can even imagine. And it will require a massive reallocation of investments, which means shifting capital and resources from many of the activities they are applied to now, to the technological and civilizational activities of the future.
It will be a long and complex journey, in which the Chinese mainland and Hong Kong will surely play leading roles.
The author is a mathematician and economist with expertise in the finance, energy and sustainable development fields. He is an adjunct associate professor at the Hong Kong University of Science and Technology.
The views do not necessarily reflect those of China Daily.