With the advent of the 21st century, a New Economy era has dawn. New Economy is characterized by an investment boom on innovations and technology, accelerated corporate restructuring, quick adjustments in financial markets, rise of entrepreneurial culture, and the speeding up of deregulation especially in telecommunication markets. The take-off of New Economy has induced major reforms not only on the modus operandi of enterprises, but also sea changes in the configuration of socio-economic system as a whole.

In comparison to its international peers, Hong Kong seemed to have fallen behind in embracing the New Economy. There are many reasons for this lag, and one of them could be the fading out of local manufacturing industry. Since the 1980's, Hong Kong manufacturers have grasped the opportunities arising from Mainland China's open door policy and relocated their labour-intensive production process northwards. The significance of the manufacturing industry in Hong Kong's economy has been diminishing. The percentage of industrial output in the GDP has declined from 23.7% in 1980 to currently less than 7%, while its contribution to employment dropped from 46% to 12%.

Due to the continual contraction of manufacturing activities, Hong Kong's industrial base has been pried loose, dragging the pace of technological innovation - which requires a high degree of industrial agglomeration and synergy. On the other hand, many Hong Kong manufacturers were complacent about the huge profits from overseas investments, thus ignoring the imperative to make commitments to research and development. The investment in R&D only accounted for less than 1% of Hong Kong's GDP, far below the average level of 2-3% in developed countries, e.g., the US, Japan, and even lower than other Newly Industrialized Economies like Korea (2.6%), Taiwan (1.8%, in 1997).

The Asian financial crisis in 1997 triggered off one of the deepest recessions in Hong Kong's history, forcing it to make painful economic adjustments. But on the other side of the coin, it also proved to be a catalyst for the arrival of New Economy era. The turning point came around in 1998 when Hong Kong's third economic transformation since the World War Two began to kick off. The transformation is based on innovation and technology and focuses on developing high value-added industries.

Hong Kong's progress over the past two years has been fairly encouraging, evidence of this to name a few: Firstly, the penetration rate of home personal computer in Hong Kong has surged to 50%. And there are more than 2.5 million Internet users, accounting for 33% of our population. Secondly, between June 1999 and May 2000, there were 1,540 ".com" companies established in Hong Kong, an eight times increase from 199 one year before. Thirdly, on-line transaction rose from US$ 60 million in 1998 to US$ 145 million in 1999 and is expected to exceed US$ 2.4 billion in 2003. Fourthly, there have been 49 hi-tech companies listed on the Growth Enterprise Market by November 2000, with a total market capitalization of nearly HK$ 70 billion. Fifthly, the Mass Transit Railway Corporation was the first to launch e-IPO and the response from the public was overwhelming, with over 80,000 applications accounting for 13% of the total subscription.

Suffice it to say Hong Kong has gained ground on New Economy. The latest economic development in Hong Kong has exhibited the following characteristics: emerging industries like information technology, biotechnology and modern Chinese medicine are growing by leaps and bounds; traditional industries are evolving with time through reengineering and incorporating new technology; "new economy companies" are quickening their pace in internationalization; the capital market is accelerating adjustments, giving a lift to economic restructuring; and the government is playing an active role in paving the way for the New Economy.

Despite the fact that Hong Kong's New Economy is taking shape, more efforts should be put into several areas. Firstly, Hong Kong should train up and introduce more IT talents. According to a survey conducted by the Education and Manpower Bureau, Hong Kong is now short of IT talents by 1,700 to 4,000 and the gap will widen to between 17,000 and 50,000 in ten years. In addition to allocating more resources to strengthen local education and training, there is an urgent need to establish a more open-minded and flexible mechanism to import professionals from overseas and mainland as well, so as to satisfy the ever-growing demands on human resources.

Secondly, the emergence of information technology has brought along unprecedented business opportunities to SMEs (Small and Medium Enterprises) on the one hand, and new requirements in their operation modes, management capabilities, and the allocation of resources on the other. A survey conducted by the Hong Kong Productivity Council indicates that the Internet adoption rate of local SMEs is standing at a meager 34.4% and most SMEs are still at the infant stage, as far as the application of information technology is concerned. Thus, how to push the SMEs to climb up the technological cycle so that they can sustain competitiveness in the "e-century" holds the key to the future of Hong Kong's New Economy.

Lastly, Hong Kong should broaden and deepen its division-of-labour relationship with Mainland China and Taiwan. For instance, by capitalizing on the opportunities ensuing the WTO accession, Hong Kong can step up its participation in the hi-tech industries of both Mainland China and Taiwan, and provide resources and market matching services across the Taiwan Strait. Through strengthening its IT investments locally and overseas, Hong Kong may develop itself into an information hub for Greater China and even the overseas Chinese community. Moreover, by sharpening its traditional edge in financing, Hong Kong can also manage to act as the financial center for the thriving New Economy in the region.

In a nutshell, if Hong Kong continues to put efforts in such areas as talents, IT infrastructure, institutional arrangement, SME development as well as international cooperation, and rides on the new waves of economic development in both sides of the Taiwan Strait, its New Economy would not fail to prosper in the fascinating "e-century."