The notion of creative industries has aroused global attention following the UK investigation in the late 1990s, underlining the contributory role of creative industries to overall employment and sustained economic growth. In Hong Kong, creative industries have been a public policy focus over the past few years, with the Hong Kong government emphasising the need to develop Hong Kong's creative industries.

Creative industries are a subset of knowledge-intensive industries that are particularly reliant on creativity and talent. Creative industries are important because they can either be an economic force or as creative inputs to other economic activities. In order to meet globalised competition whilst making its transition to a knowledge-based economy, Hong Kong needs to add value to its products and services. In Hong Kong, creative industries encompass 11 categories, namely, advertising, architecture, design, digital entertainment, film, IT services, music, performing arts, publishing, broadcasting and the dealings of arts, antiques and crafts.

Hong Kong is widely regarded as a creative centre in Asia. It is well positioned to develop its creative industries due to many reasons. It has lots of creative talent which can flourish in a free society with unfettered flows of information, capital and goods. The creative process and production are helped by excellent intellectual property protection and unswerving commitment to business contracts. As a meeting point of Eastern and Western cultures, Hong Kong is well known for its international vision, understanding of Chinese cultures and markets, and its capability in commercialising creative ideas into innovative products and services.

As the world's most service-oriented economy, Hong Kong's services sector contributes 90% of the territory's GDP. It is from this solid base of service economy that Hong Kong's creative industries have thrived and developed. As the Chinese mainland sets out to develop its services economy and promote its cultural industries, this would provide another fillip for Hong Kong's creative industries, which can be a partner, collaborator and trendsetter for their mainland counterparts. Hong Kong's architecture, design and advertising businesses enjoy an edge over regional competitors in terms of creativity. Its film industry has attained brand status internationally and has been the favourite of Chinese markets around the world, including the Chinese mainland.

Taking into account the associated value chains, Hong Kong's creative industries employ over 160,000 people, which represent roughly 5% of total employment. Publishing/printing and IT services are two of the largest creative industries in Hong Kong in terms of employment. Major services exports from Hong Kong's creative industries include design, advertising, IT and audio-visual services, with the Chinese mainland becoming an increasingly export market for certain creative industries. It is estimated that creative industries account for about 4% of Hong Kong's GDP, a bigger share than its own manufacturing sector.

Hong Kong's Creative Industries

With the services sector contributing 90% of the territory's GDP, Hong Kong is the world's most service-oriented economy. It is also from this solid service economy base that Hong Kong's creative industries have thrived and developed.

The concept of creative industries has caught on globally since the late 1990s, after the UK Labour Government set up a Task Force in 1997 to advise on supporting sustainable growth in creative industries, which are defined as "industries that have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property".

The UK experiences show that creative industries have played a crucial important role in the country's economic development, with these industries representing an increasing portion of employment, exports and GDP. For example, it was estimated by the Creative Industries Task Force that the country's creative industries accounted for 7.9% GDP in 2000 and grew by 9% per year during 1997-2000, compared to 2.8% for the whole economy. The UK study has spawned similar creative industry studies in other countries, focusing on how best this "new" economic driver can be conceived and developed in public policy terms.

In Hong Kong, the notion of creative industries started to attract public policy attention in the early 2000s. The Hong Kong government's Central Policy Unit released its baseline study of Hong Kong's creative industries in 2003, while policy addresses over the past few years have had some reference to the need for developing Hong Kong's creative industries.

As a dynamic new sector of the knowledge-based economy, creative industries are a subset of knowledge-intensive industries that are particularly reliant on creativity and talent. In Hong Kong, creative industries encompass 11 categories, namely, advertising, architecture, design, digital entertainment, film, IT services, music, performing arts, publishing, broadcasting and the dealings of arts, antiques and crafts.

Why Does Hong Kong Need to Develop its Creative Industries?

Hong Kong's overall economic development is intimately linked to the development of its creative industries, as the economy is making a transition to a knowledge-based economy. Creative industries, either as an economic force in themselves, or as providers of creative inputs to other economic activities, will play an ever increasing role in Hong Kong in the years to come.

On the supply side, Hong Kong is well positioned to develop its creative industries given the presence of a number of versatile and creative talents already involved in different creative industries. Institutionally, Hong Kong's society is free, with unfettered flows of information, capital and goods. Mobility of human talent and resources is high. The thriving creative industries also owe considerably to the ability of the local economy in protecting intellectual properties and upholding business contracts.

Hong Kong respects private ownership, and its rule of law, sophisticated business infrastructure, good corporate governance and a simple and low tax regime readily provide a favourable environment for the development of creative industries, in addition to a variety of cultural activities and lifestyles that are conducive to inspiring creativity. As a meeting point of Eastern and Western cultures, Hong Kong is well known for its international vision, its understanding of Chinese cultures and markets, and especially its capability in commercialising creative ideas or concepts into innovative business products and services.

On the demand side, there is the synergy between product development and creative input, where innovative ideas eventually turn into superb and commercially viable products and services. A high-cost and developed economy like Hong Kong needs to add value to its products and services in order to meet globalised competition, and such activities as better design, packaging, image building and advertising services are considered essential.

Although the Hong Kong government has designated financial services, producer services (including trade), logistics services and tourism as the territory's four core industries, it also acknowledges that the presence of cultural and creative industries is indispensable in a world-class financial and trade centre. Therefore, it sees a need to upgrade Hong Kong's economic infrastructure to support independently innovative and high value-added industries. In doing so, Hong Kong will be better able to consolidate the intangible values of its own culture, as well as its status as an international financial, trade and transportation centre, a strategic direction that was also affirmed in last year's summit on China's 11^th Five-year Plan and Hong Kong Development. Against this background, the Hong Kong government unveiled its commitment in the Policy Address of October 2006 to creating an enabling environment for the commercialisation of creative ideas, while providing more opportunities for exchanges and interplay among creative talent.

In addition, numerous business opportunities have emerged in recent years on the Chinese mainland, as the country further opens up and embarks on the development of its services sector as well as promotion of its cultural industries. While the Chinese mainland is the world's powerhouse in light consumable manufacturing, service trade lags considerably behind the trade in goods. Indeed, it has persistently run deficits in trade in services. Similarly, the mainland's services sectors are relatively under-developed, with services contributing around 40% of the country's GDP.

According to proposals put forward by China's State Council, the aim is to raise the contribution of the country's services sector by 3 percentage points to 43% of the country's GDP by 2010. Given the differences between the Chinese mainland and Hong Kong in the structure and degree of sophistication of their respective services sectors, and the increasing integration of the two economies through the Mainland-Hong Kong Closer Economic Arrangement (CEPA) and other liberalisation measures adopted on the mainland, there is further scope for Hong Kong's creative industries to be the partner, collaborator as well as trendsetter for the Chinese mainland. For example, Hong Kong's popular cultural and entertainment industries, be they film, television dramas and music, have always been the favourites of Chinese markets around the world, including the Chinese mainland.

Creative Industries as Economic Driver for Hong Kong

Employment

On the whole, Hong Kong's creative industries create employment for over 160,000 people, which account for roughly 5% of total employment. Employment in Hong Kong's creative industries has expanded gradually over the past few years, largely in line with the overall employment growth. Based on the framework of the Creative Industries Production System,¹ it is estimated that slightly over 40% of the creative industries' employment comes from content origination and creation, with the remaining half largely attributed to the reproduction and distribution segment of the value chain. From the table below, "Publishing, printing and allied industries" and "Antiques, crafts, jewellery and related articles" are, respectively, the top and third largest sectors among creative industries in employment terms, though it is understood that the combined share of reproduction/distribution and manufacturing input is considerably higher than content origination and creation. In contrast, the proportion of content origination and creation employment for both IT and advertising services is relatively higher.

The Hong Kong economy was heavily hit by Severe Acute Respiratory Syndrome (SARS) in Spring of 2003 and as the overall economy began to regain a firmer footing at the end of 2003, different creative industries recovered unevenly. The design sector has performed well over the past few years, both in terms of employment and service exports. The introduction of the Individual Visit Scheme to allow mainland residents to visit Hong Kong has gone a long way towards increasing the territory's retail and job markets. Many mainland tourists are known for their fondness for jewellery and craft items designed and made by Hong Kong companies, and this has understandably helped bolster the employment of the "arts, antiques and crafts" industry.

Employment of Creative Industries

Source: Hong Kong Census and Statistics Department,
* March 2005 (latest available) figures are used.

Exports

Statistics on exports of services are only available in broad services groups, and this governs the way services exports of creative industries are determined. In 2005, Hong Kong's creative industries exported a total of HK$16.8 billion services, up 11% year-on-year. In fact, growth in exports of Hong Kong's creative industries has been solid at a compound average growth rate (CAGR) of 11.5% from 2000-2005. "Other Business and Personal Services" is the largest export earner group among all concerned creative industries, accounting for about one-third of all related exports. This group is so broad that it encompasses such industries as publishing, design and fashion designer services.

Advertising was the biggest export item in 2004, but slipped to second position in 2005 -- its share of overall creative industry services exports dropped from over half of the total in 2000 to just one-quarter in 2005. This fall mirrored the industry's falling employment, which has shown a CAGR decline of 4% during 2000-05. Computer service exports showed the highest CAGR of 55% during 2000-05. Underestimation is likely, as IT services can also be exported through physical products including, for example, embedded software.

In 2005, the share of creative industries in total services exports was 3.5%, up from 3.1% in 2000.

Exports of Creative Industries (HK$ MN)

Value-added

As far as the share of creative industries in terms of GDP contribution is concerned, statistics on value-added by industry are not as readily available as those for employment and services exports. Many industry figures are not broken down to the precise creative industry, while some data streams have ceased to be available. If analysis is based entirely on the very sketchy value-added data available (including advertising, architecture, film and IT-related services), then the contribution of these concerned creative industries would be under 2%. However, if an inference can be drawn from the overall employment of creative industries as outlined above, that is, around 5% of the local employment, with regard to creative industries as encompassing upstream activities such as concept creation as well as downstream activities like reproduction and distribution, then the GDP contribution would be conceivably be higher. As outlined in the Policy Address of 2005, Hong Kong's creative industries accounted for about 4% of the local economy, with further scope for growth (by contrast, Hong Kong's manufacturing sector now accounts for about 3% of the local economy, with the bulk of manufacturing activities having relocated to the mainland and other production bases).²

Current State of Selected Creative Industries

Advertising

Hong Kong is the marketing services capital of Asia, where a full range of services including advertising, brand/image consulting, event organising, public relations, corporate communications and market research can be found. Consistent with the development of Hong Kong into a knowledge-based and high-income economy alongside the rapid rise of the Chinese mainland economy, Hong Kong's advertising sector has continued to expand apace over the past few years. According to the annual study by The Hong Kong Advertisers Association released in February 2007, sturdy growth is anticipated to persist.

With total advertising spending (or adspend) valued at more than HK$50 billion, Hong Kong has the highest per capita adspend in Asia. A number of international advertising agencies have established operations in Hong Kong to manage their regional business, also using it as a platform to expand into the mainland.

Hong Kong has a reputation for being a provider as well as an exporter of innovative advertising services. Annual exports of Hong Kong's advertising services have exceeded HK$4 billion, spanning creative advertising, media buying, direct marketing, graphic design, to marketing consultancy, customised market research and sales of research data. Other related exports include Hong Kong-based crews producing advertisements on behalf of overseas clients.

While many Hong Kong advertising companies already operate on the Chinese mainland, the mainland remains an important export market for Hong Kong's advertising services. In fact, the Chinese mainland alone absorbs more than half of Hong Kong's exports of advertising and related services.

The Chinese mainland's advertising market has seen annual growth between 20% and 40% from 2003-06. It retained its position as the world's third largest advertising market in 2006, with adspend estimated by Nielsen Media to be around US$50 billion. This represents less than 2% of the country's GDP, low by levels of developed countries and particularly low in per capita adspend terms. With immense market potential, the market is characterised by the presence of top international agencies, some very large mainland agencies, along with a big number of SME agencies, both mainland and overseas.

With CEPA, Hong Kong's advertising companies can operate wholly-owned units on the Chinese mainland. In fact, advertising companies form the largest segment of Hong Kong service suppliers (HKSS) among the creative industries grouped under CEPA, representing about 8% of all approved HKSS. Despite intensifying competition, especially in basic service areas like media buying, where many mainland agencies are catching up fast in narrowing service gaps with their Hong Kong counterparts, industry sources note that there remain substantial business opportunities for Hong Kong companies on the mainland, given the phenomenal surge in demand for almost all types of advertising services (be they traditional media or online), and the uniqueness of Hong Kong advertising companies in being able to blend Western or contemporary styles with cultural requirements.

While exporting a variety of advertising services to the Chinese mainland, Hong Kong's advertising sector is increasingly focusing on advertising services relating to brand management for many mainland enterprises. It is also becoming more involved in promotional advertisements in shopping malls and real estate-related projects.

Architecture

Visitors to Hong Kong can hardly miss the high-rise landmarks dotted on either side of Victoria Harbour, nor would their excursions from Central to Mid-Levels fail to yield a deeper impression of the quality and expertise of Hong Kong architects in high-rise design, slope design, high-density design while manoeuvring designs against space constraints. In fact, the quality of Hong Kong's design expertise on a wide range of building types and development projects is comparable with the best in the world.

Exports of professional architectural services play a prominent part in Hong Kong's architecture industry. Increasingly, many Hong Kong architectural and design companies have looked to the Chinese mainland as their main export market, thanks to the mainland's rapid economic growth, urbanisation and booming housing sector. The Chinese mainland accounts for more than half of Hong Kong's exports of architectural and engineering-related services.

Leveraging their international experiences, professional management, and accolades garnered (including awards for work on the Chinese mainland), Hong Kong architectural companies are becoming increasingly involved in the mainland's residential development projects, hotels, commercial centres, and large scale urban planning and infrastructure projects, spanning from first-tier cities to second- or even third-tier cities. Unmistakably, the skyline of many mainland cities increasingly resembles that of Hong Kong, thanks to the heightened visibility of high-rises in unambiguous Hong Kong style. For Hong Kong's architects working on mainland projects, their knowledge of state-of-the-art information technology applications (e.g. 3D tendering), which enhance their design capabilities, their efficiency in project management and effective quality assurance, in spite of project and design complexity, give them an edge over many counterparts on the mainland.

As part of CEPA, the Chinese mainland has, on a step-by-step basis over the past three years, allowed a vast number of mainlanders to apply to visit Hong Kong on an Individual Visit Scheme (IVS). While giving a solid boost to Hong Kong's tourism and retail sectors since SARS, the IVS has allowed many mainlanders to come to Hong Kong to better experience China's most international, cosmopolitan city, and its trendsetting nature as a shopper paradise.

Hong Kong has a significant, affluent local customer base, which translates into a strong demand for high-quality luxury products. Many international brands have their largest flagship stores in Asia outside Japan. The high concentration of luxury brands makes Hong Kong an attractive shopping destination for affluent customers around the region, including visitors from the mainland. To many of these IVS shoppers, Hong Kong's popular shopping malls may deliver a shopping experience that is unique or trendsetting compared with that on the mainland, despite its own ongoing mall boom. Top-notch interior designs, turning shops into a trendy, upmarket and cosy shopping environment, readily attract shoppers by their urban exuberance aside from the repertoire of articles sourced from all over the world.

Hong Kong's mall management is also trend-setting in that shopping experiences are made more colourful and memorable by aptly designed activities in accordance with seasons, events and festivals, for example, through different combinations of exhibitions and performing arts. Furthermore, travelling between shopping malls and areas of interest by way of Hong Kong's clean, efficient mass transit system, with its elegantly decorated halls and regular in-station performances, is surely a trendsetting experience to be found among all Chinese cities.

Given a booming mainland market, Hong Kong's interior design companies are active on the Chinese mainland and their services are much sought after, thanks to their creative power, cultural sensitivity, international perspective and excellent service standards in spite of rising competition from indigenous and other overseas players. They have successfully landed big accounts, undertaking a variety of projects including offices, residential building and shopping outlets. Industry sources note that rising consumption on the mainland has created good demand for interior design work in food and beverage outlets and street-level shops, both in first and second-tier mainland cities.

As far as Hong Kong services suppliers (HKSS) are concerned, construction professional services (which include architectural design) are the second largest group of creative industries after advertising services. Mutual qualification recognition arrangements effected under CEPA, plus the recent relaxation of Ministry of Construction rules in relation to the employment of Chinese registered professionals, give more tangible market access conditions to Hong Kong architecture and design firms now targeting the mainland market.

Design

Hong Kong is recognised as a regional design centre. Its role as a regional trendsetter with an image as an international city thrives very much on its creative industries, especially its design sectors, which translate into branding and innovation for all goods and services. In addition to its outstanding skyline and glamorous shop fronts reflecting the design ingenuity of Hong Kong architects and interior designers, Hong Kong's graphic and product/industrial designers also play a pivotal rol