Professor Heiwai Tang and Mr Cyrus Cheung
13 August 2025
Commissioned by the Federation of Hong Kong Industries, the “Made by Hong Kong: Strategies for New Industrialisation” study report compiled by us was released last month. In this article, we will highlight relevant sections of the study on the business operations of Hong Kong-invested industrial enterprises (HKIEs) and examine the future of Hong Kong’s industrial sector, providing references for the formulation of the city’s industrial policies.
Part of the research findings was also discussed in the article entitled “新法量度工業貢獻 有效評估產業趨勢” (see Note). From the perspectives of value chains and industrial policy, we classify Hong Kong’s industry into four categories: manufacturing, publishing and packaging, subcontract processing, and new industries. Their respective shares are 1.0%, 0.2%, 1.8%, and 1.4%, representing a combined contribution of 4.4% to Hong Kong’s GDP in 2023. In addition, we emphasize the importance of producer services to Hong Kong’s economy and make the conservative estimation that, accounting for 16.2% of Hong Kong’s GDP during the same year, industry-related producer services are mainly composed of import, export, and wholesale trade.
Deep integration with the diversified development of the Mainland economy
According to a database analysis of the research sample, in 2024, 68,314 Hong Kong-invested manufacturing enterprises (HKMEs) in Mainland China were operational or in normal business status, displaying diverse distributions across regions and industries. This reflects their close integration with the national economy and the notable roles they play in multiple segments of the industrial chain.
In terms of geographical distribution, HKMEs are primarily concentrated in Guangdong province (30,971 companies), followed by Jiangsu province (9,557), Fujian province (6,913), and Zhejiang province (5,300). At the city level, Shenzhen (6,862) has the largest number of HKMEs, followed by Dongguan (5,906), Huizhou (4,628), Suzhou (3,567), Quanzhou (3,002), and Shanghai (2,638).
In terms of industrial distribution, Computer, Communications, and other Electronic Equipment is the dominant industry among HKMEs (9,177 companies), followed by Textile, Clothing, and Apparel (5,630), Rubber and Plastic Products (4,879), and Metal Products (4,710).
From manufacturing process to high value-added industries
Apart from data analysis, we have also undertaken a questionnaire survey of about 250 HKIEs, encompassing both traditional and emerging industrial sectors, ranging from raw materials processing to finished product manufacturing. Nearly 90% of respondent enterprises are headquartered in Hong Kong, while over 30% of them are primarily engaged in higher value-added economic activities such as research and development (R&D), design, import and export trade, branding, retail, and professional services, rather than manufacturing.
Among the HKIEs surveyed, large enterprises are generally more profitable, whereas small and medium enterprises (SMEs) tend to face greater challenges. Of those with annual revenue exceeding HK$500 million, 75% reported a profit last year, while merely 7% recorded loss. Of those with annual revenue of HK$100 million or less, only 30% reported a profit last year. This finding reveals that large enterprises are the driving force behind the development of new industries. Moreover, as SMEs account for the majority of employment opportunities in society, the Government should provide them with targeted support to facilitate their upgrading and transformation.
Advantages in diverse markets and R&D
The two distinct advantages of the surveyed HKIEs lie in their diversified sales markets and their strong emphasis on R&D. By 2023, around 60% of these enterprises had already established themselves in the sales markets of both Hong Kong and Mainland China. Approximately 45% of them were active in the sales markets of the US and Europe, while about 30% of them had gained access to Southeast Asian markets. The diversity of sales markets indicates the resilience of HKIEs, testifying to their prowess for expanding market reach and spreading market risks.
In terms of the share of R&D expenditure in total revenue for 2024, 46% of surveyed HKIEs anticipate it would reach 5% or above, while 67% expected it to reach 3% or more. Compared with the pre-pandemic level in 2019, 45% of respondents estimated that their R&D investment would increase, whereas only 26% anticipated a decrease. With reference to the “Administrative Measures on Certification of New and High-tech Enterprises”, one of the criteria for certifying a high-tech enterprise in the Mainland is that its total R&D expenditure must be no less than 3% to 5% of its total sales revenue during the same period. The above data reflects that, generally equipped with technological capability, the surveyed HKIEs are dedicated to becoming higher value-added original design manufacturers (ODM) and original brand manufacturers (OBM) rather than remaining at the stage of original equipment manufacturers (OEM).
Investment trend in Southeast Asian markets
Between 2022 and 2024, the shares of surveyed HKIEs whose major investment destinations were the Mainland and Hong Kong stood at over 80% and over 60% respectively, while those whose major investment destination was Southeast Asia comprised around 30%. Most of the respondent enterprises used both Hong Kong and the Mainland as bases for R&D and design activities. On the whole, the operations of surveyed HKIEs were concentrated in the upstream and midstream segments of the industrial chain, including raw material and component procurement; smart manufacturing services and technical support; pilot testing, mass production, quality control, testing, and certification; as well as environmental engineering and related consulting services. In contrast, Hong Kong operations were more focused on the downstream segment of the industrial chain, covering marketing, wholesale, import and export trade, retail, professional services, administrative management.
As for the investment trend of HKMEs in the Mainland and Southeast Asia between 2025 and 2027, the shares of surveyed HKIEs expecting growth are projected to exceed 40% and 80% in the two markets respectively. Business development in Southeast Asia is chiefly aimed at diversifying geopolitical risks and expanding overseas markets, with a secondary objective of cutting production costs.
The questionnaire survey results demonstrate that most HKIEs view Hong Kong as their headquarters for supply chain management and export and export trade in addition to implementing a “China + N” supply chain layout strategy to distribute their main manufacturing bases in the Mainland and Southeast Asia. The reason is that Mainland China has ample production factors to meet the one-stop needs of HKMEs, while the generally lower manpower and land costs in Southeast Asia are more suitable for labour-intensive industries and are conducive to diversifying geopolitical risks.
Dual demands for market expansion and enhanced supply chain management
As concluded from the focus group meetings, apart from the key priority of entering emerging sales markets, HKIEs consider it essential to increase their supply chain management capabilities. In terms of demand, compared with the limited market size in Hong Kong, the fierce competition in the Mainland domestic market, and the geopolitical impact on the business environment in Europe and the US, Southeast Asia has become an emerging market valued by HKIEs, underpinned by its soaring middle-class consumption demand. In terms of supply, rapid market changes and intense business competition pose dual challenges to the resilience of these enterprises’ supply chains. On the one hand, fluctuations in market demand require effective deployment of production capabilities and inventory management. On the other hand, the “China + N” strategy makes it necessary for HKIEs to establish and manage supply chains overseas.
Aspirations for Hong Kong’s new industrialisation
With their large scale, HKIEs are a unique resource for fuelling new industrialisation in Hong Kong. In developing high value-added industries in the city, surveyed HKIEs tend to rely on a broad spectrum of third-party services, ranging from R&D, design, smart manufacturing and technical support to pilot testing, environmental engineering, quality control, testing and certification, e-commerce, logistics and warehousing, import and export trade, wholesale, finance and insurance, legal and intellectual property services, as well as human resources and skills training.
As for the upgrading and transformation of local traditional manufacturing, respondent enterprises find themselves facing various difficulties, including shortage of industry talents, lack of clear planning for industrial development, unattractive preferential policies, cumbersome government administrative and compliance approval procedures, factory building designs not compatible with technological application requirements, lack of mature industrial parks, and difficulty in synergizing with businesses in the Mainland. What is encouraging is that the SAR Government recognizes these problems and is taking steps to create a better operating environment for the industrial sector through both existing and forthcoming policy measures.
International lessons for Hong Kong’s industrial development
Owing to high local labour and land costs, many in the wider community believe that industrial development is not viable in Hong Kong. However, the experiences of Singapore and Switzerland may suggest otherwise. Through top-level policies, tax incentives, subsidy schemes, infrastructure investments, etc., Singapore has built a high-end manufacturing sector encompassing semiconductors, precision engineering, and biomedicine.
Focusing on Switzerland: despite high land and labour costs, the “Swiss Made” brand premium has helped its manufacturing sector contribute approximately 18% to the country’s GDP in 2023. This success hinges on government support, including safeguarding the “Swiss Made” brand value through intellectual property protection and strict origin standards; offering tax incentives to encourage R&D in the private sector; utilizing public financial resources to foster a world-class innovation ecosystem; and training technical experts through a dual-track education system. Leveraging their robust industrial development, Singapore and Switzerland have diversified their industrial structure to promote more inclusive economic growth, benefiting local communities as a whole.
We hope this research report will offer a solid theoretical and data-based foundation for Hong Kong’s new industrialization. We also aim for this report to serve as a valuable reference for industrial policy formulation and for guiding the development of local enterprises to advance the city’s industrial diversification and sustainability.
