How Hong Kong can become a centre for East-West data exchange

With the digital economy now about 15.5 per cent of global GDP, countries are restricting cross-border data flows in a bid for data supremacy
To deploy its long-standing strength as the intermediary between China and the world, Hong Kong must excel at handling, storing and processing data

Allen YeungandAdam Au

Published: 4:30pm, 19 May 2022

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“No innovation, no future.” During his journey to becoming Hong Kong’s chief executive-elect, John Lee Ka-chiu has minced no words in highlighting innovation’s role in shaping our future. Central to his proposed policies is the ambition to develop Hong Kong into a technology centre to enhance the city’s competitive advantage.

Lee delivered his message as Hong Kong was recovering from the worst wave of the Covid-19 pandemic to date. Nevertheless, it resonated with the call for broader government endorsement of digital transformation.

Digitalisation has become a force to be reckoned with, to say nothing of its spillover effect of uplifting traditional industries. Data is the fuel that powers digitalisation.

According to World Bank data, the digital economy is about 15.5 per cent of global gross domestic product and has grown 2.5 times faster than overall GDP in the past 15 years. The availability of data has resulted in tectonic shifts in the business landscape. How to turn such resources into exploitable insights separates the wheat from the chaff.

Buoyed by a torrent of available digital information, the world’s most valuable companies – such as Google, Apple and Meta – are all data-driven businesses. The pandemic-induced surge in demand for online goods and services has only helped inflate their market influence.

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Hong Kong’s transport infrastructure was once cited as a deterrent to digital ubiquity. Who needs online shopping when being immersed in the in-person retail experience is almost hassle-free? This complacency delayed Hong Kong’s plan to promote widespread technology literacy and adoption.

We have been too hesitant to try new technology. When Covid-19 hit and the government enacted social distancing measures, most companies and the government itself were ill-prepared to operate digitally.

It is time Hong Kong develops full-scale, tech-powered infrastructure to maintain its competitiveness. The announcement in the 2022-23 budget that a digital economy development committee would be set up should provide the first badly needed shot in the arm.

Getting public buy-in is the least of our concerns. The public has already shown great receptiveness to new technologies such as touchless payments.

Meanwhile, businesses are also evolving. Rather than employing a fixed staff, companies are relying on creating spot markets for talent. The rise of these on-demand companies is demonstrated in service sectors such as food delivery.

Companies are also partially or fully embracing a technological revamp. Since the introduction of the Commercial Data Interchange, multiple banks have relied on the wealth of commercial data on a shared platform to deploy more than HK$900 million (US$114.6 million) in loans to small and medium-sized enterprises. The scheme involves the coordinated efforts of the government and banking industry.

Similar digital adaptation should come next to industries, such as logistics, retail, hospitality and e-commerce. Even before the pall over our economy dissipates, these sectors are all ripe for digital transformation.

Much like every big discovery in human history, our digital reality is as valuable as it is fraught with danger. Privacy concerns, for example, are one of the most prominent counterarguments to the use of data. There is a chasm in trust between data users and data subjects, in part because of the spread of misinformation, disinformation and security breaches.

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A common response is to crank up the pain of breaches. The European privacy watchdog fined Amazon US$887 million for breaching privacy regulations, and Didi Chuxing could be delisted from the New York Stock Exchange for violating China’s data security laws.

As countries vie for data supremacy, it is no surprise that many cross-border data flows must get the blessing of top authorities. Therein lies Hong Kong’s role going forward – a trusted data exchange facilitator between East and West.

What we are proposing is not dissimilar to what Hong Kong has been proficient at throughout its history, which is being a skilled intermediary between China and the rest of the world. How to best handle, store and process data therefore must be added to Hong Kong’s repertoire. This would play to Hong Kong’s strength as a long-standing adherent to the rule of law.

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China’s laws on corralling data use have gathered steam. Mainland companies handling data of more than 1 million users are now required to obtain approval from the authorities before listing overseas.

Can companies listing on the Hong Kong stock exchange be exempted from these rules if requisite data governance criteria are met? Under Chinese law, data collected in the mainland must be stored locally. Hong Kong should be earmarked as an official data repository.

Men use their phones on the streets of Beijing on August 22, 2021. China has tightened control over cross-border data flow. Photo: AP

Driving economic growth with data and protecting individual privacy at the same time will be no easy feat. Given the acknowledged tensions among stakeholders, the best way forward is for Hong Kong to devise a world-class universal data governance scheme to certify companies as trusted data users or processors.

Any data breach could cause social and economic hazards. To enhance public trust, we must agree on data governance standards with reference to all applicable data privacy rules. Collaborating with mainland authorities can help bridge the developmental, legal and security standards between the two regions.

Digitalisation has its pitfalls, but as the debate rages over the policy direction of our future administration, one thing is certain: crafting a digitalisation plan is integral to the city’s future.

Allen Yeung Tak-bun is co-founder of the Institute of Big Data Governance. Adam Au is the head of legal at a Hong Kong-based healthcare group.