Hong Kong must invest in its people or fall behind

Is Hong Kong destined to be a second-tier Chinese city? Posing this question 25 or even 15 years ago would have seemed absurd. Hong Kong could rightly boast economic dynamism, regional leadership in commerce, trade and finance, and a strategic position as China's window to the world. In terms of wealth, governance, rule of law, property rights and the quality of its institutions, Hong Kong was second to none.

More importantly, Hong Kong's investment in its future, specifically in education, research and development, and the city's pool of human capital, made it an object of policy emulation in the region and beyond.

However, while Hong Kong still likes to think of itself as a leading global city, the evidence that it can continue to do so for too much longer grows less convincing.

There is no magic formula for securing future competitiveness. But there is one necessary ingredient without which economic growth and prosperity are virtually impossible: education.

This might explain why so many states are accelerating their investments in education in an attempt to secure their future, prepare a workforce ready for economic adaptation, and to train the next generation of change agents - the inventors, innovators and entrepreneurs of tomorrow whose discoveries will shape new markets, products and businesses.

Most policymakers already know this. In Hong Kong, however, policy complacency and a continuing "lost decade" of policy inertia point to a looming decline in the ability of the city to compete regionally and globally.

Several indicators point to Hong Kong's relative decline.

First, investing in the future. Hong Kong has historically enjoyed a competitive advantage over mainland China and many states in the region through public policy focused on the development of its education sector, especially higher education. Consistent investment in infrastructure, capacity, talent attraction and research funding placed the sector on the global educational map.

More recently, however, the level of investment required to sustain the sector's competitive advantage has slipped. While spending on education accounts for about 4.2 per cent of gross domestic product, this places it behind countries like South Korea. In absolute dollar terms, Hong Kong's funding of the education sector has grown since 1997, but it is being outpaced by mainland China and South Korea, among others.

Second, the assumptions that Hong Kong enjoys continuing advantages in terms of educational quality, world-class facilities, an internationalised professoriate and competitive research funding increasingly no longer hold true. Capital injections by South Korea, mainland China, Singapore and Malaysia are fast transforming university capacity and quality. A trip to any university in Shanghai, Beijing, Guangzhou, Korea or Singapore, for example, cannot but impress.

By contrast, Hong Kong universities increasingly look like shabby counterparts, with less impressive information and communications technology, facilities and research funding. For local universities, this makes it more difficult to compete for international talent, provide the resources demanded by a globally mobile professoriate, or attract the brightest local and international students.

Third is stagnant higher education participation rates. While competitor economies have been cranking up higher education participation rates in order to prepare their economies to climb the value chain and enhance productivity, participation rates in higher education in Hong Kong remain embarrassingly low by international standards.

In Hong Kong, only about 20 per cent of high-school graduates enter universities, compared with 60 per cent in Korea, 40 per cent in the US and about 34 per cent in Britain.

Hong Kong rations out insufficient university places relative to demand, driving large numbers of students offshore. Hong Kong sent 11,335 students to British universities in 2011-12, ranking sixth among non-EU economies as a source of students, after mainland China, India, Nigeria, the US and Malaysia, all of which have considerably larger populations.

Add in enrolments in Australian, Canadian, US and European universities, and Hong Kong exports a great number of its high school cohort overseas. Some of the best and brightest students, in other words, are lost to Hong Kong; they graduate and remain overseas, or spend some of their most productive years contributing to competitor economies.

Fourth, educating for economic transition. Hong Kong needs a workforce capable of moving its economy up a gear to the knowledge services sector - for example, biotechnology, nanotechnology, professional consulting, medical and technology services, among others. This will help it fend off increasing competition from mainland China. Yet, at this time, low participation rates in higher education leave Hong Kong with insufficient capacity to navigate this transition or meet this competition head-on.

In his recent policy address, the chief executive pledged up to 100 scholarships for the most able Hong Kong students to study at world-leading institutions, and the provision of an additional 1,000 funded places to enable sub-degree students to enter advanced-year undergraduate programmes. These measures will only go a little way to addressing these broader structural problems and the looming skills and knowledge crisis Hong Kong faces. Nor will they do much for the 13,000 students who qualified for university admission but missed out on a place last year.

In the absence of substantial policy innovation, reform of the higher education sector and recognition of the larger challenges ahead, Hong Kong's brightest days may well be behind it and its future as a second-tier Chinese city simply a matter of time.

Darryl S.L. Jarvis is professor and associate dean (research & postgraduate studies) in the Faculty of Liberal Arts and Social Sciences at the Hong Kong Institute of Education.