My latest #ThoughtoftheDayonChina : As an AI craze sweeps across China, Hong Kong should be careful about jumping on the bandwagon, not least because of its spotty record in chasing technologies.

Reprinted from today's South China Morning Post

As an artificial intelligence (AI) craze sweeps across China following the rise of DeepSeek and Unitree Robotics, Hong Kong is eager to get on the bandwagon.

In unveiling Hong Kong’s 2025-26 budget late last month, Financial Secretary Paul Chan Mo-po expressed enthusiasm about the prospect of turning the city into “an international exchange and cooperation hub for AI industry”.

As a result, he has earmarked HK$1 billion (US$128.6 million) to establish the Hong Kong AI Research and Development Institute. The organisation is expected to support the city’s innovative R&D sector and industrial application of AI.

Tentative signs indicate Hong Kong wants to go big on building AI into a core industry to drive the city’s innovation and technology even though it announced cuts in public spending to tackle the deficit which amounted to HK$87.2 billion for the previous financial year.

While officials tout AI as a transformative force, scepticism is warranted. Hong Kong’s track record in pursuing cutting-edge technologies has been less satisfactory, to say the least, and its current fiscal constraints raise doubts about its capacity to compete in this costly arena.

The city’s history of overambitious tech projects offers a cautionary tale. In 1999, amid great fanfare, Hong Kong launched initiatives to become a regional innovation leader, announcing the creation of Cyberport and Science Park. The two tech hubs were envisioned to usher in a new era of innovation in an economy that long relied on property development and financial services.

Unfortunately, the two projects underpinned by property developments have become the symbols of the city’s misguided policy. Cyberport was often derided as a white elephant – a tech hub overshadowed by luxury residences.

Hong Kong’s failure to evolve into a digital powerhouse stems from systemic issues: prohibitive land prices, operating costs and living costs as well as a lack of land and space for tech start-ups.

Meanwhile, over the past 25 years, the neighbouring city of Shenzhen in Guangdong province blossomed into China’s Silicon Valley, hosting tech giants including Tencent, Huawei and DJI, the world’s largest drone maker.

Riding on the international success of DeepSeek’s AI language model, China is doubling down on AI and tech to drive future growth.

On Thursday, Zheng Shanjie, head of China’s top economic planner, said the central government would set up a national fund that will mobilise 1 trillion yuan (137.9 billion) to support technology start-ups. The focus will be on industries such as AI, quantum technology and hydrogen energy storage.

Last month, Guangdong province’s Communist Party chief Huang Kunming suggested the economic powerhouse would spare no effort in developing the two major industries of artificial intelligence and robotics this year.

Zhejiang province – another economic powerhouse where DeepSeek and Alibaba are headquartered – has pushed for compulsory AI courses in primary and secondary schools.

In comparison, the problems that have hindered Hong Kong’s goal of becoming a digital city in recent decades are still clear and present. Even worse, its fiscal woes have deepened. The city must capitalise on its strengths and spend money and resources where they matter most.

Moreover, as Hong Kong officials look to Beijing for guidance, the central government has supported the city’s efforts to bolster its strategic position as “three centres and one hub” – an international centre for finance, shipping and trade and a global centre for high-calibre talent.

Within this context, Hong Kong must pursue AI development by focusing on applications to advance upgrades and transformations in finance, shipping and trade to stimulate demand for new products and services.

For cutting-edge technologies such as AI and robotics, seeking closer alignment with Shenzhen and other cities within the Greater Bay Area development zone would prove far more pragmatic than going it alone.

Hong Kong’s true competitive advantages lie much closer to home. For instance, its world-class universities – including five ranked among the global top 100 – and medical institutions offer much untapped potential. Yet recent budget cuts threaten the city’s higher education system.

To reduce the budget deficit, Hong Kong will cut funding for the city’s eight public universities by HK$2.8 billion – or 4 per cent – in the coming three years and for the first time is asking them to return HK$4 billion from their reserves to the public coffers.

Luckily, the finances of those universities seem healthy enough to withstand the cuts and turnover of reserves as revenues from non-local students – many of them from the Chinese mainland – are robust. But sustained underinvestment risks eroding the city’s hard-own academic prestige.

Meanwhile, the city can play to its strengths by becoming an international medical hub, improving its medical capabilities and harnessing medical tourism from mainland China and the rest of the region.

The city’s decision to create a third medical school is a step in the right direction even though there have been complaints that the government is slow in pushing through the project, which could take nearly a decade to complete.

So far, at least three universities – including Baptist University, where I work – have expressed interest in running the medical school.

The government is expected to announce the winner before the end of this year amid suggestions that the third medical school could leverage resources from all three universities instead of selecting one university as originally planned.

In an era of austerity, Hong Kong should focus on strategic investments that play to its strengths, rather than merely following trends.

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