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Hong Kong’s AI bet through Temasek-style fund signals strategic shift

Written by Nikkei Asia Published on   5 mins read

In tense times, the city has ramped up its comprehensive efforts to transform into a tech hub.

The Hong Kong government is shifting its investment strategy as part of a comprehensive effort to transform the city into a tech hub as geopolitical pressure builds and its traditional growth drivers of finance and property face challenges.

Last week, the government-owned Hong Kong Investment Corporation (HKIC) announced its first public investment in SmartMore, an artificial intelligence company dual-headquartered in Shenzhen and Hong Kong. SmartMore focuses on applying AI to production lines, such as machine vision that can conduct visual inspections in lieu of human labor.

Founded in December 2019, the company has built a client list that includes big names such as Tesla, Foxconn, BYD, Huawei, Zeiss, Airbus, and Canon.

The HKIC would not reveal how much it invested in SmartMore, which is now valued at around HKD 10 billion (USD 1.28 billion). Under the agreement, SmartMore will make Hong Kong its first choice for a future public listing. While the company has not set a timeline for an initial public offering, a senior executive told Nikkei Asia that it will be “pretty quick.”

Experts say the investment marks a shift in the Hong Kong government’s tactics. Through the Hong Kong Science and Technology Park (HKSTP) and Cyberport, the city had been investing only in much smaller companies, usually with a few million HKD. Given SmartMore’s valuation, the HKIC investment is thought to be significantly more than the bets placed by the other entities.

The HKIC was established in October 2022 and is chaired by Hong Kong financial secretary Paul Chan, with an objective to “further optimize the use of fiscal reserves for promoting the development of the economy and industries of Hong Kong.” Some observers and investors say the vehicle looks similar to Temasek, the Singaporean state-owned conglomerate that boasts a portfolio valued at USD 298 billion, although the HKIC currently only manages around USD 8 billion.

“I believe it is modeled after Singapore’s Temasek,” said Charles Mok, a visiting scholar at Stanford University’s Cyber Policy Center and former legislative councilor in Hong Kong. “After all, it was what former chief executive Leung Chun-ying advocated in 2012—for Hong Kong to set up to invest in local industries, similar to Temasek. But for many reasons, sometimes some [Hong Kong] people do not like to be compared with Singapore.”

Mok said that the city’s government has long sought “to find a way to use investment to bring good tech and innovative companies to Hong Kong, but it’s been a journey of mixed success. So they are redoubling the effort, but it is still a slow process.”

The drive comes as politics cast a shadow on Hong Kong’s position as a global financial hub. The city relinquished its status as the world’s freest economy to Singapore last year, according to the Fraser Institute, a Montreal-based organization. A key reason, according to the institute, was the erosion of impartiality within the legal system—a worry also highlighted by recent resignations of foreign judges serving on the top court’s bench.

After Hong Kong was rocked by protests in 2019, Beijing imposed a strict national security law in mid-2020. This was followed by Hong Kong’s own more comprehensive security law, referred to as Article 23, which took effect in March. The laws, which cover everything from secession and collusion with foreign forces to theft of state secrets and external interference in domestic affairs, have raised concerns in the business community over the potential implications and hazy red lines.

But Hong Kong officials insist the city is open for business as usual.

Albert Wong, CEO of the HKSTP, told Nikkei Asia that he “personally hasn’t seen any impact on businesses from the national security law or Article 23.”

“When I visited the Middle East and the US this year, I actually told people, ‘Don’t believe all that the media are saying, Hong Kong is safe,'” Wong said.

Against the geopolitical backdrop, the HKIC’s investment in SmartMore is part of a wider push to burnish Hong Kong’s status as an international hub for innovation and technology. A blueprint to this end was unveiled in 2022, aiming to attract high-tech companies and foster growth. Various subsidy arrangements have been implemented to assist local research institutes and enterprises. Additionally, an AI supercomputing center is set to open, possibly this year.

In April, the HKSTP flew representatives of over 70 tech startups from 16 economies to Hong Kong for its flagship Elevator Pitch Competition, where contestants suggest business ideas during a 60-second elevator ride up the city’s tallest skyscraper, the International Commerce Centre.

Eric Or, head of partnerships and solutions at the HKSTP, told Nikkei that it paid for all contestants’ trips and hotels. “The contestants are here to explore market potential, not for the free trips. Now you ask me about the return, it is all about long-term investment,” he said. “When these companies start to land in Hong Kong and start hiring, that’s when the return comes. We want Hong Kong to be the international hub of Asia, and they can expand businesses to other countries from here.”

In mid-June, Chan said that the AI wave will benefit the city’s stock market. He said the government would like to see more startups follow SmartMore and consider listing in Hong Kong to “inject new energy and to act as a new growth engine of the stock market.”

On June 13, Chinese AI drug researcher XtalPi went public on the Hong Kong Exchange, marking the first listing under a new rule designed to lure strategic startups.

Analysts say Hong Kong has zeroed in on technology to ease other strains.

“When you look at geopolitics, obviously some of the traditional sectors in Hong Kong are facing great pressure,” said Gary Ng, senior economist at Natixis. “So basically the government is quite desperate in terms of finding a growth driver, and they identify technology.”

In a prerecorded video, Hong Kong’s chief executive John Lee said the HKIC’s investment in SmartMore will “bring Hong Kong’s technology to the next level.” He said he has high hopes that the “HKIC will use the local reserves to benefit Hong Kong’s technology and economy as a whole.”

But Ng said HKIC’s support for less mature companies could have downsides for the startups, such as being perceived as an entities associated with the Hong Kong or Chinese governments at times of even greater geopolitical tension.

“Now it’s probably still fine, but eventually, if we start to see geopolitical tensions rising further … I think in some extreme cases, that can be a problem,” he said.

SmartMore is also backed by IDG Capital and HongShan, the previous China investment arm of Sequoia Capital.

When asked by Nikkei about the possible impact of geopolitics on SmartMore, founder Jia Jiaya said that the company’s AI focuses on manufacturing and that it exercises “great restraint” in how it is used. The company uses footage of production lines to train AI to identify quality issues—a limited scope that Jia suggested reduces privacy concerns.

Jia added that US restrictions on supplying chips to China have a “relatively small” impact on the company, as the chips it uses are less advanced than those found in consumer electronics like smartphones.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


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