Glocalization and The Revitalization of the Hong

Glocalization and The Revitalization of the Hong Kong Economy Working Paper, Division of Social Studies City University of Hong Kong

Lee, Kim Ming August 23, 1999

Introduction In 1995 Fortune created a list of 17 best cities in the world. The list included Boston, New York, Frankfurt, Hong Kong, London, Paris, Singapore, and Tokyo. These cities were selected through surveying the opinions of worldwide business executives, ambassadors, major cities' governors, and economic development organizations. Each of these cities has its own competitive advantages against other cities. While attempting to maintain their existing competitive edges, they are also engaging in programs that can improve their weaker aspects so as to become a winner in the global city competition game. Someone anticipate that the future global economy will be dominated by a number of denationalized world cities in which different scales of economic activities are intersected and condensed in these highly localized places. These cities are denationalized in the sense that they form a hierarchy that they are linked more to each other than to the territorial jurisdiction in which once they are heavily regulated by their respective nation-states (Friedmann, 1986; Sassen, 1991, Petrella, 1995). The scales of economic activities engaged in these cities are highly various. They can serve the global economy by providing financial, insurance, legal and accounting services to multinational firms; or serve the regional economy by providing sourcing and trading services to regional manufacturing firms; or serve the local economy by providing everyday life services, such as retailing, entertainment or food catering, to local residents or expatriates. However, they are also localized in the sense they have developed their own scale-mixes. These cities are not strictly homogeneous, though similarities do exist. They develop their own competitive niches through territorializing or deterritorializing certain economic activities (Storper, 1997a). Hence, New York and London celebrate themselves as the world's leading financial centers. Los Angeles promotes itself as the world's best entertainment and multimedia production sites. Singapore makes itself an Intelligent Island in the Southeast Asia, while Hong Kong portrays itself as the gateway to Mainland China. In this article, we shall explore how this global city competition game affects the posthandover Hong Kong's economic policies, and the possible consequences of the policies. The paper is divided into two parts. The first part will review the current debates about globalization, glocalization, and the role of cities in the era of global economy. The second part will examine the new economic strategy initiated and advocated by the first Hong Kong Special Administrative Region (HKSAR) Chief Executive, Tung Chee Hwa. It is argued that the new economic strategy is not too deviated from the previous one, though the role of government becomes more visible and appears to be more consistent in this new economic discourse. Indeed, the "new" move of the Tung administration is to consolidate the already existing, yet fragmented measures, into a coherent policy framework. The framework is subsumed under a glocalization discourse that performs as a post-handover hegemony. Globalization, Glocalization, and Global Cities Mainstream Discussion: Globalization as Denationalization Although globalization is a fuzzy buzzword (Riggs, 1998; Hart and Prakash, 1996), it has become a hot issue among academia, government officials, politicians, business executives and even ordinary people. The phenomena of globalization inspire a number of scholarly works claiming the end of geography (O'Brien, 1992) and the rise of a borderless world (Ohmae, 1990, 1995) Globalization denotes a process of denationalization (Walker and Fox,

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1996:375). Within this pro-globalization discourse, notably associated with neo-liberalism, the increase of capital mobility is argued as the major cause. There are three driving forces for the increase of capital mobility (Andrews, 1994:198). First, the technological development in transportation and communication facilitate the flows of commodity and capital. The advances in transportation induce a new international division of labor (Frobel, Heinrichs and Kreye, 1980) in which multinational corporations can easily decompose their production into a number of subprocesses and manufacture their products in a geographically dispersed way. Foreign direct investment (FDI) and international subcontracting are thus encouraged. In addition, the advances in computing and information technology (IT) enable information instantly flown between distant places. Time and space are compressed electronically and digitally. Transaction costs, in terms of production coordination, transportation, contract drafting, monitoring, and negotiating etc, incurred in conducting cross-border economic, especially pure financial, exchanges are tremendously lowered. Consequently, capital flows are facilitated. The drastic growth of international trade and FDI could not be achieved if most of the world's countries did not open their markets. Liberalization and deregulation of domestic markets are the second sources of high capital mobility. An international free trade regime has been consistently pursued by the two leading financial powers, the United States and Britain, as early as the 1960s. However, it was not until the 1970s, when most countries witnessed the success of the export-oriented developmental strategies of the Four Little Tigers, developing countries began to liberalize their markets. At the same time, among the industrialized countries, an ideological shift from Keynesianism to a neoliberal framework started to be accepted by central banks based around the Bank for International Settlements (Helleiner, 1994). The neoliberalism was further strengthened and accepted by most countries after the collapse of communism in 1989. Market, no matter policymakers like it or not, has been regarded as the best mechanism to determine the allocation and pricing of economic resources. The result is "competitive deregulation" among states, developed and developing countries alike, unilaterally attract the inflows of capital. After the breakdown of the Bretton Woods system in March 1973, and the further disintegration of production caused by the new international division of labor, risks associated with the instabilities and uncertainties created by the more and more volatile international financial market triggered a demand for financial innovation that could hedge against these risks. New financial products, known as financial derivatives, like options and futures, were created. In addition, the emergence of institutional investors, like pension funds, which seek to maximize their clients' gains, further enhance the mobility of capital. These changes tremendously lower or even clear the exit barriers that tie capitals to a particular territory. Against this imagery of a borderless world economy, the nation-state, once the motor of economic growth in the post-war period, loses its sovereignty in regulating the economic activities within its jurisdiction. The capacity of individual nation-state, in terms of the ability to mobilize its territorial resources, becomes less important in controlling and regulating capital flows, simply because capital can move to other places with relatively better deals. As most of the exit barriers for capital are removed, the bargaining power of capital over nation-states is increased (Benjamin, 1996:285-6). The term "denationalization" denotes both the hypermobile nature of capital and the weakening control of nation-states over capital. Indeed, the thesis of the "hollowing out the state" (Jessop, 1993) and the thesis of the end of geography are the two sides of the same "globalization" coin.

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Critics of the Globalization Discourse Against this strong claim of globalization, some (Hirst, 1997; Wade, 1996) argue that the globalization has not yet reached the globe, at best. At worse, it is merely an ideology underlying the interests of international, especially Anglo-American, capital. The global economy is far from completely integrated. Indeed, globalization is better coined as "Triadization", which uncovers the fact that economic integration merely happens among North America, Europe and East Asia, rather than other developing areas. In addition, it is argued that the autonomy of the nation-state has not yet destroyed. Indeed, nation-states are deeply involved and essentially part of the globalization processes (Evans, 1997; Scholte, 1997; Weiss, 1998). It is true that globalization has made markets stronger than ever in allocating factors of production. But as Vogel (1998) observed, globalization creates stronger markets but not weaker states. While nation-states have lost the autonomy in imposing their power on capital through regulating the wage relation, engineering its preferred developmental path, creating national champions, and practicing its Keynesian demand management, they have acquired new roles which request no less state involvements. The "hollowing out the state" thesis assets that economic governance once confined within the national boundary has simultaneously shifted upwards to the supranational level and downwards to the subnational level. At the supranational level, the issues of economic governance focus upon the establishment of a global legal framework, which guarantees the global rights of capital (Sassen, 1998, Chapter 10), as well as the prevention of global financial crises (Helleiner, 1995). Undoubtedly, the supranational organizations are responsible for these issues. However, insofar these two issues have not been satisfactorily settled. Consequently, nation-states remain as the only legitimate and appropriate actors in the course of negotiation and bargaining. Even when the issues have been resolved, the implementation of the resultant agreements inevitably involves nation-states' enforcement. In short, the importance of nation-states is transformed rather than displaced, as they are the major players, other than private multinationals, in designing and implementing global economic systems. At the subnational level, globalization in terms of disintegration of production has rendered nation- states to decentralize its administrative and decision power so as to let local states take advantages of their specific mix of factors of production in response meet particular needs of the globalized capital. At a result, local economies increasingly detach themselves from their respective national economic networks, and become nodes within a global economic network (Amin and Robins, 1990:28). Nevertheless, this does not imply that nation-states are no longer relevant to local economies. On the one hand, the roles of nationstates played at the supranational level determine the scope of autonomy of local states. Since nation-states are responsible for enforcing the international agreement reached at the supranational level, no matter how intensive a local economy connected to foreign places, it cannot evade from the regulatory mechanism of the nation-states. On the other hand, local economies increasingly compete with each other in order to attract the inflows of capital. Once the competition becomes excessive, it may not only duplicate costly infrastructure, but also make no one able to ripe off the benefits of economy of scale. Thus one of the new roles of nation-states is to balance the coordination and competition as well as to arbitrate potential conflicts between local economies.

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The Circulation Bias in the Mainstream Globalization Discussion Nonetheless, the critics of globalization do recognize the existence of the trends of denationalizing places, albeit in an uneven manner. Their debates merely focus upon the scope and spread of globalization and the extent of the autonomy of the nation-state lost accordingly. Indeed, both advocates and critics of globalization share some basic theoretical weaknesses: 1. Globalization is defined by the flows of capital in various pure or transformed forms, like FDI, commodities, intermediate goods, and capital goods etc. As a result, globalization is narrowly confined to the circulation aspect of capitalism (Brenner, 1999), while the production side is neglected. As Storper remarks (1997a:27), "a fundamentally geographical process labeled with a geographical term- "globalization"- is analyzed as a set of resource flows largely without considering their interactions with the territoriality of economic development". 2. Territory is rarely defined (Storper, 1997a). Most discussions tend to equate territory to "location plus the resources located there". The resources include infrastructure, land, skilled and unskilled labor etc. As resources, they are subject to manipulation. Thus the one- state- that can command the resources becomes the focus of study. Hence, the capacity of nation-states and local states in mobilizing the resources turn out to be the major dependent variable in the mainstream globalization discussion. Without theorizing territory, the discussion of globalization can hardly go beyond the analysis of the tug-ofwar game between state and capital. 3. Different geographical/spatial scales are often discussed separately. Although, terms, like globalization, regionalization, subregionalization, and localization, can be analytically treated as distinct processes, they are empirically intersecting, overlapping, and interconnecting. Ultimately, these processes are crystallized, condensed, superimposed, and articulated in particular places. Concentrating on a particular process, while ignoring others, renders the mainstream globalization discussion one-sided and biased. Globalization as Circulation and Production In contrast to a circulation perspective, as Sassen (1991:325) remarked, the focus on production can first provide us an empirical referent for identifying specific modes of integration of places in the global economy. Second, it draws our attention to labor and work process into the analysis. Finally, it widens our analysis to the site of production, rather than simply confined to the power relationships between states and multinational corporations. In short, the idea of territorial space can be theorized in the discussion of globalization, only if capitalist production processes are seriously taken into account. Both circulation and production are the two sides of the same globalization coin. Territory should be understood as a spatial governance structure that superimposed upon a network of places. Places are sites in which production activities are performed. Instead of being "location plus locational resources", territory is defined as "governance plus a network of places". Within a territory, specific production roles are assigned to different places. The governance structure determines the production roles of places that, taken as a whole, constitute a spatial division of labor. The spatial division of labor among places induces

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circulation of people, commodities, capital, and cultural artifacts. Hence, both circulation and production processes are inherently embedded within a territory. From a circulation viewpoint, territory is not fixed, but constantly in flux. Some places may be dropped out from the territorial network, while other places join in. It is this in-and-out movement that makes mainstream globalization theorists claim the end of geography. However, there are some places that are so essential to the network that they never drop out. These places are often call "centers". A pure circulation perspective has difficulties in explaining why some places are so essential that their roles cannot be taken by other places. Only when seeing from a production perspective (e.g. see Cox, 1997), we understand why some places are more territorially important than others. Indeed, the changing spatial shape of a territory depends on the governing principles of the territory as well as the characteristics of the places. In this sense, territory is continuously undergoing both territorialization and deterritorialization. Territorialization is the process that incorporates new places into the territorial network, or transforms/reconfigures the existing network nodes (i.e. places) so as to make them more consistent and coherent with the governance structure. On the other hand, deterritorialization is the process that replaces some places with others. What trigger territorialization and deterritorialization? As Storper (1997a:27-31) argues, "The essential condition of territorialization is that the activity be dependent on resources with specificities that are strongly territorialized and where the supply of these resources is subject to important inelasticity" (1997:29). Thus, "territorialization is the result of necessary relations of proximity in the production system, which limit the number of sites at which production can be carried out" (italic original). In contrast, the essential condition of deterritorialization is that "locations offer factors of production that could potentially substituted by a large number of other locations". Hence, deterritorialization occurs when the production factors located in the place are "nonspecific, locationally substitutable and perfectly elastic in supply". In sum, territorialization constitutes a production-based territorial economy while deterritorialization constitutes a circulation-based flow economy. Traded and Untraded Interdependencies There are two kinds of interdependencies among economic actors in economic transactions: traded and untraded (see Storper, 1997b:19). Both types of interdependencies are created out of the specialization of the input and output processes within a production chain. Traded interdependencies are basically input-output relationships in which timely delivery and quality assurance are emphasized. On the one hand, traded interdependencies are about the temporal coordination of the input-output relationships involved in the production processes. Timely deliveries of raw materials, intermediate goods, and final products or services are one of the two determinants for successfully competing against rivals. On the other, traded interdependencies are also about the appropriate quality of inputs required for meeting consumers' needs. Timely delivery of products or services to customers is not enough to outperform competitors, if the quality is not up to customers' expectation. Hence, quality assurance is another determinant of business success. Whether the input and output processes have to be located at the same location depends upon the transaction costs involved. Given the dramatic development of transportation and IT, problems related to the deliveries of products over long distances are basically overcome. To

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certain extent, distances do not constitute as major barrier for ensuring quality of the imported goods because buyers can easily cancelled the orders and find another producers when they dissatisfy with the goods received, given the shortening of delivery time caused by the improvement of transportation and communication technology. If only traded interdependencies are concerned, it is quite obviously that there is a trend of the emergence of a borderless world. Nonetheless, the global competition game entails more than the resolution of the problems of traded interdependencies. To be globally competitive, continuous development and improvement in goods and service are necessary. Traded interdependencies, in terms of timely deliveries, are merely dealing with the efficiency of the allocation of resources. However, product development and service improvement require more than efficient resource allocation. Each of the input and output processes within a production chain cannot be improved, technologically or organizationally, without taking account of other processes. To each stage of the production process, there exists an external economy that is constituted by the production chain as a whole. Not only does the external economy include the exchange relationships implicated by traded interdependencies, but also untraded connections that significantly affect the coordination and cooperation among firms in different production stages. These connections create untraded interdependencies. In order to increase the added value of each production process, firms involved do not merely rely on bidding for the lowest costs. They seek ways to improve product or service deliveries and quality technologically and organizationally. These cannot be done without coordination and cooperation between firms having traded input-output relationships. Untraded connections, such as business culture (including business practices, work culture and all production routines and standards), interfirm network relationships, uncodified and tacit knowledge shared by traded firms as well as "personalized" trust, become crucial in generating effective coordination. In other words, continuous production improvement requires the coordinated efforts of both buyer and seller firms. The effectiveness of the efforts depends largely on whether the firms have developed common understandings, mutual expectations and trust that can synchronize their efforts. The success of the Japanese subcontracting networks in 1970s and 1980s has demonstrated the importance of the untraded interfirm connections in improving the production process. The success of Silicon Valley through creating a decentralized but cooperative industrial system provides another example (Saxenian, 1996). Untraded interdependencies often induce the needs for proximity. If continuous product development and service improvement require intensive interactions between buyers and sellers, and their interactions basically involve uncodified and tacit knowledge, trust, mutual understandings and common cultural orientation, then no matter how fast IT has developed, transborder on-line interactions cannot not replace face-to-face discussion, negotiating, bargaining, and chatting that are essential to establishing untraded connections. Thus even input-output transactions can be carried out beyond geographical borders, untraded interdependencies induce the needs for locational concentration so as to ensure continuous production improvement. Moreover, timely deliveries and especially quality assurance are not merely issues of traded interdependencies; they can be much facilitated when mutual understandings are present. Hence, they are also issues of untraded interdependencies. The presence of untraded interdependencies makes territorialization and reterritorialization important to regional development. According to Storper (1997b:44), untraded connections

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unlike other physical capitals and assets are difficult to be imitated, and costly to be reproduced. They are relational assets that are difficult to be deterritorialized. As Porter (1990:103) argues that the presence of competitive related and supporting industries is one of the "diamond" conditions of giving a nation competitive advantage. Since most inputs of downstream industries can be obtained from global markets, access to inputs is much less important than how effectively inputs are utilized. "The most important benefit of homebased suppliers, however, is in the process of innovation and upgrading" (italic original). As a result, territory can no longer be equated with "location plus the resources located there". Territory has to be reconceptualized to include relational assets that cannot be manipulated, but cultivated and maintained. Territory as Spatial Governance Structure Dealing with different types of traded and untraded interdependencies pushes the question of governance: how to establish a governance structure that can regulate the interdependencies in an effective way. While traded interdependencies may large spread around the globe, untraded interdependencies mainly locate in particular places. Hence territory can be conceptualized as a space that comprises of different places with a particular governance structure. The space is not merely an economic one, because the governance structure is inherently multi-dimensional, including political, cultural and socio-economic elements defined by the traded and untraded interdependencies. In addition, the space is multi-scalar that can include subnational, national, regional and global agents. The spatial governance system resembles what Jessop (1999) called "de-centered intersystemic context steering": "It comprises efforts to steer (guide) the development of different systems by taking account both of their own operating codes and rationalities and of their various substantive, social, and spatio-temporal interdependencies. This is facilitated by communication oriented to intersystemic 'noise reduction' (mutual understanding), negotiation, negative coordination, and cooperation in shared projects. And is reflected in the use of symbolic media of communication such as money, law, or knowledge to modify the structural and strategic contexts in which different systems function so that compliance with shared projects follows from their own operating codes rather than from imperative coordination." By focusing upon the types of goods or services produced, Storper (1997b) labels the respective governance systems as "worlds of production". In each world of production, the governance system defines a particular framework of action for the related agents. The framework of action becomes the rules-of-thumb that generate mutual expectations, thus mutual understandings, and guides the agents what to do and how to coordinate. "The key to success", as Jessop (1999) argues, "is continued commitment to dialogue to generate and exchange more information… to weaken opportunism by locking partners into a range of interdependent decisions over short-, medium-, and long-term time horizons; and to build on the interdependencies and risks associated with 'asset specificity' by encouraging solidarity among those involved." In this respect, state institutions reinvent themselves as the initiators, facilitators and promoters (rather than the mastermind) of the territorial governance structure, and take important new roles of building consensus, facilitating information flows, arbitrating

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disputes, and imagineering shared projects among the interdependent actors. These new roles not only require state institutions to respect and understand their "partners" (rather than the regulated), but also require state institutions to do more and more social imagineering (rather than social engineering) to portray an imagined, but prosperous future to help the making of consensual projects. In other words, states are no longer the great designers or implementers of economic planning, but coordinators in what Weiss (1998) called "governed interdependence". Just like market and state (or hierarchy) governance, territorial governance may fail to coordinate the "partners" to achieve their anticipated results efficiently and effectively. The potential sources of territorial governance failures are structurally built-in, as the governance structure is superimposed onto a network of places. Places are the sites in which different territorial governance systems are intersecting, overlapping and interconnecting. Different territorial systems have their own governance principles (at least, one may roughly categorize the principles with respect to flow and territorial economies). These principles may be complementary to each other (positively connected), or fundamentally in conflict (negatively connected). Though reconciliation between different principles is the matter of places, it does affect particular territorial governance, as mutual understanding, consensus, cooperation, coordination, dialogue, negotiation and bargaining are essential mechanisms upon which the territorial governance are built. Any changes occur in A territorial governance in a place, their effects will be transmitted to B territorial governance, simply because of their positive or negative connectedness established within the place. The complexity of the relationships between different scales that crystallized in places renders territorial governance difficult, if not impossible. Furthermore, as mentioned before, territories are never fixed. They may expand by incorporating new places, or shrink by losing places to other territories. Since territorial governance is based upon consensual processes, either incorporating or losing places may trigger new rounds of negotiation and bargaining. Another difficulty for territorial governance stemmed from the spatial division of labor. Since not all places have equal importance in creating economic values, those with higher added values will have higher power over other places. Power asymmetry, though undoubtedly less serious than that in hierarchical governance, exists in every territorial governance structure. Competing for the centrality within territorial governance structures by places becomes one of the sources of instability. The issue of governance is even more complicated when the territory is transnational. In subnational territory, the nation state has the final arbitrating power, and can mobilize enough resources to reassert the imagined prosperous future engineered previously so as to impose a higher-level consensus to contain the conflicts. However, in transnational territory that involves different nation states, the bargaining and conflict resolution games are acutely more difficult, because it involves erecting global governing systems. Cities as Important Sites for Territorial Governance Concerned with power asymmetry, among different places within a territorial network, cities become more and more important as the commanding and controlling nodes, especially for global networks (Sassen, 1991). As the production processes become dispersed to different geographical locations, there is a parallel territorial concentration of producer services. Producer services are intermediate inputs that provided to production firms as well as to all

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other types of organizations, like governments, schools, and hospitals etc. There are at least three reasons for the growth of producer services. First, the disintegration of production induces coordination needs for multinational corporations. When multinationals find that it is more costly to provide certain coordinating services in-house, they buy the services from markets. Thus coordinating needs create markets for specialized firms. These firms can provide services less costly because they provide the same services to various multinationals, so that they can obtain scale economy (Sassen, 1991:97). Second, competition is no longer confined to domestic markets, but extended to a global scale. Intense global competition induces multinationals to design their own global strategy to confront their rivals either offensively or defensively. The strategy entails different ways to increase or defend their global market share. In order to implement the strategy, additional finance is required. As a result, the global competition game drives a wave of financial activities like mergers, acquisitions, and capitalization. The increased needs of financing and the increase of trading induced by the disintegration of production create needs of hedging the risks involved in these financial activities. In turn, various forms financial derivatives are invented to deal with the financial risks. Consequently, markets for various finance-related producer services are created. Another reason for the growth of producer services is the advances of IT. IT has become indispensable for any private firms or public organizations. It changes the very work processes of firms and organizations in producing goods or providing services. However, IT is continuously improving. This creates tremendous problems for firms and organizations to learn and adapt to the changing work processes. As a result, markets of IT-related producer services, from engineering design, training to data processing, are formed. Since the global environment is highly volatile, producer services providers have to be sensitive not only to the needs of their clients, but also be alert of any changes in the areas related to their service provision. Thus, formal and informal networkings are common among different types of producer services providers. The networkings implicate the presence of untraded interdependencies among producer services providers. This drives producer services highly concentrated in particular cities so that providers can benefit from the economy of agglomeration.1 These cities become the coordinating nodes of the dispersed production networks. Armed with concentrated coordinating capacity, the cities also become the centers of high-level decision-making nodes. This makes cities turn into centers of territorial governance structures, commanding and controlling the allocation of resources among different places within territorial governance systems. Glocalization as a Specific Way to Articulate Different Territorial Scales However, not all city centers are equally important. World/global cities are arranged hierarchically, roughly in accord with the economic power they command. There are rise and fall among cities in the hierarchy of world cities. Indeed, the competition among cities in the world cities ladder is no less intense than those in manufacturing. The economic power of cities are not solely determined by economic factors, but by whether the cities can articulate their different multi-scaled territorial governance structures into a coherent whole that cannot 1

Agglomeration "is an effect when scarcities and specificities of key resources such as labor and technology draw producers to a place, and when nonsubsitutabilities keep them there".

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be reproduced or imitated by other cities. With respect to the articulation of territorial structures, state institutions play a significant role. In order to strengthen the city's coordinating capabilities, the state has to govern the interdependencies involved in territorial networks effectively. As mentioned previously, city is a place in which a number of multi-scaled territorial governance structures overlapped, intersected, and interconnected. Whether the city can maintain sustainable global competitiveness, or create new competitive capacities depends on how well (1) different spatial scales of a multi-scaled governance structure are articulated, and/or (2) different overlapped multi-scaled territorial governance structures are articulated. An example of the former is the garment and clothing industry, in which products are produced regionally, but sold to a global market. A city acting as a coordinating center that articulates the regional production networks and the global distribution and marketing networks is to provides services that can make the regionally produced goods available and sold to the global clothing market. The latter is much more complicated because it often involves several industries. For example, in the computer industry, a personal computer is composed of different component parts with various technological requirements. To develop high technological content component, like computer chips, requires tremendous R&D investment, but assembling is much more labor-intensive. Hence, developing capital-intensive component requires adequate financing services and technological supports, while production cost reduction is the main concern in making labor-intensive parts. Thus the computer industry has illustrated a geographical concentration of capital-intensive component production as well as a geographical dispersion of labor-intensive part production patterns. In addition, the capitalintensive component production will be facilitated if producers can get financed either through borrowing from the banking sector or through capitalization from the stock market sector. A city will become a command center for the computer industry if the financial networks and the computer production networks can be articulated in the city. Glocalization (Swyngedouw, 1997) is the term referred to the strategy of a city in articulating different territorial governance structures, so that the problems involved in traded and untraded interdependencies can be resolved. In concrete terms, glocalization is basically a strategy that exploits local differences to enhance its global advantages. It entails: (1) strengthening its local characteristics so as to distinguish itself from other competing cities; (2) building up new local characteristics that are complementing the existing ones, so that the economy of agglomeration can be reaped; (3) maintaining its linkages with global players which are exploiting the local characteristics in their interests; and finally (4) expanding its global reach through promoting how its local characteristics can meet the interests of global players. These local characteristics are basically the infrastructure, institutions, and policies that can help articulate different territorial governance structures. Hong Kong's Glocalization Strategy in the Late 1990s A Disarticulated City Under Detteritorialization: Changing Fate of Colonial HK From the onset of establishing HK as a British colony, HK was established as a trading center that bridged China and the Western world not only in terms of commodities, but also of migrant workers (Sinn, 1995a; 1995b). Although the entrepôt trade was curtailed after the 1951 United Nations trade embargo with China, extensive international commercial networks

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had been developed between HK's import-export houses, trading firms and merchant companies and the rest of the world. These networks helped bridging the mass influx of Chinese capital and labor, mainly producing textile and garment goods, and the Western markets. The rise of HK's manufacturing in the 1960s and 1970s reflects the capability of the city in linking the local flexible manufacturing system (a combination of subcontracting networks of small-and-medium sized enterprises and entrepreneurs' guerrilla business strategy) to a fluctuating global market (Lee, 1997). This capability is mainly in form of extensive international commercial networks. The HK's export-led industrialization is characterized by huge amount of original equipment manufacturing (OEM) through international subcontracting. But the competitive advantage of Hong Kong manufacturing is conditional upon low wages and minimal diversification. This gives rise to a production structure with low design and technology content. As wages go up, its competitiveness will gradually be eroded. From the late 1970s onwards, the HK manufacturing sector has been confronting intensive competition from other low-cost rivals in Southeast Asia as well as Latin America. In other words, the local characteristics of HK manufacturing sector is no longer distinctive from its rivals that can enable it to be globally competitive. After the adoption of "Open Door" policy by China in 1979, most of the manufacturing production has been relocated to Southern China to exploit cheap land and labor. As a result, a regional division of labor in manufacturing took shape and the deindustrialization of HK began in the mid-1980s. Seemingly submissive to the fate of deindustrialization, the late colonial government adopted a let-go approach in confronting with the massive relocation of manufacturing processes to Southern China. By mid-1988, there were about 2400-2700 enterprises that had direct investment from Hong Kong-based companies, with most of them undertaking manufacturing. The total investment made by Hong Kong companies was estimated between US$4.7-5.1 billion. It has been estimated that over 30% of Hong Kong’s manufacturing has moved to the Mainland. In some industries, like the electronics and plastics industries, movement even amounted to 70-80% (Feng, 1991:499). Conversely, the amount of manufacturing and the workforce employed in Hong Kong are declining. The following table shows such a trend: Table 1: Decline in Manufacturing Industry

No of establishment Workforce (persons)

1986 48,632

1988 50,606

1990 49,097

1992 41,937

1994 34,068

1996 25,859

869,753

844,575

730,217

571,181

438,382

327,473

As the manufacturing production being relocated, the engine of growth of the HK economy relies upon re-export trade and service provision. From 1988 onwards, re-exports has surpassed domestic exports and became the main engine of HK's economic growth (see table 2). Table 3 shows the value of service traded from 1961 to 1997. HK's service exports have increased steadily over the past three decades, and with a growth rate generally in double digit. Among individual components of service exported, the pattern has essentially remained the same since 1980 (see table 4). As the emergence of a regional division of labor between HK and Southern China, transportation and trade-related services are the first and the third

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largest contributors to exported services. By comparing table 2 and 3, service exports for the first time surpassed domestic commodity exports in 1994. Table 2: Hong Kong's Commodity Trade (at current prices, in HK$ billion) Year

Domesti % c change Exports

RePercent Total Percent Total Percen exports Change Exports Chang Imports t e Chang e 1961 2.939 2.5 0.991 -7.4 3.930 -0.2 5.972 1.8 1962 3.317 12.9 1.070 8.0 4.387 11.6 6.659 11.5 1963 3.831 15.5 1.160 8.4 4.991 13.8 7.420 11.4 1964 4.428 15.6 1.356 16.9 5.784 15.9 8.551 15.2 1965 5.027 13.5 1.503 10.8 6.530 12.9 8.976 5.0 1966 5.730 14.0 1.833 22.0 7.563 15.8 10.111 12.6 1967 6.700 16.9 2.081 13.5 8.781 16.1 10.469 3.5 1968 8.428 25.8 2.142 2.9 10.570 20.4 12.498 19.4 1969 10.518 24.8 2.679 25.1 13.197 24.9 14.936 19.5 1970 12.347 17.4 2.892 8.0 15.239 15.5 17.635 18.1 1971 13.750 11.4 3.414 18.0 17.164 12.6 20.287 15.0 1972 15.245 10.9 4.154 21.7 19.399 13.0 21.788 7.4 1973 19.474 27.7 6.525 57.1 25.999 34.0 29.049 33.3 1974 22.911 17.6 7.124 9.2 30.035 15.5 34.142 17.5 1975 22.859 -0.2 6.973 -2.1 29.832 -0.7 33.532 -1.8 1976 32.629 42.7 8.928 28.0 41.557 39.3 43.520 29.8 1977 35.004 7.3 9.829 10.1 44.833 7.9 48.796 12.1 1978 40.711 16.3 13.197 34.3 53.908 20.2 63.263 29.6 1979 55.912 37.3 20.022 51.7 75.934 40.9 86.339 36.5 1980 68.171 21.9 30.072 50.2 98.243 29.4 111.794 29.5 1981 80.423 18.0 41.739 38.8 122.162 24.3 139.246 24.6 1982 83.032 3.2 44.353 6.3 127.385 4.3 143.769 3.2 1983 104.405 25.7 56.294 26.9 160.699 26.2 176.574 22.8 1984 137.936 32.1 83.504 48.3 221.440 37.8 224.802 27.3 1985 129.882 -5.8 105.270 26.1 235.152 6.2 232.617 3.5 1986 153.983 18.6 122.546 16.4 276.529 17.6 277.500 19.3 1987 195.254 26.8 182.780 49.2 378.034 36.7 379.989 36.9 1988 217.664 11.5 275.405 50.7 493.069 30.4 501.174 31.9 1989 224.104 3.0 346.405 25.8 570.509 15.7 565.219 12.8 1990 225.875 0.8 413.999 19.5 639.874 12.2 645.200 14.2 1991 231.045 2.3 534.841 29.2 765.886 19.7 782.042 21.2 1992 234.124 1.3 690.829 29.2 924.953 20.8 958.462 22.6 1993 223.027 -4.7 823.223 19.2 1046.250 13.1 1075.710 12.2 1994 222.092 -0.4 947.921 15.1 1170.013 11.8 1254.427 16.6 1995 231.657 4.3 1112.470 17.4 1344.127 14.9 1495.706 19.2 1996 212.160 -8.4 1185.758 6.6 1397.918 4.0 1539.851 3.0 1997 211.410 -0.4 1244.539 5.0 1455.949 4.2 1619.468 5.2 1998 188.454 -10.9 1159.195 -6.9 1347.650 -7.4 1432.423 -11.5 Source: Census and Statistics Department, Estimates of Gross Domestic Product 1961 to 1998. 12

Table 3: Hong Kong’s Service Trade (at current prices, in HK$ billion) Year

Exports of Percent Change Imports of Percent Change Services Services 1961 2.364 0.891 1962 2.533 7.1 0.986 10.7 1963 2.754 8.7 1.070 8.5 1964 3.023 9.8 1.170 9.3 1965 3.224 6.6 1.263 7.9 1966 3.443 6.8 1.407 11.4 1967 3.878 12.6 1.477 5.0 1968 4.543 17.1 1.734 17.4 1969 5.478 20.6 2.035 17.4 1970 6.530 19.2 2.367 16.3 1971 6.933 6.2 2.708 14.4 1972 8.059 16.2 3.139 15.9 1973 9.598 19.1 3.977 26.7 1974 11.191 16.6 4.884 22.8 1975 11.837 5.8 5.451 11.6 1976 15.254 28.9 6.657 22.1 1977 16.584 8.7 7.982 19.9 1978 19.810 19.5 9.796 22.7 1979 25.192 27.2 13.737 40.2 1980 29.164 15.8 16.952 23.4 1981 35.332 21.1 21.807 28.6 1982 40.051 13.4 23.870 9.5 1983 46.307 15.6 28.253 18.4 1984 56.370 21.7 33.930 20.1 1985 61.050 8.3 37.949 11.8 1986 71.815 17.6 44.271 16.7 1987 92.272 28.5 52.324 18.2 1988 110.982 20.3 62.806 20.0 1989 127.147 14.6 72.173 14.9 1990 142.321 11.9 87.692 21.5 1991 161.087 13.2 100.814 15.0 1992 189.352 17.5 114.242 13.3 1993 215.577 13.8 122.994 7.7 1994 240.668 11.6 144.067 17.1 1995 265.635 10.4 160.877 11.7 1996 296.188 11.5 170.936 6.3 1997 295.583 -0.2 179.685 5.1 1998 264.665 -10.4 175.864 -2.1 Source: Census and Statistics Department, Estimates of Gross Domestic Product 1961 to 1998. Table 4: Hong Kong’s Composition of Exported Services (at current prices, in HK$ billion)

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Yea Total Transportati Travel Insuran Financi Trader on ce al Related 1980 29.164 13.143 6.529 0.594 0.563 6.075 1981 35.332 16.050 8.143 0.573 0.829 7.038 1982 40.051 18.041 8.770 0.612 1.337 8.214 1983 46.307 20.842 11.376 0.749 1.856 7.903 1984 56.370 23.790 14.032 0.893 2.526 10.637 1985 61.050 24.548 14.999 0.889 2.877 12.900 1986 71.815 27.954 18.438 0.778 4.316 14.394 1987 92.272 34.692 26.312 1.172 5.097 17.125 1988 110.982 40.706 34.789 1.032 5.359 19.967 1989 127.147 46.675 38.742 1.104 6.590 24.250 1990 142.321 54.452 41.457 1.319 6.104 27.763 1991 161.087 64.696 42.651 1.478 7.665 31.779 1992 189.352 73.472 53.232 2.327 9.231 35.862 1993 215.577 80.090 61.156 3.475 14.666 40.512 1994 240.668 90.376 64.262 3.478 18.117 46.901 1995 265.635 96.424 74.914 3.699 16.343 54.246 1996 288.562 101.359 84.520 3.685 19.657 55.782 Source: Census and Statistics Department, HK.

Other Business 2.260 2.699 3.077 3.581 4.492 4.837 5.935 7.874 9.129 9.786 11.226 12.818 15.228 15.678 17.534 20.009 23.559

Accompanying with deindustrialization is what Tsang (1992, 1993) called "Manhattanization", in which producer services, especially financial services, become the major sources of competitive advantages. Indeed, HK's finance-and-trade-related producer services has begun to grow in the 1970s, when the global production processes were proceeding in full speed and more and more international capital infused into the Asian Pacific region. In order to promote the finance-and-trade-related producer services, the government began to develop HK's infrastructure, especially transportation and communication facilities. The transportation and communication facilities enabled HK to become the assembly and distribution node of the Pacific trade and the regional headquarters location for overseas and domestic firms (Kwok, 1999). As early as 1995, just two years before handover, the HK government set up a task force on services promotion. The task force's final report was released in early 1997. In the report there are 14 leading service industries identified for promotion, including banking and financial services, insurance services, real estate services, transport services, trading and sale services, telecommunication and computer-related services, professional services, entertainment services, as well as tourism, convention and exhibition services. This move of the HK government signified a strong commitment to act as a promoter instead of a pure facilitator of making HK become a global city, like London, New York or Tokyo. As the Financial Secretary, Donald Tsang said that although the HK economy would continue to be driven by market forces, the government would not sit idly by, but make decisions as "entrepreneurs and investors" to plan ahead and confront the challenges of moving HK to a service and technology-based economy (SCMP, 7 Sept. 1995). Nonetheless, the Manhattan Dream was blown out by the outbreak of the Asian financial crisis. HK has ever confronted with such a serious economic crisis since the Second World War. Bank credits shrank, growth rate dropped to negative, unemployment rate rose to its

14

highest, and deflation occurred. Even worse, though in the "heyday" of the Asian financial crisis, a number of government officials, including Tung, claimed that HK would be the first to recover from the crisis, HK turned out to be one of the last ones. People lost faith on the first SAR government was evident in numbers of opinion polls conducted by media, which showed great dissatisfaction of the government in handling the crisis. The major problem encountered by HK's economy is the disarticulation of the manufacturingbased and the finance-and-traded-related system. As Chiu (1994), Ngo (1997), and Choi (1997) have demonstrated that the colonial state had traditionally biased against manufacturing and favored finance-and-traded related interests, it is not surprising to find that the colonial state put more efforts in promoting finance-and-traded related producer services rather than manufacturing-related ones. Over the 50 years of industrialization, the linkages between HK's financial and manufacturing sectors are very minimal. From the onset of HK's industrialization, HK's manufacturing sector was composed of SMEs. Although the subcontracting networks of SMEs had provided flexibility for HK's manufacturing sector to adapt successfully to the fluctuating global markets, it provided little potential for innovation and technological upgrading. The competitive advantage of the manufacturing sector remained cost based, rather than quality or technologically based. As a result, the profit margins for SMEs were relatively low comparing to the import-export firms, commercial houses, land developers, and financial brokerage companies. In addition, most of the manufacturing firms are SMEs, they have great difficulties in raising money from banks, or through capitalization by listing in the stock market. As Lui and Chiu (1996:53) remark, "Throughout the process of industrialization, manufacturers have complained about insufficient support from the financial sector. The major banks, originating as they do in the entrepôt trade of the past century, have been more accustomed to finance trading than to manufacturing activities." Although HK's banks do finance trading and infrastructure, their direct contribution in upgrading HK's manufacturing sector is very limited. Moreover, as the HK financial sector becomes more and more international, Tuan and Ng (1998) find that there has been a declining share of trade loans in financing offshore and local international trade. In contrast, offshore loans to finance foreign requirements increased rapidly: the shares of overseas lending increased from 41% in 1980 to 57% and 58% in 1994 and 1995, respectively. A significant portion of these overseas loans was to China to finance infrastructural and commercial projects. Tuan and Ng further suggest that the growing and regionalized financial sector has not significantly facilitated the development of Hong Kong's manufacturing sector. Another evidence of the disarticulation between HK's financial sector and its manufacturing sector is reflected by the venture capital industry. Venture capital industry has been active in HK for over a decade. It has been the second largest in Asia just after Japan. There were 91 venture capital funds employing 320 professionals and total venture capital funds amounted to US$ 8 billion in 1996, an increase of almost 9 times since 1988. More than 90% of HK's venture capital funds originated from foreign countries, with approximately 70% coming form outside Asia. At the end of 1996, only 10% of committed venture capital was invested in locally-based companies while 59% had gone to the Mainland and 29% to other Asian countries (see table 5). These venture capital funds were more in infrastructure projects than industrial development: 53% of committed venture capital funds had been invested in telecommunication, energy, transportation and construction industries (Hang Seng Monthly, April 1999).

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Table 5: Hong Kong's Venture Capital, 1996 Source (% of total)

Disbursement (% of total) 9.4 9.9 Local 18.9 87.1 Asia except HK Mainland China 7.8 58.5 Other Asian Countries 11.7 28.6 71.7 3.0 Non-Asian Countries 100 100 Total (8,019) (4,076) (US$ Million) Note: Disbursement is smaller than the total amount of funds under management due to the existence of uncommitted capital. Source: Asian Venture Capital Journal (quoted from Hang Seng Monthly, April 1999) There are several reasons for the disarticulation of HK's financial and manufacturing sectors. The first one is the rise of emerging financial markets in the Southeast Asia, like Mainland China, Malaysia, Indonesia, and Thailand, which provide ample opportunities for the financial agents located in HK to lend out their loanable funds (Tuan and Ng, 1998). As observed by Kasa (1996), "An interesting aspect of Hong Kong's role in the global capital market is that it resembles its role in world trade. In both commodity and financial markets Hong Kong plays the role of middleman. Just as in commodity trade it acts as an entrepôt trading center (particularly with respect to Chinese imports and exports), in the capital market Hong Kong serves as a broker and clearinghouse for the transfer of financial resources throughout Asia. Most other financial centers (e.g., New York, London, Tokyo, Zurich) are based on highly developed domestic financial markets (or in the case of Japan, are based in a country whose currency is a "vehicle currency," which in turn derives from its importance in world trade). In contrast, until quite recently Hong Kong's domestic capital markets were thin and underdeveloped." In such a thin and underdeveloped domestic capital markets, financial agents based in HK have less incentives in helping the SME-dominated and low-profit-margin manufacturing sector. Besides brokering capital to other Asian countries, the only domestic outlets for HKbased capital are the equity (i.e. the stock market) and real estate. The second reason for the disarticulation is the asset bubbles in HK's real estate sector and stock market developed from late 1980s up to the Asian financial crisis, which had drawn excessive loans from the capital market, and crowded out HK's manufacturing. For instance, 12.8% of bank loans went to building, construction, and property development and investment in 1986, while 18.1% of loans went to residential purchasing. These two figures increased to 18.7% and 24.9% respectively in 1996, making a total of 43.6% of bank loans being used domestically for the real estate market (Tuan and Ng, 1998). The lack of experience of HK's banks in financing manufacturing is the third reason. The HK's banks are basically commercial banks with profound expertise and knowledge in traderelated areas as well as property development. Unlike industrial banks, which are absent in HK, the commercial banks do not have enough experiences and knowledge in assessing the

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potentiality of manufacturing, including hi-tech and high value-added industries. Given the political risks associated with the handover, the commercial banks are generally risk-averse, and reluctant to finance long-term manufacturing projects. This further makes the banks seek more profitable short-term and relatively safe outlets. Financial brokerage and property become the obvious choices. Indeed, even the banks are willing to lend money to manufacturers, they often request property assets as collateral. The so called "structural transformation" of the Hong Kong economy is more a case of regional reallocation of resources as a result of China's open policy, which has enabled both sides to reap huge short-term profits (Tsang and Cheng, 1996), than a glocalization strategy that aiming utilizing local characteristics to help HK's manufacturing compete globally. The relocation of production processes merely intensifies and lengthens the labor-intensive and cost-cutting strategy of HK's manufacturers. The restructuring of the manufacturing sector does little in turning HK into a manufacturing-related producer services center. In contrast, it helps build the property boom in the late 1980s and the 1990s that squeezes out manufacturing investment by building up inflation. There are two mechanisms for the restructuring to generate inflation. In the first place, the outward processing of HK's manufacturing production gave rise to HK's inflation through repatriating the profits earned in China back to HK. When the profits earned in China but were spent in HK, this raised HK's consumption and investment expenditure and therefore caused a demand-driven inflation. When the profits were spent on existing assets in HK rather than as consumption or as new investment, the asset prices would be bid up. Eventually, this might push up the costs of consumer goods and services, insofar as the production of these goods and services use the assets (Tsang, 1992:429). In the second place, the restructuring made China-serving activities divert manpower and resources away form domestic services, and this, in turn, drove up the costs of providing the latter within HK (Tsang, 1992:438-440). The property boom tremendously affected the development of the HK economy in the past two decades. A direct consequence of this is that it pushes up the profitability of the property sector and its affiliates, e.g. legal services and finance, while squeezing that of the other service sectors (e.g. retail, restaurants etc.), not to mention the manufacturing sector (Tsang and Cheng, 1996). The property boom was induced by the high inflation rate coupled with low nominal interest rate, which made the real interest rate basically negative. After the HK dollar pegged with the US dollar in 1983, the government lost its monetary autonomy in combating high inflation rate, as the interest rate had to be aligned with that of US. As the real interest rate remained negative, it created an irresistible incentive for both businessperson and high-income groups to borrow money and invest in real assets. As long as borrowers anticipated that the value of their investment would at least increase with the inflation rate, they would earn profit (Mole, 1992). The negative real interest rate associated with the pegged exchange rate induced a property boom as well as a bull stock market. As asset prices rose, a reinforcing cycle occurred: people had further incentive to borrow from banks and invested the money in the real estate and stock markets. The property and stock market booms were sustained not only domestically, but also internationally.2 As the linked exchange rate had undervalued the strength of the HK 2

Indeed, the HK real estate market is really global. HK land developers not only invest heavily in HK, but also in Canada, Australia, England, and especially China (for example, see Mitchell, 199?). In addition, more and more property brokerage agents try to woo local residents to buy flats in China, London, Sidney, Vancouver,

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economy and made local assets exceptionally attractive to foreign investors, inflows of money from Taiwan, Southeast Asia and the West further bid up asset prices and generated inflation (Tsang, 1992:430-433). Although HK’s property market experienced a downturn between 1994 and 1995, because of the anti-speculative measures of the government and rising interest rates, as a whole, the property prices, notably the residential ones, has been raised incredibly before the Asian financial crisis (see table 6). Table 6: HK Property Price Index 1992 1993 1994 1995 1996 1997Q1 1997Q22 (1989=100) 215 237 293 272 299 393 394

Price Indices Private domestic premises Of which: 40-70 sq meters 100 sq meters and above Private retail premises Offices Flatted factories

219 205 200 133 147

244 250 244 159 177

306 351 285 222 189

282 310 314 353 277 284 188 185 166 142 (percent change) 23.6 -7.2 9.9

408 481 330 212 142

40.5 10.2 41.9 Private domestic premises Of which: 41.3 11.4 25.4 -7.8 9.9 41.2 40-70 sq meters 50.8 100 sq meters and above 51.9 22.0 40.4 -10.5 12.4 39.9 22.0 16.8 -2.8 2.5 17.4 Private retail premises 37.1 19.5 39.6 -15.3 -1.6 16.5 Offices 28.9 20.4 6.8 -12.2 -14.5 -4.7 Flatted factories 1. Data are period averages. 2. Percentage changes are calculated over corresponding year-earlier periods. (Adapted from Mihaljek, Husain and Cerra, 1998, table 10)

408 487 364 214 146 36.3

36.0 43.2 28.6 16.9 -2.1

As Jaulin and Huchet (1998:22) note, real estate was the largest sector in the HK economy, which amounts to 25.1% of GNP in 1995. The second and the third were trade and finance, which amounted to 17.1% and 10.6% on GNP respectively. Most of the producer services are in the non-manufacturing-related fields. As producer services are mainly catered for multinational corporations, the lines of business carried by the HK-based multinationals should roughly reflect the nature of HK's producer services. In a recent survey of regional representation by overseas companies in HK, the Industry Department (1998) finds that, among 933 regional headquarters located in HK, 50.3% are in wholesale/retail and import/export business. 19.8% and 11.4% are in other business services3, and finance and banking, while 10.3% are in manufacturing. The corresponding percentages for the 1719 regional offices engaged in wholesale/retail and import/export business, other business services, finance and banking, and manufacturing are 55.1%, 19.9%, 10.6% and 6.1% respectively. However, it is interesting to note that 39.8% and 42.8% of the overseas parent companies of the regional headquarters and regional offices are in manufacturing and Toronto etc. This phenomenon of oversea property buying to certain extent reflects the emigration trend of HK people caused by the fear of 1997 handover. 3 The other business services include legal services, accounting, auditing and bookkeeping services, rental of machinery and equipment, data processing and tabulating services, advertising and related services etc.

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respectively. These figures imply that manufacturing is not the major concern of the multinationals located in HK, even they are manufacturing in nature. Under this economic configuration, HK's manufacturing sector is disarticulated, and even hampered under the economic globalization or regionalization processes. Attempts to Rearticulate Different Scales: the New Economic Strategy in HKSAR Immediately after the handover, the SAR confronted with serious governability problems partly induced by the Asian financial crisis. On the one hand, the SAR government has to regain its authority and legitimation from the general public. On the other hand, the shattered Manhattan Dream forced the government to rethink its role and strategy in furthering the prosperity and stability of the HK economy. Against this context, a new economic strategy is formulated, and a new vision on HK is imagineered. It is widely recognized that the current competitive advantage of HK is certainly not in the manufacturing sector. The only way that can lead HK to survive and compete in the global competitive game is to strengthen its producer services sector. However, as previously shown, HK's producer services sector is typically unbalanced in the sense that it serves merely trade-related, property, and capital-raising and speculative financial interests. Unlike the global cities described by Sassen (1991), HK's producer services sector is actually biased against manufacturing firms. The Asian financial crisis clearly pointed out the weaknesses of the sector. Since the trade, real estates, capital raising activities are highly sensitive to the changes in the global financial market. Any increase in interest rates of other advanced countries, especially USA, can tremendously affect the volume of these activities. Moreover, among different forms of capital, financial capital is the most hypermobile one, as well as most sensitive to business confidence. As a result, financial markets are much more volatile and vulnerable to sociopolitical environments than other forms of capital. By putting all the eggs in the financerelated services, the HK producer services sector is also extremely vulnerable to external events, albeit highly profitable. Notably, the HK producer services sector is heavily connected to Southeast Asia and China, any unfavorable political, economic or even social events happen in these countries, the HK producer service sector will first be hurt. In this sense, the HK producer service sector, the prime mover of the HK economy, is indeed very "globalized". Against this background, it becomes understandable why pre-handover hegemony is known as "positive noninterventionism". The key to revitalize HK's economy is to develop manufacturing-related producer services, which is less vulnerable to uncontrollable global forces. However, developing manufacturingrelated activities does not preclude serving the global economy. As already demonstrated in HK's traditional manufacturing industries, when the manufacturing processes are relocated to China, manufacturing-related service provision has been developing rapidly. These products are "made by HK", rather than "made in HK" and exported to all over the world. Hence, we may say that these manufacturing-related services are localized. According to the HK Census and Statistics Department (?), on the one hand, the number of manufacturing firms dropped from 31,990 in 1994 to 27,600 in 1995 (-14%) and the number of persons engaged dropped from 433,700 in 1994 to 368,000 in 1995 (-15%). On the other hand, there was a substantial growth of import-export firms that had considerable involvement in technical aspects of manufacturing processes, which related to the outward

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processing in China. The number of these firms rose from 20,490 in 1994 to 24,860 in 1995 (+21%). The number of persons engaged in these firms increased from 140,400 in 1994 to 148,400 in 1995 (+6%). Among these import-export firms in 1995, 32% of them had maintained production in Hong Kong previously. Table 7: Services provided by trading firms with manufacturing-related functions Service Provided

Percentage of firms involved 1994 1995 98 96 81 77 79 76 73 56

Sourcing of raw materials Product design Sample and mould making Production planning, management and control Quality control Professional and technical services Packaging and logistics Source: ?

61 68 48

41 54 29

Table 7 shows the services provided by these trading firms. We can see the percentages of firms involved in these services have decreased. This may suggest that these services are also being relocated out of Hong Kong, or the trading firms are becoming more specialized in particular services, or both. Although no clear evidence can tell what the figures really suggest, in a survey of the firms engaging outward processing in China, Tuen and Ng (1995:?) find that 20-40 percent of the firms already conducted their material management, and sourcing, shipping and exporting in China. If this trend were to grow and continue, crucial parts of the service content operations, such as overseas market connections, and other higher valueadded operations would eventually move out of Hong Kong. Indeed, these manufacturingrelated services are rather knowledge-poor. Their low knowledge content makes them easily be performed elsewhere, i.e. in China. In other words, they are only temporarily localized. Once China develops its own capability for providing these services, HK will completely lose its advantage. Thus, traditional manufacturing-related services cannot be the "local" characteristics for furthering HK's economic growth. What HK needs are the manufacturing-related producer services that can be localized. The emphasis on manufacturing-related producer services does not preclude non-manufacturingrelated ones. They are complementary to each other. It is emphasized because the past development of the HK producer service sector was one-sided towards the flow economy, and biased the territorialized economy. As found by Leung and Wu (1995), the technology linkage structure in HK's manufacturing sector is fragmented and underdeveloped: technology interaction between local manufacturers, support organizations and territory institutions is very minimal; and technological development is confined to large complex technology producers. The development of manufacturing-related producer services can help integrate and strengthen the weak technology linkage structure. The key to success is to instill more technological and manufacturing elements into the existing producer services sector. Only through establishing a more balanced producer service sector, HK can really create local characteristics that cannot be easily reproduced elsewhere so to compete globally. In order to achieve the glocalization strategy, a more active government is necessary for restructuring the current regional division of labor, and introducing new local characteristics 20

are necessary. However, any institutional change creates winners and losers. The HK government is not strong enough to impose its will on the societal actors due to its traditional minimal intervention practices. Neither can the government do it alone, because economic restructuring involves cooperative efforts of the affected societal actors. It is against this background, the HK government imagineers a vision of an innovation-led and technologyintensive HK future to solicit societal supports. Actually, this forward-looking vision reflects the HK government's making of a post-handover hegemony that enables it to reinvent itself. The whole imagineering project started from the Commission on Innovation and Technology (CIT), which is a high-level committee directly appointed by Tung to explore the possibility of upgrading HK into hi-tech city and to make recommendation to achieve this. The imagery illustrated by the Commission is fanciful (1998:13-14): HK is capable and will be an innovation-led, technology-intensive economy in the twentieth century. It is portrayed that HK is not only a business and financial center, but also as (i) a leading city in the world for the development and use of information technology; (ii) a world-class design and fashion center; (iii) a regional center for multimedia-based information and entertainment services; (iv) a world center for the development of health food and pharmaceuticals based on Chinese medicine; (v) a leading supplier in the world of high value-added components and products where Hong Kong already excels today; (vi) a regional center for supplying professional and technological talents and services; and (vii) the marketplace for technology transfer between the Mainland and the rest of the world. It is even claimed in the final report of the CIT (1999:9), "Given the current momentum, we are optimistic that some visible results (Hong Kong towards an innovation-led, technology-intensive economy) should be achievable quickly and certainly within three to five years. With sustained and concerted efforts from the entire community, Hong Kong should be able to reap substantial benefits in a decade." Quite different from the previous colonial period, the words, strategies, planning, funding, hitech, and high value-added play a significant rhetorical roles in the SAR governing practices. Just looking at the titles of official documents, one can easily feel the will of the government in making a "new" HK. For examples, the Information Technology and Broadcasting Bureau published a document titled, "Digital 21 HKSAR Information Technology Strategy", in November 1998. The title of the 1999-2000 budget speech of the Financial Secretary is "Onward with New Strengths". In numerous public occasions and press conferences, the government officials again and again "sell" the idea that all the moves made by the government are necessary for the furthering HK's economic growth, especially in face of intense competition from other countries. All the rhetoric is targeted for making a consensus among involved actors to let the HK government assume a new role in economic restructuring. Indeed, the imagineering project is quite successful. The government's move towards technological development was not only widely accepted by the business communities, like the HK General Chamber of Commerce4, the major business association in HK, but also approved by the general public. In an opinion poll carried out after Tung's second policy address, 88% believed the government should provide financial support to the manufacturing sector (SCMP, October 20, 1998). 4

In a press release (March 22, 1999), the Chamber, though "is supportive of many initiatives proposed in the first report of the Commission, and we welcome the vision and commitment of the Chief Executive to build Hong Kong into a centre of innovation and technology", emphasizes that an industrial policy should focus "on integration between manufacturing and services, rather than division of the two".

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The imagineering project also aims at changing the world image of HK, from "a low-tech but high-IQ" regional center (?) to an innovation center. In a high-profile press conference, the government invited seven technology-based companies with international operations to announce their commitment to invest innovation projects in HK. The seven companies are 3M, H&Q Asia Pacific, Motorola, Nortel Networks, STAR TV, Sybase and VTech. This gesture, as explicitly remarked by Tien, is to attract knowledge-based companies and talents to Hong Kong (HKSAR Press Release, February 26, 1999). Furthermore, Tung seeks every opportunity to help construct the innovation image of HK wherever the international technology- or knowledge-based companies and talents are present. As the CIT makes it clear, the new strategy requires that, "Hong Kong should promote its image overseas more aggressively, particularly its vision to become an innovation and technology center and the various initiatives being implemented. There is a need to strengthen Hong Kong's inward investment promotion efforts" (1999:37). Beside rhetorical moves, to create a "viable" technology sector, the government has implemented or will implement the measures suggested by the CIT. To correct the current biases against technological upgrading within the financial sector, an Innovation and Technology Fund (ITF), with initial injection of $5 billion, to finance ad hoc projects that contribute to innovation or technology upgrading, was set up. Moreover, a second board, similar to the US National Association of Securities Dealers' Automated Quotation (NASDAQ) stock market, known as Growth Enterprise Market will be established in the HK Stock Exchange for the listing of smaller or emerging technology companies by the end of 1999. The CIT also recommend the government to link up the venture capital market to HK's technological development by exploring the possibility of establishing a "business angel" network5 and setting up a co-investment scheme that provides government capital on a matching basis with private funds. In sum, the government aims at strengthening the manufacturing-related aspect in the current financial producer services. As discussed before, rearticulating the manufacturing with the producer services sector is the main sources of continuing HK's competitiveness. The CIT (1998:21) identifies the areas of manufacturing needed to be attracted from overseas, and established indigenously are those will help Hong Kong maintain and develop its existing roles as a regional center of trade, finance, transportation and communications, and as a base for providing technical input and business support for production operations in the Mainland and elsewhere. IT is the main focal industry. The government has repositioned HK as a telecoms and computer-services hub, complementing the traditional producer services. The government shows its firm commitment towards IT by taking the lead in implementing the Electronic Service Delivery scheme. It is a scheme to provide public services to the community via the Internet and other electronic access means using an open and common information infrastructure. The government is also establishing a local public key infrastructure and a public certification authority to facilitate e-commerce. To facilitating electronic transactions and information exchanges with the Chinese communities around the world, especially China, a common Chinese language interface will be developed (HKSAR Press Release, March 9, 1999). 5

Business angel is an informal venture capital that provides capital for entrepreneurial firms that are neglected by the institutional venture capital industry. 'Business angel networks' are formed to facilitate networking between potential private investors and companies seeking finance (CIT, 1999:42-3).

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Beside IT, the CIT recommended other high value-added industries that HK can develop, like Chinese medicine and semiconductor. Although the government has already announced or been considering three giant projects: the Cyberport, Chinese-medicine port (or Herbalport), and Silicon Harbor, IT, for its capability to create synergy with existing industrial clusters in the Hong Kong economy, is still the top priority. In his 1999-2000 budget speech, the Financial Secretary announced a $13 billion Cyberport project which will be commenced into phases starting in 2002. This is the first joint strategic infrastructure project between the HKSAR government and a private developer, aiming to create a strategic cluster of leading IT and services companies in Hong Kong in the shortest possible time. It is claimed that the project will generate more than 12,000 jobs in Hong Kong, while approximately 4,000 jobs will also be created in the construction industry when the Cyberport is being built. It is also emphasized that the Cyberport will also generate demand for support services such as accounting, legal and other back-office functions (Budget, 1999: para. 61-62). The major controversy about the Cyberport is not whether it may succeed, but whether the government has made a secret deal with the Pacific Century Group (PCG), which is the private developer of the project. People wander whether the project is really a high-tech business or just real estate investment in disguise. Arousing open dissatisfaction from 10 property developers and public concern, the government explains that the government cooperates with PCG because of its technological profile and its ability to market the Cyberport. Having form a joint venture with Intel, the government believes that PCG will become an anchor tenant and help getting other leading IT and services companies to become anchor tenants as well (HKSAR press release, March 16, 1999). The Cyberport demonstrates how an IT project can help establish an innovation sector as well as benefit the current industrial sectors, the property sector in this case. Maybe the most important "side-effect" of the Cyberport is that it makes HK investors alert the potentiality of hi-tech, especially IT-related industries. After the announcement of the Cyberport, coupled with the booming of the US NASDAQ stock market, HK investors became fascinated with Internet and technology-related stocks. The notable example is the meteoric rise of the stocks of Tricom Holdings. Tricom rose more than 1,200 per cent in one day, after it was confirmed the company was brought by the PCG for developing the Cyberport (SCMP, May 9, 1999). Although this may only represent a fad or a short-term Net bubble, it could be a start for changing the HK investment culture, which favors real estate rather than technology-based assets, provided that a good valuation system will be installed. After the Cyberport, the government also plans to build a Chinese-medicine port. Up to July 1999, five private enterprises have contacted the government about building the port. However, the government has not decided whom to cooperate, because all the proposals are not concrete enough. In the "mind" of the government, the Herbalport should use mainland expertise in exploring new drugs on the basis of ancient formulations, then commercialize the drugs and sell them all over the world (SCMP, 7 July 1999). Indeed, a similar idea had been submitted to the colonial government in 1989, but was rejected because of the colonial government's noninterventionism (SCMP, 8 July 1999). Nonetheless, the Herbalport project has not been pursued as urgent as the Cyberport. Accompanying with the two ambitious projects the Cyberport and Herbalport, the government has recently announced a new high-tech project, Silicon Harbor. A Taiwan-based venture fund management company, Hambrecht and Quist Asia Pacific, has pledged to invest HK$ 9.3 billion in the project (HK Standard, July 6, 1999). However, similar to the

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Herbalport, the government is not as eager to develop semi-conductor manufacturing as to information technology (SCMP, July 25, 1999). In short, all these projects would be nearly unthinkable, if they were proposed in the colonial years. However, under the constant competitive pressures on existing industries, the SAR government is forced to turn its noninterventionist (or globalization) strategy into a more focused glocalization one. As the chairman of the CIT, Tien Chang-lin, said that the financial crisis justified an economic restructuring that would place greater emphasis on a high valueadded economy, as the current pains Hong Kong suffered was caused largely by its narrow economic base (HK Standard, 22 Aug 98). However, there is a clear priority for the government in widening HK's economic base. The critics of the government's active industrial policy argue that HK local firms are not familiar with hi-tech, and there is a lack of human talents to fill up the necessary posts. Although helping local firms to upgrade their technological bases is one of the main targets of the new industrial policy, the first step of the policy is to attract world-class technologybased and knowledge-intensive manufacturers and producer services providers to locate in HK. When a sufficient number of foreign manufacturers and manufacturing-related producer services providers are present, a territorialized learning environment with intensive interfirm information and knowledge linkages will be formed. This learning environment can nurture local technology-based manufacturing firms as well as help the current HK-based producer services providers develop new lines of business, given the dynamic entrepreneurship of the HK economy. Indeed, the Cyberport project is regard by CIT (1999:36) as a very significant step to create in Hong Kong a critical mass of high value, technology-intensive companies in the information services sector. In other words, the new industrial policy attempts to rearticulate the producer services and manufacturing sectors through a strategy of "global sourcing"- drawing world-class capital investment globally, and making them become local characteristics. Concerning the supply of qualified talents, again, "global sourcing" or more accurately "Chinese sourcing" is the key (CIT 1999:21-28). By citing the Silicon Valley, the commission emphasizes to attract bright and talented people from all over world, especially Chinese talents living on the Mainland or studying or working overseas. The talented people include high-caliber knowledge workers, such as research scientists and engineers, experts with knowledge-intensive skills, young graduates with top-class brainpower, technology entrepreneurs etc. In order to achieve the goal, the government will set up its overseas liaison and promotion efforts in major technology centers such as the Silicon Valley, targeting at talents and technology entrepreneurs. In concerning with drawing talent from the Mainland, the CIT recommends the government to relax its labor importation restriction on professionals. Contrasting with other "knowledgepoor" workers, no quota should be set on the talents to be admitted. Moreover, the Mainland talents should be permitted to bring along their immediate family members to HK. Given the fact that HK may be the most attractive place among the Chinese communities, the government has great advantage to "selectively import" Chinese all over the world, especially the Mainland. Chinese sourcing of knowledge-intensive talents has both short-term and long-term significances for the HK glocalization strategy. In the short-run, it helps releasing the pressure of the shortage of local talents. In the longer run, overseas and Mainland talents can

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provide a nurturing ground for developing local technology-based human capital as well as strengthening the technological collaboration with the Mainland6. Although the Applied Science and Technology Research Institute is set up to perform midstream R&D capability that can to turn innovative ideas or scientific results into commercial products, its short-term function is as a focal point for attracting R&D personnel outside Hong Kong to work here so that it can become a training ground for local university graduates who aspire to become research scientists or engineers to obtain post-university industrial research practices (CIT, 1998:42). In sum, all the moves made by the government in turning HK into a technopolis are basically the attempts to re-establish localized advantages in producer services through inventing the high value-added manufacturing sector. The moves are to attract, assimilate and finally localize "foreign" knowledge assets, especially human resources and technology so as to make HK globally competitive. Conclusion The mainstream globalization discussion frames the relationships between states and markets in terms of a power tug-of-war game in controlling or freeing locational resources. The hypermobility of capital, it is argued, induced by the technological advances in communication and transportation, the liberalization and deregulation of national markets, and the financial innovations, makes geographical space irrelevant. The end of geography also makes nation-states powerless in determining the economic well being within the territories under their jurisdiction. Such a circulation viewpoint, though acknowledges the presence of traded interdependencies, ignores the importance of untraded interdependencies within the production processes. To effectively resolve the problems created by untraded interdependencies, territorially bounded relational assets are required. Thus, globalization entails both deterritorialization and territorialization. Nonetheless, the territorialized and deterritorialized production space may no longer be coincided with national boundaries. Instead, it comprises a network of places that may not belong to the same country. The very processes of territorialization and deterritorialization make governance issues particularly important because coordination may not be easily achieved without the cooperation between the place-based actors, including different levels of state institutions. For the sake of effective governance, coordination activities, mostly in terms of producer services, are concentrated in certainly strategic places, namely cities. Cities become the central nodes of coordination for different global production networks. The economic performance of cities depends upon their capabilities in articulating different types of coordinating activities, i.e. producer services, required by different global production networks, into a coherent whole, such that agglomeration and interactive learning activities can be installed. The failure of a city to respond to the changing technologies and the competition from other cities may eventually give rise to disarticulation. In this respect, state institutions become vital in maintaining or creating a city's global competitiveness through continuously localizing new coordinating capacities. Glocalization is the fundamental strategy for any city to succeed in the global competitive game. 6

The HKSAR government's intention to build up stronger ties with the Mainland in developing technology is reflected by the move to recruit Professor Lu Yongxiang, president of the Chinese Academy of Sciences, into the CIT (HK Standard, March 22, 1998)

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The poor economic performance of the post-handover Hong Kong typically reflects that the city is facing a disarticulation crisis. The crisis, though triggered by the Asian financial turmoil, is caused by the colonial government's policies that biased against manufacturing. In order to revitalize the HK economy, the new SAR government changes its traditional "noninterventionist" to a more active glocalization strategy. The new strategy aims at rearticulating the deterritorialized manufacturing and the territorialized financial sectors by creating a viable manufacturing-related producer services sector. The HK's globalization strategy can be summarized as:     

To recruit Mainland and overseas knowledge-intensive personnel, especially Chinese, to enlarge the pool of technical human resources. To attract foreign technological investment through creating a potentially profitable environment. With knowledge-intensive personnel and investment accumulated to a certain critical point, an agglomeration economy for the technology sector can be developed. Once the technology sector is set up, the manufacturing-related producers service sector will be enhanced. The growth of the manufacturing-related producers service sector can provide one more anchorage for rearticulating the already existing non-manufacturing-related producers services rooted in HK.

Global sourcing and Chinese sourcing are the key words for this glocalization strategy. Beside concrete policy moves, the SAR government justifies its new strategy through active imagineering. By inventing a vision of a prosperous new HK, the government is successful to induce a societal consensus to legitimize the new industrial policy. Bibliography Amin, A. and K. Robins (1990) "The Re-emergence of Regional Economies? The Mythical Geography of Flexible Accumulation" Environment and Planning D: Society and Space, 8: 7-34. Andrews, David M. (1994) Capital Mobility and State Autonomy: Toward a Structural Theory of International Monetary Relations" International Studies Quarterly, 38: 193-218. Bob Jessop (1999) 'The Dynamics of Partnership and Governance Failure' (draft) published by the Department of Sociology, Lancaster University at: http://www.lancaster.ac.uk/sociology/soc015rj.html Brenner, Neil (1999) "Globalisation as Reterritorialisation: The Re-scaling of Urban Governance in the European Union" Urban Studies, 36(3): 431-451. Clarke, Susan E. and Gaile, Gary L. (1998) The Work of Cities, Minneapolis: University of Minnesota Press. Chiu, Stephen W.K. (1994) The Politics of Laissez-Faire, HK: Hong Kong Institute of AsiaPacific Studies, Occasional Paper No. 40.

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