The Sixth-term Municipal People's Congress of Shenzhen began on Jan 18, with Mayor Chen Rugui presenting the Shenzhen Municipal People's Government Work Report. What got most coverage is that Hong Kong's next-door neighbor achieved a new high of 2.4 trillion yuan ($356 billion) in annual gross domestic product, which puts it in fifth place in Asia behind Tokyo, Shanghai, Beijing and Seoul. 

To Hong Kong, Shenzhen's continued economic growth is to be expected. In fact, the pressure Shenzhen puts on Hong Kong is not in economic aggregate, since its population is several millions smaller than Shenzhen's and its growth rate much lower. That is why Hong Kong being overtaken by its neighbor in terms of the size of the economy is simply unavoidable. What Hong Kong should feel alarmed about is how to maintain the superior quality of its economy and build new edges while keeping existing ones over Shenzhen going forward. That is the issue which is the most deserving of media attention in Hong Kong but generally overlooked. 

There are three things about Shenzhen Hong Kong should pay particular attention to. One is that Shenzhen is pursuing innovation-driven development and is rising in the ranks of global innovation system as well as having been designated by the central government as an innovation demonstration area under the National Agenda for Sustainable Development. Another is that, in terms of innovation-technology development, Shenzhen already leads the country in total investment in research and development in proportion to its GDP and the number of international patent applications according to the Patent Cooperation Treaty. It ranks second in the country as home to high-tech enterprises, while its digital economy is one of the largest in the country. The municipal government work report also promises at least 30 percent of fiscal funding for science and technology goes to basic research in addition to establishing more than 100 new national or provincial laboratories and more than 2,000 State-level high-tech firms. Still another fact is the Shenzhen municipal government attaches great importance to the Guangdong-Hong Kong-Macao Greater Bay Area development program and has proposed the establishment of the Qianhai Bay Area cooperation demonstration zone. It is also pushing for its expansion to include the Hong Kong-Shenzhen Technology and Innovation Park at Lok Ma Chau Loop so as to set an example in cross-boundary personnel and logistics flows; while exploring the establishment of offshore innovation bases and making a development plan for the establishment of Shenzhen-Hong Kong cooperation zones for international tourist consumption at Sha Tau Kok and Lo Wu. 

The key word in all three things listed above is "innovation", including system innovation and technology innovation. 

In order to advance inno-tech development, Hong Kong needs to innovate the related administrative system. The current special administrative region government has increased fiscal funding for R&D significantly, but in proportion to GDP it is still behind that of Shenzhen. The neighboring city's industrial mix is better balanced than Hong Kong's, which is dominated by small- and medium-sized enterprises. Hong Kong cannot rely only on local businesses and government funding for R&D. It must attract as much investment from outside sources as possible. 

State funding for designated R&D projects in Hong Kong is already in place and will continue in future. The SAR government should work harder on drawing investment from overseas as well as the mainland to fuel inno-tech development. To do so, it must make it easier for the inno-tech sector to acquire land for R&D facilities and attract inno-tech firms to Hong Kong from overseas and the mainland with such perks as tax breaks. 

To drive the Bay Area development forward, Hong Kong can introduce "one checkpoint for both regions" on cross-boundary flows of personnel and goods for certain key areas on a trial basis. By "key areas" I mean the location of an international inno-tech center jointly built in the Bay Area and the Hong Kong-Shenzhen Technology and Innovation Park. All Shenzhen, Hong Kong and Macao residents working on inno-tech projects and goods used in those areas should enjoy the convenience of the "one checkpoint for both regions" arrangement that does not apply elsewhere. 

To advance healthy socio-economic development in Hong Kong, the SAR government must recognize there is a structural weak spot in making public policies and fix it through system innovation. I am talking about the fact that Hong Kong believes in a free economy, which is a good thing from the point of view of thriving businesses. But the free market inevitably limits the effectiveness of the government's public policies. There is no shortage of examples in this regard today and the SAR government must overcome such limits of its free market economy somehow through system innovation.