Overview

• Hong Kong offers a favourable environment for the development of Internet and electronic commerce. As a regional trading and services hub, Hong Kong is where commercial activities take place day and night, serving both local and foreign companies. These commercial activities are supported by Hong Kong's excellent telecommunications and information technology infrastructure.
• According to Internet World Stats, Hong Kong's Internet penetration rate ranks No.3 and No.23 in Asia and the world respectively. According to Office of the Telecommunications Authority (OFTA), Hong Kong's household broadband penetration rate (78.5% of Hong Kong households in April 2009) is among the highest in the world.
• In 2007, the number of business establishments which had conducted electronic activities throughout the year increased by 3.1% to 59.3%. 18.3% of Hong Kong companies sold goods, services or information through electronic means, up 0.3% from 2006. Moreover, business receipts from selling goods, services or information through electronic means surged by 47.7% in value terms.
• Through the "Digital 21" IT Strategy, the Hong Kong government is committed to developing the SAR into the Asia Pacific hub for both Internet traffic and content.

Industry Data

	2005	2006	2007	June 2008
E-commerce business receipts (HK$ million)	8,007	22,054	43,283	n/a

Sources: Report on 2008 Survey on Information Technology Usage and Penetration in the Business Sector, Census and Statistics Department; Office of the Telecommunications Authority; Hong Kong Monthly Digest of Statistics

Business Receipts of Internet Connection Services (HK$ million)

	2006	2007
Membership/registration/account set-up services	5.0	9.9
Basic connection services	-	-
- for dial-up account	109	113
- for leased line account	711	815
- for broadband account	3,482	4,989
Website hosting and related services	94	228
Other Internet related services	503	539
Total	4,904	6,694

Source: Report on 2007 Annual Survey of Storage, Communication, Financing, Insurance and Business Services, Census and Statistics Department

Percentage of establishments having Internet connections

By industry		By employment size
Financing, insurance, real estate & business services	79.9%	Large	95.3%
Wholesale, retail, import and export trades, restaurants & hotels	62.3%	Medium	85.1%
Manufacturing	47.0%	Small	54.5%
Transport, storage & communications	31.9%	-	-

Source: Report on 2008 Survey on Information Technology Usage and Penetration in the Business Sector, Census and Statistics Department

Range of Services

Many use the Internet mainly for communication and information purposes. However, business transactions via the Internet (or e-commerce) are on the rise. In 2008, 19.3% of Hong Kong companies had their own websites, up 1.1% from 2007. The proportion varied from 75.3% for large companies (those employing more than 100 persons) to 14.5% for small companies (those employing less than 10 persons). These websites were mainly for disseminating company information and collecting customer feedback. Respectively about 19.3% and 58.9% of Hong Kong companies delivered and received goods, services or information through electronic means in 2008.

According to the e-readiness survey conducted by Economist Intelligence Unit, Hong Kong ranked 2nd in Asia and 8th in the world in 2009.

Business to Consumer (B2C) -- online consumerism

B2C e-commerce occurs when a company sells its goods or services to the consumer over the Internet. There are different kinds of B2C Internet sites in Hong Kong, including online stores, and sites offering financial services (particularly banking and securities), ticketing services and information services.

According to a survey conducted by the MasterCard Worldwide in 2009, Hong Kong people spent an average of USD 603 on online shopping during 2008 Q4, compared to USD 503 during the same period in 2007. In the same survey, 67% of the interviewees indicated that they had the intention to shop online, representing an increase of 10% from the figure in 2007.

Business to Business (B2B) e-commerce -- online transactions among companies

B2B e-commerce involves companies using the Internet for making transactions with suppliers and services providers. This kind of transactions used to take place using electronic data interchange (EDI) over proprietary network before migrating to the Internet. A number of B2B Internet sites have been established in Hong Kong. They usually involve standard commodity trading such as steel, sourcing activities or supply chain management. As Hong Kong is the business and trading centre in the region, it is expected that B2B transactions would dominate local e-commerce development in the coming years.

According to figures released by the Census and Statistics Department in December 2008. 95.3 % of large establishments, 85.1% of medium establishment and 54.4 % of small establishments had Internet connection, compared to 93.3%, 82.8% and 56.1% respectively in 2007. Financing, insurance, real estate and business services sector and the wholesale, retail and import and export trades, restaurants and hotels sector were the top two sectors with the most number of establishments having Internet connection in 2008.

E-Government

In January 2000, the government enacted the Electronic Transaction Ordinance and established a public key infrastructure to enhance public confidence in the legality and enforceability of e-transactions. Hong Kong Post and Tradelink were the recognised public certificate authorities for e-transactions. The Gov.hk launched in August 2007 is an official entry point for the local community to gain access to a wide range of information, including news, weather forecast, government policies, etc. In fiscal year 2008/09 (1 April 2008 to 31 March 2009), the Hong Kong government’s IT expenditure was HKD 4.0 billion, down from HKD 4.1 billion in 2007/08. However, such expenditure is expected to rise to HKD 5.8 billion in 2009/10.

E-Mice Solutions (HK) Limited has taken up the operation of e-Cert services from Hong Kong Post Certification Authority (HKPCA) since April 2007. It is responsible for the full operating cost in providing the e-Cert services and is entitled to receive subscription and renewal fees from e-Cert subscribers.

Service Providers

Internet Service Providers (ISPs)

According to the Office of the Telecommunications Authority (OFTA), as in 2008, Hong Kong had 169 licensed Internet service providers (ISPs). However, not all licensees operate an active business and the ISP market is dominated by a few major players. Hong Kong Internet Service Providers Association (HKISPA) is responsible for promoting the development of Internet infrastructure, and enhancing fair market competition.

CSL Limited (CSL) commercial launched the world’s fastest broadband network, Next G, at the end of March 2009. The new network is able to provide users at a downloading speed of 21Mbps, and HD movies can be downloaded within minutes.

Internet Content Providers (ICPs) and Portal Sites

In a broad sense, all Internet sites are ICPs. The success of a commercial ICP lies very much in whether its content is interesting enough to attract high hit rates (eyeballs), which would then be translated into revenue by getting online advertisement. Moreover, some commercial ICPs also facilitate online transactions (usually of B2C type) to generate revenue.

Some ICPs specialise in one single topic and provide one-stop information search services. This kind of portal sites (including vertical portals) is a natural development in managing infinite information on the Internet. For example, hktdc.com is a leading trade portal to facilitate Hong Kong companies to expand business in international trade with marketing opportunities, business matching services and market intelligence.

Application Services Providers (ASPs)

ASPs deliver and manage applications and computer services from remote data centres to multiple users via the Internet or a private network. In other words, ASPs assist the companies to outsource their IT functions so as to concentrate their resources on their core business. It is expected that small and medium-sized enterprises (SMEs) would benefit most from ASP services. According to the Census and Statistics Department, about 85.1% of medium-sized firms and 54.5% of small firms had Internet connection in 2008. Besides technical support, ASPs in Hong Kong also provide integrated e-commerce solutions such as supply chain management to clients.

Industry Development and Market Outlook

Latest Developments

• To foster e-commerce cooperation between Hong Kong and Guangdong, a pilot scheme concerning mutual recognition of electronic certificates was launched in June 2009, with the aim to ensure secure exchange of electronic information and to facilitate electronic transactions between the two places.
• As of June of 2009, the GovWiFi programme had been set up in 350 government premises to provide 1,500 WiFi hotspots. Accessible information includes job vacancies, forms at Job Centres and various reports. There has been robust growth in the number of GovWiFi service connections, with the monthly usage surging from 59,000 in July 2008 to 210,000 in May 2009. In response to the escalating number of users, the Hong Kong government decided to install extra WiFi facilities in 30 new premises, including venues of the 2009 East Asian Games, major district parks, more community halls and centres, and a few more government offices.
• With an aim to provide Internet access opportunities to the underprivileged groups, a pilot scheme sponsored by the Hong Kong government was launched in February 2009 by providing computer facilities in 14 District Cyber Centres (DCC), which will be expanded to cover 25 districts in the future.
• In the 2009/10 Budget, the Hong Kong government unveiled its plan to cooperate with other local organisations in providing one-stop information services for the elderly. A web portal is expected to be set up in early 2010, acting as a platform to enhance communications among elderly people through the Internet and to enable them to access to a rich pool of government information.
• The Hong Kong government places strong emphasis on the enforcement of Internet intellectual property rights, also acting to crack down on the infringement of intellectual property and copyright through the Internet. An appeal concerning uploading of Hollywood copyright-infringement films to the Internet using BT (BitTorrent) peer-to-peer file sharing programme was dismissed by the Court of Final Appeal in May 2007, with the offender sentenced to three months’ imprisonment.
• In 2008, an eTax system was rolled out by the Inland Revenue Department. The system enabled taxpayers to login to their eTax Accounts by entering their Taxpayer Identification Number (TIN) and eTax Password. Other applications provided by the system include checking for outstanding tax return or tax payment, obtaining instant estimation of Salaries Tax payable, applying for holdover of provisional tax, stamping property documents, applying for business registration, etc.
• According to China Internet Network Information Centre (CCNIC), China had 338 million Internet users in July 2009, with a growth of 13.4% from the year-end of 2008. In December 2008, the mobile phone WAP Internet users reached 117.6 million, more than twice the number in 2007.
• In the 2nd U.S.-China Internet Industry Forum held in November 2008, it was mentioned that the number of blogs in China reached 107 million, compared to around 40 million in 2007.
• According to iResearch, in 2009 Q1, China search engine business generated RMB 1.3 billion, rising by 41.2% YoY.
• With 2008 Beijing Olympics, online banner advertising market in China grew rapidly throughout the year, generating revenue of RMB 8 billion, compared to RMB 4.9 billion in 2007, which represented a YoY increase of 65.1%.
• China online shopping transaction size reached RMB 128.2 billion in 2008, a YoY increase of 128.5%. Online shopping ARPU (average revenue per user) exceeded RMB 1,600 in 2008,RMB 582 more than 2007.
• According to the online game industry report produced by iResearch, the market scale of Chinese online game progressed by 52.5% YoY in 2008, with a revenue of RMB 20.8 billion. It is estimated that by 2012, the growth rate would be kept at above 20% and the total revenue generated would reach RMB 68.6 billion. 
• The digital publication industry thrived in China. In 2007, income generated from digital books, magazines and newspapers recorded a growth of 33%, 27% and 300% respectively, whereas their respective printed versions marked an increase of 2%, 12% and 11%.
• Hong Kong companies have very good knowledge of and connection in the Chinese mainland market. This is an advantage over other foreign companies in seizing further opportunities in the mainland's online market. Also, Hong Kong companies can offer other value-added services, such as consulting, implementation, integration and training.

The Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Under CEPA, Hong Kong companies can set up joint venture enterprises on the mainland starting from October 2003 to provide 5 types of value-added telecommunications services without geographic restriction. These services include Internet data centre services, store and forward services, call centre services, Internet access services (ISP) and content services (ICP). Shareholding of Hong Kong services suppliers (HKSS) in the joint venture should not exceed 50%.

As at end-June 2009, there were 34 approved HKSS in the sector of value-added telecommunications services, out of a total of 38 applications.

Under Supplement IV to CEPA that came into effect in January 2008, HKSS can set up joint venture enterprises on the mainland to provide Mainland IP-based Virtual Private Network Services as defined in the "Telecommunications business classification" without geographic restriction. HKSS’ shareholding in the joint venture should not exceed 50%.