IT in Hong Kong – a Legal Perspective

August 31, 1998

On the surface practising IT law in Hong Kong is disarmingly similar topractice in the UK (although there are numerous differences in the statue law(ordinances) and in court practice and procedure sufficiently well hidden tocause difficulty). An understanding of those difficulties, whilst perhapsinteresting for those studying comparative law, will not give an insight intothe forces which shape the development of IT in Hong Kong, which will in turn bethe drivers for legal change as Hong Kong distances itself from its colonialpast. It is for that reason that this article, after summarising the currentlegal regime affecting IT in Hong Kong, will concentrate on describing thecharacteristics of the local IT industry.

The Legal Framework

The Hong Kong Special Administrative Region (SAR) of China (the PRC) has justcompleted the first year of its existence following the handover of sovereigntyfrom Great Britain to the PRC on 1st July 1997. The continuation of the rule oflaw for a period of 50 years after the handover is guaranteed by the Basic Lawby which the principle of ‘one country, two systems’ was established.Ironically, immediately after handover the laws of Hong Kong were closer to thelaws of England and Wales than perhaps ever before. The outgoing Governor ChrisPatten had pushed through as much legislation as was feasibly possible in thelast weeks of his administration so as to equip the fledging SAR with ordinanceswhich reflected English law. Historically, Hong Kong had implemented coreBritish legislation some time after it was enacted in the UK. Accordingly, untilthe enactment of the Copyright Ordinance on 27 June 1997 Hong Kong’s copyrightlaw had been based on the UK’s Copyright Act 1956 (which was extended to HongKong in 1972). The 1997 Ordinance reproduced in large part the UK Copyright,Designs and Patents Act 1988, whilst at the same time incorporating some of theamendments made by the Copyright (Computer Programs) Regulations 1992.

However, those amongst us advising on laws applying to computers and theInternet have a restricted armoury of statutory provisions at our disposal.Although ss50A and 50C of the 1988 Act (the right of lawful users to makeback-up copies of programs and copy or adapt computer programs respectively) arereproduced by ss60 and 61 of the 1997 Ordinance, s50B (granting thedecompilation right) is missing. A review of the procedures suggested byZaccheaus Knox-Hooke in his article in the April/May 1998 edition of Computers& Law for dealing with non-Y2K compliant software (which includes makinguse of the decompilation right) shows the shortcomings of the 1997 Ordinance inthis regard. Whether, given the attitude to Y2K exhibited in Hong Kong (seebelow), anyone here would have time to decompile non-compliant software is,however, doubtful.

There is no Hong Kong equivalent of the UK Computer Misuse Act 1990 (althoughthe Hong Kong Police has both a Computer Crime Section and a Computer SecurityUnit). Hong Kong law protects patents and trade marks in much the same way as UKlaw.

In one respect, however, information law has been further advanced in HongKong than in the UK. In December 1996 Hong Kong enacted the Personal Data(Privacy) Ordinance. Although this Ordinance was firmly based on the terms ofthe UK Data Protection Act 1984 it extended the protection afforded to datasubjects in Hong Kong to cover not only personal information held electronicallybut also information recorded in paper form. The Hong Kong Data ProtectionRegistrar, Stephen Lau, has made some considerable efforts to raise awareness ofdata privacy issues although, unsurprisingly given the Ordinance’s relativelyrecent enactment, enforcement may not yet be seen as a priority. A recenthigh-profile incident involving a formal request by Emily Lau, a well-knownpolitician, addressed to the Xinhua News Agency (the official Chinese newsagency) for a copy of any file held by the Agency concerning her ended ratherunsatisfactorily. After considerable delay the Agency replied that no such fileexisted (which given the high profile of Ms Lau many in Hong Kong founddifficult to take at face value) but the Registrar declined to intervene.

Hong Kong needs data privacy legislation as many countries will now notpermit cross-border flows of data with countries without such controls. Peoplein Hong Kong seem much less concerned about privacy issues than those in the UK.All adult residents must carry an Identity Card and the card and number areroutinely inspected and recorded as part of normal consumer transactions,sometimes even to permit entry to a building.

The IT Industry in Hong Kong

Software Piracy

Although, as can be seen from the above, Hong Kong has the legal framework inplace to proscribe and indeed criminalise the infringement of intellectualproperty rights in electronic products, software piracy is a great problem inthe SAR. The local populace has an almost insatiable appetite for the latest inelectronic entertainment media, and the level of PC ownership and Internet usageis quite high and expected to increase rapidly (despite the economic downturn).However, obviously counterfeit software, VCDs, DVDs and games are freelyavailable. The Business Software Alliance (BSA) is waging a vigorous campaignagainst some of the high-profile (and not so high-profile) perpetrators butstill complain that their members’ rights are being routinely flouted.

Local software developers ie locally owned SMEs, not the likes of IBM orOracle) have great difficulties at the moment. There is great competition, manyof these companies appear to be undercapitalised, since last October they faceunprecedentedly harsh conditions both in the local market and throughout SouthEast Asia generally, and they suffer from wholesale piracy of their bestproducts. Naturally they do not have the resources to join the BSA or to enforcetheir intellectual property rights by direct action through the courts.

Other Brakes on the Creative Use of IT

Counterfeiting is only one of a number of issues constraining thoseinterested in maximising the use of IT and the delivery of IT services in HongKong. The Hong Kong Chinese ethos, although built on hard work andentrepreneurial ability, also displays a staggering tendency towards short-termism.Tower blocks are torn down after only a few years’ use, in order to make wayfor bigger and bigger projects and business decisions tend to be made on thebasis of bankable returns this year rather than in the year after next. This wayof life has served Hong Kong well for a long time. However it has somewhatblighted the commercial use of IT. There is a stark difference between thefinancial sector (where the banks and institutions readily accept that state ofthe art IT is a necessary tool to facilitate both short-term and long-termprofits) and other sectors. There is a tendency for systems integration projectsto be much more heavily reliant on the functionality contained in the coresoftware package than on bespoke developed software – indeed manyimplementations will seek to avoid integration or bespoke developmentaltogether. Often developments will take place using only in-house staff or ( orusing predominately in-house staff), hence obviating the need for commercial ITprocurement contracts.


Another trait of the local IT industry is the surprising lack of outsourcingcontracts. It is not clear whether this is a product of the relatively smallsize of the market here. A local population of under 7 million may not besufficient to allow the economies of scale achieved in some of the largest ITservice contracts in European or North American installations, althoughGovernment, utilities and many companies operate across the SAR and so havesubstantial databases of customers and contacts. In any event an importantelement appears to be the reluctance to cede, or to be seen to be ceding,control of any part of one’s business to a third party. The globalisation ofbusiness IT in general and Hong Kong’s trade in particular will tend to moderateany local predilections against outsourcing (which is anyway not unknown in HongKong, only underused). In the meantime, facilities management may be a morepalatable alternative.

Innovative Use of Telecommunications

Readers will perhaps be wondering whether there is cause for anything otherthan abject pessimism for the future of the creative use of technology in HongKong. A visitor to the SAR will soon realise that such concerns are unjustified.The newly opened airport at Chek Lap Kok bristles with technology. The metrosystems (the MTR and KCR) have mobile-phone boosters throughout their network oftunnels and stations and their ticket barriers are operated by a smartcardsystem known as ‘Octopus’. Hong Kong’s compact size, enthusiastic (andaffluent) local user community and its strategic position between mainland Chinaand the rest of South East Asia has meant a bonanza for telecommunicationscompanies. Hong Kong Telecom’s incumbent position as the monopoly supplier is inthe process of being dismantled and new players are entering the market andcreating exciting new opportunities. Four Fixed Telecommunications NetworkService Licences were issued in 1995 with further licences to follow.

Hongkong Telecom International Limited’s (HKTI) exclusive licence to provideinternational telephones services expires in 2006. Already the Government hasbeen prepared to allow competitors to provide international value-added networkservices over leased lines from HKTI and the Telecommunications Authority hasconfirmed that ‘call back’ services do not infringe the terms of HKTI’sexclusive rights.

Hong Kong has already shown itself keen to exploit the possibilities ofe-commerce, the Internet and mobile paging and telepoint services. The fact thatall local calls are free will help the proliferation of the use ofInternet-related services.

IT Infrastructure

It is not merely in the field of telecommunications that business is booming.Hong Kong’s building and civil works programmes, both in the public and privatesectors continue apace. There is increasingly elaborate use of IT in office andresidential blocks (both in the traditional fields of alarms and lifts and insystems regulating the buildings environment). As Hong Kong is mountainous andcontains numerous islands (most inhabited but some given over to power and otherprojects), the scope for tunnelling is enormous. Each tunnel is likely tocontain control systems, whether it is used for cross harbour traffic, inlandroad or rail or transportation of fuel or waste. Whilst arguably Hong Konginvests in such projects out of necessity, other IT projects, generally found tobe too costly or complex to justify government commitment in the UK and manyother European countries, are being pushed ahead within Asia. Singapore hasrecently implemented a road pricing system and Hong Kong is to implement trialslater this year at the former airport site of Kai Tak. Two competingtechnologies will be trialled; a radar-based system monitoring particular pointsof entry and egress around the area to be charged and a satellite positioningsystem. Needless to say, once the trialling is complete the Kai Tak site will beredeveloped.

Looking North

The PRC represents the next major market to be opened up to externalexploitation. The fact that Hong Kong shares racial, cultural and linguisticties to the PRC, as well as a common border, means that Hong Kong is best placedto penetrate this market. However the Basic Law stops at the border, and to theWestern eye the legal system in the PRC seems at the same time bureaucratic, adhoc and inconsistent. Theoretically, the PRC has all the tools necessary toensure the protection of intellectual property rights. In practice enforcementof those rights is most difficult.

Legal Practice

The pace of doing business, including taking professional advice, in HongKong is fast and furious. Instructions are usually given at the last minute andwith a crippling deadline for completion. The drivers for such a style ofbusiness have been hinted at – short-termism, and volatile swings in thecapital markets and property values.

The IT infrastructure contracts are generally let by the Government or majortransport or utilities companies. Those letting these contracts wieldsignificant power. Tenderers in the limited time available are unable to makesignificant changes to the structure of the contracts being offered. Given theproperty-centric nature of Hong Kong, the predominant forms of contract areconstruction and engineering forms. Where the works to be performed areIT-related (eg systems integration/software development), the legal draftsmanhas a great challenge (when acting for a supplier) to protect his client’sinterests with regard to intellectual property rights and timetabling and toensure something approaching a satisfactory regime for change control,acceptance testing and warranties. It is usually advisable to have aconstruction lawyer close to hand!

The Hong Kong Government has stressed its commitment to developing ITinfrastructure, promoting technological innovation throughout society andencouraging the development of high-value, high-quality services (to replace theloss to Hong Kong’s low-tech manufacturing base – long since relocated to thePRC). The extent to which such ambitions may be supplanted by the region’seconomic woes and the accompanying loss of confidence is an open question. Inthe meantime, Hong Kong remains a very intriguing place from which to practiseIT law.