For the last 200 years or so, neo-classical economics has recognised only two factors as the basis for production: manpower and capital. These two factors overtook traditional natural resources such as land, physical labour and agriculture as the major driving forces for an economy. But we are now increasingly aware that information and knowledge are fast becoming the primary wealth-creating assets.

Technological developments in the 20th century have transformed the majority of wealth-creating work from a physical to a knowledge base. Technology and knowledge have taken over as the key factors of production. With increased mobility of information, and the global work force, knowledge and expertise can be transported instantaneously around the world, and a company that gains any advantage by competitive improvement can dominate a market overnight.

The last one in can stand out and eliminate the others. A company can use others' expertise and experience to reinvent knowledge and lead a market. There is no question of joining the queue. Queue jumping seems to be the rule of the game. Yes, the order is rapidly fading.

Let me give you an example. Twenty years ago in Beijing, less than 1% of the households could afford a land-line telephone. Communication was difficult in those days. Today, almost every citizen in Beijing owns a mobile phone, if not two. The penetration rate is over 100 per cent. In that space of time, the land-line telephone network has improved little. New technology has fast-tracked, and practically skipped, a whole generation of development. Just as Bob Dylan once put it: For the loser now will be later to win; the slow one now will later be fast. For the times, they are a-changing.

Emphasis has now shifted from accumulating knowledge, to acquiring the ability to learn new knowledge, to sharpening the judgement to select useful knowledge, to developing the skill to apply useful knowledge to solve problems, and now to the capacity to create new knowledge, that not only provides solutions, but also embodies the very innate requirements to generate further new knowledge. In essence, in the 21st Century, knowledge seems to have taken on a life of its own: knowledge begetting knowledge.

Our Country's 11th five-year plan has laid so much emphasis on the importance of the power of creativity that has transcended technology and innovation. The creative power of culture and knowledge management has taken a huge leap forward. We are now an information society in a knowledge-based economy, where knowledge management becomes essential. But resting on the laurels of information and knowledge are self-defeating, the insatiable appetite to learn and create new information and knowledge is a must in leading the game.

Many economists have defined and described the trend whereby global economy is transiting to a knowledge economy, or an information society. So what then is the next higher level of a knowledge economy? I say it is a creative knowledge economy that will truly guide our destiny from here on.

In the past 20 years of globalisation, with the advent of knowledge-based economy, creativity has been seen increasingly as an engine for growth and for civic pride. It is the very foundation upon which a creative knowledge economy is established.

Unlike traditional industries, creativity produces products that are driven by desire rather than by physical need. It provides us with food for the mind rather than things that our bodies require. They are the things we "want", but are not necessarily the things we "need". Our desire grows when we look beyond daily necessities to ask "What's good" rather than "What's essential?"

Like the delectable cream on a piece of cake, it is always the creative elements that add most value to services and products. A T-shirt, being a commodity, is worth only a few dollars. But the same T-shirt with an original design or an innovative logo can be worth far more.

Desire for "something more" can arise from many diverse sources. It can grow until it is deeply rooted in the culture of a particular society, it can be cultivated, value dependent or influenced by external forces. It can even be conditioned - and perhaps manipulated - by such factors as the media, peer pressure and marketing strategy.

But is creativity marketable? To many these may seem less tangible concepts, best left to that rare breed of businessperson known as the impresario. It took Pope Julius II to gamble on Michelangelo painting the roof of the Sistine Chapel. It took Diaghilev to recognise the talent of Nijinsky and take him on a world tour with the Ballets Russes.

In this new century, the old paradigm that "wealth begets culture" has shifted 180 degrees to "culture begets wealth".  The worlds of the businessperson and the impresario are overlapping to an extent where - rather than it seeming merely charitable to patronise creative talent - it actually makes sound business sense. Getting our business minds to wake up to this fact becomes more vital than ever before.

We must get our businesspeople talking to our artists, our entrepreneurs mingling with our creative talents who can lead them into new fields of endeavour.

Despite the East being the breeding grounds of ancient civilisations, with the Renaissance and industrialisation, the West led the way. Just think of the millions invested in the talents that saw fruition through the Hollywood movie industry. And the fortunes that have been made by the big players in the IT industry that saw its birth in Silicon Valley.

While some of us in Asia have emulated those examples - witness the links between Hollywood and our own thriving Hong Kong film industry - we have either overlooked, or failed to grasp, the significance of much else that we can offer the world from our own often unique cultural resources and perspectives.

Our Government has recognised and acknowledged the importance of culture and creativity and in shaping the identity of the Hong Kong people, and the vital role of cultural and creative industries in restructuring our economy. Culture is now higher on the political agenda of Hong Kong's civic development.

In this 21st century, cultural competition has taken on the form of human capital competition. Let me tell you why creative-knowledge based industries are important to us. Firstly, this is because of their economic value. Secondly, it is because of their social impact. Thirdly, it is because of their ability to alleviate poverty. And fourthly, they are important to us because of their community consensus-building capacity. But, most important of all, they constitute a battle for creative talent and stimulate the building of a creative society for our citizens.

We need talented individuals with at least as competitive an edge in the international labour market; those who have mastered a broad range of skills and abilities that generate new knowledge. And we need to provide sufficient domestic incentives to keep these talented individuals on their home turf here in Hong Kong, so we don't lose them to better prospects overseas and elsewhere.

Who then are these creative people and what are their characteristics? We, at the Home Affairs Bureau, have completed a cultural research study looking at the upstream factors that underpin the successful development of the various creative industries and enterprises. We came out with a creativity index regime. Creative industries resulting from a creative economy, which can only exist in a creative society attract creative people.

Who are these creative people? They include: creative artists, creative administrators, creative entrepreneurs and creative investors. Creative talents are fluid - they move around in search of places that suit them most. They are IT-savvy - so the availability of state-of-the-art IT infrastructure and services is indispensable. And they are pluralistic, most at ease in a society with a high degree of tolerance and a diversity of social and cultural activities.

What creative talents ultimately look for is an environment with a creative lifestyle; one that is constantly and consistently interesting, and above all one in which they can validate their identities as creative people.

In a nutshell then, creative talents tend to be attracted to, and remain in, places with certain key characteristics, the most crucial of which include:

* connectivity, the free flow of information, capital, talents and goods, guaranteed by the presence of a free and open society underpinned by political stability and a high degree of transparency in public affairs;

* respect for, and observance of, the rule of law, with full protection of copyright, as well as a clean and efficient government;

* an embracing society that cherishes tolerance, plurality and diversity, allowing divergent views to co-exist peacefully; and

* a rich and vibrant culture, encouraging different forms of artistic creation in various spectra of the community, and one that is open to diversity of all kinds.

Any society that can offer all of these ingredients will serve as a magnet to creative people, creative innovators, creative entrepreneurs, and creative enterprises.

In evolving a strategy that enables us to foster and develop our creative communities, we can draw on the best of two worlds. We can combine our Oriental values, that emphasise harmony, co-existence, discipline and respect for collectivity, with Western concepts of tolerance, freedom and emphasis on individual rights.

A truly creative society is able to distil the essence from both Western and Oriental values through subtle internalisation of a wide array of ideas that are sometimes conflicting. Through manifestation and development, the best of these ideas are fertilised in a creative way that spurs the growth of new meanings in line with the needs of the present times; and, most importantly, through an organic process of selection, the strongest elements are picked out and are thus able to build from strength to strength. We in Hong Kong, are building such a society within its confines.

A healthy society encourages rather than discourages change, for change brings growth and new prospects. If we value our traditions, we must also value the opportunity to preserve them by presenting them in new ways, to new audiences and new generations.

Creative products enhance the quality of life of a city. When taken together with good public order, a healthy environment, the rule of law, an attractive arts and culture environment, a multi-cultural workforce, and a leisurely international ambience, they will attract investors to deposit their wealth in such a city. Creative talents will be drawn to live here, tourists will be brought in to spend here and our businesspeople will be armed to outpace competitors.

Of all the world's great cities, Hong Kong is the perfect testing ground for the development of creative knowledge-based industries. Some are already in place, provided with a proper platform that will help them flourish. They include film, performing arts, music, fashion, design, advertising, the visual arts and antiques, Chinese publishing, games software, animation and comics. In many of these areas, Hong Kong is already a regional leader.

Our cousins across the northern boundary already have a healthy appetite for Hong Kong's creative industries. As living standards improve so does the capacity to spend, especially on cultural and creative products. So you can see that China offers significant potential and specific advantages as a consumer market, a trading hub, a manufacturing base, a service market for creative industries and a destination for creative investment. And lying on the threshold of China is Hong Kong.

Now, by pushing into the Pearl River Delta we can also develop a critical mass of talent and market opportunities for the creative industries. We can then expand further into the enormous China market, where there are more than 300 million people within a two-hour flight from Hong Kong.

At the same time, we can push into the East Asia milieu, extending our reach through a network of alliances with other creative industries and enterprises in Taiwan, Japan, Singapore, Indonesia, Malaysia and Thailand. The wider we reach, the more creative we become. We are looking for an inclusive experience, guided by the principle of promote and prosper, look and learn.

In the increasing global competition for talent and foreign capital, we all need to maintain our edge in finance, economic, cultural and tourism resources. We also need firms producing high quality goods and value-added services in more effective and efficient ways.

And we must always bear in mind the three aspects of interdependence that provide the right ingredients for success in a sustainable way.

Firstly we must remember that creative industry deals in products and services whose value-added components are derived from artistic and creative resources, and whose intellectual property is protected by law.

Secondly we must generate a creative economy that is both cyclic and self-perpetuating. One that sets in train a chain of events, among which the most important value-adding step is founded on cultural and creative interactions, engineered with a business flair that re-channels the profits generated back into the development of further creative initiatives.

Thirdly we must provide and protect the right climate and environment, fertilising and nourishing the soil from which these creative endeavours spring.

In the 21st Century, our answer and response to globalisation of our cultural needs is creative knowledge economy. The concept of "creative minds" is a phenomenon that has arisen as a timely response to the challenges of the new century, an era in which both international competition and collaboration assume new meaning.

The concept of "creative industries" is a modern wave set into motion as a timely response to the challenges of the 21st century, an era where the concept and content of competitiveness, and international competitiveness is given new meaning.

With the advent of globalisation, the power and influence of a city, or even a country, hinges not entirely on military might or economic strength in its traditional sense. The defining force has shifted gradually to the cultural depth that a territory is able to generate.

We need to build a community that is creative, cohesive and resilient through creativity in arts and culture, science and technology, through preservation of our heritage, and through articulation of our historicity, so as to provide us with a constant source of inspiration to propel our economy to thrive and advance in the face of fierce competition from different parts of the world.

Creativity is the flame that has blazed our trail throughout history. For a very long time, Asia was the world's centre of creativity, and China was the forerunner, with its numerous inventions including the compass, paper, printing and gunpowder.

Then our Western counterparts overtook us 500 years ago, in their age of "Renaissance", in which their artistic, social, scientific, and political thought turned in new directions.

Asia, fallen from the leading position, has been busy catching up until now, when we are witnessing a third wave of awakening. We need to revitalise our own creativity and build our future firmly on the foundation of a creative, knowledge-based economy, a creative society and, ultimately, a creative Asia, just as our ancestors did in the ancient past.

Creativity does not only drive economic growth; it is also the engine that propels civilisation to a new stage of development. The humanistic aspect of a creative knowledge economy is the realisation of a creative nation, a creative society and a creative civilisation.

I dream of a creative Asia, an Asia with ideas and values to inspire humanity. We all want this dream to come true one day and soon. I am sure the rediscovery of creativity, particularly in this part of Asia, signifies the awakening of modern humanity and will eventually lead to another Renaissance of the present time. Our time.

Dr Patrick Ho gave this address at the University of Hong Kong seminar on "Business Leaders' Vision of the Knowledge Economy".