Chen Maobo: The new "Budget" leads Hong Kong's future with transformation, innovation, and technology.

On February 27, Hong Kong Financial Secretary Paul Chan Mo-po gave a briefing on the fiscal budget for the 2025-26 fiscal year and listened to the opinions of legislators and answered questions. Paul Chan Mo-po stated that in response to the complex and changing international environment, the new fiscal budget aims to address challenges through reform, drive development through innovation, and lead the future through technology. It proposes to accelerate the cultivation of new productive forces tailored to local conditions in Hong Kong, including the establishment of the Hong Kong Artificial Intelligence Research Institute, promoting cutting-edge research, transforming midstream and downstream results, and exploring application scenarios to fully develop artificial intelligence as a key industry and empower the upgrading and transformation of traditional industries. It also aims to accelerate the development of the northern metropolitan area to promote economic development. The budget outlines several main directions for how to grasp the strategic positioning of the "three centers and one high ground": (1) consolidating and enhancing traditional advantages and exploring new areas of development within them; (2) nurturing ShenZhen New Industries Biomedical Engineering to achieve a more diversified economic structure in Hong Kong; and (3) exploring new markets, new sources of funding, and continuing to expand the circle of friends. The budget proposes a strengthened version of the fiscal consolidation plan, including strict control of public expenditure, optimal use of government financial resources, and moderate revenue generation. It aims to minimize the impact on citizens as much as possible, maintain the level of public services, and ensure the continued acceleration of projects related to the development of the northern metropolitan area. Paul Chan Mo-po stated that Hong Kong will continue to leverage the unique advantages under the principle of "one country, two systems", actively integrate into the national development agenda, align with national development strategies, and better utilize its advantages in internal and external communication to fully develop the economy, improve people's livelihoods, and contribute to the modernization and continuous development of the country. The full text is as follows: Hong Kong Economic Situation in 2024 Last year, Hong Kong's economy recorded a moderate growth of 2.5%, with a substantial growth of 4.7% in overall goods exports and 2.5% in overall services exports. Tourism service exports continued to grow, with tourist arrivals reaching approximately 45 million. As the economy expanded, investment spending increased by 2.4%. However, due to a shift in consumption patterns, private consumption expenditure slightly decreased by 0.6% last year. The labor market remained relatively tight last year. The seasonally adjusted unemployment rate in the fourth quarter was at a low level of 3.1%. The increase in citizens' income was also substantial. Overall inflation was mild, with the consumer price index rising by 1.1%. Economic Outlook in 2025 Despite uncertainty in the external environment and rising trade protectionism, which may affect Hong Kong's goods exports, there are also many positive factors. Global economic stable growth and stable economic growth in the mainland will support Hong Kong's exports. Service exports will continue to grow. Cross-border financial and commercial activities will benefit from gradually loosening financial conditions, as well as more convenient cross-border arrangements and policy measures from the Central and SAR governments, which will attract more visitors to Hong Kong. However, the relatively strong Hong Kong dollar will still somewhat affect tourist consumption. Improved economic sentiment, positive economic policies in the mainland, moderately easy financial conditions, and various measures by the SAR government to promote economic development will support domestic demand and be conducive to fixed asset investment. These factors, coupled with continued growth in employment income, will further boost private consumption that has been gradually stabilizing since the end of last year. Considering these factors, we predict that Hong Kong's economy will further expand this year, with real growth ranging between 2% and 3% for the whole year. Accelerating the Cultivation of New Productive Forces Adapted to Local Conditions In the midst of global changes, Hong Kong is at a crucial stage of development. We must accelerate the cultivation of new productive forces tailored to local conditions, promote high-quality development, stimulate new models and dynamics through innovative technology, accelerate the cultivation of ShenZhen New Industries Biomedical Engineering and the upgrading and transformation of traditional industries. Artificial intelligence is at the core of accelerating the cultivation of new productive forces. This budget proposal includes multiple measures, such as establishing the Hong Kong Artificial Intelligence Research Institute, promoting cutting-edge research, transforming midstream and downstream results, opening up application scenarios, and fully developing artificial intelligence as a key industry to empower the upgrading and transformation of traditional industries. We will host the first International Youth Scientists Forum on Artificial Intelligence and the International Siasun Robot & Automation Conference, bringing together top scientists, academic institutions, and investors to showcase research results and application scenarios, making Hong Kong an international hub for collaboration in the artificial intelligence industry. In addition, I have invited Hong Kong investment companies, science parks, and Cyberport to coordinate their subordinates in science enterprises, showcase products in schools, invite students to visit their facilities, interact with them, and share their experiences in technological exploration and entrepreneurship. We are also actively promoting Hong Kong science enterprises to provide resources, technical guidance, and practical scenarios for technological education such as programming and artificial intelligence learning in schools, allowing students to combine theoretical learning with practical applications, further enhancing their interest and abilities in science and technology applications. Tencent, Alibaba, SenseTime, and Lenovo have expressed their support for this initiative. To strengthen support for special technology and biomedical science enterprises in raising funds to support their business development, the Hong Kong Stock Exchange (Hong Kong Exchanges and Clearing Limited) is preparing to launch the "Science and Technology Enterprise Channel" to facilitate the preparation of listing applications for relevant companies. We are also reviewing the provision of tax deductions for payments made for the use of intellectual property rights, in order to speed up the development of IP-intensive industries and promote the development of intellectual property trade in Hong Kong. Speeding up the Development of the Northern Metropolis The northern metropolis (North City) is crucial for the social and economic development of Hong Kong, accelerating the development of science and technology industries. The budget proposes to accelerate the development of the northern metropolis, prioritize resources for projects, including expediting the construction of the first phase of the Hong Kong Park in the Hebei- Hong Kong Cooperation Zone, New Tian Technology City, and Sha Ling Data Park, and to identify suitable locations in the North City to build convention and exhibition facilities. Fully promote economic and improve people's livelihoods. It also states that we will continue to make good use of the unique advantages of "one country, two systems" and actively integrate into the overall development of the country, aligning with national development strategies and better utilizing the advantages of internal and external communication to fully develop the economy and improve people's livelihoods, making contributions to the country's modernization and continuous development. The full text of the speech is as follows: Economic Situation and Prospects of Hong Kong in 2024 Last year, Hong Kong's economy achieved a moderate growth of 2.5%, with a real growth of 4.7% in overall goods exports, and 2.5% in overall services exports. In particular, tourism service exports continued to grow, with the number of tourist arrivals reaching about 45 million. As the economy expanded, investment spending further increased by 2.4%. However, due to changes in consumption patterns, private consumption expenditure fell slightly by 0.6% last year. The labor market remained relatively tight last year. The seasonally adjusted unemployment rate was at a low level of 3.1% in the fourth quarter. There was also a substantial increase in citizens' income. Overall inflation was mild, with the consumer price index rising by 1.1%. Economic Outlook of Hong Kong in 2025 Although the external environment is uncertain and trade protectionism is rising, which may affect Hong Kong's goods exports, there are also many positive factors to consider. Global economic growth, and stable economic growth in the Mainland, will provide support for Hong Kong's exports. Services export is expected to continue to grow. Cross-border financial and commercial activities will benefit from gradually looser financial conditions, as well as more convenient cross-border arrangements, and policy measures from the Central and SAR governments, which, in turn, will attract more visitors to Hong Kong. However, the relatively strong Hong Kong dollar may still have an impact on tourist consumption to some extent. With improving economic sentiment, positive economic policies in the Mainland, moderately loose financial conditions, and various measures taken by the SAR government to promote economic development, domestic demand will be supported, thereby benefiting fixed asset investment. These factors, coupled with continuous growth in employment income, will further boost private consumption, which has been gradually stabilizing since the end of last year. Taking into consideration the above factors, we forecasted that Hong Kong's economy will continue to expand this year, with a real growth rate ranging between 2% and 3% for the whole year.Promote developmentThe budget proposal outlines several main directions on how to grasp the strategic positioning of the "Three Centers, One High Ground": (1) Consolidate and enhance traditional advantages, as well as explore new development areas within them; (2) Cultivate ShenZhen New Industries Biomedical Engineering to achieve a more diversified development of the Hong Kong economy; (3) Explore new markets and new funds, and continue to expand the circle of friends. For example, in the financial sector, we propose to further optimize the listing platform, enhance the advantages of the international asset management center and the risk management center; at the same time, accelerate the development of financial technology, digital finance, gold, and bulk commodities in new areas. In terms of trade development, in addition to further attracting companies to establish high-value-added supply chain management centers in Hong Kong, the budget proposal also suggests that the Trade Development Bureau, together with large-scale e-commerce platforms, provide one-on-one consulting services and hold the second "Hong Kong Good Goods Festival" to strengthen support for small and medium enterprises to expand into the mainland and ASEAN markets and increase e-commerce sales. In the shipping sector, we continue to vigorously promote the development of high-value-added shipping services and have reserved resources to accelerate the development of smart ports to improve operational efficiency and reduce costs. The budget proposal also elaborates on the government's industrial development directions and related measures in other areas, such as aviation hubs, as well as healthcare, cultural and creative industries, and education. In terms of promoting the tourism industry, the budget proposal will allocate funds to implement the concept of "Tourism Everywhere" and the "Hong Kong Tourism Development Blueprint 2.0", and will study the development of the land south of Hung Hom Station facing the sea and the former pier into a new seaside landmark. Commercial and residential real estate Commercial real estate has faced many challenges in the past few years. Considering that the vacancy rate of office buildings has been at a high level in recent years and the future supply will still be relatively sufficient, the government will not launch commercial land for sale in the next year, allowing the market space to absorb the existing supply. We will also consider converting some commercial land into residential use and providing more flexibility in usage to stabilize market confidence in commercial land. On the other hand, to alleviate the burden on small property buyers, the budget proposal announced that the property value threshold for properties subject to a stamp duty of only 100 Hong Kong dollars will be raised from 3 million Hong Kong dollars to 4 million Hong Kong dollars, effective from yesterday, expected to benefit about 15% of property transactions. Enhanced fiscal consolidation plan In the face of current fiscal pressures, the budget proposal puts forward an enhanced version of the fiscal consolidation plan, including stringent control of public expenditure, prudent use of government financial resources, and moderate revenue generation. Among them, we will focus on controlling government spending, including a cumulative 7% reduction in the government's recurrent expenditure by the 2027/28 financial year; a reduction of 2% in the number of civil service positions in the 2026/27 and 2027/28 financial years annually and a reduction of about 10,000 positions in this term of government. When controlling spending, we will minimize the impact on the public as much as possible and strive to maintain the level of public services, while ensuring the continued acceleration of the development of the Northern Metropolis and infrastructure projects related to the economy and people's livelihood. Various government departments are also utilizing technology and streamlining processes to promote digital transformation in public services while enhancing the technological capabilities of civil servants and providing training for departmental staff to improve public service efficiency. In addition, taking into account Hong Kong's tax competitiveness and the principle of "user pays", we will cautiously and moderately generate revenue and try to minimize the impact on the general public, including moderately raising the departure tax for airline passengers and reviewing the fees for various government tunnels and trunk roads. The enhanced fiscal consolidation plan sets clear goals to gradually balance the books during this term of government. We predict that the government's books will return to surplus from the 2026/27 financial year. As for the non-operating accounts, due to the accelerated expansion of the Northern Metropolis and other infrastructure projects related to the economy and people's livelihood, deficits are expected in the medium-term forecast period, but the deficit levels are expected to decrease year by year from the 2026/27 financial year. Taking into account net proceeds from bond issuance, the comprehensive account is expected to be in surplus from the 2028/29 financial year onwards, and the ratio of debt to gross domestic product during the period will be approximately between 12 and 16.5%. Government bond issuance As the Northern Metropolis and other important infrastructure projects related to people's livelihood are launched one after another, government construction expenditure will enter a peak period, increasing from an average of about 90 billion Hong Kong dollars per year in the mid-term forecast last year to an average of about 120 billion Hong Kong dollars per year in the future. The budget proposal suggests using innovative thinking and flexible use of market resources to promote these strategic infrastructure projects, including public-private partnerships, site replacement, and "area development". Furthermore, we will also finance these engineering projects through the issuance of government bonds. The proceeds from government bonds are used for infrastructure investment and not for government operating expenses, which is a fiscal discipline we have always adhered to. With the expected increase in future infrastructure spending, we will correspondingly increase the scale of bond issuance, with an estimated issuance of bonds of about 150 to 195 billion Hong Kong dollars per year from the financial years 2025/26 to 2029/30, with approximately 56% used for refinancing short-term debt due. In the medium-term financial forecasting period, the ratio of government debt to gross domestic product, as mentioned earlier, will be maintained between 12 and 16.5%, which is a very robust and controllable level, well below the debt levels of most advanced economies. Conclusion Chairman, this is the mid-term "Financial Budget Proposal" of this term of government. Faced with the complex and ever-changing international environment, this budget proposal responds to challenges with reforms, drives development with innovation, and leads the future with technology. To address the current public fiscal pressures, we will take a series of measures to strengthen fiscal management and steadily restore budget balance. We will continue to make good use of the unique advantages under "One Country, Two Systems", actively integrate into the national development agenda, align with national development strategies, and better leverage the advantages of internal and external connectivity to fully develop the economy, improve people's livelihoods, and contribute to the country's modernization and prosperity.