UBS's Deng Weishen: Key to Hong Kong's "Five-Year Plan" Lies in Boosting Potential Output; Northern Metropolis Focuses on Long-Term Returns Rather Than Deficit Size

Title context: UBS's Deng Weishen: Key to Hong Kong's "Five-Year Plan" Lies in Boosting Potential Output; Northern Metropolis Focuses on Long-Term Returns Rather Than Deficit Size Text: The Hong Kong SAR government will release its first "Five-Year Plan" on Wednesday, September 16. Deng Weishen, Senior Asia and China Economist at UBS, pointed out that this plan will play a key role in enhancing Hong Kong's medium- to long-term potential growth rate and competitiveness. If properly planned and effectively executed, it will help Hong Kong maintain stable growth across various economic cycles. Deng Weishen expects that the main theme of the plan will revolve around boosting potential output. He believes that cyclical fluctuations are difficult to avoid, but the value of medium- and long-term planning lies in allowing public investment and policy arrangements to be carried forward continuously across a single cycle, avoiding frequent policy shifts in response to short-term conditions, thereby steadily directing resources toward areas that raise productivity and providing support for growth across different business cycles. Because Hong Kong's "Five-Year Plan" is being advanced in parallel with the national "15th Five-Year Plan," Deng Weishen believes this will better align Hong Kong's development direction with national strategy. He expects the plan to focus on the Northern Metropolis as a new growth engine and to cover areas such as infrastructure, innovation and technology, education and talent cultivation, and Greater Bay Area connectivity. These are all long-term investments that directly raise productivity, rather than short-term stimulus measures. Regarding the impact of the Northern Metropolis, Deng Weishen divides it into short-term and medium- to long-term dimensions. In the short term, Northern Metropolis infrastructure and related investment are themselves an important component of fixed asset investment, and once investment lands it can directly drive economic growth. But he stresses that the medium- and long-term effects are more worthy of attention. From a cross-cycle perspective, Deng Weishen points out that the significance of the Northern Metropolis is not how many percentage points of growth it can contribute in a given year, but rather that it creates a new growth engine for Hong Kong, expanding a growth model that previously relied mainly on finance and trade into areas such as innovation and technology, high-end manufacturing, and high value-added services, thereby raising Hong Kong's medium- to long-term potential growth rate. Therefore, in advancing Northern Metropolis investment and construction, the key indicator to watch should not be the size of the deficit, but rather the efficiency of capital expenditure, long-term returns, and the actual pace of progress. In response to market concerns about balancing large-scale infrastructure spending with fiscal deficits, Deng Weishen said Hong Kong's fiscal position has improved markedly compared with a year ago, with a consolidated surplus recorded in 2025/26, and there is no short-term pressure on fiscal sustainability. In his view, the key to resolving deficits lies in raising economic growth, not in compressing investment that supports long-term growth, and the Northern Metropolis falls into the latter category. On financing arrangements, Deng Weishen believes Hong Kong has a strong net balance sheet and ample room to support capital expenditure through bond issuance, and can extend bond maturities to match the characteristics of infrastructure projects, while also increasing the share of RMB bonds to align with RMB-denominated related procurement and expenditure.