The China Mail - Hong Kong finance chief tips up to 3.5% growth this year

The Chinese finance hub's "buoyant" economy expanded a forecast-beating 3.5 percent last year thanks to healthy exports and a rebound in private consumption, Financial Secretary Paul Chan told lawmakers.

He said that thanks to steady growth in domestic demand, "we forecast that Hong Kong's economy will grow by 2.5 percent to 3.5 percent this year".

"A stable labour market and rising household incomes will drive private consumption, while improvement in business sentiment, coupled with expectations of interest rate cuts, will boost asset markets and investments," he said.

The government has invested heavily in recent years in the "Northern Metropolis", a vision for developing rural land bordering mainland China into a cutting-edge tech and innovation hub.

Chan said officials will seek lawmakers' approval to inject a total of US$3.83 billion to attract businesses and speed up development in three zones, including the San Tin Technopole.

He also earmarked US$6.39 million for classes and competitions to "popularise the understanding and use of AI by all levels of society".

Hong Kong's economy will grow an average of three percent annually in real terms from 2027 to 2030, the finance chief said.

"The rise of the 'Global South' and the reshaping of the global trade and investment landscape will unlock new markets and new growth areas for Hong Kong" despite protectionism and fragmentation, he added.

The city has seen four massive annual deficits since Covid struck in 2020, resulting in the worst balance sheet since the former British colony was handed over to China in 1997.

In 2025-26, government revenues were lifted by a "buoyant equity market" and accelerated growth, which led to a consolidated surplus of US$371 million instead of a predicted deficit, according to Chan.

That number included proceeds from selling bonds, which the government would need to repay.

Excluding bond sale proceeds, the Hong Kong government reported a deficit of US$12.8 billion in 2025-26, down from a deficit of US$24.1 billion the year before.

- 'Future needs' -

Wednesday's budget also proposed withdrawing US$19 billion from Hong Kong's Exchange Fund, which if approved would be the first such move since 1984.

Chan told a news conference that the decision was made "after considering the purpose, scale of the Exchange Fund and our future needs", with the money going toward the Northern Metropolis and other infrastructure projects.

The fund is a backstop for the Hong Kong dollar's currency peg to the greenback.

The Hong Kong Monetary Authority said that the fund still had sizable surplus and foreign currency reserves, and "serves as a solid bedrock for the Linked Exchange Rate System and financial stability of Hong Kong".

Chan also earmarked US$510 million for long-term housing arrangements for people displaced in a deadly housing estate fire last year.

The Society for Community Organization, a grassroots advocacy group, said the budget was lacking in welfare spending despite an uptick in government revenue.

Asked about "sweetener" measures, finance chief Chan told reporters that his budget included bigger tax breaks this year compared to 2025.

D.Peng--ThChM