The Hong Kong government is taking steps to boost its economy, including a new investment in artificial intelligence and plans for fiscal consolidation.
AI Research Institute
The government has allocated HK$1 billion (approximately $128.67 million USD) to create a new artificial intelligence research institute, the Hong Kong AI Research and Development Institute. Financial Secretary Paul Chan stated that the institute will, “spearhead and support Hong Kong’s innovative R&D as well as industrial application of AI,” during his budget speech on Wednesday.
Gary Ng, Senior Economist at Natixis, considers the investment in innovation and AI a positive development. He noted, “Hong Kong hasn’t been so good in terms of innovation, like, how to actually create a new product. But the AI industry is evolving in quite a quick pace. So for the case of Hong Kong, if it is able to adapt to this new environment, trying to use AI more, including what we see within the government, I think that is definitely a positive signal.”
Market Reaction
Following the announcement, tech stocks experienced a rally, with the Hang Seng Tech Index increasing by as much as 4.49%. Leading gainers included Meituan (up 9.21%) and JD.com (8.26%). The Hang Seng Index also saw gains, rising as much as 3.19%.
Chan attributed the improved market sentiment to the Central Government’s support for Hong Kong’s capital market, and the U.S. rate cut cycle. He stated, “The stock market saw increases in both prices and turnover volume,” adding that the Hang Seng Index rose 18% this year, while the average daily turnover increased by 26%. Funds raised by new listings increased to HK$88 billion, he added.
Economic Outlook and Concerns
Chan projects an average real economic growth rate of 2.9% per year from 2026 to 2029, with an underlying inflation rate of 2.5% annually. However, Natixis’ Ng views this forecast as “too optimistic.”
Ng explained, “In the short run, we still see this uncertainty in the global interest rate environment. There are actually still a lot of geopolitical tensions that can actually affect our Hong Kong trade flows.”
He also highlighted potential trade restrictions from the United States and other countries. Ng estimates Hong Kong’s economic growth to be 2% this year and over the long term.
Fiscal Consolidation
To address its growing deficit, Hong Kong aims to cut public recurrent expenditure by 7% between now and 2027/28. Chan described this initiative as providing, “a clear pathway towards the goal of restoring fiscal balance in the operating account, in a planned and progressive manner.”
This move comes as the Asian financial hub has seen a significant decline in government revenue from land sales, a crucial source of government income that has plunged from over 20% to approximately 5%, according to Reuters reports.
Ng anticipates the government to prioritize fiscal consolidation by controlling expenses and moderately increasing revenue. He added, “That will be a direction that we will continue to see, probably in the next few years, because Hong Kong’s fiscal deficit problem is increasingly structural.”
