Financial Secretary Paul Chan’s 2026–27 Budget outlined a wide range of policies and resource allocations to support Hong Kong’s future development. The Government forecasts real GDP growth of 2.5% to 3.5% and headline inflation of 1.8% for 2026, broadly in line with the Chamber’s projections made at the end of 2025.
With moderate economic growth expected in the coming year, Chan’s fiscal blueprint aims to strengthen Hong Kong’s business environment while enhancing the community’s overall quality of life.
Supporting Businesses
Against a backdrop of complex and volatile global political and economic conditions, the Government proposed short-term measures to support companies, including proposals to ease the burden on taxpayers and provide rates concessions. The additional $200 million injection into the BUD Fund is particularly welcome, as it provides SMEs with more resources to expand into overseas markets.
The Budget also featured initiatives to attract enterprises and investment. The introduction of preferential tax rates at half the standard rate or at 5% responds to longstanding calls from the business sector. While tax considerations are only one factor influencing location decisions, these preferential rates will undoubtedly enhance Hong Kong’s competitiveness as a business hub.
A broad suite of financial-sector measures was also included, such as broadening the issuance of RMB-denominated bonds to promote renminbi internationalization, encouraging greater digital bond issuance to drive innovation in the bond market, and enhancing the competitiveness of the securities market through listing reforms. It is encouraging that the Government is actively exploring emerging segments such as digital assets and the gold trading market – areas poised to add further momentum to Hong Kong’s financial landscape.
Riding the AI Boom
The Budget set out substantial investments in innovation and technology (I&T) and artificial intelligence (AI). The FS proposed a comprehensive approach to strengthening AI literacy across society, including new skills-based courses, expanded university programmes and enhanced digital education in primary and secondary schools.
The Government also plans to modernize public services by embedding AI and related technologies into operations, aiming to improve service delivery standards through greater digital intelligence.
On the infrastructure front, the development of the Northern Metropolis is expected to play a crucial role in fostering a vibrant I&T ecosystem. Chan signalled a wider adoption of public-private partnerships to build the Northern Metropolis into an international I&T city. Leveraging private-sector expertise in project design, financing, execution and procurement could significantly improve efficiency and delivery of public goods.
Evolving Approaches to Public Finance
One of the most discussed measures is the decision to draw on the Exchange Fund’s investment income. Chan proposed transferring HK$75 billion per year for two years, totalling HK$150 billion, from the Exchange Fund to the Capital Works Reserve Fund to support the Northern Metropolis and other major infrastructure projects.
This is a notable and unexpected move, marking the first use of the Exchange Fund for such purposes since 1984. Although Chan stressed that this is a one-off measure, it has raised public concerns – ranging from potential implications for Hong Kong’s financial stability to the resilience of the Linked Exchange Rate System. To address these concerns, transparent and timely reporting on the utilization and returns of the funded projects will be essential to enhance clarity and build business confidence.
The Road Ahead
Overall, the Budget provides balanced and pragmatic measures to enhance Hong Kong’s business environment and raise living standards. In line with this, the Government is also expected to articulate a clearer long-term vision for sustainable growth.
In the Chamber’s submission, we outlined a vision of a smarter Hong Kong, one that offers growth opportunities for young people, stability for the middle-aged and healthy ageing for seniors. A detailed roadmap for the Northern Metropolis, together with a Blueprint for AI development, would be a critical component of such long-term planning.
Importantly, the rapidly ageing population, largely unaddressed in this Budget, will soon begin to constrain economic growth and impose significant economic, social and healthcare pressures. Addressing demographic challenges must form a central part of future strategic planning.
To fully realize Hong Kong’s potential, near-term initiatives must be paired with a clear strategic roadmap that addresses structural challenges and charts a sustainable path forward.