Ken Ip says the govt’s vision is for the SAR to evolve from a property-finance duopoly into a finance-technology-production trio

When Hong Kong runs a deficit, the public conversation becomes almost Pavlovian. Will there be tax rebates? Rates concessions? A familiar sprinkling of relief to ease anxieties? This year’s budget, delivered by Financial Secretary Paul Chan Mo-po, invites that same reflex. But anyone looking only for handouts is missing the more consequential story.

The 2026-27 budget is not primarily a fiscal document. It is a strategic repositioning paper.

After several years of pandemic strain and structural uncertainty, the SAR government now projects an operating surplus of HK$51.3 billion ($6.56 billion), with the consolidated account broadly balanced after bond issuance. Stamp duty revenue has rebounded. Equity markets have revived. Residential transactions have picked up. The headline deficit anxiety has receded faster than expected.

That recovery, however, is not the point. What matters is what the government intends to do with renewed fiscal breathing room.

For decades, Hong Kong’s growth model was elegantly simple. Property provided fiscal ballast. Finance provided international relevance. The government governed lightly and allocated sparingly. Industrial policy was something practiced elsewhere.

This budget suggests that era is over.

The Northern Metropolis, once a planning slogan, now sits at the center of economic strategy. The Hetao Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone and the New Territories new town expansion are being treated not as real estate plays but as industrial ecosystems. The government plans to inject HK$10 billion into the Hetao development, another HK$10 billion to seed the New Territories innovation corridor, and to explore tripartite partnerships among landowners, technology firms and the state. The explicit aim is to convert underutilized private land into advanced manufacturing and research space.

This is not zoning reform. It is government coordination.

Hong Kong is also embracing what officials call “new industrialization”. More than 120 smart production lines have already been supported under existing programs, catalyzing over HK$1 billion in private investment. Semiconductor pilot production lines are expected to begin operations this year. A new program will nurture high-growth industrial enterprises. Even a National Manufacturing Innovation Center, the first of its kind outside the Chinese mainland, is slated for establishment in Hong Kong.

In the 1990s, such initiatives would have sounded alien. Today they are central to official rhetoric.

Equally striking is the financial architecture being constructed around this industrial pivot. The government plans to modernize listing rules, consult on T+1 settlement, implement a paperless securities regime and refine the regulation of dual-class share structures. In parallel, it will issue stablecoin licenses, legislate for digital asset trading and custody, and provide regulatory clarity for tokenized bonds.

The Hong Kong Monetary Authority is advancing 24-hour settlement capabilities and tokenized deposit experiments under its Ensemble project. A digital asset platform to support issuance and clearing of digital bonds is scheduled for launch. Offshore renminbi liquidity arrangements have been doubled to 200 billion yuan ($29.12 billion). Authorities are studying the introduction of sovereign bond futures and expanding cross-boundary investment channels.

Taken together, these are not incremental tweaks. They amount to a systematic upgrade of Hong Kong’s financial plumbing.

The stated theme of the budget is “technology-driven growth and financial empowerment”. The phrase may sound bureaucratic. The substance is not. Officials are explicitly arguing that finance must serve industrial transformation. This is a shift from finance as an end in itself to finance as an instrument.

There is also a deeper institutional evolution underway. Rather than insisting on strict annual cash balance orthodoxy, the government is increasingly operating with a balance sheet mindset. Bond issuance is justified as investment in future productive capacity. Fiscal reserves are projected to rise toward HK$7 trillion over the medium term even as infrastructure spending remains elevated.

In other words, deficits are reframed not as moral failings but as tools, provided the assets created justify the liabilities incurred.

The macroeconomic assumptions are measured. Growth of 2.5 to 3.5 percent is forecast this year, with inflation contained at around 1.8 percent. Over the medium term, annual growth is projected at 3 percent. This is not a boom narrative. It is a stability narrative.

Yet stability is not the same as inevitability.

Industrial policy is notoriously difficult to execute. Coordination among government agencies, private landowners, venture capital, and manufacturing firms requires not only capital but credibility. The promise of “crowding in” private investment must be tested against the risk of bureaucratic overreach. Hong Kong’s historical advantage lay in minimal intervention and regulatory clarity. The challenge now is to expand the government’s coordinating role without dulling the market’s edge.

There is also geopolitical arithmetic. The budget repeatedly references alignment with national development plans and deeper integration within the Guangdong-Hong Kong-Macao Greater Bay Area. That alignment offers scale and policy support. It also narrows the margin for “strategic ambiguity” that once characterized Hong Kong’s positioning between systems.

Still, the direction is clear. The city is attempting to evolve from a property-finance duopoly into a finance-technology-production trio. Whether it succeeds will depend less on the size of the fiscal injections than on institutional competence.

It is tempting to measure budgets by what they distribute. This one should be judged by what it attempts to build.

For years, critics argued that Hong Kong lacked an economic narrative beyond asset appreciation. This budget proposes one. It is coherent, ambitious and fraught with execution risk.

But it is undeniably a strategy.

And in a city long accused of drifting, that may be the most consequential shift of all.

The author is chairman of the Asia MarTech Society and sits on the advisory boards of several professional organizations, including two universities.

The views do not necessarily reflect those of China Daily.