Hong Kong’s 2026-27 Budget is not an independent political manifesto. It is the financial architecture designed to implement the chief executive’s Policy Address.

The alignment is clear: the Northern Metropolis as a new growth engine; innovation and artificial intelligence as industrial drivers; consolidation of Hong Kong’s international financial center status; and continued attention to people’s livelihoods.

This year’s Budget exercises fiscal discipline. The financial secretary, concerned about deficits, volatile land revenue, and global uncertainty, makes clear that transformation must proceed within tighter guardrails of expenditure control and borrowing prudence.

The result is a Budget that executes the chief executive’s priorities within the framework of fiscal realism.

Northern Metropolis: a structural commitment

Despite fiscal consolidation, one signal stands out unmistakably: Hong Kong is committing very substantial capital resources to the Northern Metropolis. Capital works expenditure remains high. Transfers from the Exchange Fund to the Capital Works Reserve Fund amount to HK$150 billion ($19.17 billion) over two years. The borrowing ceiling has been raised to HK$900 billion to finance infrastructure acceleration.

This is not incremental development. It is the largest spatial transformation of Hong Kong in decades.

The Northern Metropolis is a structural economic bet. The SAR government has chosen to prioritize it even as it trims recurrent expenditure. That political and financial commitment gives the project enormous weight and responsibility.

The Northern Metropolis footprint overlaps with ecologically sensitive wetlands, fishponds, coastal areas, and biodiversity corridors identified in Hong Kong’s Biodiversity Strategy and Action Plan (BSAP 2035). This is the first major urban expansion undertaken after the articulation of the city’s updated biodiversity commitments.

The forthcoming nature-based solution guidelines, developed jointly by the Development Bureau’s Civil Engineering and Development Department and the Environment and Ecology Bureau’s Agriculture, Fisheries and Conservation Department, signal that development and conservation are no longer separate spheres. If implemented rigorously, the Northern Metropolis could embed protected areas, biodiversity corridors, and blue-green infrastructure from the outset rather than rely on mitigation after the fact.

Fiscal discipline need not constrain ecological ambition. Nature-based solutions and ecosystem restoration can reduce long-term drainage costs, lower climate risks, and enhance land value. Under tighter fiscal conditions, lifecycle costing becomes more important. The opportunity now is to design the Northern Metropolis as a nature-positive urban model.

Existing buildings — building the market

While the Northern Metropolis represents the future built environment, decarbonizing existing buildings remains Hong Kong’s immediate carbon frontier. Buildings account for about 90 percent of local electricity consumption.

In the 2025 Policy Address, the chief executive pledged to “drive the market to accelerate carbon reduction in existing buildings”. The emphasis is on the word “market”.

The challenge is structural: high upfront capital expenditure, split incentives between landlords and tenants, diverse ownership structures, and uncertain payback periods. Asset owners are often more concerned about capital risk than environmental ambition.

Under such conditions, large subsidy schemes are not necessarily the first step. Before the financial secretary deploys incentives, further deliberation is needed to create a functioning retrofit market.

This requires alignment among bureaus, regulators, financial institutions, professional bodies, and asset owners. Clarity is needed on standards, contract structures, measurement, and risk allocation. Banks and regulators must gain confidence that retrofit lending can be aggregated and scaled. Without that ecosystem, incentives alone will not unlock momentum.

The 2026-27 Budget carries a clear message. Hong Kong remains committed to structural transformation: the Northern Metropolis, technology innovation, maritime competitiveness, and green development are prioritized — consistent with the direction of the forthcoming national 15th Five-Year Plan (2026-30)

One practical next step lies within the government’s own portfolio. Public sector buildings and high-energy-consuming infrastructure can provide a pipeline large enough to demonstrate standardized, performance-based contracting models. By aggregating projects and working with financiers and regulators on replicable structures, the government can help build the market architecture that can then be scaled.

Fiscal discipline and market mobilization are therefore not in conflict. Creating conditions for private capital reduces the need for recurrent public subsidy. If the Northern Metropolis is the structural bet on future growth, building a credible retrofit market is the structural bet on present decarbonization.

Shipping and maritime transition

Shipping is another area where the Budget’s language is broad but promising. The government reiterates its intention to consolidate Hong Kong’s status as an international maritime center and to promote green shipping services, including offering preferences to vessels using clean fuels and supporting the development of bunkering facilities.

The wording does not specify which fuels qualify or how preferences will be calibrated. That flexibility matters. As the global maritime sector moves toward carbon reduction under International Maritime Organization frameworks, fuels range from transitional options like liquefied natural gas to lower-carbon alternatives like green methanol.

The policy window lies in how “clean” is defined. Incentives structured through port-dues differentials, berthing priority, or licensing conditions can be fiscally light yet strategically powerful. Under fiscal consolidation, calibrated incentives allow the government to steer the market without heavy subsidies.

If aligned carefully, Hong Kong could position itself not merely as a bunkering hub but also as a hub for cleaner fuels, reinforcing both competitiveness and long-term credibility in decarbonization.

Green finance as connector

Finance is the connective tissue across these initiatives. Continued support for green finance development must go beyond reputation and focus on mobilization.

Infrastructure bonds, transition finance, sustainability-linked instruments, and taxonomy alignment can channel private capital into public priorities. There may well be a role for impact investors and philanthropy, too. Under fiscal constraints, leveraging the market and private-sector participation is essential.

Seen this way, the Budget’s emphasis on discipline is not a retreat from ambition. It is a signal that transformation must be financially grounded, requiring public and private sectors to work together to develop markets for greener, preferred projects.

The 2026-27 Budget carries a clear message. Hong Kong remains committed to structural transformation: the Northern Metropolis, technology innovation, maritime competitiveness, and green development are prioritized — consistent with the direction of the forthcoming national 15th Five-Year Plan (2026-30).

The Northern Metropolis offers the chance to integrate biodiversity into urban expansion. Existing building retrofits offer a market-driven pathway to accelerate carbon reduction. Shipping incentives align maritime competitiveness with global decarbonization. Green finance bridges public intent and private capital.

This Budget could be remembered not simply as a consolidation but as the framework that began aligning growth, nature, and decarbonization under disciplined, forward-looking governance.

The author is the chief development strategist of the Institute for the Environment at the Hong Kong University of Science and Technology and a former undersecretary for the environment.

The views do not necessarily reflect those of China Daily.