Public debate about the Hong Kong 2026-27 Budget is healthy only when it respects the method. Some commentaries, particularly from Western critics, on the proposed use of Exchange Fund resources for funding the Northern Metropolis and other infrastructure projects have leaned on metaphor and insinuation rather than legal and financial analyses. Readers are left with vivid claims of danger but little clarity about what rule is said to have been broken, what metric is said to have deteriorated, and what evidence would establish real impairment. A persuasive evaluation can acknowledge that risks exist while still demanding that those risks be defined precisely, measured competently, and weighed against choices that carry their own costs.
The proper starting point is public law. The Exchange Fund operates within a statutory framework, under established institutional arrangements and with documented governance practice. Treating it as a sacred vault that must never be used for any public purpose is not a legal proposition; it is a political preference. If illegality is being alleged, the burden is to identify the specific statutory limit that has been exceeded, the required procedure that has been bypassed, and the manner in which the decision falls outside lawful powers. It is striking how often foreign commentary implies impropriety without doing the basic work of stating the alleged breach. In a rules-based system, legitimacy is tested through authority and process, not through suspicion presented as common sense.
Clarity is also needed in the way fiscal choices are described. References to using investment income rather than principal are sometimes mocked as if the distinction were inherently deceptive. In truth, the distinction is neither a magic shield nor a confession of wrongdoing. It is an accounting description that must be supplemented by economic reasoning. The meaningful question is comparative and quantitative: Whether allocating a defined tranche of resources from a portfolio of foreign securities to domestic capital works yields an expected return, after risk and opportunity costs, which is superior to leaving that tranche invested offshore. That analysis requires capital budgeting discipline, a stated discount rate, scenario testing, and realistic assumptions about delivery capacity. It also requires candor about uncertainty. The point is not to claim that reallocation is costless, but to evaluate whether the reallocation is justified on a risk-adjusted basis.
Liquidity deserves a similarly technical discussion. A single asset type does not undermine the credibility of the linked exchange rate system, and holding a portion of reserves in longer-duration instruments does not undermine it. Reserve strength depends on sufficiency and deployability under stress, assessed against the monetary base and plausible capital flow shocks, combined with an institutional commitment to conversion rules that markets find credible. That is why the serious conversation should be about reserve adequacy ratios, stress scenarios, and contingency capacity, rather than an assumption that any movement away from maximum liquidity automatically signals weakness. Liquidity matters, but it is not the only virtue in a reserve portfolio, and the relevant test is whether ample liquid buffers remain available even after portfolio rebalancing.
Some popular analogies do more harm than good. Comparing public capital deployment to a household converting emergency cash into a speculative, unfinished private property purchase assumes the absence of governance safeguards and the absence of diversified public value. Public infrastructure does not fit that frame. Infrastructure can generate long-horizon returns that manifest as productivity gains, network efficiencies, reduced business friction, and land-value uplift, even where direct cash yield is modest. These channels are well-established in urban economics and public finance. None of this implies that every project is wise. It does imply that the right critique is about project selection, sequencing, and governance, not a simplistic equation of physical assets with financial irresponsibility.
Hong Kong, like many places, has seen projects where rhetoric outpaced outcomes and where the line between industrial policy and property development became blurred. That history supports a demand for stronger governance rather than fatalism. Performance covenants for tenants, milestone-based subsidy disbursements, audited reporting, clawback mechanisms for nonperformance, and transparent criteria for land allocation are practical controls that separate industrial platforms from rent-seeking
The Northern Metropolis should be evaluated against Hong Kong’s structural constraints, not against a caricature of grandiose planning. Land scarcity in the urban core, sectoral concentration in services, and regional competition for talent and innovation capacity are practical conditions that shape policy. Creating space for innovation, logistics, advanced manufacturing support functions, and cross-boundary collaboration is a laudable strategy for a city that intends to remain economically relevant in a region where competitors are building aggressively. It is also a false dichotomy to suggest that a deeper economic connection with the Chinese mainland is incompatible with internationalization. Investors typically ask whether rules are clear, whether contracts are respected, whether infrastructure is reliable, and whether execution is competent. A city can remain open to global capital while also positioning itself to benefit from the largest proximate market.
Skepticism about innovation zones nonetheless deserves a fair hearing. Hong Kong, like many places, has seen projects where rhetoric outpaced outcomes and where the line between industrial policy and property development became blurred. That history supports a demand for stronger governance rather than fatalism. Performance covenants for tenants, milestone-based subsidy disbursements, audited reporting, clawback mechanisms for nonperformance, and transparent criteria for land allocation are practical controls that separate industrial platforms from rent-seeking. If critics believe such controls are absent or inadequate, that is a concrete criticism that can be answered through concrete design. Declaring “inevitable failure” while ignoring available governance tools is not analysis; it is a storyline.
Fiscal commentary is most misleading when it collapses multiple balance sheets into a single one. The Exchange Fund portfolio is not the same as the government’s recurrent budget, nor is it identical to broader public-sector contingent exposure. Blurring these distinctions makes it easier to suggest that capital-allocation decisions are equivalent to funding recurrent spending from reserves, or that any use of bonds for infrastructure signals fiscal breakdown. Borrowing for long-lived capital assets can be intergenerationally fair, since benefits accrue over decades rather than within a single budget year. The soundness of such borrowing depends on debt sustainability, interest coverage, maturity structure, and the management of refinancing and rate risk. A mature critique would engage these metrics and test them under adverse scenarios, rather than moralizing about debt without confronting the mechanics.
Operational risks also merit nuance, particularly the possibility of overheating in the construction sector. Large public-works programs can strain labor and material supplies, pushing up costs that affect private projects and households. Yet this is not a binary choice between development and disorder. Pipeline phasing, staggered tendering, procurement reform, productivity-enhancing construction methods, and realistic scheduling can reduce pressure on capacity. Public investment can also stabilize a cyclical sector by reducing abrupt start-stop patterns that waste skills and equipment. The appropriate demand is transparent sequencing and capacity planning, coupled with measurable delivery benchmarks.
Tax policy is often turned into a morality test, with claims that refusing immediate, broad-based consumption taxation while funding capital works proves irresponsibility. That argument assumes away macroeconomic timing, distributional effects, and competitiveness considerations. A consumption tax can be defended in some contexts, but it is not a universal badge of seriousness. What matters is whether the medium-term fiscal strategy is coherent: disciplined, recurrent spending, resilient revenue planning, and transparent funding of capital programs. If observers wish to challenge the strategy, they should address those components directly.
Confidence is ultimately undermined not by lawful use of established tools but by opacity, arbitrariness, or the absence of accountability. This is precisely why the most constructive pressure is pressure for disclosure: clear parameters on scale and conditions, reporting schedules, independent audit arrangements, triggers for pausing allocations, and objective metrics for project outcomes. When debate is anchored to measurable commitments, sensationalism loses oxygen.
The author is a solicitor, a Guangdong-Hong Kong-Macao Greater Bay Area lawyer, and a China-appointed attesting officer.
The views do not necessarily reflect those of China Daily.
