The Speech on the 2026-27 Budget - Part 3

Budget Speech by the Financial Secretary (3)

Life and Health

Life and Health Technology

52. We are actively advancing the integrated development of life and health technology at upstream, midstream and downstream levels. On upstream R&D, we will pursue its development through a "One plus Three" model, involving the headquarters of the Life and Health Technology Research Institutes to be set up in the Hong Kong Park of the Hetao Co-operation Zone (Hetao Hong Kong Park) and the three branches to be established by universities. In addition, we have established various R&D centres under the InnoHK Research Clusters. On midstream outcome transformation, the Research, Academic and Industry Sectors One plus (RAISe+) Scheme has supported 15 projects. As for downstream industries, three major I&T parks together host nearly 500 relevant enterprises and organisations, creating a vibrant ecosystem.

International Health and Medical Innovation Hub

R&D and Transformation of Biomedicine Technology

53. The Greater Bay Area International Clinical Trial Institute situated in the Hetao Hong Kong Park has launched a collaboration platform with the Shenzhen Park. It provides a one stop clinical trial support platform that brings together researchers and integrates databases for promoting R&D of biomedicine and vaccines.

54. The International Clinical Trial Academy will be established next year, which will help enable the Mainland's biomedicine technology to go global and attract foreign investments, thereby helping Hong Kong to develop into an international health and medical innovation hub.

Cross-boundary Medical Collaboration

55. The Government established the Real-World Study and Application Centre at the end of last year to support pharmaceutical companies and expedite the launch of innovative drugs and medical devices on the Mainland and international markets, contributing to the Mainland's drug regulatory science system.

Development of Chinese Medicine

56. The Chinese Medicine Development Blueprint outlines the vision for Chinese medicine development in Hong Kong, with the aim of promoting comprehensive, high-quality and high-standard development of Chinese medicine. We will inject $500 million into the Chinese Medicine Development Fund for undertaking research, training and international publicity on strategic themes.

57. The Chinese Medicine Hospital of Hong Kong and the Government Chinese Medicines Testing Institute have commenced services. The new facilities will help spur the development of Chinese medicine services, scientific research and innovation and standard-setting, for showcasing the edge of Chinese medicine to the world.

Development of New Industrialisation

58. We actively steer local manufacturers towards smart manufacturing, which leverages technologies such as Internet of Things, real-time data, application of data analytics, advanced human-machine interfaces and robotics. The New Industrialisation Funding Scheme has supported over 120 new smart production lines, drawing in private investment of over $1 billion. Moreover, the New Industrialisation Acceleration Scheme aims to encourage enterprises to establish high-end smart production facilities in Hong Kong. Four projects have been supported so far, involving a total investment of about $2.5 billion, of which more than 70 per cent is private investment.

59. The Government will launch the New Industrialisation Elite Enterprises Nurturing Scheme this year, supporting targeted high-growth enterprises contributing to the development of new industrialisation, with an aim of nurturing emerging and future industry enterprises in Hong Kong.

60. The Government is committed to implementing the Co-operation Agreement on the Development of New Quality Productive Forces and the Promotion of New Industrialisation signed with the Ministry of Industry and Information Technology to promote industrial collaboration. We will earmark about $220 million for establishing in Hong Kong the first national manufacturing innovation centre outside the Mainland.

61. The pilot lines for R&D and trial production of third-generation semiconductors of the Hong Kong Microelectronics Research and Development Institute will commence operation this year to facilitate local semiconductor R&D and upgrading of industries. Moreover, the New Industrialisation Acceleration Scheme has supported two enterprises developing semiconductor chip technology and equipment, with total investment of over $1.5 billion.

62. We are conducting a study on the medium- to long-term development of new industrialisation in Hong Kong, including emerging and future industries. Our objective is to accelerate new industrialisation and the development of new quality productive forces in the city, enabling us to integrate into our country's overall planning of new industrialisation and inject new impetus into the economy.

Synergising with Market Forces to Accelerate Innovation and Technology Development

63. We will promote the full integration between technological innovation and industrial innovation through key infrastructures, including the Hetao Hong Kong Park and San Tin Technopole.

Public-Private Partnership

64. One of the keys to realising the vision of building the NM into a new international I&T city is to release the potential of the underdeveloped private land therein, and convert them to industrial space and ancillary facilities, thereby providing staunch support for accelerated development of the real economy and industries.

65. We are exploring ways of further encouraging developers owning land in the NM to collaborate with technology or advanced manufacturing enterprises in submitting joint development proposals to the Government. We expect that, through tripartite co-operation, relevant land and corporate resources will be channelled towards the target industries for priority development in Hong Kong. In doing so, the business sector will have greater participation in the I&T transformation of our economy, thereby expediting the NM development through concerted efforts.

Hetao Hong Kong Park

66. Over 60 enterprises have moved into the first two buildings in Phase 1 development of the Hetao Hong Kong Park, taking up around 80 per cent of floor area. Meanwhile, the planning for Phase 2 development has been completed. The two phases together will provide a total floor area of two million square metres.

67. We will seek approval from the Legislative Council (the LegCo) to inject a funding of $10 billion to the park company to accelerate the development of the Hetao Hong Kong Park by engaging the market to speed up the disposal of the remaining land parcels under Phase 1 development, providing key infrastructure, further strengthening support to start-ups and establishing a venture fund.

68. We are seeking to facilitate the convenient flow of personnel, materials, capital and data between the Shenzhen Park and Hong Kong Park. We are also exploring with the Mainland the formulation of specific implementation plans to allow cross-boundary flow of research data and biosamples, such as "white list" and "green lane" mechanisms to streamline entry/exit procedures and approval processes.

San Tin Technopole

69. San Tin Technopole is an extension of the Loop. Together with the Hetao Hong Kong Park, there will be a coordinated development at upstream, midstream and downstream levels, creating a comprehensive industrial ecosystem. While the Loop focuses on R&D, commercialisation, and pilot production in the upstream and midstream levels, the San Tin Technopole will provide a large piece of land which can help accelerate the commercialisation of R&D results and provide industrial space for prototyping, pilot and mass production. We will establish a dedicated company this year and seek approval from the LegCo to inject $10 billion as initial capital to take forward the development, while leveraging market resources to accelerate the progress.

Nurturing and Strengthening Emerging Industries

Low-altitude Economy

70. Low-altitude economy (LAE) is a new engine for smart city development and regional integration. The Government has completed the first-stage legislative amendment exercise, and will refine the legislation and regulatory framework on civil aviation to lay the foundation for the development of LAE standardisation in the long run, building a competitive LAE ecosystem.

71. Under the first cohort of the Regulatory Sandbox, 32 projects have conducted trials along their designated routes. Some application scenarios of unmanned aircraft such as building management and inspection have already been implemented.

72. Trial projects, such as unmanned aircraft system traffic management system, multiple applications/users shared-platforms, cross-boundary routes and passenger-carrying flying aircraft, will be rolled out in phases from the first half of this year. We are also actively exploring with the Mainland to commence trial flights on cross-boundary low-altitude logistics.

Aerospace

73. The Recommendations set out the goal to expedite the development into an aerospace power. The China National Space Administration also proposes facilitating commercial aerospace enterprises to go global in an orderly manner. Hong Kong can help connect the Mainland aerospace industry with the global market, and provide professional services in areas such as R&D, financing, risk management and law. OASES will take the lead to identify aerospace enterprises to develop in Hong Kong.

74. We have already requested the Hong Kong Exchanges and Clearing Limited (HKEX) to review the relevant listing requirements so as to facilitate and attract the listing of aerospace enterprises in Hong Kong.

75. The Hong Kong Space Robotics and Energy Centre, established under InnoHK, takes part in our country's Chang'E-8 mission. Its multi-functional lunar surface operation robot has entered the spacecraft prototype testing phase, and there would be ground application of such technology. In addition, the Innovation and Technology Fund (ITF) has allocated over $100 million to support six R&D projects from universities. Recently, the "CUHKSat-1" satellite, developed by the Chinese University of Hong Kong and supported by the ITF, was successfully launched and entered into the planned orbit.

76. Low earth orbit satellites can support the development of high-end industries. We will proactively expand telecommunications infrastructure, streamline the relevant licensing regime and promote future 6G applications.

Autonomous Driving

77. On the premise of ensuring road safety, the Government is accelerating the development of autonomous driving into driverless mode and scaling up its operations, with a view to expediting its transition to commercial operations and encouraging the industry to leverage Hong Kong as a platform to tap into overseas markets. The Airportcity Link autonomous transport system, scheduled for operation this year, will become the first commercially operated project in Hong Kong.

New Materials

78. The R&D of new materials in Hong Kong is progressing towards commercialisation with potential of international ventures. In particular, two local start-ups will set up production lines at EcoPark, Tuen Mun in the middle of this year to upcycle local recyclables into core materials for electricity-free cooling products and acoustic metamaterial products respectively.

79. Meanwhile, the Government is expediting the development of the third InnoHK research cluster, focusing on new materials and advanced manufacturing, energy, and sustainable development. R&D centres under this cluster will be established in phases in the first half of this year.

RISC-V

80. RISC-V is the underlying technology of a new generation of chips. Its open-source nature has overcome the limitations of the closed nature of traditional technology, thereby spearheading a transformative wave of change in chip design and application on a global scale.

81. The Hong Kong Investment Corporation (HKIC) has been actively promoting R&D and industrialisation of the RISC-V technology through strategic investments and collaboration with leading enterprises. Initiatives include the establishment of the Hong Kong RISC-V Alliance, which aims at bringing together industries, academia and the investment sector for cross-industry co-operation in the GBA and international collaboration.

Embodied AI

82. The development of AI has transitioned from large language models towards embodied intelligence capable of interacting with the physical world. The technology and application of different carriers (e.g. robotics) will continue to evolve. This will bring fundamental changes to manufacturing processes, business operation and our daily lives.

83. Various I&T parks and HKIC also provide support to embodied AI start-ups. The Government will actively promote the development of an ecosystem for embodied AI and application of related products.

Quantum Technology

84. Quantum technology can propel an exponential leap in computing power, communication security and sensing accuracy. Such technological breakthroughs will lead to more innovative applications. A number of studies are being conducted by the tertiary institutions on various areas, such as developing the AI-based Quantum Simulation Platform and advancing the convergence of AI and quantum computing, through various platforms including InnoHK. Two state key laboratories relevant to quantum technology have also been established in Hong Kong. The Government will actively promote relevant basic research and industry application.

Innovation and Technology Industry-Oriented Fund

85. The Government introduced the $10 billion Innovation and Technology Industry Oriented Fund to channel market capital to invest in emerging fields of strategic importance, such as life and health technology, AI and robotics, as well as future industries. The selection of fund managers is underway. We aim at commencing the operation of the Fund within this year.

Enhance Collaboration among the Industry, Academic and Research Sectors

86. The $10 billion RAISe+ Scheme funds research teams from universities on a matching basis to transform and commercialise R&D outcomes. A total of 49 projects were approved, covering fields such as health and medical sciences, new materials and new energy, AI and advanced manufacturing. Relevant products will be launched in the market.

Review Tax Arrangements for R&D Expenditures

87. Close economic integration of Hong Kong with the GBA brings about opportunities for cross-boundary scientific collaboration, technology transfer and the development of emerging and future industries. The Government will review and enhance tax arrangements for R&D expenditures.

Patient Capital

HKIC

88. In addition to seeking medium- to long-term investment returns for our fiscal reserves, the HKIC aims to bring in more frontier technology enterprises and patient capital to Hong Kong, as well as promote in-depth collaboration among the Government, industry, academia, research institutes and investors. It also aims to accelerate the establishment of Hong Kong's I&T ecosystem and the development of strategic industry chains. All these will enhance our competitiveness and contribute to the diversified development of our economy.

89. Since its full operation, the HKIC has invested in over 190 projects spanning various fields, which mainly include hard and core technology, life technology, new energy and green technology. Ten of the investee companies are already listed in Hong Kong, with a further 20 preparing for listing this year. Every dollar invested by the HKIC attracted over eight dollars of long-term capital investment, effectively drawing "patient capital" from the global market to jointly expedite the development and innovative application of frontier technologies. Considering that the initial capital of the HKIC of $62 billion has been largely allocated, we will arrange for capital injection in a timely manner to further promote I&T development and industry clustering.

(To be continued.)

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Budget Speech by the Financial Secretary (10)

Public Finance

251. During the pandemic, several rounds of large-scale counter-cyclical measures were launched to support enterprises and safeguard jobs. These measures, though successful in stabilising the economy and protecting people's livelihood, have led to fiscal deficits in the past few years. The Budget last year introduced a reinforced fiscal consolidation programme, aiming at achieving fiscal balance through strictly containing the growth of government expenditure, suitably increasing revenue and consolidating the Government's financial resources. In addition, the scale of bond issuance would be enlarged. Last year, we set the target of attaining surpluses in the Operating Account from 2026-27 onwards and the Consolidated Account in 2028-29 respectively.

252. Over the past year, we have been fully committed to implementing the fiscal consolidation programme. As a result of the robust stock market and an accelerated economic growth, revenue from stamp duties and profits tax has increased by nearly $50 billion in total compared to the original estimate. In 2025-26, the Operating Account will return to a surplus ahead of schedule, while the Consolidated Account will be broadly balanced after taking into account the net proceeds from bond issuance.

253. In the medium term, the Operating Account will register a surplus throughout the period from 2026-27 to 2030-2031. The Capital Account will nevertheless still record a deficit annually, mainly due to a high level of capital works expenditure. As infrastructure projects are an investment in Hong Kong's future, we will meet the financing needs by suitably increasing bond issuance. During the period, fiscal reserves are expected to gradually increase to over $700 billion.

254. Overall, our public finances have seen significant improvement.

255. The Government has been upholding the principle of keeping the expenditure within the limits of revenues as enshrined under Article 107 of the Basic Law. We are striving to achieve fiscal balance in the economic cycle and ensure the resilience and sustainability of public finances.

Following through the Fiscal Consolidation Programme

256. We will continue implementing the reinforced fiscal consolidation programme put forward in last year's Budget. Key principles are as follows:

(a) to focus on strictly controlling government expenditure, supplemented by increasing revenue;

(b) to maintain the competitiveness of Hong Kong's simple and low tax regime, and to avoid raising tax rates substantially or introducing new taxes; and

(c) to uphold the "user pays" and "affordable users pay" principles as far as practicable in increasing revenue.

Strictly Containing the Growth of Operating Expenditure

257. We will continue strictly containing the growth of the Government's operating expenditure. Bureaux and departments will make sustained efforts to review their resource allocation and work priorities, and provide public services with better cost-effectiveness through consolidating internal resources, streamlining procedures and leveraging technology.

258. We will take forward the Productivity Enhancement Programme as planned. On the premise that Comprehensive Social Security Assistance (CSSA), Social Security Allowance and statutory expenditures will not be affected, the Government's recurrent expenditure will be cut by two per cent in both 2026-27 and 2027-28, delivering further savings of about $7.8 billion and $15.6 billion respectively over 2025-26.

259. The civil service establishment will be reduced by two per cent in each of the coming two financial years to an estimated level of about 188 000 posts by April 1, 2026, resulting in a cumulative deletion of over 10 000 posts within this term of Government.

260. Regarding the 2026-27 civil service pay adjustment, the Government will conduct the Pay Trend Survey in accordance with the established mechanism. The Chief Executive-in-Council will then make a decision having due regard to the six factors.

Increasing Revenue

261. On increasing revenue, we will uphold the "affordable users pay" principle in implementing the following measures:

(a) The rates of stamp duty on residential property transactions valued above $100 million will be raised from 4.25 per cent to 6.5 per cent, affecting about 0.3 per cent of residential property transactions. It is estimated that revenue will increase by about $1 billion per annum. This measure will take retrospective effect from tomorrow upon passage of the amendment bill by the LegCo; and

(b) Last year, we amended the Inland Revenue Ordinance to implement OECD's package by imposing the global minimum tax and implementing the Hong Kong minimum top-up tax on large multinational enterprise groups with an annual consolidated revenue of or above EUR750 million. This measure is expected to bring in an additional tax revenue of about $15 billion for the Government annually starting from 2027-28.

Consolidating and Optimising the Use of Government Financial Resources

Consolidating Funds Established Outside the Government's Accounts

262. As announced in last year's Budget, we have brought back $61.5 billion from six seed capital funds with a relatively large unspent balance to the Government's accounts for optimising the use of government financial resources. I have also instructed various policy bureaux to conduct a full review of the remaining 36 purpose-specific funds established outside the Government's accounts. After carefully assessing the individual circumstances of the funds, we propose:

(a) revising the financial arrangements of four funds to bring back their unspent balances, on the premise of supporting their operations in the next five years;

(b) closing a fund which has accomplished its policy objectives and two funds for which objectives can be met more effectively under the established funding mechanism, and bringing back their unspent balances;

(c) consolidating six funds into three for enhanced efficiency in the use of resources; and

(d) maintaining the financial arrangements of the remaining 23 funds.

The above measures are expected to bring back about $15.8 billion to the Government's accounts in 2026-27.

Transferring the Accumulated Surplus of the Bond Fund

263. The Bond Fund, established in 2009 outside the Consolidated Account, aims to support the issuance of bonds including Silver Bonds, iBonds and alternative bonds under the Government Bond Programme (GBP). Since 2024, Silver Bonds have been issued under the Infrastructure Bond Programme instead, with the proceeds being credited to the Capital Works Reserve Fund. The majority of bonds issued under the GBP will be held to maturity for redemption by the end of this year.

264. By the end of March, the balance of the Bond Fund is estimated to be about $150 billion, with an accumulated surplus of about $37 billion after deducting outstanding bond balances and interest payments etc. To optimise the use of the surplus of the Bond Fund, the Government will introduce a resolution to the LegCo to enable the transfer of the accumulated fund surplus to the Consolidated Account in 2026-27.

Transferring Investment Income of the Exchange Fund

265. The Exchange Fund achieved record-breaking performance last year, delivering an investment income of $330 billion. As at the end of last year, the total value of assets under the Exchange Fund exceeded $4.1 trillion, which would suffice to maintain monetary and financial stability in Hong Kong. On the premise that the Exchange Fund's function to maintain the stability and integrity of the local monetary and financial systems will not be compromised, I propose, under the Exchange Fund Ordinance, transferring $75 billion in each of the coming two financial years, totalling $150 billion, from the Exchange Fund to the Capital Works Reserve Fund in support of the NM and other infrastructure projects.

Bond Issuance

266. Last year's Policy Address announced that the Government would earmark an additional $30 billion in the next two to three years to increase expenditure on works projects for driving sustained economic development. The Government's capital works expenditure is estimated to be about $128 billion for 2026-27. Capital works expenditure will remain at a similar level during the Medium Range Forecast (MRF) period.

267. The Government has since 2019 and 2024 issued green bonds and infrastructure bonds respectively. Issuing bonds allows the Government to invest in infrastructure, while diversifying the development of the local bond market.

268. As the Government will accelerate the development of the NM and other public works projects relating to the economy and people's livelihood, we plan to raise the total borrowing ceiling of the two bond programmes from $700 billion announced last year to $900 billion. About $160 billion to $220 billion worth of bonds will be issued in each of the next five years, about half of which will be used for re-financing the short-term debts incurred in recent years. In future, we will issue more longer-term bonds to align more closely the cash flow duration with project requirements.

269. During the MRF period, the ratio of government debt to GDP will rise from 14.4 per cent to 19.9 per cent, which is a highly prudent level and well below that of most advanced economies. I would like to reiterate that proceeds from bond issuance will be used to invest in infrastructure only, but not for government recurrent expenditure.

(To be continued.)

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