The Speech on the 2026-27 Budget - Part 4

Budget Speech by the Financial Secretary (4)

International Financial Centre

90. The global political and economic landscape is undergoing profound transformations. Despite the complex and ever-changing external environment, Hong Kong's financial market has performed strongly and our financial system remains robust. We will continue to consolidate our existing strengths, tap into emerging fields, strengthen market systems and risk control and deepen financial co operation in the GBA. By doing so, we will enhance Hong Kong's role as an international financial centre on all fronts and contribute to the national strategic goal of "accelerating China's development as a financial powerhouse". We will also leverage our strengths in finance to drive industry development, i.e. "Finance+".

Consolidating Existing Strengths

Advance Internationalisation of the Renminbi

91. The Recommendations have called for advancing the internationalisation of the Renminbi (RMB) and pursuing greater openness of RMB capital accounts. We will leverage Hong Kong's unique strengths and proactively align with national development strategies. Specific measures include:

(a) doubling the size of the RMB Business Facility to RMB200 billion earlier this month to support financial institutions in facilitating the wider use of RMB by enterprises and customers in activities such as trade and cross boundary business;

(b) promoting more convenient foreign exchange quotations and transactions between RMB and other regional currencies to reduce transaction costs;

(c) issuing RMB bonds of different tenors on a regular basis to enrich product offerings in the offshore RMB market and improve the offshore RMB bond yield curve;

(d) exploring with the industry the formation of the offshore RMB yield curve, and looking into specific measures to improve price discovery in the short-to-medium-term-interest-rate market; and

(e) attracting high-quality issuers to increase RMB bond issuance in Hong Kong and tapping into emerging markets to bring more cross-boundary RMB transactions to Hong Kong.

92. To enrich mutual-market access, we will actively explore with the Mainland to expedite the issuance of Mainland government bond futures in Hong Kong, the inclusion of real estate investment trusts (REIT) under mutual access and the inclusion of a RMB trading counter under the Southbound trading of the Stock Connect. We will explore further enhancements to the Bond Connect.

Securities Market

93. Since the implementation of Severe Weather Trading arrangements by the HKEX in September 2024, the stock market has operated in inclement weather for seven trading days. The trading maintained market liquidity while generating stamp duty revenue of about $2.5 billion.

94. To continue enhancing the securities market, attracting issuers and boosting market efficiency, the HKEX will take forward the following measures:

(a) consult the market in the first quarter on the revision of listing requirements for enterprises with weighted voting right structures, facilitation of the secondary listing of overseas issuers, enhancement of the IPO process, and provision of greater flexibility for biotechnology and specialist technology companies applying for listing, etc.;

(b) implement the enhanced structured product listing framework and put forward specific implementation proposals for the settlement cycle of T+1 for market consultation in the first half of this year; and

(c) take forward board lot reforms in the securities market and launch the uncertificated securities market regime in collaboration with the Securities and Futures Commission (SFC) and the industry this year.

95. We will also introduce the next stage of reforms, including enhancing the regulatory regime for listed companies, providing specific guidelines for overseas companies seeking secondary listing in Hong Kong, offering more overseas markets as recognised exchanges, and continuing to explore with the market the provision of an over-the-counter trading platform for delisted stocks or those requiring special handling.

Bond Market

96. The SFC and the HKMA are actively implementing the Roadmap for the Development of Fixed Income and Currency Markets announced last year. It includes boosting issuance in the primary market, enhancing liquidity in the secondary market, and expanding offshore RMB business. The electronic bond-trading platform will also be launched in the second half of this year, thereby reinforcing Hong Kong's position as a global fixed income and currency hub.

97. To promote innovation in the bond market, the Government issued the third batch of tokenised bonds with an issuance size of $10 billion in the fourth quarter last year. It marked the largest tokenised bond issuance in the world at the time. The option to settle via tokenised central bank money also laid the foundation for future integration with other forms of digital money. We will continue issuing tokenised bonds on a regular basis. The HKMA will also encourage more digital bond issuances in Hong Kong through the Digital Bond Grant Scheme.

Asset and Wealth Management Centre

98. The number of single-family offices in Hong Kong exceeds 3 300. To attract more family offices and funds to set up in Hong Kong, we will enhance our tax regime, including expanding the scope of "fund" to cover specific funds-of-one, as well as classifying digital assets, precious metals, specified commodities, etc. as qualifying investments eligible for tax concessions. We will introduce an amendment bill in the first half of this year, with a view to effecting the implementation from the year of assessment 2025/26.

99. The Government and the SFC will continue promoting the development of the REIT market. In addition to seeking early inclusion of REITs under mutual-market access, we will introduce an amendment bill this year to enable the privatisation or restructuring of REITs. We will also provide a stamp duty waiver for the transfer of non-residential properties into REITs seeking to list. The relevant amendment bill will be introduced in the first half of next year.

100. The Integrated Fund Platform under the HKEX will expand its services this year, covering fund sales procedures such as payment and settlement, to enhance market efficiency and lower transaction costs.

Exploring Emerging Sectors

Corporate Treasury Centres

101. We are determined to strengthen the role of Hong Kong as a key base for the establishment of Corporate Treasury Centres (CTCs) and boost the city's appeal as a platform for "bringing in and going global". To this end, we will announce a series of enhancement measures in the middle of this year, including providing additional tax incentives and flexibility to CTCs and their associated companies, and introducing a pre-approval mechanism.

Attract Enterprises to Re-domicile to Hong Kong

102. Since the commencement of the company re domiciliation regime last year, the Companies Registry has approved 22 re domiciliation applications, while about 20 applications are being processed. We will step up publicity to attract more enterprises to establish in Hong Kong.

Facilitate Asset Management by Enterprises

103. To enhance the business environment and facilitate internal restructuring by enterprises, we propose to relax the criteria for stamp duty relief in relation to the intra group transfer of assets. This would expand the scope of eligible associated body corporates. We will introduce an amendment bill this year and the new arrangement will apply retrospectively to instruments signed from today.

Develop Fintech and Financial Infrastructure

Development of Digital Assets

104. The Government published the second policy statement on digital assets for developing Hong Kong into a global hub for digital asset innovation through the establishment of a comprehensive regulatory framework. We will introduce a bill this year to establish licensing regimes for, among others, digital asset dealing and custodian service providers.

105. Hong Kong has implemented the licensing regime for issuers of fiat referenced stablecoins. The first batch of licences will be issued next month. The Government and financial regulators will continue facilitating licensed issuers in Hong Kong to explore different application scenarios in a compliant and risk-controlled manner.

106. On the premise that sufficient investor protection is in place, the SFC will further enhance the liquidity of Hong Kong's digital asset market and facilitate the offering of more products and services to professional investors. The SFC will also set up an accelerator to expedite market innovation.

107. To support the application of tokenisation technology in bond issuance and transactions, the Government will provide guidelines to clarify that registers of debenture holders can be kept in the form of a distributed ledger. We will also explore the adoption of electronic signature for bond issuance documents and the digitalisation of bearer bonds.

Crypto-Asset Reporting Framework

108. We will amend the Inland Revenue Ordinance for implementing the Crypto-Asset Reporting Framework as well as the amended Common Reporting Standard by the Organisation for Economic Co operation and Development (OECD) in the coming two years. This will contribute to international efforts in enhancing tax transparency and combating cross border tax evasion. We will introduce an amendment bill in the first half of this year.

Project Ensemble

109. The HKMA launched Ensemble, the pilot phase of Project Ensemble, last November to enable industry participants to make real value transactions involving tokenised deposits and digital assets within a controlled pilot environment. The HKMA will continually upgrade the system to support settlement on a 24/7 basis and develop local standards to strengthen Hong Kong's interoperability with other markets.

Commercial Data Interchange

110. Last year, the HKMA launched Project Cargo under the Commercial Data Interchange to enhance the digital ecosystem for trade finance by harnessing the power of cargo and trade data. The Government is actively following up on the recommendations of the Expert Panel on Cargo with a view to promoting Hong Kong as a leading trade financing centre and supply chain hub.

Build the International Gold Trading Market

111. Following the signing of a co-operation agreement with the Shanghai Gold Exchange earlier this year and the establishment of a Hong Kong's central clearing system for gold, we will:

(a) explore offering tax incentives for eligible institutions conducting gold trading and settlement in Hong Kong;

(b) assist the industry in setting up an industry-led trade association to consolidate resources, step up promotion, and foster ties with industry stakeholders from around the world; and

(c) help the industry keep abreast of the latest gold market developments, acquire relevant skills and develop a training framework.

Strengthening Market Systems and Risk Control

Strengthen Market Systems

One stop Multi asset Class Post trade Securities Infrastructure

112. The HKMA's CMU OmniClear Holdings Limited (CMU OmniClear) and the HKEX will soon commence a study on the establishment of a one stop multi asset class post trade securities infrastructure to cover Mainland and Hong Kong equity and debt securities. This will facilitate cross-product and cross-boundary collateral connectivity, enhancing market liquidity and risk management.

Enhance the International Network of the Central Moneymarkets Units

113. To facilitate investors' holdings of securities through the Central Moneymarkets Units (CMU) for achieving global asset allocation, the CMU OmniClear is actively seeking to establish linkages with central securities depositories of various regions. The Central Bank of the United Arab Emirates has become a CMU member. The CMU will activate linkages with SIX of Switzerland and launch equity post trade services for the first time, enabling investors to manage their diversified asset portfolios more efficiently.

Digital Asset Platform

114. To promote the application of fintech and enhance the efficiency of the asset management market, the CMU OmniClear will establish a digital asset platform this year. It will support the issuance and settlement of digital bonds. The platform will also be gradually extended to other digital assets and linked with other tokenisation platforms in the region, consolidating Hong Kong's leading role in the realm of digital assets.

Non-traditional Risk Management

115. We are committed to developing the non-traditional risk management business and have extended the Pilot Insurance-linked Securities Grant Scheme to 2028. Meanwhile, the Insurance Authority (IA) will continue stepping up its promotion efforts in markets from around the world. Last year, two captive insurance companies were set up in Hong Kong.

Financial Inclusiveness

116. The Mandatory Provident Fund Schemes Authority (MPFA) is gradually taking forward MPF "Full Portability". Its Phase One Proposal, to be implemented this year, covers employees whose employment commences on or after 1 May 2025. We will introduce an amendment bill in the first half of next year to extend the coverage to employees whose employment began before the above date.

Enhance the Regulatory Regime

117. To better protect employees' MPF benefits, the MPFA proposes to enhance the process of recovering default contributions from employers. It will also enhance the flexibility for trustees and relevant service providers in making MPF investments. Upon completion of the MPFA's stakeholder consultation this year, the Government will introduce an amendment bill.

118. The IA will enhance the risk-based capital regime for insurance companies, adjusting risk parameters for the general insurance business and providing capital relief for infrastructure investments. Moreover, we will require the industry to adopt a standardised checklist for the disclosure of capital adequacy and risk profile, facilitating public understanding of insurers' governance, finance and risk management.

119. To strengthen the regulation of money lenders, the Government will release the consultation outcome and specific measures next month to address the issue of excessive borrowing and better protect the public.

Strengthen International Financial Co-operation

120. The Asian Infrastructure Investment Bank (AIIB) announced at the end of last year its plan to set up an office in Hong Kong. The Government is proactively facilitating and providing the necessary support.

121. We will hold for the first time the Asia-Pacific Economic Cooperation Finance Ministers' Meeting this year. We will continue hosting various financial mega events, including the Global Financial Leaders' Investment Summit, the Wealth for Good in Hong Kong Summit, and the Hong Kong Fintech Week x StartmeupHK Festival. The Asian Financial Forum will celebrate its 20th anniversary next year, and we will strengthen the element of finance empowering businesses ("Finance+") at the forum.

(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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