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First 5-year plan

Chief Executive (CE) John Lee delivered his Policy Address, unveiling a 5-year plan to boost near-term growth and guide long-term development. The plan seeks to broaden Hong Kong’s growth drivers, with greater emphasis on innovation, new industries, financial services and the Northern Metropolis. Continued expansion in trade, tourism, talent and foreign-company presence should support services growth, while higher innovation spending and new-industry output could lift productivity over time.

Northern Metropolis and innovation

The Northern Metropolis is the centrepiece of the first Five-Year Plan, addressing Hong Kong’s land constraints while creating capacity for new industries. The Government targets around 900 hectares of spade-ready land and 70,000 housing units over the five years to FY30/31.

The main objective is to turn the Northern Metropolis into a new growth pole, driven by three flagship university towns. Spanning more than 1,000 hectares, they will integrate campuses, technology and industrial facilities with residential communities. This hub seeks to capitalize on Hong Kong’s world-class academic density, where R&D spending expanded from 0.93% of GDP in 2019 to 1.13% in 2024, accompanied by a 52% surge in higher-education personnel (reaching 31,312). This momentum is further reinforced by top-tier talent inflows, with 58% of Quality Migrant applicants holding STEM post-graduate degrees in 1H26.

The San Tin Technopole and Hetao Hong Kong Park will form the core of this initiative.  San Tin will provide 210 hectares of innovation and technology land for prototyping, pilot production and advanced manufacturing, supported by a dedicated development company and HKD10bn funding. Key industries include AI, robotics, life sciences, microelectronics and new energy.

Digital infrastructure will expand through the Sandy Ridge data cluster, whose computing capacity could reach 36 times Hong Kong’s current level by 2032. A UN advanced-manufacturing centre and new semiconductor pilot-production lines should further strengthen technology transfer and industrial applications. New transport links—including Kwu Tung and Hung Shui Kiu stations, the Northern Link and the Hong Kong–Shenzhen Western Rail Link—should deepen GBA integration and facilitate cross-border flows of people, capital, technology and goods.

Property

Policies supporting non-local talent and higher education remain a primary anchor for residential housing and rental demand. The Government targets a 4.6% CAGR increase in non-local students enrolled in locally accredited full-time post-secondary programmes to around 100,000 by 2030. In fact, the number of student visas approved hit 94,517 in 2025, with a 5-year CAGR of 22%. Accordingly, universities represent a key growing demand.

This helps cushion broader market headwinds. Residential property market transaction cooled in Q3. The reduction in unsold units slows in tandem. Near-term headwinds from tighter Mainland controls on outbound investment have dampened market sentiment. A higher-for-longer interest rates environment poses another headwind. After the strong ~10%+ growth in housing prices YTD, 4Q growth will likely slow to ~5% and conclude the year at 15%. 

Tourism

The Government expects tourism value added to rise from HKD86.2bn in 2024 to HKD126bn by 2030. It also aims to raise the share of non-Mainland visitors among overnight arrivals to 40% by 2030.

“Mega-events” remain on the government’s playbook, with Mainland tourist arrivals and per-capita spending improving by 10.2% and 2.2% in Q2. The WestK Performing Arts Centre, scheduled to open in 2027, and continued use of Kai Tak Sports Park should further strengthen Hong Kong’s capacity to host major cultural, sporting and entertainment events. Moreover, a weaker HKD against the RMB should improve Mainland visitors’ purchasing power, support retail sales and discourage outbound travel by residents.

Employment

While economic growth has started accelerating since mid-2025, the labour market has yet to show material improvement. The jobless rate has only fallen from 3.9% in the three months ending Jan-26 to 3.7% in Jul-26. The speedy AI development is also curbing labour demand.

The Government’s response combines near-term employment support with longer-term retraining. A two-year “30,000 Youth Employment and Internship Programme” will provide opportunities across business, innovation and technology, construction and financial services. The Employees Retraining Board will be upgraded to develop skills-based programmes aligned with industry needs, while an 18-month AI skills initiative starting in 2027 is expected to benefit at least 40,000 workers.

Financial center – Fixed Income and currency

Hong Kong is well positioned as three major centers – Fixed Income, Currency, & Commodities (FIC-C), and Wealth Management centers. For FIC, Hong Kong will cement its function in RMB internationalization.

Liquidity:

Liquidity is vital to the buildup of the FIC center. RMB deposits reached about RMB1.1tn in Jul 26. The HKMA has also raised its RMB Business Facility quota from RMB200bn to RMB500bn to facilitate settlement.  Bond market connectivity is the key. The Southbound Bond Connect quota was raised from RMB500bn to RMB800bn in July, while eligibility has expanded beyond banks to securities firms and insurers since last year. Potential participation by China’s RMB3.8tn social security fund could provide another significant source of offshore demand. If 5% of its assets were allocated to dim sum bonds, inflows could reach RMB190bn, equivalent to about 6.7% of the current outstanding stock.

Market infrastructure is evolving alongside these flows. Opening access to the onshore repo market via Northbound Bond Connect and allowing the related securities to serve as margin collateral should further improve liquidity. This is evidenced by the neutralized onshore CNY-offshore CNH spreads.

Product offerings

The regulators will continue to expand product offerings. This will include further sovereign /IG grade Dim Sum Bond issuance across tenors, as well as providing more hedging products. The HKEX launched the 5-year offshore China Government Bond futures last month. There is also ongoing enhancement of Swap Connect. The addition of FDR007 to the eligible floating-rate benchmarks should further improve hedging efficiency by providing a reference rate more closely linked to banking-system liquidity and Mainland’s monetary policy.

CNH-denominated government spending

The government is exploring settlement of government expenditures in RMB. The growing government spending, particularly in the development of the Northern Metropolis, could serve as a testing ground. As expenses are settled in RMB, this could prompt more public-sector CNH bond issuance, especially when CNH funding costs are materially lower than HKD rates. 

Financial Centre – Gold and commodity

Hong Kong is strengthening its role as an international gold trading and storage hub. The central clearing and settlement system will launch in Q1 2027, with storage capacity targeted above 2,000 tonnes within three years. The Shanghai Gold Exchange has established its first overseas delivery warehouse, while HKEX offers physically delivered USD and CNH gold futures. The new HAU tickers facilitate pricing in Hong Kong. Insurance products, new ETFs and tokenised products should broaden demand.

Global central banks are increasing gold exposure, particularly China. China's gold reserves reached USD350bn in August, up from USD253bn a year ago. China’s gold imports via Hong Kong jumped 92.4% yoy to 499 tonnes in August, reinforcing the city’s role as a gateway.

Physical-commodity trading will receive broader policy support. A half-rate tax concession and possible ecosystem incentives should attract trading and financing activity. The LME now has 18 approved local warehouses, including one in the Northern Metropolis, while CME Group has opened Hong Kong facilities for COMEX aluminum and lead deliveries in 2026. Digital trade-finance solutions and deeper links with Mainland exchanges should further strengthen Hong Kong’s commodity ecosystem.

Financial Centre – corporate and private Wealth management

The expansion of Hong Kong’s financial and professional-services ecosystem should attract more Mainland and overseas companies. Regional headquarters rose 11.5% in 2025, led by finance, banking, and professional and business services. The Government will continue to offer tax incentives for corporate treasury centres. Its dedicated task force has assisted more than 340 Mainland companies with listings, financing, and compliance.

The influx of overseas companies is bringing both talent and capital. Hong Kong becomes the world’s largest cross-border wealth booking centre, with cross-border wealth reaching USD2.9tn. The Government plans to extend tax concessions to precious metals, private credit and digital assets. The government aims to help at least another 220 family offices establish or expand, bringing the total to 3,600 by 2028.

implication on hkd rates

The upshot is that we should see higher HKD bond yields ahead. The fiscal balance-to-GDP ratio (excluding bond issuance), which improved from a trough of -6.8% in FY22-23 to 2.8% in FY25-26, is expected to widen again. In fact, total government debt-to-GDP has already risen to an all-time high of 82.5% in 1Q26 under the IIF definition, which includes borrowing by public entities.

Major investment in the Northern Metropolis will likely accelerate bond issuance across the board. Quasi-public entities such as educational institutions and infrastructure corporations are taking the lead, driving up HKD corporate bond issuance by 78.9% YoY YTD. Looking ahead, the government will likely step up its own borrowing to fund rising social welfare spending, a trajectory closely aligning with trends in the US and other DM markets.

On a positive note, the rise in yields should remain manageable. First, the arrival of Chinese corporates and the return of foreign companies are supporting corporate profits tax, which accounted for 30% of government revenue in FY25-26. Second, land premiums should find their footing soon, as unsold residential inventory has already declined from a peak of 23,000 units in 4Q23 to 17,000 units in 2Q26. Third, the potential public-sector CNH bond issuance could alleviate the need for HKD debt. From a bond-demand perspective, onshore investors could increase their HKD bond holdings through Southbound Bond Connect, given the relatively higher returns compared with onshore bonds.

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