HONG KONG, 10 June 2026. CSPI Ratings has today released a research report “How Much Economic Potential Does Hong Kong Really Have?”
The key takeaways from this report are as follows:
Hong Kong's Economy Shows Strong Momentum in 2026
In the first quarter of 2026, Hong Kong's real GDP grew by a substantial 5.9% year-on-year, marking its strongest quarterly performance in nearly five years. This growth was primarily driven by a surge in AI industry demand, which propelled a 23.7% year-on-year increase in Hong Kong's goods exports in Q1. Additional contributing factors include heightened cross-border financial activity, large-scale infrastructure investment, and fixed asset investment expansion fueled by a recovering property market. As an international financial and trading hub, Hong Kong's economy is deeply intertwined with Mainland China while connected to the global market, serving as a crucial re-export hub. In 2025, trade with Mainland China accounted for 51.4% of Hong Kong's total trade volume, with exports of technology products such as machinery, electronic equipment, and instruments comprising over 70%. This has enabled Hong Kong to maintain a robust international trade surplus and ample current account surplus. We believe that amid the global wave of AI development, leveraging the technological industrial chain advantages of Mainland China and its own strong financial infrastructure, Hong Kong will continue to strengthen its position in international trade and cross-border finance. Concurrently, fixed asset investment is expected to remain expansive, and domestic demand will continue to recover. We forecast full-year economic growth of approximately 3.5% in 2026.
Short-Term Fiscal Expansion Paves the Way for Long-Term Transformation
Since 2020, Hong Kong's fiscal revenue growth has been relatively sluggish due to multiple factors, including the COVID-19 pandemic, geopolitical tensions, and the downturn in the local property market. Meanwhile, sustained high levels of fiscal expenditure have led to an expanding deficit. Hong Kong's fiscal reserves have gradually declined from a pre-pandemic peak of over HKD1.16 trillion to approximately HKD698.2 billion by the end of 2025, a cumulative decrease of about 40%. However, we believe that the current level of fiscal reserves, equivalent to approximately 10-12 months of government spending, remains very adequate. At the same time, the Hong Kong government is adopting measures to increase revenue and cut expenditure to control the deficit, including replenishing fiscal resources through fund allocations. Nevertheless, with major infrastructure projects like the Northern Metropolis requiring an average annual investment of HKD120 billion over the next five years, the deficit may persist. Over the long term, as the benefits of Hong Kong's transformation and development gradually materialise, leading to steady expansion of the economy and fiscal revenue, the deficit burden is expected to ease, ensuring strong fiscal sustainability.
Extremely Low Government Debt Burden and Robust External Position
To support fiscal expansion, the Hong Kong government has actively increased borrowing in recent years. The direct government debt-to-GDP ratio stood at 16.4% in 2025, up 12.1 percentage points from 4.3% in 2019. Over the next five years, the Hong Kong government plans to issue approximately HKD160-220 billion in bonds annually for refinancing and supporting major infrastructure projects like the Northern Metropolis. This is projected to push the government debt ratio into the 17%-20% range over the next two to three years. However, compared with advanced economies, Hong Kong's government debt ratio remains extremely low. Furthermore, the Hong Kong government maintains ample cash positions, with fiscal reserves and bond fund balances significantly exceeding direct government debt, indicating a very strong debt-servicing capacity. Additionally, Hong Kong holds substantial net international investment positions and external net claims, resulting in a robust external position and very low external debt risk.
Stable Financial System and Continuous Capital Market Expansion
Hong Kong's Linked Exchange Rate System (LERS) operates stably, supported by ample foreign exchange reserves, providing a strong guarantee for the exchange rate regime. Although non-performing loan ratios in the commercial real estate sector have risen, the banking industry's capital adequacy ratios and liquidity indicators remain sound, keeping systemic risk very low. Meanwhile, the capital market continues to expand, with active IPO activity. Chinese companies account for approximately 80% of the stock market's capitalisation, and offshore RMB bonds represent around 20% of the outstanding amount in the bond market. Hong Kong's financial market has become a vital window for Chinese enterprises going global, RMB internationalisation, and international capital investment in China. Concurrently, Hong Kong's financial infrastructure is steadily improving, with rapid development in green finance and fintech, continuously solidifying its status as an international financial centre.
Long-Term Opportunities Outweigh Challenges
While Hong Kong demonstrates strong short-term economic momentum, it faces long-term challenges, including population ageing, a concentrated industrial structure, slowing growth of traditional sectors, and high external dependency. Future long-term economic development hinges on cultivating economic diversification and upgrading traditional industries. Hong Kong is vigorously developing the innovation and technology sector, focusing on areas such as AI, semiconductors, and biomedicine through infrastructure development, talent attraction, and fiscal policy support. Leveraging its robust cross-border finance and international trade foundation, along with industrial chain synergy with Mainland China, Hong Kong aims to extend its role from a financial and trading centre towards becoming a technology hub. Moreover, Hong Kong's financial system is stable, mature, and aligned with international standards. With substantial fiscal accumulation and a low debt burden, it is well-positioned to strongly support the long-term economic transformation and upgrade, pointing to a positive long-term outlook.
Note: This report is translated from the Chinese version. In case of any discrepancies, the Chinese version shall prevail. |
ANALYST CONTACTS
Primary Analyst
Jameson Zuo
+852 3615 8341
Secondary Analyst
Leon Li
+86 755 2348 3867
Committee Chair
Larissa Wu
+852 3615 8317
Media Contact
Rating Services Contact
Date of Relevant Committee: 5 June 2026
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