Hong Kong to Cut Spending by 7%, Invest in AI to Tackle Economic Challenges

Hong Kong is set to reduce public recurrent expenditure by 7% by 2027/28 to curb a rising deficit while making a major push into artificial intelligence (AI) to counter global economic uncertainty, geopolitical tensions, and a struggling property market.

Financial Secretary Paul Chan, in his annual budget announcement, emphasized that the city's reinforced fiscal consolidation program would restore fiscal balance in a structured manner, ensuring a stable foundation for future growth. The move comes after a sharp decline in revenue from land sales, a key driver of Hong Kong’s economy.

Chan projected GDP growth of 2-3% this year but warned that geopolitical risks remain a challenge. The financial hub also faces economic headwinds as U.S. President Donald Trump’s tariff policies impact global trade. Trump has imposed an additional 10% tariff on goods from China and Hong Kong, despite the city’s status as a separate customs territory.

In response to China's strategic push into AI and high-tech industries, Hong Kong is making AI a core sector. The government has allocated HK$1 billion to establish an AI research and development institute, aiming to position the city as a leader in innovation and technology.

The budget signals a dual approach—tightening public spending while boosting investments in AI—to sustain economic growth amid uncertainties. Hong Kong’s shift toward AI aligns with China's broader tech ambitions, reinforcing the city's role as a global financial and innovation hub.