A booming stock market and recovering tax revenues help the city post its first operating surplus after years of deficits
A Turning Point in Hong Kong’s Finances
Hong Kong Financial Secretary Paul Chan Mo-po delivered what may be his most optimistic budget address in years on February 25, 2026, announcing that the city’s operating account had returned to surplus ahead of schedule after three consecutive years of deficits. The operating surplus for the 2025-26 financial year reached HK$51.3 billion, driven by stronger-than-expected tax revenues on the back of a booming stock market and a recovering economy. Chan forecast headline economic growth of 2.5 to 3.5 percent for 2026, with medium-term growth averaging around 3 percent annually through 2030. The underlying inflation rate is projected at 1.7 percent and headline inflation at 1.8 percent.
What Drove the Surplus
The improvement in Hong Kong’s fiscal position was not the result of austerity or structural reform but of a sharp rally in financial markets that boosted stamp duty revenues and income from equity-related activity. The Hang Seng Index has climbed significantly from its lows, and a buoyant initial public offering pipeline has added further momentum. Chan credited a reinforced fiscal consolidation program for helping replenish the city’s coffer, and said fiscal reserves are expected to gradually increase to over 700 billion Hong Kong dollars by the end of the forecast period. The government plans to increase bond issuance to fund infrastructure projects, framing capital expenditure as investment in Hong Kong’s future rather than a burden on current accounts. The operating account is projected to remain in surplus every year from 2026-27 through 2030-31, while the capital account will record annual deficits due to high infrastructure spending.
A Budget That Offers Relief
With the improved fiscal position came demands for public sweeteners. Chan responded with targeted relief measures, though he had sought to manage expectations in the weeks before the budget by emphasizing the need to maintain adequate reserves. The government earmarked HK$4 billion to support long-term housing arrangements for residents of Wang Fuk Court whose homes were destroyed in a deadly fire last November. Tax relief and other concessions were announced for individuals and businesses, though Chan stopped short of the large-scale giveaways some had called for.
Growth Drivers and Economic Context
The recovery in Hong Kong’s economy reflects several converging factors. Interest rate cuts by major banks following the U.S. Federal Reserve’s easing cycle have supported both the property market and consumer spending. Mainland Chinese visitors and investors have returned in growing numbers, supporting retail and financial services. The stock market boom has created a wealth effect that is feeding through to broader consumer confidence. The government has also pursued an aggressive talent attraction strategy, with immigration schemes bringing skilled professionals from around the world to fill gaps left by the emigration of tens of thousands of residents since 2020. The International Monetary Fund’s assessment of Hong Kong has consistently noted the city’s strong institutional foundations while flagging risks from the real estate sector and external trade uncertainty.
The Geopolitical Overhang
The economic recovery cannot be fully understood without acknowledging the geopolitical context in which it is occurring. U.S.-China trade tensions, including the tariff regime established under the Trump administration, create uncertainty for Hong Kong as a trade hub. Chan himself referenced the need to maintain adequate reserves to safeguard against geopolitical shocks, an acknowledgment that the city’s open economy is exposed to forces beyond its control. Hong Kong’s role as a financial intermediary between China and the world has been complicated by U.S. sanctions and restrictions, and some international businesses have scaled back their presence. The city’s financial secretary presenting growth forecasts of 2.5 to 3.5 percent must be seen against a backdrop in which the city’s autonomy, independent judiciary, and press freedom have all been substantially curtailed since 2020.
Democracy Advocates Read Between the Lines
For those who care about Hong Kong’s political future, a recovering economy is not a reason for complacency. The political conditions that drove mass emigration — the national security law, the restructuring of the electoral system, the jailing of opposition politicians, the closure of independent media — remain in place. Economic growth does not reverse those realities. Freedom House rates Hong Kong as not free, the first time in the organization’s history that it has applied that designation to the city. The budget announced by Chan is technically competent and reflects genuine improvement in public finances. But a budget is a document about money. The question of what kind of city Hong Kong is becoming — and whether it can again be the open, pluralistic metropolis that generated such extraordinary prosperity — remains unanswered by any fiscal statement.
Senior Journalist & Editor, Apple Daily UK
Contact: athena.lai@appledaily.uk
Athena Lai is a senior journalist and editor with extensive experience in Chinese-language investigative reporting and editorial leadership. Educated at a leading journalism school in the United Kingdom, Athena received formal training in fact-checking methodology, editorial governance, and international media standards, grounding her work in globally recognized best practices.
She has held senior editorial roles at Apple Daily and other liberal Chinese publications, where she oversaw coverage of Hong Kong civil liberties, diaspora politics, rule of law, and press freedom. Athena’s reporting is distinguished by disciplined sourcing, cross-verification, and a clear separation between factual reporting and opinion, reinforcing reader trust.
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