Hong Kong Budget 2023-24: 3 key takeaways for infrastructure

On Wednesday, Hong Kong’s financial secretary Paul Chan delivered the 2023-24 Hong Kong Budget.

It was the city’s first post-pandemic financial blueprint.

Listening to the delivery, one might think the budget’s focus was to establish Hong Kong as a global technology and innovation hub.

It’s loaded with longer-term drives on finance innovation, digital economy, green tech, and frontier technology drives, such as AI and quantum technology.

Talent retention and attraction measures are also at the centre of the plan.

Nevertheless, a host of infrastructure-related initiatives recognise the role of construction and development in the post-Covid recovery.

Measures target industry-specific challenges such as the shortage of people and skills, lagging industrialisation, and the impact of inflation.

There are three key takeaways in this year’s budget relating to infrastructure:

1. Connectivity with the Greater Bay Area

The Hong Kong government remains resolute in its strategic drive for increased physical connectivity with the Greater Bay Area.

The budget announcement included three new railways, three new road connections, and the fast-track development of the boundary-adjacent Northern Metropolis.

The plan to issue infrastructure bonds signals a reluctance to finance this infrastructure through the city’s fiscal reserves.

Issuing bonds for infrastructure financing can also help Hong Kong build its bond market.

2. Addressing productivity challenges

The budget was a clear signal that the Hong Kong government understands demographic pressures on industry productivity.

It has committed boosting skills and technology, as recommended in the Construction Industry Council’s 2022 ‘time, cost, and quality’ report.

The budget earmarks more than HK$ 75 million for advanced construction manufacturing, R&D, and supply chain security, and HK$ 100 million for training and skills.

3. Supporting the property market

The budget aims to support the Hong Kong property market to counter low confidence and high interest rates.

There are plans to accelerate land sales by 60%.

This involves making 75,000 private homes available in the next five years, while reducing stamp duty for first-time buyers of smaller units.

‘A clear response’ to the current climate

The measures announced on Wednesday are a clear response to the current economic climate – signalling a longer-term vision rather than a knee-jerk reaction.

They come following a poor economic showing for Hong Kong.

The city has seen a 3.4% fall in GDP, reduced fiscal reserves, and is projecting new deficit in the coming year.

In this economic environment, attempts to protect two major sources of government revenue – Investment income and land premium – are justified.

Commitments to accelerate technology, supply chain, and skills upgrades are also practical.

Challenges

Some challenges do remain, however.

Commentators have hailed the budget as forward-looking and appropriate.

But at the same time, it fails to address some pressing issues.

The drive to enhance productivity is a move in the right direction.

But it will hardly outpace the rapidly ageing population and projected labour shortages in the infrastructure sector.

The shrinking workforce may necessitate a serious look into the possibility of importing labour from mainland China.

The budget increases subsidies for the Mandatory Provident Fund to attempt to retain retiring professionals.

This may, however, not be enough of an incentive for employers, who face increased insurance premiums for employing individuals over the age of 65.

Risks to implementation

Three factors could jeopardise implementation.

Successful delivery of the infrastructure plans implies an increase of construction expenditure to HK$ 300 billion by the middle of this decade.

This is substantially more than current spending.

But as we wait for productivity measures to take effect, we may find that the declining workforce becomes a critical hurdle.

Secondly, efforts to support the property market notwithstanding, market confidence relies on several complex factors.

These include social considerations, such as our declining and ageing population, as well as political and geopolitical uncertainties.

Finally, international geopolitical tensions continue to pose risks to economies – and infrastructure sectors – worldwide.

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