<div id="readability-page-1">Hong Kong’s coming annual budget must address critical bottlenecks in technology and talent attraction to pave the way for the city’s first five-year development framework in line with national priorities, according to observers. The budget, to be delivered by Financial Secretary Paul Chan Mo-po on Wednesday, is more than a fiscal exercise. It is viewed as the first major test of officials’ “reform mindset” after Beijing unveiled the nation’s 15th five-year plan recommendations, which include specific strategies for Hong Kong. Against a backdrop of geopolitical tensions, the plan – expected to be officially endorsed next month – prioritises technological self-reliance, “new quality productive forces” and expanding domestic consumption, with “comprehensive reform” as a guiding principle. The framework outlines Beijing’s support for transforming Hong Kong into an international innovation and technology centre and a global destination for top talent, while consolidating the city’s role as an international financial, aviation and trade hub. While Chief Executive John Lee Ka-chiu recently said he had instructed all policy bureaus to work “in full force” to devise a “Hong Kong five-year plan” within this year, Chan hinted the budget would include measures to help mainland Chinese innovation and technology enterprises “go global” and promote the clustering of key businesses in the city. Observers said the government should address critical bottlenecks in Hong Kong’s own tech ecosystem first, as its slowdown did not just affect the city’s competitive edge but extended more broadly to the Greater Bay Area, which covers Macau and nine mainland cities. Local start-up ecosystem ‘not well signposted’ Start-up formations in the city have plummeted from more than 400 annually before Covid-19 in the 2010-2018 period to fewer than 100 in 2024, according to the Hong Kong Economic Policy Green Paper 2026, which offers policy insights for the city. Hong Kong boasts successful firms such as Lalamove in logistics, Futu in digital finance and SenseTime in artificial intelligence (AI), yet more than 80 per cent of its start-ups employed fewer than 50 people, the same study by the University of Hong Kong’s (HKU) business school found. This trend reflected the city’s struggle to nurture and retain companies, hindered by “funding gaps and competition from larger regional players,” the study said. Alberto Moel, professor of practice in finance at HKU, one of the authors of the paper, told the South China Morning Post that Qianhai in Shenzhen, the Northern Metropolis, Science Park and Cyberport in Hong Kong often appeared to be “in competition with each other”.  “As an entrepreneur, how to proceed and where to make the time and effort investment is not well signposted at this time … This leads to inaction and wasted efforts, which can be discouraging,” he said. The government has put strong emphasis on developing the Northern Metropolis to transform the northern New Territories into a “new engine” for growth that prioritises technology, modern logistics and professional services. The scholars argued that success hinged on how the city government would increase cross-border coordination with Shenzhen and within the bay area, allowing for optimal use of resources, including land. Joseph Chan, associate director of the Centre for Innovation and Entrepreneurship at HKU and also an author of the policy paper, said Hong Kong’s core strength rested in high value-added services, such as finance, legal support and global business consulting, which were typically less space-intensive and labour-intensive. Meanwhile, production lines for hardware and robotics could be in other bay area cities, such as Dongguan, while large-scale research and development laboratories could be in Shenzhen, he said. Talent attraction dilemma: quality vs quantity The government recently touted a record high of more than 11,000 companies based in the city last year, representing an 11 per cent year-on-year increase. However, a deeper dive into the official figures showed a decline in high-value operations. The number of regional headquarters only marginally increased by about 100 to 1,510, and it was still below the 2019 peak of 1,541. These regional headquarters employed 143,000 people last year, a staggering 26 per cent drop from 195,000 in 2019. Critics argued that while local office numbers surpassed 7,000 last year, they primarily serve liaison functions with minimal economic impact. Economist Terence Chong Tai-leung of the Chinese University of Hong Kong (CUHK) said that while attracting firms and talent remained crucial for Hong Kong as outlined in Beijing’s five-year plan, the city’s top priority was to enhance its international profile. He cited the more than 90 per cent of approved visas issued to mainland nationals under the Top Talent Pass Scheme, saying policy revamps were needed to attract non-mainland talent.  “Integration is not simply about replicating what the mainland excels at. Rather, we should strive to achieve what the country cannot,” said Chong, who is also the executive director of the Lau Chor Tak Institute of Global Economics and Finance at CUHK. “Why would international talent choose Hong Kong? Because of our low tax rates, international efficiency and English-speaking environment, [which are] advantages the mainland cannot replicate. Also, funds can flow freely in and out.” He also said the government should consider tax exemptions and preferential policies for key sectors, such as technology firms and start-ups, as well as housing and educational subsidies tailored to specific talent needs. Utilise AI agents to reshape industries While Hong Kong boasts a strong pool of professional and creative expertise, many in these fields are neither familiar nor fully integrated into the innovation and entrepreneurship ecosystem, according to Joseph Chan, the HKU scholar. Chan said Hong Kong should consider actively supporting the upskilling and evolution of these sectors beyond their traditional working methods and mindsets, while fostering an environment where innovative projects had a higher chance of success and potential for positive societal impact. “Take artificial intelligence as an example,” he said. “The opportunity lies not only in adopting off-the-shelf AI tools for business efficiency, but also in developing novel AI agents and systems that can reshape local industries and be scaled up for the China and global market. “This requires a fundamental re-evaluation of user needs and market demands, together with an industry transformation vision and an entrepreneurial and innovation-oriented approach.”  Why some local IPs struggle to scale Observers said another bottleneck was in the emerging intellectual property (IP) industry. They pointed to toymaker Pop Mart’s decision to go public in Hong Kong but register its overseas IP in Singapore, and challenges faced by some local companies to transform home-grown IPs into business successes. Lawmaker Ray Wong Wing-wai underscored the urgent need for the budget to grow the industry of IP management and financing to help the country unleash “new quality productive forces”. “The Pop Mart doll Labubu emerged as a success case of the global potential of proprietary IP,” he said. “However, finding experts in Hong Kong who can assist with IP financing remains a challenge, particularly when it comes to valuing unrecognised brands and accessing small loans.” Wong said the IP Financing Sandbox – launched last December to facilitate the use of IP, such as patents, copyrights and trademarks, as collateral for loans – was a promising step, but he urged the government to do more to establish the city as a comprehensive IP hub. Breaking the small government ideology Beyond industry-specific hurdles is the question of governance. Lau Siu-kai, a consultant to the semi-official Chinese Association of Hong Kong and Macau Studies think tank, said the city government needed to be determined to further break free from the “small government, big market” ideology of the past, abandoning short-sighted governance thinking. “A segment of the population, not necessarily all anti-China elements, still has concerns about Hong Kong’s integration into the overall national development strategy, fearing it will weaken the promised high degree of autonomy,” he said. “A challenge for Paul Chan and major officials will be to convince the people that the right bold government-led reforms will facilitate innovation and benefit the long-term development of Hong Kong as a whole.”</div>

03033

STECH

03032

<p>Hong Kong's upcoming budget for 2026-27 is expected to address critical issues in technology and talent attraction, aligning with national priorities outlined in Beijing's five-year plan. Observers emphasize the need for the government to resolve bottlenecks in the local tech ecosystem, as start-up formations have significantly declined. While the city boasts successful firms, over 80% of start-ups are small, facing challenges from funding gaps and competition. The government aims to enhance cross-border coordination with Shenzhen and attract diverse talent, but critics highlight the need for policy reforms to improve Hong Kong's international profile.</p>

Hong Kong budget 2026-27: what’s holding back the city’s tech and talent schemes?