Paul Chan confident Hong Kong can handle debt of bond-driven growth

Hong Kong’s finance chief has assured the public that the city can manage its debt after proposing the issuance of more bonds to accelerate the development of the Northern Metropolis, expressing confidence in the long-term investment returns from the megaproject. Financial Secretary Paul Chan Mo-po sought to reassure the public during a radio programme on Friday after a university student voiced concerns that his generation might suffer if the city failed to repay the growing number of bonds issued by the current administration. In his latest budget, Chan proposed raising the borrowing cap of two bond programmes from HK$700 billion to HK$900 billion (US$89.4 billion to US$115 billion), describing this as a “balanced” approach that could fast-track the development of the Northern Metropolis and other public works projects. He explained on Friday that land revenue would no longer be sufficient to cover the government’s capital works expenditure, prompting the authorities to rely more on bond issuance to finance infrastructure investment. However, a caller, a university student surnamed Choi, told Chan he was concerned the government might struggle to repay the debt. “In like 10 or 20 years later, if your estimates are unfortunately found to be inaccurate and the economic returns are not as high as expected, then it is possible that Hong Kong would not be able to repay the bonds and it’s likely to burden my generation. I believe that no one wants this to happen,” he said. The student questioned whether the government was confident that the economic returns on the investment would be sufficient to repay the HK$900 billion in bonds, and whether a future administration would resist issuing new bonds to pay off old ones. Chan said the income from bond issuance would be used solely for infrastructure investment. “It won’t be applied to fund our operating expenditure. This is a physical discipline that we strictly adhere to,” he said. He added that the government would expedite land formation and infrastructure development in the Northern Metropolis to attract business, technology and manufacturing enterprises. “When these companies set up their operation, they will contribute to my tax income, to our employment, to our GDP,” he said. Chan reassured listeners that the city’s debt-to-GDP level — currently at 14.4 per cent — remained “very safe” by international standards, even though the budget projects it will rise to 19.9 per cent over the next five years. “We are very confident with the growing economy [and] with the investment, we will be able to service this debt,” he said. On geopolitical uncertainties and ongoing tariff regimes from the United States, Chan said the city had built a “strong buffer” to withstand various volatilities. He added that Hong Kong should seize the opportunities arising from current circumstances to position itself strategically, noting that a significant amount of capital continued to flow into the city, making it a safe haven amid global geopolitical tensions. During the radio show, another caller questioned the government’s decision to cut kindergarten funding, noting that Hong Kong already had one of the lowest birth rates in the world. The education sector earlier warned that cancelling two kindergarten grants for the new school year would cost each subsidised preschool about HK$40,000 on average. Chan said his latest budget also proposed increasing the existing child allowance and personal allowance, allowing a family with two children to enjoy additional disposable income from tax reductions of slightly more than HK$10,000.