HK's fiscal deficit isn't stopping it from spending big to diversify its economy

Uncertain if projects will yield strong returns for economic growth: Observers

- Magdalene Fung

HONG KONG - Hong Kong's ambitious plan to inject billions of dollars into new growth areas despite its big fiscal deficits has sparked concern about whether its mega investments will pay off.

Financial Secretary Paul Chan said these investments are crucial for the city's future.

"The money should be spent when needed," Mr Chan said on Feb 27, a day after delivering his Budget speech. "This is a crucial time for Hong Kong's development. It would be inappropriate not to seize this opportunity to invest in the future."

The finance chief has budgeted HK$1 billion (S$173 million) to set up an artificial intelligence (AI) research centre, HK$3.7 billion as part of building a tech hub in its border area with Shenzhen, and HK$10 billion for an innovation and tech industry-oriented fund, among other plans.

The investments come as Hong Kong — braced for its fourth straight year of deficit — freezes its government workers' pay and cuts back on student grants and transport subsidies for the elderly and disabled.

Commentators say it is uncertain if these major projects — which are heavily focused on tech and deeper integration with mainland China — will yield strong returns for the city's future economic growth and how long they would take to do so.

The concern is that constraints on spending given Hong Kong's fiscal deficits, its lateness to the game, especially in AI, and the unpredictability of new industries present risks that may hinder the city from achieving success in its economic diversification from its traditional focus on trade and financial services.