In the Media

HKU Business School today unveiled the “Hong Kong Economic Policy Green Paper 2025” (“Green Paper”). This comprehensive document delves into various facets of Hong Kong’s economic domain, from fiscal deficits, stock market dynamics, the MPF system, housing concerns, to the exploration of novel pathways for fostering a vibrant startup ecosystem. Moreover, the Green Paper also scrutinizes Hong Kong’s role within the global supply chain, advancements in AI development, and the implications of climate risks on the city’s economic future.

This is the 4th year the School has been collaborating with like-minded scholars who share a vested interest in Hong Kong’s future development to co-author the annual “Hong Kong Economic Policy Green Paper”. This year’s edition will once again play a significant role in contributing to the development of Hong Kong’s economy.

Photo caption: HKU Business School today unveiled the “Hong Kong Economic Policy Green Paper 2025”. From left: Professor Alan KWAN and Professor Mingzhu TAI, Associate Professors in Finance of HKU Business School, Professor Alberto MOEL, Professor of Practice in Finance of HKU Business School, Professor Hongbin CAI, Dean and Chair of Economics of HKU Business School, Professor Heiwai TANG, Associate Dean (External Relations) & Victor and William Fung Professor in Economics of HKU Business School and Associate Director of Hong Kong Institute of Economics and Business Strategy, and Prof. Yang LIU, Associate Professor in Finance of HKU Business School.

Professor Hongbin CAI, Dean and Chair of Economics of HKU Business School said, “Deeply rooted in Hong Kong, the HKU Business School has been committed to analysing Hong Kong’s economic landscape and proposing policy recommendations through our expertise and exceptional research. Building on the success of the previous Green Papers, this annual publication serves as a testament to our dedication to fostering innovative solutions and stimulating constructive discussions about Hong Kong’s future development. By collaborating with esteemed faculty and international scholars, we aspire to provide actionable strategies across a range of key sectors that will revitalize our economy and secure a prosperous future for our city.”

Professor Heiwai TANG, Associate Dean (External Relations) & Victor and William Fung Professor in Economics of HKU Business School and Associate Director of Hong Kong Institute of Economics and Business Strategy added, “As Hong Kong navigates the complexities of evolving global supply chains, it must redefine its strategic role, not just as a bridge to the West, but as a vital gateway to emerging markets across Asia and beyond. In addition, Hong Kong’s robust financial system and comprehensive professional services ecosystem uniquely position it to thrive as a global supply chain management hub, meeting the demands of a rapidly changing trade environment.”

Professor Yang LIU, Associate Professor in Finance of HKU Business School stated, “Hong Kong’s fiscal challenges won’t simply be resolved through natural economic recovery. The city’s reliance on land-based revenues has proven to be a double-edged sword, exposing it to substantial financial risks when the real estate market cools. Looking ahead, the Hong Kong government should fully leverage the government bond program to raise funds for infrastructure investment, an approach that would preserve long-term fiscal sustainability while fostering capital market development and supporting the internationalization of the renminbi.”

Professor Alberto MOEL, Professor of Practice in Finance of HKU Business School stated, “According to the research, the startup ecosystem is weakest at the intermediate “Valley of Death” stages – precisely where they need the most support. By fostering partnerships that bridge academia and industry, we can better translate innovative ideas into market-ready products. Initiatives that encourage cross-university collaboration and industry engagement will be crucial to unlocking the full potential of Hong Kong’s startup ecosystem.”

Professor Alan KWAN and Professor Mingzhu TAI, Associate Professors in Finance at HKU Business School and authors of the article about MPF system, stated, “The MPF is a crucial aspect of financial inclusion in Hong Kong. However, its return performance is less than satisfying. Our findings uncover three primary drivers of its underperformance, which include: overly conservative asset allocation; inferior products, even after accounting for asset allocation; and high fees. With the upcoming launch of the e-MPF platform, it presents a well-timed opportunity to drastically improve Hong Kong’s primary retirement savings system and the government has an opportunity to strengthen Hong Kong’s financial services ecosystem, draw in more capital, and position Hong Kong as the wealth management hub for the region.”

The Green Paper comprises eight articles, the key points are as follows:

Hong Kong Fiscal Deficits Analysis

• In recent years, fiscal deficits have emerged as a significant new challenge for the Hong Kong government, with the deficit levels reaching record high and ranking among the top in developed economies. Our analysis finds that a significant portion of this deficit stems from structural deficits, which cannot be passively alleviated by economic growth alone but require proactive fiscal policy adjustments. While land revenue contributes a substantial proportion of fiscal income, its volatility also poses high risks, having driven most revenue fluctuations. More prudent risk management is therefore necessary. Looking ahead, the government must strike a balance between reducing deficits and implementing fiscal policies. Indeed, the government has actively adjusted fiscal policies.
• On the other hand, Hong Kong has accumulated substantial fiscal reserves over the years. Despite a decline in recent years, these reserves remain among the highest globally, with limited downside risks. Meanwhile, the government should consider making full use of the government bond program’s capacity to raise funds for infrastructure investment. This approach would not compromise long-term fiscal sustainability but foster the development of capital markets and the internationalization of the renminbi.

Reviving Hong Kong’s Stock Market: Key Challenges and Strategic Solutions

• As an international financial center, Hong Kong has long played a significant role in global capital markets. However, in recent years, the local stock market has faced mounting challenges. Market performance has remained sluggish and the IPO market has experienced a concerning downturn, significantly reducing market activity. Liquidity issues have become increasingly pronounced, driven by an outflow of foreign capital and a decline in local trading activity that together undermine market stability. The trend of foreign capital outflows not only indicates external investors’ negative expectations of the market but also reflects the challenges posed by geopolitical and economic conditions to Hong Kong’s status as a global financial hub.
• In order to address these challenges, proactive solutions are required to revitalize Hong Kong’s stock market and restore investor confidence. The potential solutions include: 1) Attract more investors and leading companies from the Middle East and Southeast Asia; 2) Lower the threshold for the Shanghai-Hong Kong Stock Connect to enhance liquidity; 3) Launch government-guided investment funds and optimize the Mutual Recognition of Funds between mainland China and Hong Kong; 4) Promote High-Frequency Trading; 5) Facilitate innovative technology firms to list on the Hong Kong Stock Exchange; 6) Lower investment thresholds to broaden the investor base; 7) Strengthen regulatory oversight and corporate governance for better investor protection.

Oh, My Poor Funds – A Timely Revisit of Hong Kong’s MPF System

• Over the past 25 years, the Mandatory Provident Fund (MPF) has succeeded in encouraging household participation in securities markets and played a crucial role in improving financial inclusion in Hong Kong. However, it has faced ongoing criticisms for its low annualized rate of return. Our findings uncover three primary drivers of its underperformance: (1) overly conservative asset allocation, (2) inferior products, even after accounting for asset allocation, and (3) elevated fees. With the upcoming launch of the e-MPF platform to integrating disparate savings schemes into a single digital system, it presents a well-timed opportunity to drastically improve Hong Kong’s primary retirement savings system.
• We offer four recommendations to the government, which acts as a facilitator and regulator under a market-based approach to the MPF. First, the government could revise the default investment strategy to drive down fees, while the MPFA could also invite new service providers that charge lower fees into the market. Second, the government should actively monitor asset allocation by being prescriptive, promoting financial education and curating information to help market participants navigate the complex product space. Third, the government could boost the product space of the MPF to introduce more diversified investment options. Finally, the MPFA should enhance data transparency and better harness their data for analysis.

Anatomy of a Housing Affordability Crisis: Hong Kong, 2001-2021

• For fourteen years in a row since 2010, Hong Kong has been ranked the least affordable housing market in the world. In this paper, we measure the distributional effects of Hong Kong’s housing affordability crisis by decomposing population, price, and construction data. Our study shows that large-scale public housing insulated a large fraction of households from rapidly rising private-sector housing costs between 2006 and 2016. However, as private-sector costs rose, public housing became increasingly misallocated, and the population of private renters dramatically increased. The prices and rents of smaller private-sector units disproportionately increased. The result was a significant increase in the price of small units, as well as a disproportionate burden borne by young renters, who increasingly lacked the ability to move up Hong Kong’s housing ladder.
• The continuing lack of affordable housing is highly detrimental to Hong Kong’s economy, which hampers the city’s ability to attract talent and investment. To secure its economic future, it is imperative that Hong Kong deepens its housing and development reforms. Hong Kong should reposition its housing policy back towards aggressive urban development, as well as shift its focus away from constructing low-quality subsidized rentals towards constructing higher-quality ownership housing. Meanwhile, the city should reform its public housing system, for instance, making public sector rents proportional to income and relaxing Housing Bureau’s restrictions on leasing and reselling public-sector units.

Understanding the Hong Kong Startup Ecosystem: A Framework and Future Directions

• As Hong Kong undergoes a reinvention of its innovation and technology development, this analysis aims to frame Hong Kong’s startup ecosystem development from a qualitative firm-level microeconomic perspective, and examine how the ecosystem structure relates to startup lifecycles. We find that the ecosystem is weakest at the intermediate “Valley of Death” stages – precisely where startups need the most support. Because technology entrepreneurship in Hong Kong remains poorly understood, existing research often develops in isolation from industry needs, making it difficult to tease out a product and market. Moreover, interactions and integration between business schools and early-stage R&D efforts are weak, and the current accelerator and incubator programs usually fail to provide tools for long-term growth. We also find that early-stage investor education is weak, while early and mid-stage venture capital remains scarce. Hong Kong’s end markets for technology startups are also small and likely insufficient to support large and scaled revenue models.
• While Hong Kong demonstrates considerable strengths, this research identifies a critical pain point: a dearth of resources following firm formation and proof of concept, creating a notable gap between prototyping a technical concept and commercial viability. This shortfall leaves startups poorly positioned to attract traditional venture capital.  Therefore, we propose some high-level policy suggestions for strengthening the ecosystem, including: 1) Foster a culture of innovation; 2) Establish a clearinghouse for innovation and startup support; 3) Promote cross-university collaboration; 4) Bridge industry-startup divide; 5) Support market expansion.

Opportunities and Strategies for Hong Kong to Become a Global Supply Chain Management Center

• Hong Kong, historically a vital trade hub, faces challenges from the development of cargo ports in Asia, the rise of cross-border e-commerce, and disruptions caused by the COVID-19 pandemic and geopolitical tensions. Increasing number of companies are adopting strategies like “China+N” to diversify production networks and mitigate risks. As China and neighboring nations drive industrial development in Asia, Tang explains that Hong Kong must redefine its strategic position and focus on becoming a gateway between China and emerging economies, identify segments where it has a competitive advantage in regional supply chains, and adapt to geopolitical tensions by capitalizing on new globalization trends.

Efficient coordination between different parties along the supply chain is crucial that optimal supply chains should be agile, adaptive, and aligned with incentives of partners. Hong Kong can leverage its financial strength to support new economic activities and serve as a hub for Chinese enterprises expanding into foreign markets. By embracing these changes, Hong Kong can maintain its relevance as an international commercial and supply chain management center.

Artificial Intelligence and the Future of Hong Kong

• In this article, we explore three key dimensions linked to AI, namely Hong Kong’s competitiveness, the labour market, and safety considerations. First, to maintain Hong Kong’s competitiveness globally, it is important for all sectors to embrace AI. In the midst of fierce competition from regional rivals and the US-China technology war, Hong Kong needs to forge a distinctive strategy, and build our own strengths in both basic research and real-world applications. Second, we observe that the current AI wave is likely to impact high-skilled, high-income jobs. AI will also profoundly impact global and local labour markets, replacing and creating many jobs in a complex interplay. Third, AI can pose certain safety issues to society, such as in cases of missteps, hacking, viruses, software bugs, bias and discrimination. Governments must therefore educate the public about the power and risks of AI, and devise regulations and guidelines on the responsibilities and ethical considerations of AI.
• To prepare for the AI era, Hong Kong could consider five major policy recommendations: 1) Promote AI education at all levels; 2) Help organizations get on board with AI by providing training workshops and funding; 3) Support frontier AI research and development across universities and startups; 4)Attract non-local investments on AI with incentives and subsidies; 5) Review existing regulations and guidelines on AI.

Transform Climate Risks to Development Opportunities — Implications for Hong Kong’s Economic Development in an Era of Climate Change

• As a coastal city with low-lying terrain, Hong Kong is frequently affected by extreme weather events and has experienced multiple climate disasters in the past decades. Two climate risks are particularly concerning: the occurrence of severe typhoons and rising sea levels. In this regard, we focus on how typhoons and sea level rises would affect public housing and conduct scenario analysis on the potential economic losses under different climate pathways. Our analysis shows that the potential damages caused by sea level rise can be more severe, especially in the long run. Under high carbon-emissions pathway, it is also projected that the asset loss due to sea level rise for the three selected public housing estates would be significantly higher than that caused by typhoons.
• If climate risks are tackled appropriately, they can be transformed into development opportunities. We propose seven major policy recommendations for Hong Kong to better adapt to climate change: 1) Promote data integration, create a geo-coded platform, to comprehensive climate-risk analysis; 2) Conduct adaptative retrofits for old buildings and infrastructures, and consider sea level rise for new buildings locations; 3) Target vulnerable groups; 4) Improve the climate disaster prediction, warning and response system; 5) Develop the climate catastrophe insurance and reinsurance market; 6) Support early-stage climate-tech companies and application of climate-adaptation technologies; 7) Pay attention to transition risks towards net-zero future.