Government invests in new AI research institute

Hong Kong’s government has earmarked 1 billion Hong Kong dollars ($128.67 million) for the establishment of an artificial intelligence research institute.

Called the Hong Kong AI Research and Development Institute, the facility will “spearhead and support Hong Kong’s innovative R&D as well as industrial application of AI,” the city’s Financial Secretary Paul Chan said in his budget speech Wednesday.

Gary Ng, senior economist at Natixis, sees Hong Kong’s investment in innovation and AI as a positive move.

“Hong Kong hasn’t been so good in terms of innovation … like, how to actually create a new product. But … the AI industry is evolving in quite a quick pace. So for the case of Hong Kong, if it is able to adapt to this new environment, trying to use AI more, including what we see within the government, I think that is definitely a positive signal,” he told CNBC’s “Street Signs Asia” on Wednesday.

Tech stocks rallied on the back of the announcement, with the Hang Seng Tech Index gaining as much as 4.49%.

Among the top gainers in the session were food delivery company Meituan (up 9.21%) and e-commerce platform JD.com (8.26%).

Meanwhile, the Hang Seng Index gained as much as 3.19%.

Chan attributed improved sentiment in asset markets this year in part to Central Government measures to support Hong Kong’s capital market, and the U.S. rate cut cycle.

“The stock market saw increases in both prices and turnover volume,” he said, adding that the Hang Seng Index rose 18% for the year, while the average daily turnover increased by 26%. Funds raised by new listings increased to HK$88 billion, he added.

Chan expects Hong Kong’s economy to grow at an average rate of 2.9% a year in real terms from 2026 to 2029, and the underlying inflation rate to be 2.5% a year, on average.

But Natixis’ Ng says that economic growth forecast is “too optimistic.”

“In the short run, we still see this uncertainty in the global interest rate environment. There are actually still a lot of geopolitical tensions that can actually affect our Hong Kong trade flows,” he said. Other concerns he outlined include more trade restrictions from the United States and potentially other countries.

Ng estimates that the Hong Kong economy will grow at 2% this year and over the long term.

Hong Kong aims to cut public recurrent expenditure by 7% from now till 2027/28 to tackle its rising deficit.

“It gives us a clear pathway towards the goal of restoring fiscal balance in the operating account, in a planned and progressive manner,” Chan said in his speech.

That comes as the Asian financial hub saw a steep decline in government revenue from land sales in the past financial year. Land sales have been a key source of income for the government and contributed to over 20% of coffers, a figure has now plunged to about 5%, Reuters reported.

Natixis’ Ng expects the government to focus strongly on fiscal consolidation by restricting expenses and moderately increasing revenue.

“That will be a direction that we will continue to see, probably in the next few years, because Hong Kong’s fiscal deficit problem is increasingly structural,” he added.