China View: Hong Kong’s $3 Trillion Bet on the Northern Metropolis
Chi Lok TSANG
Hong Kong has long stood as a vibrant crossroads of diverse cultures and bustling commerce, a rare combination that has nurtured its flourishing prosperity for more than a hundred years. However, since 2020, Hong Kong has been suffering from uncertainty due to the tensions between the government and democrats.
This city’s future remains uncertain as the city struggles to navigate these challenges. The labor force and participation rates for 2023 and 2028 indicate that the young and middle-aged labor force in Hong Kong is decreasing; this decline is accompanied by a significant brain drain following the implementation of the National Security Law. The young generation, unable to afford high property prices, is reducing their working hours to lower their income and apply for public housing, highlighting the challenges faced by the demographic. This situation has resulted in a labor shortage and a sluggish property market in Hong Kong.
Do political and economic freedoms coexist amidst the influx of Chinese funds and businesses in Hong Kong?
This year, Hong Kong ranked first globally in terms of fundraising amounts for initial public offerings (IPOs), surpassing Nasdaq, India, New York, and the Shanghai Stock Exchange. From the perspective of the capital market, the structure of Hong Kong's IPOs is nearly eliminating real estate financing. This pattern indicates a collapse in the Hong Kong government's reliance on income as the industrial structure shifts toward pharmaceutical industries.
The Northern Metropolis is the largest urban planning project in Hong Kong in the past decade, covering one-third of the city's total land area, and it is expected to be completed by 2035.
The purpose of the Northern Metropolis in Hong Kong is to be the urban core area and innovation and technology industry base with the strongest development momentum, adjacent to Shenzhen in Guangdong Province. It features seven ports and is located in the northern part of Hong Kong, where it connects with cities like Shenzhen in Guangdong to form the Guangdong-Hong Kong-Macao Greater Bay Area.
However, the Northern Metropolis also symbolizes the contradiction of industrial transformation. Such an investment has made it impossible for Hong Kong people, who believed that political and economic freedom could be separated; this paradox reflects Hong Kong's determination to adapt to the changing economic landscape.
Should urban planning in the North Metropolis proceed in spite of the financial difficulties facing manufacturers and the government?
While the property market in Hong Kong remains sluggish and stagnant, the number of construction projects has suddenly increased. Despite the purpose of North Metropolis, it promotes the innovation and technology industry and the next big arenas of competition for economic development and job creation. However, many concerns exist regarding this utopian vision. Firstly, Hong Kong continues to expand infrastructure development against the backdrop of a fiscal deficit and declining reserves; the government issues municipal bonds for infrastructure projects.
Secondly, the enactment of the Northern Development Proposal by the Hong Kong government has led to significant engagement from Chinese investors, with approximately 50% of the enterprises being Chinese. According to the intent for the Northern Metropolis, it shows that Chinese enterprises dominated infrastructure and bank financing, which indicates the growing influence and involvement of Chinese businesses in the region.
Will Hong Kong's Northern Metropolis become the second Xiong'an New Area? Hong Kong's Financial Secretary Paul Chan Mo-po stated that the development of the Northern Metropolis will take cues from China's "Xiong'an New Area" in Hebei, which was proposed by General Secretary Xi Jinping in 2017. From 2017 to 2025, the housing prices are rising instead of falling. The Xiong'an New Area's unsuccessful role significantly hinders investment.
The government faces high debt and must align with national policies.
The Hong Kong government primarily uses fiscal reserves to cover fiscal deficits and emergencies, ensuring daily expenditures. Before 2020, the annual fiscal reserves of the Hong Kong government amounted to $150.115 billion after deducting bond issuance income and fund allocations. However, after 2020, they decreased from $118.949 billion to $42 billion in 2025. The decrease in bond issuance income and fund allocations after 2020 was primarily due to the Hong Kong government's increased spending on emergency relief measures and economic stimulus packages.
IMF statistical data shows that Hong Kong's deficit accounts for about 3–4% of GDP, and its fiscal reserves are continuously depleting. Long-term expenditures falling behind revenues highlight the severity of Hong Kong's debt situation. Since 2020, Hong Kong's comprehensive rescue has shown a deficit, with the comprehensive surplus reaching as high as $29.808 billion in 2020–2021, the most severe in history. This data indicates that Hong Kong is facing a long-term structural deficit and a rapid contraction of fiscal space, which will limit the government's ability to invest. In 2024, Hong Kong's fiscal deficit is expected to reach as high as $11.179 billion, and in 2025, it will rise to $20.885 billion. The face of Hong Kong's long-term fiscal deficit, Xia Baolong, the director of the Hong Kong and Macao Affairs Office, and the Hong Kong government are actively cooperating to invest in the Northern Metropolis, with construction costs amounting to HKD 3 trillion.
The Hong Kong government actively cooperates with the mainland Chinese government through the Northern Metropolis. Superficially, it appears to be a metropolitan development plan; behind closed doors, Hong Kong is accelerating its integration with the mainland. Is the Northern Metropolis a sustainable long-term urban planning initiative or a temporary stimulus tool?
Experts point out that Hong Kong's fiscal reserves may only last for about three years, which not only affects international companies' confidence in investing in Hong Kong but also necessitates cuts in social welfare spending. However, the Hong Kong government is still investing over $102.564 billion in infrastructure projects, including HK$850 billion for the "Lantau Tomorrow Vision" project. With the population decline, is there still an urgent need for these housing projects?
As the private market contracts, the Hong Kong government promotes accelerating large-scale infrastructure and public works projects while population outflows occur and fiscal deficits persist. In the short term, Hong Kong still maintains its status as an international financial center. In the long term, the Hong Kong government should postpone infrastructure projects, adjust tax policies, and, in addition, under the slump housing market, invest in emerging industries to create more job opportunities.
