The 2025-26 Budget announced by the Financial Secretary yesterday included various measures to consolidate and strengthen Hong Kong’s status as an international financial centre, and promote economic development. Such measures are highly relevant to our work at the Hong Kong Monetary Authority (HKMA), and I would like to share my thoughts on two subjects in particular.
Bond issuance
As set out in the Budget, to ensure that strategic infrastructure projects such as the Northern Metropolis can proceed on schedule, the Government will leverage market resources more flexibly, including raising funds by issuing additional bonds. In the coming five years, the Government will issue about HK$150-195 billion worth of bonds each year under the Government Sustainable Bond Programme and the Infrastructure Bond Programme. Early implementation of strategic infrastructure projects supports economic transformation and development. Debt financing is one of the ways to fund such projects. It is a long-term investment and a common approach adopted in other jurisdictions.
The HKMA is the execution agent of the Government’s bond programmes. We have been assisting the Government in the regular issuance of various types of bonds, engaging closely with bond investors and other market players. Our interactions with market participants suggest that Hong Kong’s government debt level – with a debt-to-GDP ratio expected to range around 12%-16.5% in the next five years – is generally considered relatively low and manageable. Besides issuance size, market participants tend to focus more on the use of bond proceeds and the Government’s overall fiscal situation. In this regard, the Financial Secretary has emphasised that the proceeds from bond issuance will be used to invest in infrastructure, but not to fund government recurrent expenditure. The Budget also included a reinforced fiscal consolidation programme, with stepped-up efforts to contain government operating expenditure and increase revenue. These measures help bolster market confidence. HKSAR Government bonds are regarded as a high-quality debt instrument by a wide spectrum of investors. In the 2024-25 fiscal year, the Government’s institutional bonds registered subscription amounts of around 3 to 7 times the issuance amounts. We believe an increase in Government bond issuance will be positively received by the market.
In the past few years, the Government mainly issued bonds with shorter maturities. While this was in response to market conditions and the public’s preference in the case of retail bonds, it has created a need for refinancing – as mentioned in the Budget, approximately 56% of the bonds issued by the Government over the next five years will be used to refinance maturing short-term debt, while new funds to meet infrastructure funding needs will account for 44%. There is a case for aligning bond tenors more closely with the longer time horizon of infrastructure projects. Therefore, as we implement the Government’s bond issuance programme, we will actively explore the issuance of more longer tenor bonds, having regard to market conditions, demand, cost, and other factors. This will also provide additional investment options for long-term investors such as insurance companies and pension funds.
Besides financing infrastructure projects, the Government’s bond issuance also plays a unique pioneering role that contributes to the diversified, long-term development of our bond market. Since the launch of the Government Green Bond Programme1 in 2018, we have been committed to creating a demonstration effect for the market. So far, the HKMA has assisted the Government in issuing approximately HK$220 billion worth of green bonds, boosting the growth of Hong Kong's sustainable finance ecosystem. In addition, the Government has issued two batches of tokenised bonds over the past two years, demonstrating Hong Kong’s flexible and supportive environment for fintech adoption, while providing useful reference for the private sector. Having consolidated the various bond programmes, the Government also launched a new Hong Kong dollar and RMB bond tendering arrangement last October. The arrangement enables regular issuance of bonds to build the Government’s Hong Kong dollar and RMB yield curves, providing the market with important reference benchmarks.
Looking ahead, in implementing the bond issuance programmes, we will continue to engage proactively with market participants, strengthen market outreach, and deepen dialogue with global investors to enhance their understanding of the Government’s fiscal position, bond issuance programmes, and the overall development of Hong Kong.
Supply Chain Financing
Global trade and corporate supply chains have undergone significant changes in the last few years as a result of factors such as COVID, geopolitical tensions and economic development and transformation across different regions. The impact on Hong Kong, in terms of both challenges and opportunities, deserves our close attention. The Financial Secretary proposed in last year's Budget to develop Hong Kong into a multinational supply chain management centre. Various Government agencies have also introduced measures to bolster development on this front.
Supply chain operations don’t just involve flow of goods; flow of funds is also essential. Numerous financial activities are involved, such as payments, financing, and foreign exchange management. All these involve financial institutions and create significant business opportunities for them. As of the end of last year, outstanding trade finance loans provided by Hong Kong banks reached HK$380 billion, of which about 40% were related to offshore merchandising trade, reflecting the extensive reach of Hong Kong’s banking industry.
The HKMA works closely with the banking industry and relevant stakeholders to enhance the contribution of financial services to the competitiveness of Hong Kong’s real economy. For example, we have been promoting technological innovation to improve efficiency. More recently, the HKMA and the People's Bank of China collaborated to introduce an offshore RMB trade financing liquidity facility. Another key area of focus is corporate treasury business, i.e. centralised management of funds held by related entities within a group to ensure those funds can be efficiently deployed. Close to a decade ago, the HKMA worked with Government to introduce tax concessions for corporates establishing treasury centers in Hong Kong. We have since been actively engaging with corporates to promote the business.
The HKMA established a working group in the middle of last year, comprising representatives from banks and corporates to study how to enhance the competitiveness of Hong Kong's financial industry, and support the new supply chain configuration. The working group has completed the first phase of its work and drawn up the following preliminary recommendations:
- Embrace digital trade
Digitalisation and standardisation can make supply chains more efficient, productive and resilient. However, there have been numerous challenges on this front. For example, laws in many economies (including Hong Kong) have yet to grant digital trade documents the same legal status as their physical counterparts, making them difficult to use. We welcome the Financial Secretary’s announcement yesterday that work will begin on reviewing these laws, with the goal of introducing the proposed amendments to the Legislative Council within 2026.
The HKMA is driving financial technology innovation in parallel, such as exploring how to tokenise trade-related documentation (e.g. electronic bills of lading) through our Project Ensemble, streamlining manual processes and mitigating fraud risk. Our Commercial Data Interchange, launched in 2022, has helped banks to process over 42,000 loan applications and reviews, involving an estimated sum of over HK$35 billion of approved credit. Looking ahead, we will continue to explore innovative technologies and their applications in this field.
- Explore opportunities from green supply chain
Greening of the supply chain is another noteworthy trend. The integration of sustainability considerations into various stages of operations brings many benefits to corporates: enhancing efficiency, controlling costs, better managing climate risk, and enhancing companies’ reputations which helps attract both investors and consumers.
Successful transition to sustainability improves local corporates’ chances of securing a more important position in their customers’ supply chains. Some small and medium enterprises (SMEs) may require guidance and support. In this regard, the Green and Sustainable Finance Cross-Agency Steering Group (which HKMA participates in) introduced a sustainability reporting template and emissions calculation tools that SMEs can use for free, to encourage them to assess and disclose their carbon footprint, and take timely actions to reduce emissions.
- Encourage corporates to set up treasury centres in Hong Kong
Changes in the supply chain landscape and Mainland markets in recent years have prompted many Mainland corporates to set up production lines abroad and actively explore overseas markets. Hong Kong has been actively positioning itself as the go-to location for regional or international headquarters, as well as corporate treasury centres. The HKMA will support the promotional efforts of relevant Government agencies, and actively engage with corporates, banks, and other stakeholders to understand what policy support they need.
- Enhance the banking industry's regional business capabilities to meet customers’ development needs
As more corporates set up production lines in Southeast Asia and other regions, Hong Kong's banking industry will need to enhance its understanding of those markets in order to continue serving their clients in the new supply chain landscape. The HKMA will explore how to incorporate the development of “regional knowledge” and “regional networks” into our soft power initiatives. Meanwhile, the Hong Kong Association of Banks will establish a working group to study issues related to expansion into emerging markets, reflecting the importance that the industry places on this issue. We will work with the industry to develop concrete plans.
In the next phase, the HKMA will actively collaborate with Government and the industry to implement these measures. We welcome suggestions on what more we can do to enhance Hong Kong’s competitiveness, and look forward to working with stakeholders on this endeavour.
Conclusion
This year’s Budget highlighted the need for transformation, innovation, and continuous self-improvement. In addition to the two key areas discussed above, the HKMA will continue our efforts to develop other areas of the financial markets, further capitalise on Hong Kong's strengths as an international financial centre, and boost Hong Kong's overall competitiveness.
Eddie Yue
Chief Executive
Hong Kong Monetary Authority
27 February 2025
1 Currently known as the Government Sustainable Bond Programme.
