Confucius, in his Analects, emphasized the importance of balance, saying that “Excess and deficiency are equally flawed. The superior man takes the middle path.” This reflects the Confucian idea of the “Doctrine of the Mean”, which emphasizes balance and harmony in life. “Balance” a key idea in Hong Kong’s 2025-26 Budget.

On Wednesday, Financial Secretary Paul Chan Mo-po delivered the budget for the 2025-26 fiscal year. If the main goal of the 2023-24 Budget was to boost recovery momentum in the aftermath of the COVID-19 pandemic, and if the 2024-25 Budget aimed to spur growth, the 2025-26 Budget aims to regulate public expenditure and increase revenue while propelling growth.

Chan proposed a “reinforced version” of the fiscal consolidation program, including a cumulative reduction of government recurrent expenditure by 7 percent from now through 2027-28.  

The Hong Kong Special Administrative Region government is facing its third consecutive year of deficits, having registered a fiscal deficit of HK$87.2 billion ($11.2 billion) for 2024-25 and its fiscal reserves having declined 12 percent to HK$647.3 billion for fiscal year 2024-25, putting the government under great pressure to improve the city’s public finances.

READ MORE: Budget prioritizes reform, innovation and sustainable growth

Indeed, the HKSAR government doubled down on its fiscal consolidation strategy in the new budget. The fiscal consolidation strategy aims at improving public services while vigorously regulating public expenditure, as well as increasing revenue in a moderate manner under the “user pays” principle. It also seeks to mobilize all other public and market resources to propel growth.

While some of the measures will not please everyone, such as the fact that civil servants’ pay will be frozen and 10,000 positions will be cut, other measures are aimed at spurring growth, such as the announcement that a new batch of 10 strategic companies that is due to be revealed next month will operate in the city, bringing in HK$50 billion of investment, as well as the city sponsoring new mega-events such as the World Tourism Cities Federation’s 2025 WTCF Fragrant Hills Tourism Summit in April.

The 2025-26 Budget speech is a step in the right direction.

It is imperative for Hong Kong to double down on fiscal consolidation. This is why the 2025-26 Budget included multiple measures aimed at not only upholding fiscal prudence but also propelling growth.

In this sense, Hong Kong does well to double down on its traditional strengths, such as finance, logistics, and professional services, by embracing technological innovation and ensuring regulatory clarity. This is one of the major focuses of Financial Secretary Paul Chan Mo-po’s 2025-26 Budget speech. The financial sector can cement its position as a global financial hub by expanding into areas like sustainable finance, wealth management, and digital asset platforms, leveraging the support measures announced by Chan to ensure its offerings remain cutting-edge professional services, particularly legal and arbitration expertise, capitalizing on Hong Kong’s status as a gateway between East and West, and adapting to the needs of emerging markets.

To remain competitive, initiatives proposed in the 2025-26 Budget that seek to foster entrepreneurship and attract top global talent are essential. Related to this, one of the areas where Chief Executive John Lee Ka-chiu also put his focus on when delivering his 2024 Policy Address a few months ago was that of attracting talent to Hong Kong as well as retaining it. Attracting and retaining talent is indeed a very important way to grow.

READ MORE: Forward-looking budget strategies to unleash HK’s potential

Hong Kong should also double down on innovation, since the future is about innovation. This is another focus of the 2025-26 Budget plan, which proposes a slew of initiatives to promote the development of innovation and technology, including the research and development of artificial intelligence (AI) and its broad applications. Hong Kong is not only a financial hub but also an innovation hub, as was demonstrated by the Global Innovation Index (GII) 2024, published on Sept 26, by the World Intellectual Property Organization, where Hong Kong ranks 18th among the 133 economies featured in the GII 2024, in a similar position to last year, although the truth is that Hong Kong can still rank higher, especially given its place in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) and its proximity to an innovation hub like Shenzhen. While Hong Kong can continue to leverage its Web3 industry, the HKSAR can also benefit enormously from the Chinese mainland’s strong AI industry, especially among its sister cities in the Greater Bay Area, and Hong Kong is expected to contribute to the nation’s AI development with its pool of top talent and renowned financial services in the geopolitical landscape. Hong Kong’s AI market is projected to expand to $770 million this year and to $3.43 billion by 2030 at an annual growth rate of 28.27 percent. The city’s commitment to innovation is helping to make it an AI powerhouse.

While Hong Kong undoubtedly faces challenges in 2025, the city will remain one of the most important financial centers in the world, and offers many opportunities to companies and individuals, both local and from all over the world.

The measures introduced in the 2025-26 Budget seem logical and seem to be a step in the right direction. While external circumstances may be complicated, Hong Kong has all the elements needed to weather the storm and keep growing while enhancing its role.

The author is a fintech adviser, a researcher, and a former business analyst for a Hong Kong publicly listed company.

The views do not necessarily reflect those of China Daily.