For Hong Kong, 2025 is shaping up to be a watershed year, as the city faces mounting fiscal pressures and grapples with the urgent need to reignite a faltering recovery.
With post-Covid growth stalling, the city’s reliance on foreign investment inflows and structural reforms has never been more critical.
From corporate governance overhauls to fiscal policy recalibrations and government initiatives aimed at restoring Hong Kong’s stature as a global financial and trade hub, the stakes are mounting.
While the Hong Kong government projects a 3.2% average annual GDP growth from 2025 to 2028, private sector analysts remain cautious. Deutsche Bank forecasts a slowdown to 2% growth in 2025, hindered by high interest rates, trade tensions, and weak consumer sentiment, while the government is set to unveil yet another deficit close to HK$100 billion ($12.9 billion) for the financial year ending March 31, 2025. Hong Kong exports are expected to grow 4% in 2025, with electronics driving the growth.
“While global monetary conditions may ease in 2025, the extent of relief for Hong Kong remains uncertain given its tight peg to the US dollar,” warned Hong Kong’s financial secretary Paul Chan. “We need to brace for volatility and focus on prudent fiscal management to sustain growth.”
Fiscal flight or fight
For Natixis chief economist Alicia Garcia Herrero, Hong Kong could just be running out of excuses.
“Covid already ended a long time ago, and Hong Kong is still not recovering,” Garcia Herrero told FinanceAsia. “Maybe a year ago they weren’t as worried, but now they are worried. They need inflows, they need money coming in, and the fiscal situation is becoming critical.”
The government’s fiscal woes are underscored by a sluggish housing market that has failed to stabilise, let alone recover. Revenue from land sales, a key source of government income, remains underwhelming.
“Land sales will need to wait until there’s a stabilisation in prices,” Garcia Herrero explained.
Yet with the US Federal Reserve unlikely to implement significant interest rate cuts in 2025, the low mortgage rates needed to boost demand for housing seem a distant prospect, although property sales climbed 17.1% in 2024 after a sluggish 2023, but prices are far off their peak around six years ago.
“This delay in recovery will have a knock-on effect on fiscal revenues,” she added, pointing to an inevitable need for taxation reforms, including the possibility of a VAT or adjustments to household income taxes.
Geopolitical risks
Geopolitical tensions further cloud the horizon. She said Hong Kong’s biggest risk in 2025 remains the rising US-China trade tensions which threaten to exacerbate the city’s vulnerabilities, especially with the return of the unpredictable Donald Trump, which could also see interest rates remain higher for longer as analysts scramble to assess the impact of proposed tariffs on inflation.
The US has already included Hong Kong in export controls, treating it as part of mainland China for certain regulations.
Garcia Herrero warns of an even bigger potential blow: “If Hong Kong is subjected to the same tariffs as China, particularly on high-end semiconductors, it would be a hammer blow to the economy.”
Such a move could cripple Hong Kong’s vital logistics sector and stymie its role as a re-export hub, which has historically depended on its separation from the mainland in trade policy.
The cumulative effect of these pressures underscores the urgency for decisive action. As Garcia Herrero notes: “Hong Kong’s challenges are real, and solving them requires prioritising the economy over other concerns. The government’s focus needs to shift from managing national security issues to ensuring long-term financial stability.”
Fiscal stimulus in China should also help boost the Special Administrative Region.
HK IPO Outlook
In financial services, Hong Kong continues to position itself as a global hub for green finance, fintech, and offshore Rmv trading. Yet, its IPO market remains underwhelming despite a modest rebound in 2024.
While KPMG’s IPO Outlook for China and Hong Kong suggests 2025 could bring renewed momentum, Garcia Herrero warns that the underlying dynamics remain fragile.
“Recent IPO activity has relied heavily on arbitrage opportunities and mainland capital moving southbound through Stock Connect,” she explained. “There’s limited evidence of substantial foreign investor participation, which underscores the challenges Hong Kong faces in attracting fresh international capital.”
As of December 27, the Hong Kong Stock Exchange ranked fifth globally, raising around HK$85.5 billion (approximately $11 billion) from 64 IPOs, according to LSEG data. However, much of this resurgence in the second half of the year was driven by major Chinese company listings at discounted valuations, designed to encourage mainland participation. Many experts anticipate more listings such as Chinese appliance maker Midea, which raised $4 billion in September 2024, this year.
“Hong Kong remains vulnerable to geopolitical risks, and Chinese authorities are likely to prioritise keeping IPOs onshore to shield companies from potential US sanctions,” added Herrero.
Meanwhile, initiatives such as the expansion of the Mainland-Hong Kong Mutual Recognition of Funds (MRF) aim to reinforce the city’s position as a global asset management hub.
By enabling mainland investors to access international opportunities through Hong Kong-domiciled funds, the scheme has the potential to deepen financial integration under the Greater Bay Area initiative.
“The expansion of the Northbound quota further strengthens Hong Kong’s role as a ‘super connector’ for global capital flows,” said Gopi Mirchandani, Hong Kong CEO and head of strategy, Asia Pacific, at Schroders.
Still, Garcia Herrero cautions that Hong Kong’s reliance on mainland capital and domestic policy measures may limit its ability to position itself as a truly global IPO destination.
“Until Hong Kong can bring in more foreign investors and reduce its dependence on mainland-driven activity, the recovery will remain constrained,” she said.
Good governance key
Governance will be critical to Hong Kong’s ability to navigate its mounting challenges in 2025, providing the foundation for investor confidence, market fairness, and the city’s reputation as a global financial hub.
Last year, the Hong Kong Stock Exchange (HKEX) implemented amendments to the Corporate Governance Code, aimed at improving board effectiveness, independence, diversity, and risk management.
These changes, set to take effect on July 1, 2025, include provisions for gender diversity and limits on the tenure of long-serving independent non-executive directors (INEDs). However, many experts see the reforms as “incremental, not revolutionary,” reflecting a cautious approach to governance improvements.
According to Lake Wang, research head, Greater China at the Asian Corporate Governance Association (ACGA), Hong Kong still lags behind regional peers in adopting best practices.
“While the newly introduced code provisions foster greater diversity on nomination committees, Hong Kong still permits the board chairman to chair the nomination committee,” Wang explained. “This puts Hong Kong behind the curve compared to countries like Australia, Malaysia, and Singapore, where independent chairs are mandated.”
The influence of corporate interests has also diluted key proposals during the consultation process.
Of the 261 responses received, only 15 came from institutional investors, highlighting an imbalance in stakeholder representation. This dynamic has left many reforms open to interpretation and voluntary compliance. Herrero warned that without stronger governance measures and accountability, Hong Kong risks losing its edge as a trusted destination for international investors.
Looking ahead, governance reforms must align more closely with the city’s broader economic priorities.
“To attract the inflows Hong Kong so desperately needs, its governance framework must go beyond compliance,” said Wang.
Whether the city can position itself as a regional leader in governance, he said, will depend on its willingness to implement bold, meaningful reforms that match its ambitions.
Tourism boost
With around 45 million tourists visiting the city in 2024, up from 34.2 million 2023, this momentum, especially from international visitors, should further improve in 2025. The latest tourism government blueprint, unveiled earlier this month, aims to boost the economy by HK$120 billion and create 210,000 jobs over the next five years.
At the end of March, the Hong Kong Sevens is moving to a newly built 50,000 capacity venue in Kai Tak and international band Coldplay is set for four concerts in the same venue in April.
In addition to a series of so called ‘mega-events’, the government will be hoping that 2025 is the year that the city is placed firmly back on the international map, with one example being Cathay Pacific’s low cost airline HK Express named as the world’s fastest growing in 2024 by global travel data provider OAG, with a 40% increase in passenger numbers.
The return of international brands such as Abercrombie & Fitch should also help boost the city's struggling economy.
With additional reporting from Andrew Tjaardstra.
