Arbitrary funding cuts could hurt the city’s education hub ambition. What’s needed is a clear framework of what counts as excessive reserves

Financial Secretary Paul Chan Mo-po will unveil Hong Kong’s budget on February 26. Recent indications that funding for Hong Kong’s eight public universities will be adjusted over the next three years have intensified the funding debate ahead of the city’s fiscal reforms.

As the government grapples with a significant deficit, these funding cuts raise critical questions: should public funding priorities shift away from universities with substantial reserves, or does this risk undermining Hong Kong’s ambitions to develop its reputation as a global centre for education and innovation?

The government’s decision to adjust funding allocations, citing concerns over the universities’ substantial financial reserves, reflects a broader effort to tackle fiscal challenges. But this approach could have unintended consequences, particularly as the city faces increased competition as a global knowledge hub. The issue is not merely the size of university reserves but how they relate to expenditures and whether they are being used effectively to achieve long-term strategic goals.

Financial reserves are not merely surplus funds. They are a critical buffer to ensure operational continuity, absorb economic shocks and support sustainable growth. For universities, reserves fund research initiatives, maintain infrastructure and enable long-term planning in an unpredictable financial and geopolitical landscape.

Consequently, judgments concerning reserves must be evaluated within their entirety to ensure the stability of our key institutions and enable them to attain their strategic long-term objectives.

Our universities operate in a highly competitive global environment. They must maintain strong financial foundations to attract top talent, retain world-class scholars and drive innovative advances to remain competitive. Arbitrarily reducing funding could undermine the city’s aspiration to become a leading global education hub.

When evaluating university reserves, we should look at their percentage relative to total expenditures. Reserves must be assessed within the context of how they support our institutions’ financial sustainability.

Universities with relatively high reserves may appear to have excessive resources, but these reserves are often used for long-term investments, infrastructure development or research projects that span multiple years.

Reserve levels vary considerably across universities. For example, the University of Hong Kong holds HK$41.5 billion, which accounts for 29.8 per cent of the total surplus of HK$139.3 billion (US$17.9 billion) among the eight varsities. In contrast, Lingnan University has HK$3.3 billion, equivalent to 2.39 per cent.

Notably, over 87 per cent (or HK$121.7 billion) of the universities’ reserves did not come from government grants. This underscores their success in diversifying and generating income streams and achieving solid returns on investments.

But such returns on investments are not guaranteed, and investment performance is inherently unpredictable, so relying on reserves to cover funding gaps could compromise universities’ long-term financial sustainability. Without clear guidelines on how reserves should relate to expenditures, discussions about whether reserves are excessive become subjective and inconsistent.

The debate surrounding financial reserves is not unique to universities. NGOs encounter similar issues, as reserves are essential for ensuring operational resilience, maintaining services during funding shortfalls, and facilitating long-term planning. Like universities, non-governmental organisations must balance financial prudence with accountability.

The absence of benchmarks in Hong Kong complicates funding decisions. Without guidelines, determining whether reserves are over-accumulated or sufficient for managing macro-environmental risks becomes challenging.

While the government may have valid reasons to adjust university funding amid a fiscal deficit, these decisions should be guided by clearer guidelines that justify appropriate reserve levels and the broader risks faced by each institution.

Clear benchmarks would enhance accountability and give universities a framework for responsibly managing their reserves. Greater transparency, with funding decisions based on objective criteria rather than subjective assessments, would also benefit the public. Also, consistent policies would ensure funding adjustments do not disproportionately affect smaller institutions or undermine the strategic goals of larger ones.

Ultimately, the government’s decision to reduce university funding reflects broader concerns about managing public finances at a time of economic stress and uncertainty. But balancing fiscal discipline with strategic investment through government funding is essential.

Our universities play a crucial role in driving innovation, nurturing talent and fostering economic growth, vital for Hong Kong’s recovery, long-term competitiveness and economic development. Cutting funding without a convincingly structured approach sends the wrong signal about the city’s priorities.

Instead, the government should focus on implementing transparent benchmarks for reserves, encouraging financial accountability and ensuring funding policies align with Hong Kong’s vision of becoming a global leader in education and innovation.

As the financial secretary prepares to announce the new budget, these considerations must remain at the forefront of the discussion. Hong Kong’s universities are more than just financial entities; they are anchors of the city’s future. Any decision to adjust their funding must reflect this reality while balancing the need for fiscal responsibility.