The Unlikely Winner in Hong Kong's Crisis: Singapore
WHY YOU SHOULD CARE
As unrest in Hong Kong escalated over the summer, the Asian business world looked to Singapore.
By Stefania Palma and George Hammond
Hong Kong has weathered more than three months of clashes between anti-government protesters and the police spiraling into the city’s biggest crisis in decades. Some have been quick to presume that business would move to Singapore, one of Asia’s other top financial centers, if tensions in Hong Kong escalate further. But to what extent could the city-state truly replace Hong Kong?
Singapore’s American Chamber of Commerce said recently that 22 percent of companies with operations in Hong Kong were considering moving capital out of the territory and 5 percent had plans to do so, according to a survey it conducted last month. Only 1 percent planned to move business functions, but 23 percent were considering that option. When asked what the destination of choice would be, more than 90 percent picked Singapore.
Singapore’s authorities have made a point of highlighting that instability in the territory could harm the city-state too. And no major Hong Kong institution has yet risked Beijing’s ire by shifting operations to Singapore. But a steady series of more incremental moves are being made.
International recruiters say an increasing number of candidates are expressing a preference for Singapore over Hong Kong. Kathryn Weaver, a partner at Lewis Silkin, an employment and immigration-focused law firm, says that candidates had concerns about their physical safety and favored Singapore for its economic stability and long-term prospects.
Everyone has a business continuity plan around a typhoon scenario. Now you have to consider, ‘What if tear gas gets into an office?’
Neal Beatty, Control Risks
One client of Weaver’s, a technology company, had been set on opening an Asia-Pacific headquarters in Hong Kong but shifted to Singapore as a result of the political uncertainty. Foreign workers in Singapore require a visa, meaning any large-scale relocation would pose a logistical challenge. Behind the scenes, financial services companies are building such considerations into their business continuity plans, many of which have been reconfigured as a result of the Hong Kong unrest.
“Everyone has a business continuity plan around a typhoon scenario. Now you have to consider ‘what if tear gas gets into an office?’ ” says Neal Beatty, a partner at risk consultancy firm Control Risks.
Political stability is something Singapore guarantees, given its carefully controlled and quasi-authoritarian political system. The city-state has been ruled by the same party for six decades and has had just three prime ministers. It also remains one of the most business-friendly countries worldwide, historically beating Hong Kong in the World Bank’s Ease of Doing Business Index. In the 2019 results, Singapore took second place while Hong Kong came fourth.
At 17 percent and 16.5 percent, respectively, Singapore and Hong Kong offer similarly attractive headline corporate tax rates, which are lower than the global average of 24 percent. Singapore’s efforts to attract multinational corporations include tax breaks for five years — which can be extended — and research and development grants that can cover up to 30 percent of the cost of projects that involve product, application or process development.
A recent big win came when Dyson decided to relocate its headquarters from the U.K. to Singapore — a catch described by analysts as a “blockbuster.”
But for all of Singapore’s attractiveness, Hong Kong’s economic and financial ties to the world’s second-largest economy would be difficult to replicate. If Singapore is seen by business and finance as the gateway to Southeast Asia, Hong Kong is the equivalent for mainland China. The territory’s link to the Chinese market lured the University of Chicago Booth School of Business to move the Asia component of its executive MBA program from Singapore to Hong Kong, in what was seen as a blow to the city-state, which had hosted the program for 13 years.
Aided by its closeness to Beijing under the “one country, two systems” framework, Hong Kong has built unique corridors to the once impenetrable Chinese onshore financial markets. International funds can invest directly in China’s domestic stock and bond markets via Hong Kong, which also remains a top hub for the offshore and onshore renminbi.
Three-quarters of all offshore renminbi payment flows go through the territory, while about a quarter of all foreign exchange transactions in renminbi are executed in Hong Kong, according to Swift. By comparison, Singapore accounts for just 3.48 percent and 5.54 percent of those flows, respectively.
Another Hong Kong feature that would be hard for Singapore to replicate is deep capital markets. At $665 billion, the equity capitalization of Singapore’s stock market pales alongside Hong Kong’s near $4 trillion.
Singapore has made efforts to change this, such as introducing new rules allowing groups to list with dual-class shares and offering a $55 million grant to help young businesses cover the costs of listing. But despite this, it has seen the total number of companies listed on its exchange decline by 28 in the five years to June.
Consequently, although Singapore is making incremental gains from Hong Kong’s woes, it still has plenty more work to do before it can fully dominate its business hub rival.
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