Date
19 November 2017
Lee Kuan Yew has turned Singapore (upper photo) into a regional financial center rivaling Hong Kong (lower photo). Photos: HKEJ, Bloomberg
Lee Kuan Yew has turned Singapore (upper photo) into a regional financial center rivaling Hong Kong (lower photo). Photos: HKEJ, Bloomberg

Will HK-Singapore rivalry intensify in post-Lee Kuan Yew era?

In early February, Singaporean netizens reacted with great intensity at the news that elder statesman, and father of the nation, Lee Kuan Yew had come down with pneumonia and was receiving life support from a ventilator, a situation that has persisted into March.

An avowed agnostic, Lee led the People’s Action Party and Singapore through its tumultuous beginnings, not only ensuring its survival but also bringing the city state from Third World conditions to First World prosperity while maintaining social stability.

Singapore is a frequent contender for safest city (#2 versus #11 for Hong Kong, based on Economist’s Safe Index 2015), least corrupt state in the world (#7 versus #17 for Hong Kong, according to Transparency International, 2014) and the easiest place to do business (#1 versus #3 for Hong Kong, according to the World Bank), but a lesser known aspect of the city state is how Singaporeans are cared for, with plentiful subsidized housing (guaranteed wire-mesh-free!), education and healthcare.

While Singapore is more expensive to live in than Hong Kong (according to the majority of a number of conflicting reports), its tax levels are more graduated according to income (at 20 percent for those earning above S$320,000 or US$232,000), and corporate taxes are more fine-tuned to attract international finance, and of course there is also the undeniable fact that the nominal per capita income is substantially higher to pay those expenses and taxes (at US$55,000 compared to US$38,000 in Hong Kong, according to the International Monetary Fund and the World Bank).

Despite such accomplishments, Lee remains a deeply controversial figure, as the stability Singapore has enjoyed has often come at the expense of quashing dissent in what might be termed a mild version of a constitutionalist, non-racialist fascist state. The government places great emphasis on such factors as national community, corporatism and state-run socialism.

Laws protect the use of a broad array of minority languages and mandate an even racial mixture in local precincts, and while no minimum wage exists in this hyper-competitive environment there are numerous job programs and subsidies.

Yet now it seems all but certain that Singaporeans and the world community must soon bid goodbye to this man. Hero or villain, through his leadership of the PAP from 1959 to 1990 and his subsequent mentoring, Lee Kuan Yew positioned Singapore’s new generation of leaders to deftly outcompete Hong Kong after his retirement.

As the new decade ticks by, it has become increasingly apparent that Singapore has dethroned Hong Kong as the financial center of Asia, and now holds a majority of powerful advantages in the continued competition as the premier financial center in Asia.

How did this come to pass? In the ’70s and ’80s, Hong Kong was the clear leader of the four Asian tigers, a truly global city, while Singapore was the financial center of Southeast Asia. Yet as the nineties and oughts rolled by, Singapore largely kept its pace up rather than slowing down.

It would be unfair to denigrate the Hong Kong government’s continued focus on infrastructure links and the limited supply of land, yet urban revitalization has been painfully slow for a city that prides itself on efficiency.

Numerous factories remain shuttered and out of use, and Kai Tak remains a prominent scar of dirt from a bird’s-eye view on Google Earth; even developable areas outside green zones remain underutilized. A cynical enthusiast might be tempted to note government dependence on land sales and the weight of major property developers in the functional constituencies.

In contrast, the government and developers in Singapore have forged ahead with its Marina Bay Sands resort, so oft mentioned in the international press (even garnering a National Geographic documentary). Whence comest thou, West Kowloon Cultural District? I can hear the crickets chirp. And it’s not just culture or housing naturally. Innovative new economic sectors are typically low on cash. Startups might tolerate the rent in Los Angeles, but Hong Kong is an entirely different, and frequently unpredictable, animal.

In the financial markets, Hong Kong retains a crucial advantage in being the gateway to China. As such, it is often easier to raise capital in Hong Kong from or to China, especially with the recent lifting of the renminbi conversion cap.

Singapore, on the other hand, is more connected regionally and internationally, edging out Hong Kong as a treasury and banking center with the exception of the Chinese market. However, while Hong Kong is an excellent financial center for dealing with China, many companies find it causes an overly strong focus on the market, unless a dominantly Chinese focus was their original intent.

Waxing on the topic of Singaporean advantages, on the legislative front the city boasts 50 double tax agreements over the comparatively paltry 10 Hong Kong has arranged so far, though Hong Kong’s agreement with China is more favorable.

The corporate tax stands at 17 percent over 16.5 percent in Hong Kong, though this is balanced by a 10 percent corporation tax on treasury centers for funds from regional and international centers. In Hong Kong, offshore taxes can be avoided entirely, though some ambiguity exists as to what the government considers offshore.

Unfortunately for Hong Kong, its advantages are being slowly eroded and its disadvantages are magnifying, and while Shanghai was set back by the recent lifting of the RMB conversion cap in Hong Kong, it and other Chinese cities are gradually becoming more international and eating into Hong Kong’s market share as China’s gateway to the world. China, meanwhile, continues to contemplate the eventual move to a free-floating yuan.

Shanghai is liberalizing quickly, and while its quality as a financial center still remains somewhat immature, it will no doubt contend in a far more effective environment and provide a wider array of world-class services in just 10 years, let alone 20.

Hong Kong, meanwhile, will continue to effectively reform its legal framework to better attract international finance, yet as its ties with the mainland continue to deepen, its economic and demographic frameworks are slowly evolving into that of a more Chinese and Asian rather than an international city, as evidenced by the improving standards of Mandarin and decline of English.

And of course the world does not stand still. Whether Singapore chooses to reform its society towards a more western model or remain a competitive version of neo-authoritarianism, it is not a dangerous bet to assume the city will be better able to contain or harness the impulses of the younger generation.

Reforms are likely to accelerate in Singapore as PAP members and voters are unburdened of past legacies. No such luck for Hong Kong, where an otherwise financially effective government remains slow and unimaginative at solving the issues of its citizens and is more concerned with fighting them on electoral reform than challenging entrenched interests, and where myopic land development tycoons raise rents to the point that some have nothing to lose.

– Contact us at [email protected]

CG

A Hong Kong-based writer from Norway

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