Hong Kong and Singapore: Uncertain Future

Built on colonial imperialism, their reason for existence may be threatened

Singapore is, naturally, expecting some benefit from Hong Kong’s struggle to maintain its independence from China, which seems destined to continue for a while longer. Some businesses, some money, will decamp southward, the amount depending less on Singapore’s pull than what happens to faith in Hong Kong as a separate jurisdiction free of Beijing’s threats to its autonomy and non-Communist freedoms as well as free of anti-government demonstrations.

But those with a longer view of the past can also see that Singapore and Hong Kong are, despite their differences, joined at the hip. If one cannot survive, it is unlikely that the other can too for very long – maybe a generation, two with luck. The reason is simple: Both were products of their time created by 19th-Century British mercantile imperialism at the time of industrialization, and later nourished by the US-led globalization trend of the past 70 years.

Both cities grew astonishingly in the 19th century as free ports established by the British to extend their commercial reach and attract trade from all around the region – tin, rubber etc in one case, tea and opium and manufactures in the other.

Both thrived spectacularly in the decades after 1950 on a combination of growing world trade and increasing freedom of movement of capital with the relative strategic weakness of their bigger neighbors, China on the one hand, Malaysia and Indonesia on the other.

For 30 years Mao’s China looked inward, and for the next 30 focused on economic development requiring engagement with world trade. Post the 1965 split between Singapore and Malaysia and the 1966 end of Indonesia’s Konfrontasi with Malaysia, both nations focused on a mix of domestic politics, nation building and economic development within the same international framework.

Over time the two cities diverged somewhat. In Singapore the government interfered much more in social and economic affairs. Manufacturing has been encouraged and is more important than in Hong Kong. Its population grew faster due to immigration and while Hong Kong became more Chinese and less foreign, Singapore maintained its ethnic mix, with around 30 percent of its citizens non-Chinese. It was also able to foster a Singapore identity through its education and armed forces without seriously offending its neighbors – after all, it was Malaysia that had demanded the 1965 separation.

Hong Kong could not do likewise without annoying Beijing so that even in the early days of optimism following the 1997 handover there were limits to its ability to focus on its separateness under the One Country Two Systems formula, let alone underwrite its separate status with an army.

Now that formula itself has come under intense strain. From almost total focus on economic development, Beijing has shifted towards nationalism and centralization of power, leaning on the Hong Kong government to speed up integration with the mainland. This in turn has engendered the reaction which began with the Umbrella movement in 2014 and emerged even more dramatically over the past eight months. These events have to some extent undermined Hong Kong’s reputation for being quiet and apolitical but offering free flow of information and money with a judiciary politically independent of government – the latter lacking in Singapore.

This has coincided with – or been part of – a broader check to globalization, whether conceived simply as commercial and financial exchange or in movement of people. US President Donald Trump’s attack on free trade and on China in particular has undermined the belief that the US and its western European and Japanese allies underpinned the open market system. Brexit is another outcome of this shift. Meanwhile China has emphasized its need to support key advanced industries so that it doesn’t rely on other nations’ technology.

How far this goes has yet to be seen. But Singapore itself has been suffering from changes in trade and the likelihood that trade growth may continue to lag GDP growth at a time when the changing demographics are slowing the other for the foreseeable future.

Singapore and Hong Kong are small enough to offset demographics via immigration – but the political cost may be too high for their governments.

Singapore has an advantage in that its immediate neighbors have better demographics and its cultivation of links with India, particularly its southern states Tamil Nadu, Karnataka, Kerala and Andhra, may well surpass Hong Kong’s current China benefit. In the short term, Beijing may want to cut Hong Kong down to size, punishment for its sense of separatism and defiance. The bosses in Beijing can hand favors to Shenzhen or Guangzhou or Shanghai.

Thus the squeeze of globalisation will go hand in hand with China’s inward-looking nationalism. That would be nothing new. In 2,000 years of history, foreign trade has seldom been more than a marginal issue for China. And so it was under Mao and will sooner or later be the same if Xi has his way and China establishes its own standards in key high-tech industries. If so, the relative importance of port cities – let alone such projects as the Belt and Road – will be diminished. Significantly, China’s capital whether Beijing or Xian, Nanjing or Luoyang.

Singapore faces fewer such problems because its region has always been maritime-centric, the islands and coasts of the peninsula and archipelago. Yet they have always to a high degree have been, thanks to geography, reliant on international trade. That in turn has waxed and waned according to global and regional conditions, most thriving when empires created peace and prosperity across whole regions.

It is also noteworthy that primacy among these states and cities has always been in flux. Singapore’s lead is relatively recent. Other past leaders have been Melaka, Palembang, Aceh and Kedah, with lesser ones such as Patani and Kedah playing important roles. Then there are also the various ports on the north Java coast from Banten to Surabaya via Jakarta, Semarang, Demak and Tuban.

That brings us to the issue of Singapore’s situation in a Malay sea – an increasingly Malay sea due to relative rates of Malay fertility (in its broadest sense) as against Chines populations. Where will it be when the US has retreated from the region as the British did from 1960? How far does China really care about a South China Sea if the US challenge has waned, or about the Singapore/Melaka straits if it no longer imports Middle East oil? Will it take an interest in overseas Chinese in the region as their relative numbers, and possibly economic clout, diminish? Or will the Malays of the peninsula seek a Hong Kong-style “handover” of the island removed from the Johor sultanate to establish a British “trading post?”

It should not be forgotten that Lee Kuan Yew promoted joining Malaya only to be pushed out by the Malays and later in life once mused about the possibility of joining Malaysia. That now seems a remote prospect given the evolution of Malay politics and current dominance of Malay racial and religious intolerance in what should be a multi-ethnic and modern state. But Malays themselves may revolt against this backward slide when they compare themselves with their neighbours, not just Singapore.

If not, one can see Singapore being bolstered by the migration of Malaysian Chinese

Will Indonesia seek to exercise some hegemony over the maritime region as the Srivijayan and Majapahit kingdoms once did? Singapore’s dominant port role may diminish if trade becomes more regional than inter-continental, and smaller ports on the Peninsula, Sumatra and Java. Meanwhile it already faces some challenge from neighboring ports and may lose position just as Hong Kong has lost ground to nearby mainland ones.

Like Hong Kong and London too, Singapore may see the end of 40 years of growth of its financial center with the retreat of globalized trading in currencies, derivatives, bonds etc, whether gradual or the outcome of the next global financial crisis – a probability which increases with every additional month of central bank bond market buying.

This may be an unreasonably gloomy scenario. But projecting the future from the past is an important reminder of how these cities share the reasons for their fame and fortune and hence subject to a future beyond their control. That does not imply cataclysm, simply that their time in the sun may be nearer the end than the beginning.